HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
T: +44 (0)20 7991 8888
www.hsbc.com
HSBC Holdings plc
Annual Report and
Accounts 2023
Accounts 2024
HSBC Annual Report and Accounts 2023HSBC Annual Report and Accounts 2023 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
Risk review
136 Our approach to risk
140 Top and emerging risks
145 Our material banking risks
Corporate governance report
239 Biographies of Directors and
senior management
262 Board committees
279 Directors’ remuneration report
Financial statements
318 Independent auditors’ report
329 Financial statements
341 Notes on the financial statements
Additional information
435 Shareholder information
444 Abbreviations
Performance in 2023
Highlights
1
2
4 Who we are
6
8
11 Our strategy
14
20 Board decision making and
Group Chairman’s statement
Group Chief Executive’s review
ESG overview
engagement with stakeholders
(Section 172(1) statement)
24 Remuneration
25
Financial overview
30 Global businesses
37 Risk overview
40
Long-term viability and going
concern statement
Environmental, social and
governance (‘ESG’) review
42 Our approach to ESG
44 Environmental
75 Social
87 Governance
Financial review
100 Financial summary
111 Global businesses and
legal entities
130 Reconciliation of alternative
performance measures
HSBC Holdings plc
Annual Report and
Accounts 2023
Cover image: Opening up a world of opportunity
We connect people, capital and ideas across the world.
By unlocking the true power of our international networks,
we are able to deliver our purpose of opening up a world
of opportunity.
HSBC Holdings plc Annual Report and Accounts 2023
This Strategic Report was approved by the
Board on 21 February 2024.
Mark E Tucker
Group Chairman
A reminder
The currency we report in is US dollars.
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
Constant currency performance
We supplement our IFRS Accounting Standards
figures with non-IFRS Accounting Standards
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.
IFRS 17 ‘Insurance Contracts’
From 1 January 2023, we adopted IFRS 17
‘Insurance Contracts’, which replaced IFRS 4
‘Insurance Contracts’. Comparative data
have been restated. For further details of our
adoption of IFRS 17, see page 100.
None of the websites referred to in this
Annual Report and Accounts 2023 for the year
ended 31 December 2023 (including where a
link is provided), and none of the information
contained on such websites, are incorporated
by reference in this report.
@HSBC
linkedin.com/company/hsbc
facebook.com/HSBC
Performance in 2023
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.
Financial performance
indicators
Our financial performance indicators
demonstrate our continued focus on the
delivery of sustainable returns for our
shareholders and providing a strengthened
platform for growth. They also provide insight
into the performance that has driven the
outcomes of our financial targets.
Read more on our financial performance in 2023
on pages 2 and 27.
For an explanation of performance against our
key Group financial targets, see page 25.
For a reconciliation of our target basis operating
expenses to reported operating expenses, see
page 133.
For our financial targets we define medium term
as three to four years and long term as five to six
years, commencing 1 January 2024.
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 strategy on pages 11 to 13.
Read more on multi-jurisdictional client revenue
on page 111.
Read more on how we set and define our
ESG metrics on page 16.
Read more on our definition of sustainable
finance and investment on page 49.
We no longer report the metric ‘Asia as a
percentage of Group tangible equity’.
Return on average tangible equity
Common equity tier 1 capital ratio
14.8%
(2022: 14.2%)
Dividend per share
$0.61
(2022 dividend per share: $0.32)
14.6%
(2022: 10.0%)
Profit before tax
$30.3bn
(2022: $17.1bn)
Operating expenses
$32.1bn
Target basis operating expenses
up 6% to $31.6bn
(2022: $32.7bn)
Net new invested assets
$84bn
Generated in 2023, of which $47bn
were in Asia.
(2022: $80bn generated, of which
$59bn were in Asia)
Gender diversity
34.1%
Women in senior leadership roles.
(2022: 33.3%)
Wholesale multi-jurisdictional
client revenue
61%
Wholesale client revenue generated by clients
banking with us across multiple markets.
Sustainable finance and investment
$294.4bn
Cumulative total provided and facilitated
since January 2020.
(2022: $210.7bn)
Digitally active Commercial
Banking customers
83%
(2022: 78%)
HSBC Holdings plc Annual Report and Accounts 2023
1
Strategic report
Strategic report
Highlights
Financial performance reflected net interest income growth,
and we continued to make progress against our four strategic pillars.
Financial performance (vs 2022)
– Profit before tax rose by $13.3bn to
$30.3bn, primarily reflecting revenue
growth. This included a favourable year-on-
year impact of $2.5bn relating to the sale
of our retail banking operations in France,
which completed on 1 January 2024, and a
$1.6bn provisional gain recognised on the
acquisition of Silicon Valley Bank UK Limited
(‘SVB UK‘) in 2023. These were partly offset
by the recognition of an impairment charge
in 2023 of $3.0bn relating to the investment
in our associate, Bank of Communications
Co., Limited (‘BoCom’), which followed
the reassessment of our accounting value-
in-use. On a constant currency basis,
profit before tax increased by $13.8bn
to $30.3bn. Profit after tax increased by
$8.3bn to $24.6bn.
– Revenue rose by $15.4bn or 30% to
$66.1bn, including growth in net interest
income (‘NII’) of $5.4bn, with rises in all
of our global businesses due to the higher
interest rate environment. Non-interest
income increased by $10.0bn, reflecting
a rise in trading and fair value income of
$6.4bn, mainly in Global Banking and
Markets. The associated funding costs
reported in NII grew by $6.2bn. The increase
also included the impact of the strategic
transactions referred to above, partly offset
by disposal losses of $1.0bn relating to
repositioning and risk management activities
in our hold-to-collect-and-sell portfolio.
– Net interest margin (‘NIM’) of 1.66%
increased by 24 basis points (‘bps’),
reflecting higher interest rates.
– Expected credit losses and other credit
impairment charges (‘ECL’) were $3.4bn,
a reduction of $0.1bn. The net charge in 2023
primarily comprised stage 3 charges, notably
related to mainland China commercial real
estate sector exposures. It also reflected
continued economic uncertainty, rising interest
rates and inflationary pressures. ECL were
33bps of average gross loans, including a
3bps reduction due to the inclusion of loans
and advances classified as held for sale.
– Operating expenses fell by $0.6bn or
2% to $32.1bn, mainly due to the non-
recurrence of restructuring and other related
costs following the completion of our cost to
achieve programme at the end of 2022. This
more than offset higher technology costs,
inflationary pressures and an increase in
performance-related pay. We also incurred a
higher UK bank levy and a charge relating to
the Federal Deposit Insurance Corporation
(‘FDIC’) special assessment in the US.
Target basis operating expenses rose
by 6%. This is measured on a constant
currency basis, excluding notable items and
the impact of the acquisition of SVB UK and
related investments internationally. It also
excludes the impact of retranslating the prior
year results of hyperinflationary economies
at constant currency.
– Customer lending balances rose by
$15bn on a reported basis, but fell by
$3bn on a constant currency basis.
Growth included a $7.8bn reclassification of
secured loans in France from held for sale,
an addition of $8bn from the acquisition of
SVB UK, and higher mortgage balances in
HSBC UK and Hong Kong. These increases
were more than offset by a reduction in
wholesale term lending, notably in Asia, and
from business divestments in Oman and
New Zealand.
– Customer accounts rose by $41bn
on a reported basis, and $13bn on a
constant currency basis, primarily in
Wealth and Personal Banking, reflecting
growth in Asia, partly offset by reductions in
HSBC UK, reflecting cost of living pressures
and the competitive environment, despite an
increase of $6bn from the acquisition of SVB
UK. There was also a reduction due to the
sale of our business in Oman.
– Common equity tier 1 (‘CET1’) capital
ratio of 14.8% rose by 0.6 percentage
points, as capital generation was partly
offset by dividends and share buy-backs.
– The Board has approved a fourth interim
dividend of $0.31 per share, resulting in a
total for 2023 of $0.61 per share. We also
intend to initiate a share buy-back of up to
$2.0bn, which we expect to complete by our
first quarter 2024 results announcement.
Outlook
– We continue to target a return on
average tangible equity (‘RoTE’) in the
mid-teens for 2024, excluding the impact
of notable items (see page 25 for information
on our RoTE target for 2024). Our guidance
reflects our current outlook for the global
macroeconomic environment, including
customer and financial markets activity.
– Based upon our current forecasts, we
expect banking NII of at least $41bn for
2024. This guidance reflects our current
modelling of a number of market dependent
factors, including market-implied interest
rates (as of mid-February 2024), as well
as customer behaviour and activity levels,
which we would also expect to impact our
non-interest income. We do not reconcile
our forward guidance on banking NII to
reported NII.
– While our outlook for loan growth remains
cautious for the first half of 2024, we
continue to expect year-on-year
customer lending percentage growth
in the mid-single digits over the medium
to long term.
– Given continued uncertainty in the forward
economic outlook, we expect ECL charges
as a percentage of average gross loans
to be around 40bps in 2024 (including
customer lending balances transferred to
held for sale). We continue to expect our
ECL charges to normalise towards a range
of 30bps to 40bps of average loans over the
medium to long term.
– We retain a Group-wide focus on
cost discipline. We are targeting cost
growth of approximately 5% for 2024
compared with 2023, on a target basis.
This target reflects our current business plan
for 2024, and includes an increase in staff
compensation, higher technology spend
and investment for growth and efficiency, in
part mitigated by cost savings from actions
taken during 2023.
– Our cost target basis for 2024 excludes the
impact of the disposal of our retail banking
business in France and the planned disposal
of our banking business in Canada from
the 2023 baseline. Our cost target basis
is measured on a constant currency basis
and excludes notable items and the impact
of retranslating the prior year results of
hyperinflationary economies at constant
currency. We do not reconcile our forward
guidance on target basis costs to reported
operating expenses.
– We intend to continue to manage the
CET1 capital ratio within our medium-
term target range of 14% to 14.5%.
– Our dividend payout ratio target
remains at 50% for 2024, excluding
material notable items and related impacts.
We have announced a further share buy-
back of up to $2.0bn. Further buy-backs
remain subject to appropriate capital levels.
2
HSBC Holdings plc Annual Report and Accounts 2023
Highlights
Strategic transactions
– During 2023, we continued to acquire
businesses that allow us to build scale and
enhance our capabilities. In March, we
acquired SVB UK, and subsequently
launched HSBC Innovation Banking,
which includes SVB UK and new teams in
the US, Hong Kong and Israel, as well as in
Denmark and Sweden, to deliver a globally
connected, specialised banking proposition
to support innovation businesses and
their investors.
– As part of our ambition to be a leading
wealth provider in Asia, we entered into an
agreement to acquire Citi’s retail wealth
management portfolio in mainland
China. This acquisition comprised the
assets under management and deposits,
and the associated wealth customers. We
also announced a partnership with the
fintech Tradeshift to launch a joint
ESG highlights
Transition to net zero
– In January 2024, we published our first net
zero transition plan, which is an important
milestone in our journey to achieving our
net zero ambition – helping our people,
customers, investors and other stakeholders
to understand our long-term vision,
the challenges, uncertainties and
dependencies that exist, the progress
we are making and what we plan to do
in the future. The plan includes details
on our sectoral approach, and on our
implementation plan to embed net zero
across key areas of our organisation.
– Our net zero transition plan provides an
overview of the progress we have made to
date and what we plan to do next, although
we acknowledge there is still much
more to do. It will form the basis of further
work on our journey to net zero over time,
and we expect to review and update
it periodically.
– Following the recent launch of the
Partnership for Carbon Accounting
Financials (‘PCAF’) accounting standard
for capital markets, we have now set
combined on-balance sheet financed
emissions and facilitated emissions
targets for two emissions-intensive
sectors: oil and gas, and power and
utilities, and report the combined progress
for both sectors. We recognise that data,
methodologies and standards for measuring
emissions and for target setting will
continue to evolve.
venture focusing on embedded
finance solutions and financial
services applications.
– We continue to make good progress on
our strategic disposals. The planned sale
of our banking business in Canada received
government approval and is expected to
complete in the first quarter of 2024. We
completed the sale of our retail banking
operations in France on 1 January 2024, as
we reshape the organisation to focus on our
international customer base. In addition, we
announced the planned sale of our retail
business in Mauritius, and also completed
the sale of our operations in Greece, the
merger of HSBC Bank Oman with Sohar
International, and the sale of our New
Zealand retail mortgage loan portfolio.
– While we remain committed to the sale of
our business in Russia, the sale became less
certain. As a result, the business is no longer
classified as held for sale, the previously
recognised loss has been reversed, and
a broadly offsetting charge relating to
recoverability was recognised in the fourth
quarter of 2023.
– We remain committed to consider
the payment of a special dividend of
$0.21 per share as a priority use of the
proceeds from the sale of our banking
business in Canada in the first half of
2024. The remaining proceeds will accrue
into CET1 capital in consideration for organic
growth and investment, and we intend to
use any excess capital to supplement
share buy-backs. Upon completion, the sale
is expected to result in an initial increase
in the CET1 ratio of approximately 1.2
percentage points.
Act responsibly
– We aim to be a top-three bank for customer
satisfaction. In 2023, we were ranked as a
top three bank against our competitors
in 58% of our six key markets across
Wealth and Personal Banking and
Commercial Banking, but we still have
work to do to improve our rank position
against competitors.
– We published guides to help our buyers
and our suppliers better understand
our net zero ambitions. The guides
provide further details to support suppliers
in understanding our sustainability
expectations, as set out in our supplier code
of conduct.
– We continued to raise awareness and
develop our understanding of our salient
human rights issues. In 2023, we
provided practical guidance and
training, where relevant, to our colleagues
across the Group, on how to identify and
manage human rights risk.
– Since 2020, we have provided and
facilitated $294.4bn of sustainable
finance and investment, which was an
increase of $83.7bn in the past year. Of our
sustainable finance and investment progress
to 31 December 2023, $258.3bn related to
green and sustainable activities and $36.1bn
related to social activities.
– Within our own operations, we have
made a 57.3% reduction in our absolute
greenhouse gas emissions from a
2019 baseline.
Build inclusion and resilience
– In 2023, 34.1% of senior leadership
roles were held by women. We have
a target to achieve 35% by 2025, which
we are on track to achieve, although we
recognise that progress in the past year
has not been as fast paced as we would
like. We also continued to work towards
meeting our ethnicity goals.
– We continue to make the banking
experience more accessible in both
physical and digital spaces. We are
working to ensure that our digital channels
are usable by everyone, regardless of ability.
We also expanded our efforts to support
customers with disabilities in our
branch spaces.
HSBC Holdings plc Annual Report and Accounts 2023
3
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
– Maintain leadership in
Digitise
– Deliver seamless
scale markets
– Double-down
on international
connectivity
– Diversify our revenue
– Maintain cost discipline
and reshape our
portfolio
customer experiences
– Ensure resilience and
security
– Embrace disruptive
technologies and
partner with innovators
– Automate and simplify
at scale
Energise
– Inspire leaders to
drive performance
and delivery
– Unlock our edge to
enable success
– Deliver a unique and
exceptional colleague
experience
– Prepare our workforce
for the future
Transition
– Support our customers
– Embed net zero into the
way we operate
– Partner for systemic
change
– Become net zero in
our own operations
and supply chain by
2030, and our financed
emissions by 2050
For further details on progress made in each of our strategic areas, see pages 11 to 13.
Our global reach
Our global businesses serve around 42 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
42m
Customers bank with us
Operations in
We employ approximately
62
221,000
Countries and territories
Full-time equivalent staff
For further details of our customers and approach
to geographical information, see page 110.
4
HSBC Holdings plc Annual Report and Accounts 2023
Who we are
Our global
businesses
We serve our customers through three global businesses.
On pages 30 to 36 we provide
an overview of our performance
in 2023 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 30.
For further details, see page 32.
For further details, see page 34.
Revenue by
global business1
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
41%
35%
24%
1 Calculation is based on revenue of our global businesses excluding Corporate Centre. Corporate Centre had negative
revenue of $199m in 2023.
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.
HSBC Holdings plc Annual Report and Accounts 2023
5
Strategic report Strategic report
Group Chairman’s statement
In 2023, reported profit before tax was
$30.3bn, which was an increase of $13.3bn
compared with 2022. This was due mainly to
higher revenue and a number of notable items.
Our three global businesses delivered good
revenue growth, and we ended the year with
strong capital, funding and liquidity positions.
We remain committed to sharing the benefits
of our improved performance with our
shareholders. The Board approved a fourth
quarterly dividend of $0.31 per share, bringing
the total dividend for 2023 to $0.61 per share.
Furthermore, in 2023 we announced three
share buy-backs worth a total of $7bn and,
today, have announced a further share buy-
back of up to $2bn.
The planned sale of our banking operations
in Canada received final approval from the
Canadian government at the end of last year.
Subject to completion of the transaction,
which is expected in the first quarter of 2024,
the Board will consider a special dividend of
$0.21 per share, to be paid in the first half of
2024, as a priority use of the proceeds.
With this anticipated transaction and the
completion of the sale of our retail banking
business in France last month, our focus
has moved to investing for growth, while
maintaining efficiency. Two examples of
growth opportunities last year were the
agreed acquisition of Citi’s retail wealth
business in mainland China, which will
help accelerate our Wealth strategy, and
the acquisition of SVB UK, following the
difficulties experienced by its US parent entity.
Acquiring SVB UK was opportunistic, but the
deal made excellent strategic sense for HSBC,
and it also helped to protect clients, safeguard
jobs and maintain financial stability.
Technology and sustainability are two of the
trends transforming banking and the world
around us. The opportunities from generative
AI are among the most transformative within
my working life. We are actively exploring a
number of use cases, while also working to
manage the associated risks.
Meanwhile the global climate challenge is
becoming increasingly acute. Our presence
in many of the sectors and markets where
the need to reduce emissions is the greatest
provides us with an opportunity to work with
our clients to help address it. This is set out
in our first net zero transition plan. The Board
discussed and contributed to the net zero
transition plan in depth. We believe that it is
a realistic and ambitious assessment of the
long-term journey ahead, as we continue to
work with our clients on their transitions to
a low-carbon future. It is clear there will be
many uncertainties and dependencies, and
that our approach will need to continue to
evolve with the real world around us.
Mark E Tucker
Group Chairman
Against a challenging global economic and political
backdrop, HSBC’s strategy has delivered improved financial
performance and increased returns for shareholders
The global economy performed better
than expected in 2023, but growth
remained sluggish and the economic
environment was challenging for many
of our customers. Although inflation fell
globally, core inflation levels and interest
rates remained elevated. There was also
significant variability in growth from
market to market and increased volatility
within the banking sector. Our core
purpose of ‘opening up a world of
opportunity’ underlines our focus on
helping our customers and clients to
navigate this complexity and access
growth, wherever it is.
Many of our customers and colleagues are
living through very difficult times. Higher
interest rates have had a significant impact
on businesses and households, and we will
remain conscious of this with interest rates
expected to begin to fall back in 2024. The
wars between Russia and Ukraine, and now
between Israel and Hamas, are absolutely
devastating. Our thoughts are with all those
impacted, including our colleagues in those
parts of the world, and their families and
friends. Their resilience, professionalism and
care for one another during these most testing
of times has been, and is, exceptional.
Progress and performance
Turning to our performance, I want to again
pay tribute to my colleagues. The record
profit performance that we delivered in 2023
was supported by the impact of interest rates
on our strong balance sheet, but it was also
testament to the tireless efforts of our people
around the world. I would like to thank them
sincerely for their hard work, dedication and
commitment to serving our customers.
6
HSBC Holdings plc Annual Report and Accounts 2023
Group Chairman’s statement
” Acquiring SVB UK was
opportunistic, but the
deal made excellent
strategic sense for HSBC,
and it also helped to
protect clients, safeguard
jobs and maintain
financial stability.”
Board operations
Our work on sustainability was one of the
many topics discussed with our shareholders
at our 2023 Annual General Meeting (‘AGM’)
in May. Ahead of that, Noel and I were pleased
to meet with Hong Kong shareholders at
our Informal Shareholders’ Meeting. At both
meetings, we also discussed the resolutions
that were requisitioned by shareholders on
the Group’s strategy and dividend policy.
Shareholders expressed strong support
for the Group’s current strategy by voting
overwhelmingly with the Board and against
these resolutions at the AGM. This enabled the
Board, my colleagues and our shareholders to
focus on our shared objectives of serving our
customers, driving stronger performance, and
creating more value for our investors.
In 2023, the Board held meetings in London,
Birmingham, Hong Kong, Paris, New York,
Mumbai and Delhi. We also returned to Beijing
and Shanghai last month. On each occasion,
the Board engaged with clients, colleagues,
government officials and regulators – with
these discussions underlining that HSBC
continues to have a key role connecting the
world’s trade and finance hubs.
There were a number of changes to the
composition of the Board last year. At the
2023 AGM, we said farewell to Jackson Tai,
who made an important, extensive and lasting
contribution to the success of HSBC during
his time as a non-executive Director. His
leadership in strengthening risk and conduct
governance and oversight was particularly
critical through a period of significant change.
We also announced in December that David
Nish intends to retire from the Board at the
2024 AGM. David has made an invaluable
contribution to the Board over the past eight
years, particularly in recent years as Chair of
the Group Audit Committee and as Senior
Independent Director. I would like to thank
him warmly for his consistent counsel
and guidance.
I am pleased that Kalpana Morparia, Ann
Godbehere, Brendan Nelson and Swee Lian
Teo joined the Board during 2023. Each
of them brings experience and expertise
that is an asset to the Board. Specifically,
Ann’s extensive public-listed company
board experience means that she is ideally
placed to take over as Senior Independent
Director, while Brendan’s UK and international
financial expertise and significant experience
as audit chair at UK-listed companies will
be particularly valuable as he takes over
leadership of the Group Audit Committee.
Macroeconomic outlook
Looking ahead, 2024 is likely to be another
eventful year. The slowing of inflation in the
second half of 2023 means that monetary
tightening now appears to be coming to
an end. However, current inflation levels
in many economies remain above their
targets. As central banks continue to try to
bridge this gap, voters head to the polls in a
significant number of countries across the
globe. The timing and outcomes of these
elections will impact the decision making of
governments and have geopolitical, as well
as fiscal, implications. We will monitor the
results closely, and take a long-term view of
strategy, purpose and capital allocation, while
cognisant of any short-term challenges.
Among these potential challenges are the
increased uncertainties due to wars in Europe
and the Middle East, and disruption to global
trade and supply chains caused by these and
attacks on shipping in the Red Sea. However,
we remain cautiously optimistic about
economic prospects for 2024. We expect
growth to slow in the first half of the year and
recover thereafter. We also expect the variable
economic growth that has characterised
recent years to continue.
The economies of south and south-east Asia
carry good economic momentum into 2024.
India and Vietnam are currently among the
fastest-growing economies in the world,
benefiting from competitive labour costs,
supportive policies and changing supply
chains. Chinese companies are among those
increasingly looking towards these and other
markets, as China’s economic transformation
towards high-quality growth and domestic
consumption continues.
China’s recovery after reopening was bumpier
than expected, but its economy grew in line
with its annual target of around 5% in 2023.
We expect this to be maintained in 2024,
with recently announced policy measures
to support the property sector and local
government debt gradually flowing through
to the wider economy. Hong Kong’s growth
has moved along at a slower but healthy
pace and is likely to remain in line with
pre-pandemic levels.
As Asia continues to grow, a significant
opportunity is emerging to connect it to
another high-growth region. The Middle East
region performed very well economically
in 2023 and the outlook remains strong for
2024, notwithstanding the risks arising from
conflicts in the region. As countries like Saudi
Arabia and the UAE continue to diversify their
economies, new opportunities are created to
connect them to Asia, and Asia to them.
The US economy grew more quickly than
expected in 2023 in the face of higher interest
rates. Growth is likely to be lower in 2024,
although it should remain higher than in
Europe where growth remains subdued.
The UK economy, which entered a technical
recession at the end of 2023, has nonetheless
been resilient. Headline inflation should fall
in the first half of the year, with core inflation
following by the end of 2024. This will of
course determine the pace of interest
rate cuts.
I would like to end by reiterating my thanks to
my colleagues for all that they have done, and
all that they continue to do, for HSBC. Their
tireless efforts are reflected by our improved
financial performance and increased returns
for shareholders in 2023 – and I look forward
to them securing the foundations for our
future success.
Mark E Tucker
Group Chairman
21 February 2024
HSBC Holdings plc Annual Report and Accounts 2023
7
Strategic report Strategic report
Group Chief Executive’s review
As we move into 2024, I am confident that
there are opportunities ahead for us and our
clients that can help us to sustain our good
performance going into the next phase of the
interest rate cycle.
The environment does, however, remain
challenging. The wars in Europe and the
Middle East are beyond comprehension on a
human level, and my thoughts remain with all
those impacted. Both conflicts also still have
the potential to escalate further. That would
first and foremost deepen the humanitarian
crisis, but also likely lead to another wave of
market and economic turmoil. Interest rates
are expected to fall this year, which we believe
should in turn help to increase economic
activity. The outlook currently remains
uncertain, however, and many of our customers
remain concerned about their finances. In the
midst of these challenges, we will stay focused
on what we are here to do – which is to serve
our customers and clients, and help them with
any financial difficulties they face.
Financial performance
Our results are a testament to the way we
stayed focused in 2023. Reported profit
before tax was $30.3bn, which was $13.3bn
higher than in 2022. This included a number
of notable items, including a favourable
year-on-year impact of $2.5bn relating to
the sale of our retail banking operations in
France and a $1.6bn provisional gain on the
acquisition of SVB UK. These were offset by
a valuation adjustment of $3.0bn relating to
our investment in BoCom, which followed
the reassessment of our accounting value-in-
use in line with recent market developments
in mainland China. This adjustment has no
material impact on our capital, capital ratio
and distribution capacity, and therefore no
impact on our share buy-backs or dividends.
We remain confident in the resilience of
the Chinese economy, and the growth
opportunities in mainland China over the
medium to long term.
Reported revenue grew by 30% or $15.4bn,
driven by an increase in net interest income of
$5.4bn from all three global businesses. Non-
interest income increased by $10bn, reflecting
increased trading and fair value income of
$6.4bn, mainly in Global Banking and Markets,
and the favourable year-on-year impact from
the impairment relating to the sale of our retail
banking operations in France and provisional
gain on the acquisition of SVB UK.
In 2023, we delivered a return on average
tangible equity of 14.6%, or 15.6% excluding
strategic transactions and the impairment on
our investment in BoCom.
Noel Quinn
Group Chief Executive
Our record profit performance in 2023 reflected the hard
work of the last four years and the inherent strength of our
balance sheet, supported by interest rates.
Return on average tangible equity
14.6%
(2022: 10%)
Profit before tax
$30.3bn
(2022: $17.1bn)
2023 was a very good year for HSBC. I
would like to start by paying tribute to
my colleagues for all that they did last
year, and in the preceding three years.
As I have said before, they have fully
embraced our core purpose of ‘opening
up a world of opportunity’ in all they do
– from helping clients and customers to
expand to new markets or move overseas,
to digitising our business and helping our
people to be their best, to our ongoing
work on the transition to net zero.
Our performance last year was great credit to
them. We delivered strong revenue growth
across all three global businesses, supported
by higher interest rates, which enabled us to
deliver our best return on average tangible
equity in more than a decade. As well as
improving financial performance, our strategy
is increasing shareholder returns. I am pleased
that we have rewarded our shareholders
for their loyalty with the highest full-year dividend
per share since 2008, as well as three share
buy-backs in 2023 totalling $7bn. In total, we
returned $19bn to shareholders by way of
dividend and share buy-backs in respect of 2023.
In addition, we have today announced a further
share buy-back of up to $2bn.
8
HSBC Holdings plc Annual Report and Accounts 2023
Group Chief Executive’s review
” I am confident that there
are opportunities ahead
for us and our clients
that can help us to
sustain our good
performance going into
the next phase of the
interest rate cycle.”
Our three global businesses performed well.
In Commercial Banking, profit before tax was
up by 76% to $13.3bn on a constant currency
basis, driven by revenue increases across all
our main legal entities. Within this, Global
Payments Solutions revenue increased by 78%
or $5.4bn on a constant currency basis, driven
by higher margins reflecting higher interest
rates and repricing. Fee income increased
by 4% due to growth in transaction banking
and higher volumes in cards and international
payments, while our trade business performed
well relative to the market and we increased
our market share.
Global Banking and Markets delivered profit
before tax of $5.9bn, up 26% compared with
2022, on a constant currency basis. Revenue
grew by 10% on a constant currency basis,
due to higher net interest income in Global
Payments Solutions and Securities Services. In
Wealth and Personal Banking, profit before tax
of $11.5bn was $6.1bn higher than in 2022, on
a constant currency basis. Revenue was up by
31% or $6.4bn on a constant currency basis,
reflecting growth in Personal Banking and in
Wealth, as well as the positive year-on-year
impact relating to the sale of our French retail
banking business. Within this, Wealth revenue
of $7.5bn was up 8% or $0.6bn on a constant
currency basis, with good growth in private
banking and asset management.
Reported costs for 2023 were down by 2%
compared with the previous year, as lower
restructuring costs offset higher technology
spending, inflation, higher performance-
related pay and levies. On a target basis, costs
increased by 6%, which was 1% higher than
previously guided due to levies including a
charge relating to the FDIC special assessment
levy in the US. Our reported cost-efficiency
ratio improved to 48.5% from 64.6% in 2022,
supported by higher net interest income.
Our 2023 reported ECL charge of $3.4bn
was $0.1bn lower than in 2022. This primarily
comprised stage 3 net charges, notably
related to mainland China commercial real
estate sector exposures, and reflected the
continued uncertainty within the global
economy. After good capital generation in
2023, we ended the year with a CET1 ratio
of 14.8%. We are able to pay a fourth interim
dividend of $0.31 per share, bringing the total
2023 dividend to $0.61 per share, which is the
highest since 2008.
From transform to sustain and grow
Looking forward, supportive interest rates and
good underlying business growth have given
us strong momentum. We continue to target
a mid-teens return on average tangible equity.
We are also, however, mindful of the interest
rate cycle and the subsequent impact on net
interest income. In 2023, we increased the size
and duration of our structural hedges to reduce
the sensitivity of banking net interest income
to interest rate movements and help stabilise
future earnings. We also see a number of
growth opportunities within our strategy that
play to our strengths.
The first is to further grow our international
businesses, which remains our biggest
differentiator and growth opportunity.
International expansion remains a core
strategy for corporates and institutions
seeking to develop and expand, especially
the mid-market corporates that HSBC is
very well-positioned to serve. Rather than
de-globalising, we are seeing the world
re-globalise, as supply chains change and
intra-regional trade flows increase. Our
international network and presence in markets
that are benefiting like the ASEAN region and
Mexico help us to capitalise on these trends.
As a result, our market-leading trade franchise
facilitated more than $850bn of trade in 2023,
while we are the second biggest payments
company by revenue and we processed
around $500tn of payments electronically in
2023. This helped to grow wholesale multi-
jurisdictional client revenue from customers
who bank with us in more than one market,
by 29% in 2023. With multi-jurisdictional
corporate customers in Commercial Banking
generating around five times as much client
revenue as an average domestic customer,
we continue to focus on growing this further,
especially in the mid-market segment where
we have a competitive advantage and there
is still potential to further extend our market
leadership.
The second is to diversify our revenue.
Building our wealth business to meet the rising
demand for wealth management services,
especially in Asia, has been a strategic priority.
Last year, we attracted net new invested
assets of $84bn, following $80bn in 2022 and
$64bn in 2021, underlining the traction that
we have gained. Our agreement to acquire
Citi’s retail wealth management portfolio in
mainland China helps accelerate our plans.
Another trend is the increasing demand for
seamless, integrated, cross-border banking
services, which innovation is helping us
to deliver. We now have 1.3 million Global
Money customers, up from 550,000 in 2022,
and grew revenue from Wealth and Personal
Banking international customers by 41%
last year, from $7.2bn to $10.2bn. Critically,
there was a 43% increase in new-to-bank
international customers compared with 2022,
driven by the new international proposition
that we launched and continue to develop.
As in wholesale, these international
customers generate higher revenue, bringing
in around three times as much as average
domestic-only customers.
The third is continued growth in our two
home markets. Our business is built on two
very deep pools of liquidity in Hong Kong
and the UK, which underpin our exceptional
balance sheet strength and, therefore, all
that we do as a business. Hong Kong and
the UK are both also very profitable, well-
connected markets. We are well positioned
to capitalise on our positions as the number
one bank in Hong Kong and a leading bank
in the UK. Hong Kong’s connectivity, both
globally and to mainland China, are helping
us to grow our franchise. We have increased
our market share in trade in Hong Kong by
6.6 percentage points over the last three
years, according to HKMA data. Meanwhile
new-to-bank customers in Hong Kong
increased by 36% over the same period as
we have capitalised on the return of visitors
from mainland China. In the UK, we have
good traction in Commercial Banking and
continue to grow market share in Wealth and
Personal Banking. We are the leading bank
for UK large corporates, with more than 70%
market penetration last year, according to
Coalition Greenwich. Euromoney also named
us as the best bank in the UK for small and
medium-sized enterprises, as digitisation
helped to grow new-to-bank clients through
Kinetic. We also increased our market share
of UK mortgage stock, from 7.4% in 2020 to
8% in 2023, according to Bank of England
data. As economic conditions improve and
we continue to invest, we are confident in our
ability to grow further in these critical markets.
HSBC Holdings plc Annual Report and Accounts 2023
9
Strategic report Strategic report | Group Chief Executive’s review
Future growth levers
In 2023, we continued to build in areas
we expect to drive future growth.
We brought in
$84bn
of net new invested assets in wealth.
We grew multi-jurisdictional
wholesale revenue by
29%
from $15.8bn in 2022 to $20.4bn in 2023.
We have also continued to diversify our profit
generation geographically across multiple
markets. The positions that we have as a
leading foreign bank in mainland China,
India, Singapore, the UAE, Saudi Arabia and
Mexico – all of which are also well connected
to our international network – mean we are
well placed to capture opportunities in these
fast-growing economies. This was again
evident as they all grew reported profits
significantly in 2023, with mainland China
(excluding associates), India, and Singapore
each contributing in excess of $1bn of profits
to the Group.
It is critical that we maintain tight cost
discipline. This was challenging in 2023 in
a high inflation environment, and will likely
remain so in 2024. At the same time, we
need to invest in growth, so we remain very
focused on maintaining tight underlying
costs. The sale of our French retail banking
operations completed on 1 January 2024, and
the planned sale of our banking business in
Canada remains due to complete in the first
quarter of 2024. A number of smaller exits
remain underway as we continue to look at
opportunities to reshape our portfolio. At the
same time, our acquisition of SVB UK enabled
us to create a bigger, new proposition in HSBC
Innovation Banking, which combines deep
sector specialisms with our balance sheet
strength and global reach, ensuring
we continue our long history of
supporting entrepreneurs.
Driving cost savings enables us to invest in
technology, which is the fourth opportunity.
The digitisation of our business continues to
improve customer experience and increase
efficiency. Using AI to help price complex
structural options in our Foreign Exchange
business has cut execution times down from
hours to minutes. We have also identified
hundreds of opportunities to leverage
generative AI, and will focus our efforts on use
cases with tangible benefits for the Group and
our customers.
Innovation also creates new avenues for
growth. We recently launched Zing, which is
our open market mobile platform focused on
cross-border payments, initially available in
the UK. It offers similar capabilities as Global
Money does to our international Wealth and
Personal Banking customers, but is targeted
at non-HSBC customers and allows us to
drive growth beyond our traditional
customer footprint.
Underpinning all of this is our work to build
a stronger performance culture, improve
colleague experience and prepare our
workforce for the future. This is important
because achieving our ambitions depends on
our 220,000 colleagues feeling motivated and
believing in our strategy. In our most recent
staff survey, I was pleased that the number of
colleagues seeing the positive impact of our
strategy in 2023 was up 11 percentage points
on 2020, which is also above the financial
services sector benchmark.
Finally, helping to finance the substantial
investment needs of our customers in the
transition to net zero is a growing commercial
opportunity, as well as a necessity to mitigate
rising financial and wider societal risks. Our
first net zero transition plan shows how we
intend to finance and support the transition
to net zero and collaborate globally to help
enable change at scale. It also sets out our
roadmap for implementing net zero, which
we will do by supporting our customers,
embedding net zero into the way we operate
and partnering for systemic change. We
understand that our approach – including
our own transition plan – will need to evolve
over time to keep pace with both the evolving
science and real economy decarbonisation
across the sectors and geographies we serve.
Thank you
On a personal note, one of the most enjoyable
parts of 2023 for me was spending time with
many of my colleagues around the world.
Reconnecting with them, and seeing first-
hand their passion for serving our customers,
pride in HSBC and ambitions for the future,
was energising and inspiring. Leading HSBC
is a privilege, and my colleagues are the main
reason why.
2023 was a very good year for HSBC. We now
have an opportunity to ensure that it becomes
part of a longer-term trend of ongoing good
performance and to secure the foundations for
future success. I am confident that we have
the opportunities, the platform and the team
to enable us to get it done.
Noel Quinn
Group Chief Executive
21 February 2024
10
HSBC Holdings plc Annual Report and Accounts 2023
Our strategy
Our strategy
We are implementing our strategy across the four strategic pillars
aligned to our purpose, values and ambition.
Our strategy remains anchored around our four
strategic pillars: ‘Focus’, ‘Digitise’, ‘Energise’ and
‘Transition’.
We delivered a good set of results in 2023
supported by the interest rate environment and
the execution of our strategy.
Our reported profit before tax was $30.3bn
and we achieved a reported return on tangible
equity of 14.6%, or 15.6% excluding the impact
of strategic transactions and the impairment
of our investment in BoCom. In our global
businesses, WPB revenue increased by 31%
on a constant currency basis, including a
favourable year-on-year impact relating to the
sale of our retail banking business in France. In
CMB, revenue increased by 40% on a constant
currency basis, including a provisional gain on
the acquisition of SVB UK. In addition, revenue
in GBM increased by 10% on a constant
currency basis.
Focus
Wholesale – double down on leadership in international connectivity
Our strength in international connectivity
remains one of our key differentiators. We
seek to partner with our clients as they expand
internationally, and capitalise on opportunities
arising from the reconfiguration of global
supply chains.
In 2023, we grew wholesale multi-jurisdictional
client revenue1 by 29% since 2022, supported
by the interest rate environment. These
customers also generate more revenue with
us. In CMB, multi-jurisdictional corporate
clients generate approximately five times
the revenue of a domestic-only corporate
customer. In addition, there was increased
collaboration across markets. In GBM, cross-
border client revenue from clients managed in
the West and booked in the East increased by
39% from 2022.
Our ambition is to maintain strong, resilient
returns through the interest rate cycle. As
such, we are prioritising growing capital-
light, fee-income generating businesses,
such as transaction banking. In 2023, we
processed around $500tn electronic payment
transactions, ranking second by Global
Payments Solutions revenue in the first half
of 20232. We also facilitated over $850bn in
trade and have been ranked first in revenue
since 20182.
1 For further information and the basis of
preparation for multi-jurisdictional client revenue,
see page 134.
2 Global Payments Solutions and trade revenue
rankings sourced from Coalition Greenwich.
WPB – build our international and wealth propositions
We continued to build our international and
wealth propositions, taking advantage of the
growth of wealth assets globally but especially
in Asia. We amassed $84bn in net new
invested assets in 2023, bringing total wealth
invested assets to $1,191bn, an increase of
17% from 2022.
In 2023, our international strategy generated
good results. We continued to attract
international customers, who are either
multi-jurisdictional, non-resident or resident
foreigners, from our top 11 markets1. We
increased new-to-bank customers2 in this
segment by 43% since 2022, bringing total
international customers to 6.7 million. These
customers also each generated approximately
three times the income compared with
domestic customers. As a result, we increased
revenue in this segment by 41% compared
with 2022.
Customers increasingly demand seamless
banking across geographies. We continued
to enhance Global Money, our mobile
proposition that allows customers to spend
and send money in multiple currencies. The
product gained traction with more than
750,000 new customers in 2023, taking total
customers to over 1.3 million.
1 Top 11 markets include the UK, Hong Kong,
Mexico, the US, India, Singapore, Malaysia, the
UAE, Australia, mainland China and the Channel
Islands and the Isle of Man.
2 New-to-bank customers includes both new to
bank customers and those customers who have
opened an account in a new market, including
those who already bank with us in one or more
other markets.
Percentage of wholesale revenue
from multi-jurisdictional customers
61%
Multi-jurisdictional
customers
Multi-jurisdictional customers
Domestic-only customers
Percentage of WPB revenue from
international customers
Multi-jurisdictional
21%
Non-resident and
resident foreigner
19%
40%
International
customers
International customers
Domestic-only customers
HSBC Holdings plc Annual Report and Accounts 2023
11
Strategic report Strategic report | Our strategy
Focus continued
Maintain leadership in scale markets
We continued to take advantage of our
strengths, especially our leading positions in
our scale markets: Hong Kong and the UK.
Hong Kong
We have a well established business in Hong
Kong, with $544bn in customer deposits and
market leadership in a number of product areas1.
In 2023, profit before tax was $10.7bn, an
increase of 80% on a reported basis. In
our wholesale businesses, we focused on
maintaining our leading position across multiple
products. In trade finance, our market share was
25.7%, an increase of 6.6 percentage points
from 20202. We also continued to solidify our
leadership position and grow our WPB business
through the launch of a new Premier Elite
proposition and acquisition of new customers,
with new-to-bank WPB customers increasing
by 36% from 2020, reaching 634,500 in 2023.
HSBC UK
HSBC UK has a universal franchise with $340bn
in customer deposits. We are a market leader
across multiple CMB products, including trade
finance and cash management, according to
Euromoney and Coalition Greenwich. We aim
to take advantage of our international network
to maintain this position in CMB and grow our
international presence in WPB.
Profit before tax was $8.3bn in 2023, an
increase of 84% on a reported basis, including
a $1.6bn provisional gain on the acquisition
of SVB UK. We continued to grow our CMB
business and achieved a market penetration
of more than 70% within the large corporate
banking segment in 20233. In our WPB
business, we opened over 1 million new current
accounts and continued to grow our mortgage
stock market share in the UK, reaching 8.0%
in 2023, an increase of 0.6 percentage points
since 20204.
634,500
New-to-bank WPB customers in Hong Kong
25.7%
Share of the trade finance market
in Hong Kong2
>70%
UK large corporate banking market
penetration in 20233
8.0%
HSBC UK’s mortgage stock market share4
1 Including deposits, assets, card spend and insurance. Source: Hong Kong Monetary Authority (‘HKMA’), Hong Kong Insurance Authority.
2 Source: HKMA, 31 December 2023.
3 Source: Coalition Greenwich Voice of Client – 2023 European Large Corporate Cash Management Study.
4 Source: Bank of England.
Diversify our revenue
In addition to Hong Kong and the UK, five
markets in particular represent growth
opportunities for us. We aim to be the leader
within the affluent and international customer
segments in mainland China, India, Singapore
and the UAE, and we are a market leader
within retail banking in Mexico. These markets
delivered strong results in 2023, with mainland
China excluding BoCom, India and Singapore
each delivering over $1bn in profit before tax.
The UAE and Mexico each delivered profit
before tax of over $0.8bn.
Mainland China
We have a strong client franchise in mainland
China capitalising on our role as a bridge to
support clients’ international needs. We were
ranked number one in foreign exchange by
FX Markets Asia in 2023. We entered into
an agreement to acquire Citi’s retail wealth
management portfolio, and supported by our
expanded onshore Global Private Banking and
our Pinnacle proposition, we grew our wealth
invested assets by 53% compared with 2022.
India
We aim to continue growing our wholesale
franchise by taking advantage of corporate
supply chains. In 2023, we were ranked number
one by Euromoney in cash management in
India. We are also tapping into the wealth
pools of the Indian diaspora with the launch
of onshore Global Private Banking. In 2023,
we were the top foreign bank for non-resident
Indians in wealth1.
Singapore
Our ambition is to be the primary wholesale
offshore booking centre and wealth hub
within the ASEAN region. In 2023, we
were recognised by AsiaMoney as the Best
International Bank in Singapore. Additionally,
we grew our retail franchise, with a 76%
increase in new-to-bank WPB international
customers compared with 2022, supported by
the launch of our new customer onboarding
journey.
UAE
We are growing our institutional and
international wholesale business from a strong
foundation. In 2023, we were ranked number
one in equity and debt capital markets in
MENAT2. Within wealth, following the launch
of onshore Global Private Banking, we grew
our wealth invested assets by 35% from 2022.
We also grew international new-to-bank
customers by 51% since 2022.
Mexico
Within our wholesale businesses, we continue
to capitalise on trade flows between Mexico
and North America. In 2023, we were ranked
number one by Euromoney within trade
finance in Mexico. In our wealth and retail
businesses, we remain focused on delivering
improved customer experience and growing
our Global Private Banking business. In
addition, over half of WPB client acquisitions
in 2023 were referred by the wholesale
businesses through our Employee Banking
Solutions proposition.
1st
Foreign exchange ranking in mainland China
Source: FX Markets Asia
1st
Cash management ranking in India
Source: Euromoney
76%
Increase in new-to-bank WPB international
customers in Singapore compared with 2022
35%
Increase in wealth invested assets
in the UAE compared with 2022
51%
WPB client acquisition from
wholesale referrals in Mexico
1 Source: Indian Mutual Fund Industry
2 Source: Dealogic
12
HSBC Holdings plc Annual Report and Accounts 2023
Our strategy
Focus continued
Maintain cost discipline and reshape our portfolio
In 2023, our costs were up by 6% on a target
basis. Our aim is to maintain cost discipline
by driving efficiencies in our operations and
reinvesting cost savings in areas that will drive
future growth. We are prioritising investments
in transaction banking, wealth and international
propositions, and product innovation. At
the same time, we continue to reshape our
portfolio through exits and bolt-on acquisitions.
We completed our exit from our retail banking
operations in France, our WPB business in
New Zealand, and our businesses in Greece
and Oman. Further exits from Canada, Russia
and Armenia are underway as well as in our
retail banking business in Mauritius.
These exits will pave the way for investments
in growth and efficiency areas such as HSBC
Innovation Banking, which was launched after
the acquisition of SVB UK. We also entered
into an agreement to acquire Citi’s retail
wealth management portfolio in mainland
China in August 2023, and completed our
purchase of SilkRoad Property Partners,
a real estate fund manager in January 2024,
which will be integrated into our asset
management business.
Digitise
Improve customer experience and efficiency while investing in innovation
In 2023, we made progress on our goal to
become a digital-first bank, and our customers
have been increasingly adopting our digital
services. In CMB, 83% of customers were
digitally active, an increase of 5 percentage
points since 2022. Our net promoter score for
onboarding wholesale international clients in
the last quarter of 2023 improved by 12 points
when compared with the first three months
of the year. At 54%, more than half of WPB
customers were mobile active, an increase of
6 percentage points from 2022. Furthermore,
a total of 75% of WPB’s international customer
accounts were opened digitally in 2023, an
increase of 30 percentage points from 2022.
We are also focused on building future-ready
business models by investing in open-market
propositions. In 2023, we announced a
partnership with Tradeshift to launch a new
embedded finance solution in the first half
of 2024, which will provide payment and
financial services embedded into trade,
e-commerce and marketplace experiences.
In January 2024, in the UK we launched Zing,
a mobile platform enabling cross-border
payments available to non-HSBC consumers.
We are also investing in innovative
technologies for the future. In 2024, we plan to
both concentrate our efforts and increase our
investment in artificial intelligence (‘Al’).
At present, we employ Al in areas such as
fraud detection and transaction monitoring.
We also launched Al Markets, a digital service
that utilises natural language processing to
enrich the way investors interact with global
markets. Additionally, we are in the process
of piloting numerous generative Al use
cases in areas like developer augmentation,
creative content generation and knowledge
management, and have identified hundreds
more potential opportunities.
Energise
Inspire a dynamic culture
We are opening up a world of opportunity
for our colleagues by building an inclusive
organisation that empowers and energises
them. We intend to accomplish this by
building a stronger performance culture,
improving colleague experience and preparing
a workforce for the future.
Our success is underpinned by our colleagues.
In a changing world, we empower our
colleagues by providing clarity of our strategy
and opportunities for them to develop and have
fulfilling careers. Our 2023 employee Snapshot
survey showed that 73% of our colleagues
see the positive impact of our strategy, a
3 percentage point increase from 2022, and
a 11 percentage point improvement from
2020. The survey also showed that 81% of our
colleagues feel confident about HSBC’s future, a
4 percentage point increase from 2022, and also
a 11 percentage point improvement over 2020.
We remain focused on creating a diverse and
inclusive environment. In 2023, 34.1% of senior
leadership roles were held by women, and we
are on track to achieve our ambition of 35%
by 2025. We also set a Group-wide ethnicity
strategy to better represent the communities
we serve, with 3.0% of leadership roles in
the UK and US held by colleagues of Black
heritage in 2023, against our ambition of 3.4%
by 2025. Additionally, in 2023, over 37.8% of
our senior leaders have identified as being
from an Asian heritage background.
In the following ‘ESG overview‘ section, we outline
how we put our purpose and values into practice.
Transition
Support the transition to net zero
In 2020, we set out our ambition to become
a net zero bank by 2050. Since then, we have
taken a number of steps to execute on our
ambition and manage climate risks. In January
2024, we published our first net zero transition
plan, which provides an overview of the
progress we have made to date and the actions
being taken and planned to embed our net
zero ambition across HSBC. It sets out how we
intend to harness our strengths and capabilities
in the areas where we believe we can support
large-scale emissions reduction: transitioning
industry, catalysing the new economy, and
decarbonising trade and supply chains.
To support our customers through the transition
to net zero and to a sustainable future, in 2020,
we set out an ambition to provide and facilitate
$750bn to $1tn of sustainable finance and
investments by 2030. In 2023, we provided and
facilitated $83.7bn of sustainable finance and
investments, bringing our cumulative total since
January 2020 to $294.4bn.
As part of our ambition to align our financed
emissions to achieve net zero by 2050, we
have set on-balance sheet or combined
financed emissions targets for a number of
emission-intensive sectors.
Management’s actively managed product
offerings to help ensure the ESG risks faced
by companies are considered when making
investment decisions and to assess ESG
risks and opportunities that could impact
investment performance.
We also made progress in our ambition to
become net zero in our own operations and
supply chain by 2030. In 2023, we reduced
our absolute greenhouse gas emissions in our
operations to 293,333 tonnes CO2e, which
represents a 57.3% reduction from our
2019 baseline.
Work continues on the integration of ESG
and climate analysis into HSBC Asset
For further details on our climate ambition,
see the following ‘ESG overview’ section.
HSBC Holdings plc Annual Report and Accounts 2023
13
Strategic report Strategic report | ESG overview
ESG overview
We are taking steps to incorporate environmental, social and governance principles throughout
the organisation, supporting the 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 customers,
colleagues and communities. Our purpose
is underpinned by our values: we value
difference; we succeed together; we take
responsibility; and we get it done.
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 economies, societies, supply chains
and people’s lives are interconnected. We
recognise we can play an important role in
helping to tackle 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
In 2020, we set an ambition to become a
net zero bank by 2050. Since then, we have
made progress in support of this ambition –
including providing and facilitating sustainable
finance and investment for our customers,
updating several of our sustainability and
investment risk policies, and setting 2030
targets for financed emissions in a range
of high-emitting sectors.
We recognise both the commercial
opportunity of taking action to transition to
net zero and the potential risks of inaction
by society at large. In our net zero transition
plan, we provide an overview of the actions
we are taking and plan to take to support our
customers, embed net zero into the way we
operate and partner for systemic change.
We also set out how we are starting to
work to integrate nature and just transition
considerations into our net zero approach.
We set out in more detail the steps we are
taking on our climate ambitions in the ESG
review on page 41.
Build inclusion and resilience
To help create long-term value for all
stakeholders, we focus on fostering
inclusion and building resilience for
our colleagues, our customers and the
communities we operate within.
For colleagues, we focus on creating an
inclusive, healthy and rewarding environment
as this helps us to attract, develop and retain
the best talent, and we support their resilience
through well-being and learning resources.
We continue to make progress towards our
goals for gender and ethnic diversity.
We strive to provide an inclusive and
accessible banking experience for our
customers. We do this by providing
resources that help them manage their
finances, and services that help them
protect what they value.
We are developing an updated global
philanthropy strategy that aligns with our
ESG areas of focus: ‘transition to net zero’
and ‘building inclusion and resilience’.
Act responsibly
We are focused on operating 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 on 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.
On page 15, 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 approach to the transition
Read more on our approach to the transition to net zero
Supporting our customers
Read more on our progress made against our $750bn
to $1tn sustainable finance and investment ambition
Read more on our progress made against our ambition
to achieve net zero in our financed emissions by 2050
Embedding net zero into the way we
operate
Read more on our ambition to achieve net zero in our own
operations and supply chain by 2030
Read more on how we partner externally in support of
systemic change
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 approach to ESG governance and
human rights
Partnering for systemic change
Detailed Task Force on Climate-
related Financial Disclosures (‘TCFD’)
Diversity and inclusion disclosures
Pay gap disclosures
How we govern ESG
Human rights and modern
slavery disclosures
How our ESG targets link to
executive remuneration
Detailed ESG information
Build
inclusion
and
resilience
Act
responsibly
ESG Data
Pack
14
HSBC Holdings plc Annual Report and Accounts 2023
Page 45
Page 49
Page 53
Page 63
Page 68
Page 69
Page 76
Page 77
Page 88
Page 89
Read more on our ESG targets embedded in executive
remuneration
Our ESG Data Pack provides more granular ESG information,
including the breakdown of our sustainable finance and
investment progress, and complaints volumes
Page 16
Pages 284 to 298
www.hsbc.com/esg
ESG overview
Engaging with our stakeholders and our material ESG topics
We know that 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
Material topics highlighted by the engagement1
Customers
Our customers’ voices are heard through our interactions with them,
surveys and by listening to their complaints.
Employees
Investors
Communities
Regulators and
governments
Suppliers
Our colleagues’ voices are heard through our annual Snapshot
survey, Exchange meetings, global jams, townhalls, leadership
summits, and our ‘speak-up’ channels, including our global
whistleblowing platform, HSBC Confidential.
We engage with our shareholders through our AGMs, virtual
and in-person meetings, investor roadshows, conferences and
our annual investor survey.
We engage with non-governmental organisations (‘NGOs’), charities
and other civil society groups through forums, summits and
roundtables supporting ESG causes such as COP28. We engage
directly on specific issues by taking part in working groups.
We proactively engage with regulators and governments to
build strong relationships through virtual and in-person meetings
and by responding to consultations individually and jointly
via industry bodies.
Our code of conduct sets out our ambitions, targets and
commitments on the environment, diversity and human rights,
and outlines the minimum standards we expect of our suppliers.
We engage with key suppliers in real estate, technology and
other sectors through meetings.
– Customer advocacy
– Cybersecurity
– Employee training
– Diversity and inclusion
– Employee engagement
– Supporting our customers – financed emissions
– Embedding net zero into the way we operate
– Sustainability risk policies, including thermal
coal phase-out policy and energy policy
– Net zero transition plan
– Financial inclusion and community investment
– Climate risk
– Anti-bribery and corruption
– Conduct and product responsibility
– 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 of
our disclosures, see our ESG review and ESG Data Pack, as well as our ESG reporting centre at www.hsbc.com/who-we-are/esg-and-responsible-business/
esg-reporting-centre.
Supporting our customers in challenging
economic times
We know that many of our customers
continue to face difficult financial
circumstances due to cost of living pressures,
and we are working to support them. As
the rising cost of living has been particularly
high in the UK, one of our largest markets,
most of our initiatives focused on supporting
our UK personal and business customers.
We have enhanced our range of digital
resources available on our website and we are
proactively approaching those most in need
– both personal and business customers – to
offer targeted support and help build their
financial resilience.
Proactive support
For personal customers in financial difficulty,
we have developed our digital services with
improvements to the ‘Rising cost of living’
hub on our public website in the UK. Use of
segmentation data has enabled us to take a
proactive approach to supporting customers
and offering targeted solutions to those who
are identified as being most in need.
We have engaged with vulnerable customer
groups through cost of living calls, targeted
emails and direct mail. In 2023, we also:
– offered customers the option to switch
mortgage rates early, extend their mortgage
term with an option to reverse it at a later
date, or pay interest only for six months,
as part of our commitment to the new UK
Mortgage Charter;
– offered a temporary reduction of fees
on arranged overdrafts to help those most
in need pay less;
– held over 1,000 financial well-being webinars,
including 227 cost of living sessions for
50,000 customers and colleagues;
– helped more than 37,000 customers
identify £2.9m in potential benefits by
providing access to a benefits calculator
tool via our website; and
– helped more than 130,000 customers
generate a financial fitness score, and
obtain tips on how to improve their
financial resilience using our online
financial fitness tool.
In the UK, CMB has continued to support
commercial banking clients exhibiting signs
of financial vulnerability. We reviewed client
needs on a case-by-case basis and provided
solutions including repayment holidays,
extending loan repayments and offering
extensions to collection periods. The use
of data and front-line insights has improved
our ability to identify financially
vulnerable customers.
In 2023, we contacted targeted clients to help
improve awareness of the support available,
including communicating with over 178,000
SMEs and proactively making over 43,000
outbound calls.
Increasing understanding of fraud and scam
risk and education on how to protect against
becoming a victim continues to be another
key area of focus. In 2023, we also:
– held fraud and scam awareness webinars
to highlight recent trends and case studies,
attended by approximately 4,300 customers;
– sent 2.1 million emails and 300,000 letters
in quarterly campaigns to share our insights
and enhance understanding of key fraud
topics and trends; and
– published 44 articles and alerts on the HSBC
Fraud and Cyber Awareness mobile app,
covering a broad range of topics as well as
any emerging threats and trends.
For further details of our work to support
vulnerable communities and customers
see page 85.
For further details on our conduct and product
responsibilities, see the ESG review on page 96.
HSBC Holdings plc Annual Report and Accounts 2023
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 track our progress against our
environmental and social sustainability goals.
They also help us to improve employee
advocacy and the diversity of senior
leadership, as well as strengthen our market
conduct. The targets for these measures
are linked to the pillars of our ESG strategy:
transition to net zero, building inclusion and
resilience, and acting responsibly.
For a summary of how all financial and
non-financial metrics link to executive
remuneration, see pages 284 to 298 of
the Directors’ remuneration report.
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.
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 we are doing, see the ESG
review on page 41.
Environmental:
Transition to
net zero1
Social:
Build inclusion
and resilience
Governance:
Acting
responsibly
Sustainable finance
and investment2
$294.4bn
Cumulative total provided and
facilitated since January 2020.
(2022: $210.7bn)
Ambition: Provide and facilitate
$750bn to $1tn of sustainable
finance and investment by 2030.
Gender diversity5
34.1%
Senior leadership roles
held by women.
(2022: 33.3%)
Ambition: Achieve 35% senior
leadership roles held by women
by 2025.
Conduct training7
98%
Employees who completed
conduct training in 2023.
(2022: 98%)
Target: At least 98% of employees
complete conduct and financial
crime training each year.
Net zero in our own
operations3
57.3%
Reduction in absolute operational
greenhouse gas emissions from
2019 baseline.
(2022: 58.5%)
Ambition: To be net zero in our
own operations and supply chain
by 2030.
Financed
emissions4
7 sectors
Number of sectors where we have
set financed emissions targets,
comprising five on-balance sheet
and two combined financed
emissions targets.
Ambition: Align our financed
emissions to achieve net zero by 2050.
Black heritage5
3.0%
Senior leadership roles held by Black
heritage colleagues in the UK and
US combined (2022: 2.5% )
Ambition: 3.4% of senior leadership
roles held by Black heritage
colleagues in the UK and US
combined by 2025.
Employee engagement6
77%
Employee engagement score.
(2022: 74%)
Ambition: Maintain 72% in
the employee Snapshot
engagement index.
Customer satisfaction8
3 out of 6
WPB markets that sustained
top-three rank and/or improved
in customer satisfaction.
(2022: 4 out of 6)
5 out of 6
CMB markets that sustained
top-three rank and/or improved
in customer satisfaction.
(2022: 5 out of 6)
Target: To be ranked top three and/or
improve customer satisfaction rank.
Target: To be ranked top three and/or
improve customer satisfaction rank
1 For further details of our approach to transition to net zero, methodology and PwC’s limited assurance reports on financed emissions, sustainable finance and
investment progress, and our own operations’ scope 1, 2 and 3 (business travel and supply chain) greenhouse gas emissions data, see www.hsbc.com/who-we-
are/esg-and-responsible-business/esg-reporting-centre.
2 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 49. For details of how this target links with the scorecards, see page 284.
3 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 284.
4 See page 53 for further details of our targets, which include combined on-balance sheet financed emissions and facilitated emission targets for two emissions-
intensive sectors: oil and gas, and power and utilities. The remaining five sectors for which we have set on-balance sheet financed emissions targets are: cement;
iron, steel and aluminium; aviation; automotive; and thermal coal mining.
5 Senior leadership is classified as those at band 3 and above in our global career band structure. For further details, see the ESG review on page 77. For details of
how this target links with the scorecards, see page 284. Colleagues in Canada are excluded from this disclosure to align with scorecards.
6 For further details, see the ESG review on page 79. For details of how this target links with the scorecards, see page 284.
7 The completion rate shown relates to the ‘Fighting financial crime’ training module in 2023 and covers permanent and non-permanent employees. The latest global
conduct training ‘Conduct matters and taking responsibility – 2023’ was launched in December 2023 and will run through the first quarter.
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. Our WPB NPS ranking in mainland China is based on 2022 results. Due to data integrity challenges, we are unable to produce a 2023
ranking. For further details of customer satisfaction, see the ESG review on page 91. For further details of how this target links with the scorecards, see page 284.
16
HSBC Holdings plc Annual Report and Accounts 2023
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 and 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 2023 and related
disclosures. We recognise that further work
lies ahead as we continue to develop our
management and reporting capabilities. In
2023, we made certain enhancements to our
disclosures. These include enhancing our
merger and acquisition process to consider
potential climate and sustainability-related
targets, net zero transition plans and climate
strategy, and how this relates to HSBC. In
addition, we published our net zero
transition plan.
We have considered our ‘comply or explain’
obligation under both the UK’s Financial
Conduct Authority’s Listing Rules and
Sections 414CA and 414CB of the UK
Companies Act 2006, and confirm that we
have made disclosures consistent with the
TCFD Recommendations and Recommended
Disclosures, including its annexes and
supplemental guidance, save for certain
items, which we summarise below.
– For financed emissions we do not plan to
– We do not fully disclose impacts from
set 2025 targets. We set targets in line with
the Net-Zero Banking Alliance (‘NZBA‘)
guidelines by setting 2030 targets. While
the NZBA defines 2030 as intermediate, we
use different time horizons for climate risk
management. For climate, 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 2023, we disclosed
interim 2030 targets for financed emissions
for a number of sectors as we outline
on page 18. Following this, we have now
set combined on-balance sheet financed
emissions and facilitated emissions targets
for two emissions-intensive sectors: oil and
gas, and power and utilities.
– The methodology and data used for
financed emissions is evolving and we
expect industry guidance, market practice,
data availability, scenarios and regulatory
disclosure requirements to continue to
change, along with the shape of our own
business. We expect to periodically review
and, if required, update our methodologies,
baselines, scenarios, and targets to reflect
real economy decarbonisation and evolving
guidance and data.
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, although nascent work
is ongoing in these areas. 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 four out of 15
categories of scope 3 greenhouse gas
emissions including business travel, supply
chain and financed emissions. In relation to
financed emissions, we publish on-balance
sheet financed emissions for a number of
sectors as detailed on page 18. We also
publish facilitated emissions for the oil and
gas, and power and utilities sectors. Future
disclosures on financed emissions and
related risks are reliant on our customers
publicly disclosing their greenhouse gas
emissions, targets and plans, and related
risks. We recognise the need to provide
early transparency on climate disclosures
but balance this with the recognition that
existing data and reporting processes
require significant enhancements.
For a full summary of our TCFD disclosures,
including detailed disclosure locations for
additional information, see pages 69 to 74.
The additional information section on
page 440 provides further detail.
Backing renewable connections in South America
We helped to finance one of the largest transmission lines in South America, which will
connect central and southern Chile to renewable energy generated in the north.
Conexión is building the Kimal-Lo Aguirre initiative after winning a tender from Chile’s
Minister of Energy in 2022. The project will aim to develop approximately 1,400km of critical
infrastructure with the ability to carry up to 3,000 million watts of energy when scheduled
to complete in 2029.
We provided a $160m equity bridge loan to support China Southern Power Grid’s
contribution to the project. China Southern Power Grid is the second largest electric power
company in China. The funds will help unlock energy transition infrastructure required
to support Chile in achieving its net zero goals.
HSBC Holdings plc Annual Report and Accounts 2023
17
Strategic report Strategic report | ESG overview
How we measure our net zero progress TCFD
We are helping the transition to a net zero
economy by transforming ourselves, and
supporting our customers to make their
own transitions. Our ambition is to align
our financed emissions to net zero by 2050
or sooner.
Our net zero transition plan sets out how
we intend to harness our strengths and
capabilities in areas where we believe we
can support large-scale emissions reduction:
transitioning industry, catalysing the new
economy, and decarbonising trade and supply
chains. The plan also provides details on our
sectoral approach, and on our implementation
plan to embed net zero into the way
we operate.
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 and sustainable
finance and investment taxonomies are not
consistent globally, and evolving taxonomies
and practices could result in revisions in our
sustainable finance reporting going forward.
To date, we have set 2030 financed emissions
targets across energy, heavy industry and
transport, specifically for the following sectors:
oil and gas; power and utilities; cement; iron,
steel and aluminium; aviation; automotive; and
thermal coal mining.
Following a reduction in our exposure to the
shipping sector after the strategic sale of part
of our European shipping portfolio in 2023,
and work undertaken to assess the materiality
of our remaining portfolio from a financed
emissions perspective, we have concluded
that the remaining exposure as of year-end
2023 is not material enough to warrant setting
a stand-alone target. This aligns with NZBA
guidelines on sector inclusion for target
setting. Due to ongoing data availability and
quality challenges, we continue to assess our
financed emissions for our real estate and
agriculture sectors.
We recognise that there is a significant
amount of uncertainty and complexity related
to the transition, and that progress in the real
economy will depend heavily on external
factors including the policy and regulatory
landscape across markets, the speed of
technological innovation and growth, and
economic and geopolitical events. In addition,
climate science and the availability and quality
of climate data continue to evolve, and the
net zero-aligned scenarios upon which we
have based our approach will also update
over time to keep pace with real economy
developments. Emissions and broader
customer data is also expected to improve,
as well as approaches and standards for
greenhouse gas accounting and target setting.
As a result of this, we expect to regularly
refine and update our analysis as well as
data collection and consolidation processes
to accommodate new data sources and
updated methodologies and scenarios, and
intend to be transparent on any changes
we make and why. As an example, our ESG
review includes recalculated 2019 and 2020
financed emissions figures for the oil and gas,
and power and utilities sectors. In addition,
periodic updates to published net zero-aligned
scenarios mean that it will be important that
our net zero-aligned reference scenario choice,
and by extension our target-setting approach,
remain in step with the evolving real economy
context and is informed by the latest science.
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 53.
Net zero
implementation plan
Supporting our
customers
Embedding net zero
into the way we
operate
Metrics and indicators
Progress to date
Sustainable finance and investment
provided and facilitated ($bn)1
$294.4bn cumulative progress since 2020 (for further breakdown
see page 49)
Number of sectors analysed for
financed emissions2
We have set seven financed emissions targets, comprising five
on-balance sheet and two combined financed emissions targets
so far (see pages 53 to 62)
Thermal coal financing exposures2,3
Our thermal coal financing drawn balance exposure was approximately
$1bn as at 31 December 2020 (for further details, see page 67)
Percentage of absolute operational
greenhouse gas emissions reduced4
57.3% reduction in absolute greenhouse gas emissions from 2019
baseline (see page 63)
Percentage of renewable electricity
sourced across our operations
Increase from 48.3% in 2022 to 58.4% (see page 63)
Percentage of energy
consumption reduced
26.3% reduction in energy consumption from 2019 baseline
(see page 63)
Partnering for
systemic change
Philanthropic investment in climate
innovation ventures, renewable energy,
and nature-based solutions
Committed $105m to our NGO partners since 2020, as part of the
Climate Solutions Partnership (see page 68)
1 The detailed definitions of the contributing activities for sustainable finance and investment are available in our revised Sustainable Finance and Investment Data
Dictionary 2023. 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.
2 For further details of our financed emissions methodology, exclusions and limitations, see our Financed Emissions and Thermal Coal Exposures Methodology at
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
3 Data is subject to independent limited assurance by PwC in accordance with ISAE 3000/ISAE 3410. For further details, see our Financed Emissions and Thermal
Coal Exposures Methodology and PwC’s limited assurance report at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
4 Our reported scope 3 greenhouse gas emissions of our own operations in 2023 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 64 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.
18
HSBC Holdings plc Annual Report and Accounts 2023
ESG overview
Responsible business culture
We have a responsibility to help protect our
customers, our communities and the integrity
of the financial system.
91% of our colleagues to disclose their
ethnicity, with 62% currently choosing to do
so, where this is legally permissible.
relief when needed. For examples of our
programmes, see the ‘Communities’ section
of the ESG review on page 86.
Employee matters
We are building a responsible business culture
that values difference, takes responsibility,
seeks different perspectives and upholds good
standards of conduct.
There may be times when our colleagues
need to speak up about behaviours in the
workplace. In the first instance we encourage
colleagues to speak to their line manager, and
our annual Snapshot survey showed that 86%
of colleagues have trust in their direct manager.
HSBC Confidential is our whistleblowing
channel, which allows colleagues past and
present to raise concerns confidentially and, if
preferred, anonymously (subject to local laws).
Our Snapshot survey showed that 80% of
colleagues feel able to speak up when they
see behaviours they consider to be wrong.
We promote an environment where our
colleagues are treated with dignity and
respect and we act where we find behaviours
that fall short. Our inclusion index measures
our colleagues’ sense of belonging and
psychological safety within the organisation,
and in 2023 this increased to 78%.
We aspire to be an organisation that is
representative of the communities in which we
serve. We have committed to achieving a 35%
representation of women in senior leadership
roles (classified as those at band 3 and above
in our global career band structure) by 2025.
We remain on track, having achieved 34.1%
in 2023.
We aspire to achieve a 3.4% representation of
Black heritage colleagues in senior leadership
roles across the UK and US combined by
2025. We are on track to achieve this, having
increased our representation to 3.0% this year.
We continue to make progress but we know
there is more to be done.
To ensure we set representation goals that are
locally relevant, we enable our employees to
self-disclose ethnicity data. We have enabled
The table below outlines high-level
diversity metrics.
All employees
Male
Female
Senior leadership1
Male
Female
Holdings Board
Male
Female
48%
52%
66%
34%
53%
47%
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, how we
encourage our employees to speak up, and our
approach to employee conduct, see the Social
section of the ESG review on page 75.
Listening to our customers
We continue to listen, learn and act on our
customers’ feedback. We have implemented
the net promoter system, enabling us to
share customer feedback with our front-line
teams and allowing them to respond directly
to customers. We also have dedicated global
forums to promote continuous improvement
of our customers’ experience.
Social matters
We invest in the long-term prosperity of
the communities where we operate. We
aim to provide people, especially those in
marginalised and vulnerable communities,
with the skills and knowledge needed to
thrive through the transition to a sustainable
future. For this reason, we focus our support
on programmes that help build inclusion and
resilience. We also support climate solutions
and innovation, and contribute to disaster
Human rights
As set out in our Human Rights Statement, we
recognise the role of business in respecting
human rights. Our approach is guided by
the UN Guiding Principles on Business and
Human Rights (‘UNGPs’) and the OECD
Guidelines for Multinational Enterprises on
Responsible Business Conduct. Our Human
Rights Statement, and annual statements
under the UK’s Modern Slavery Act, are
available on www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-reporting-
centre. For further details of our approach, see
the ‘Human rights’ section of the ESG review
on page 89.
Anti-corruption and anti-bribery
We are required to comply with all applicable
anti-bribery and corruption laws in every
market and jurisdiction in which we operate
while focusing on the spirit of relevant
laws and regulations to 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 44.
Group non-financial and sustainability
information statement
This section primarily covers Group non-
financial and sustainability information as
required by applicable 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 37 to 39.
For further details of our TCFD disclosures,
including alignment with sections 414CA and
414CB of the Companies Act 2006, see pages
69 to 74.
Training colleagues and partners on digital accessibility
With ‘Digitise’ being one of our strategic pillars, we are committed to improving how our
customers can access our online and mobile services. We review against the Web Content
Accessibility Guidelines for our websites in 23 markets and mobile apps in 18 markets, and
engaged with more than 10,000 colleagues, partners and companies through our digital
accessibility training and awareness programme in 2023. To share best practice externally,
HSBC sponsored and hosted AbilityNet’s Techshare Pro at our head office in the UK. Our work
on digital accessibility was recognised through 11 awards in 2023, including in Hong Kong,
where we were the only financial services provider to be recognised for our core banking apps.
HSBC Holdings plc Annual Report and Accounts 2023
19
Strategic report Strategic report | Board decision making and engagement with stakeholders
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
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.
The following table includes instances where
the Directors have had regard to section 172(1)
factors (which are not mutually exclusive)
when discussing certain matters in Board
meetings and taking decisions where relevant.
Some of these instances are explained in more
detail in this section 172(1) statement and in
the report of the Directors.
Section 172(1) factor
Where section 172(1) factor featured in Board considerations
a
b
c
d
e
f
Likely consequences of any
decision in the long term
– Group strategy – setting and monitoring
– Mergers and acquisitions activity
– Share capital activity – dividend and buy-back
Interests of our employees
– Workforce engagement non-executive Director programme
– Directors’ workforce engagement activities
– Annual employee Snapshot survey
The need to foster our business
relationships with suppliers,
customers and others
– Annual statement under the UK Modern Slavery Act and human rights disclosure approvals
– Directors’ stakeholder engagement activities
– Regular Board reports from Directors and executives
Impact of our operations on the
community and the environment
– Directors’ engagement with community initiatives
– Net zero transition plan
– Participation at ESG events such as COP28 and representation at the
World Economic Forum
Our desire to maintain a reputation
for high standards of business
conduct
– The Financial Conduct Authority’s new Consumer Duty obligations
– Global mandatory training
– Regular engagement with global regulators including presentations by the Prudential
Regulation Authority and the Financial Conduct Authority to the Board
Acting fairly between members of
the company
– Annual General Meeting and Hong Kong Informal Shareholders’ Meeting
– Retail shareholder activities and investor policies’ approvals
– Directors’ engagement with top investors
During 2023, the Board continued with an
active stakeholder engagement programme,
meeting numerous stakeholders in several
international locations. For further details of
how we engaged with our stakeholders, see
pages 21 and 257.
On pages 22 and 23, we describe how the
Board exercises its Directors’ section 172(1)
duty and takes into account the impact on
relevant stakeholders when making principal
decisions in order to support and deliver on
the Group’s strategy.
20
HSBC Holdings plc Annual Report and Accounts 2023
Board decision making and engagement with stakeholders
Directors’ key engagements with stakeholders in 2023
Stakeholders
Engagement
Impact and outcomes
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 business customers,
including customers of HSBC Innovation Banking, to
discuss challenges and opportunities in key markets
– Meetings with business customers to discuss plans
– The Board’s continued engagement with customers and
potential customers around the world helps to further the
Board’s understanding of their purposes and business needs,
and how they can be supported to achieve their varied goals.
regarding the transition to net zero
– Meetings with customers help the Board understand how the
– Board reporting on retail customer surveys including
net promoter scores
– Visits to branches in the UK, Hong Kong and India to
better understand customers’ changing needs
Group can help customers transition to net zero.
– Customer surveys provide insights into how the Group
can drive meaningful improvements in customer
propositions outcomes.
– Retail branch visits help the Board see the positive impact of
Group initiatives such as the No Fixed Address and Survivor
Bank account propositions, and how opportunities are being
realised for customers.
– Meeting with colleagues across jurisdictions allowed
the Board to hear first-hand the employee voice on
important issues.
– These interactions helped to ensure continued connectivity
with the workforce, and inform the Board’s decision making
around people-specific matters. Employee engagement also
helps the Board to put into perspective employee Snapshot
survey results.
– Meeting with employee directors of Group subsidiaries helped
to assure the Board that a consistent approach to governance
has been adopted across the Group.
– Regular interactions with institutional and retail investors
throughout the year helped the Board understand investor
sentiment on material matters, such as strategy delivery and
transition to net zero, and gauge investors’ continued support
for the Group.
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, as well as events that form
part of the workforce engagement non-executive
Director programme
– Interaction with respective employee resource groups
across multiple events in many jurisdictions
– Participation in the annual Non-Executive Director
Summit in Hong Kong
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
investor 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
– Board meeting attendance by one of our largest
investors to discuss Group strategic execution and
the wider market outlook
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.
Regulators and
governments
Maintaining constructive
dialogue and relations with
the relevant authorities in
the markets in which we
operate helps support
the achievement of our
strategic aims.
Suppliers
We engage with suppliers,
which helps us operate our
business effectively and
execute our strategy.
– Meetings with charities and NGOs on topics such
as financial education for rural women in India,
reintroducing biodiversity and endangered species
in Europe and financial inclusion and resilience of
people facing homelessness in the UK
– The Directors’ participation at a range of community initiatives
helped them to understand the effect the Group has on local
communities as an employer, sponsor, collaborator and
supporter, and helped to break down barriers for certain
communities to access our products.
– Meetings with Shelter to discuss the Group’s
– The Board’s interaction with, and understanding of, the
partnership and to hear about the impact of the
Hero Partnership initiative
– Forums, summits and roundtables supporting
ESG causes, such as the Abu Dhabi Sustainability
Week, COP28, New York Climate Week and London
Climate Action Week
– Meetings with members of the Sustainable Markets
Initiative Council to discuss future priorities
communities in which the Group operates helped the Board
appreciate how the Group can influence meaningful change,
including by educating, encouraging broader thinking, helping
to shape policy and formulating solutions, creating supportive
environments, and helping to achieve net zero ambitions.
– Various meetings across our key markets with heads
– Frequent and varied engagements between the Board and
of state, international leaders and government
officials including ministers and ambassadors
– Regular meetings with, and presentations from,
our many regulators, including in the UK and
Hong Kong, and elsewhere
heads of state, international leaders, government officials and
regulators provide an opportunity for open dialogue. It is also
critical in ensuring that the Board understands and continues
to meet 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 developments. It also allows the Board to share
perspectives on industry best practices.
– Regular reports and updates to the Board from the
Group Chief Operating Officer on supplier matters
– Meetings with key technology suppliers to discuss
the Group’s innovation ambitions and how they could
further support HSBC’s data requirements, including
to inform and support its net zero ambitions
– Meetings with key suppliers in sectors such as
real estate
– Meeting with our suppliers helps the Directors understand our
suppliers’ challenges and how we can work collaboratively to
succeed, including in digitising at scale and 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. Such reporting and engagement supports the Board
when approving the annual statement under the UK Modern
Slavery Act.
HSBC Holdings plc Annual Report and Accounts 2023
21
Strategic report Strategic report | Board decision making and engagement with stakeholders
Principal strategic 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. A key focus for the Board is setting, and monitoring execution against, the Group strategy. Principal decisions taken by the Board consider
how the decision furthers the Group purpose, and aligns with one or all of the strategic pillars: ‘Focus’, ‘Digitise’, ‘Energise’ and ‘Transition’.
The following examples demonstrate how the Board operated having regard to the duties of the Directors. Good governance practices adopted by
the Board facilitate its key decision taking. Governance features as an agenda item at all scheduled Board meetings. Papers presented to the Board
for consideration are expected to follow a template to help ensure that Directors get the right level of information to take informed decisions in
keeping with their duties. The template requests authors to, among others things, describe the extent to which relevant stakeholders are engaged
with, or impacted by, the matter under consideration, and whether this has influenced the recommendation to the Board.
Group strategy
As part of the Board’s responsibility to set,
and monitor execution against, HSBC’s
strategy, Directors take into consideration
the Group’s strategies across the global
businesses and legal entities. The Board
continued to oversee the progression of the
Group’s divestment of non-core operations
while targeting select acquisitions. One
such principal decision taken during the year
was the acquisition by HSBC UK Bank plc
of SVB UK. In considering this opportunity,
the Board took into account the views of
key stakeholders, including UK regulators
and the government. It also considered
the potential impact of the acquisition on
SVB UK customers, principally that their
banking services would be maintained,
backed by the strength, safety and security
of HSBC. The Board also considered how
the acquisition would enhance shareholder
value, strengthen our CMB franchise, and
further its ability to serve innovation and
fast-growing firms in the technology and
life sciences sectors, supporting our ‘Focus’
strategic pillar. Following the acquisition
of SVB UK, HSBC Innovation Banking was
launched in June 2023. Senior management
embarked on a programme of communication
and interactions with customers, employees
and investors by way of townhalls and Q&A
sessions to help key stakeholders understand
the rationale for the transaction and reiterate
HSBC’s support for its customers.
The Board continued its monitoring and
oversight of the impacts flowing from its
principal strategic decisions taken in the
current and previous years, in particular the
sale of the retail banking operations in France
and the planned sale of the banking business
in Canada. The Board met in order to agree
amended terms to complete our France
business sale. It was updated regularly, and
provided input as appropriate, on actions
required to ensure the successful completion
of these transactions. It also liaised with
relevant stakeholders such as governments,
regulators, work councils, employees and
customers, as necessary.
In this way, the Board effectively carried out
its duties and assured itself that the principal
strategic decisions taken were, and continue
to be, most likely to promote the long-term
success of the company.
During the course of the year, the Board
continued a targeted focus on receiving
relevant and succinct management
information, including key metrics and
data, to help demonstrate progress against
strategic areas of interest. The Board
considered how it should be informed, in
the most transparent way, on the evolution
of the Group’s strategy from transformation
to one focused on growth. The Board has
agreed key performance indicators to
help keep it informed on relevant areas of
strategic progress, all of which are focused
on four overarching perspectives: external
commitments/key outcomes; key business
drivers; sustainable financial performance; and
the ability to transform and license to operate.
These indicators will also be used to foster a
culture of performance and discipline across
the organisation and will be factored into
executive Directors’ scorecards.
Sustainability
The Board is responsible for the oversight of the
Group’s sustainability and ESG strategy setting
and delivery, and monitors progress against
execution of our net zero ambitions. Key
outcomes are reviewed regularly by the Board.
Directors also received training on ESG-related
matters as part of their ongoing development.
The Board’s understanding of the progress
against the Group’s ESG strategy was informed
by the ESG dashboard. The data provided in
this dashboard included key metrics that help
the Board to monitor progress against the
Group’s ESG ambitions, including the transition
to net zero, building inclusion and resilience,
and acting responsibly. Additional details were
provided on metrics relating to the roll-out of
the Group’s supplier code of conduct, female
entrepreneurship and gender diversity in
senior roles.
In 2023, the Board gave the Group Executive
Committee feedback on the need to better
define core areas of the Group’s sustainability
execution programme, a Group-wide
programme to enable the delivery of our
sustainability agenda. The core areas
included accountability, governance,
capability, investment in infrastructure and
data. Governance was enhanced by the
establishment of the Sustainability Execution
Committee, with responsibility to oversee
delivery of the sustainability execution
programme. This committee reports to the
Group Executive Committee which receives
regular updates on progress towards
fulfilment of our net zero ambitions. It takes
into account key stakeholder considerations
and potential impacts on the Group’s strategic
direction for sustainability, and reports these
to the Board, helping Directors take relevant
decisions. In addition, three non-executive
Directors participated in climate advisory
panel meetings with external subject matter
experts to discuss sustainability, including the
Group’s net zero transition plan.
Appreciating the importance of the Group’s
commitment to publish a net zero transition
plan, the Board took the decision to establish
a dedicated sub-group with responsibility
for overseeing its finalisation, taking into
consideration the implications for all our
stakeholders and communication of the plan
to the market. This sub-group included four
non-executive Directors, the Group Chief
Executive and the Group Chief Financial
Officer, as well as other members of senior
management. It took into consideration the
short-term consequences on stakeholders,
particularly for customers and investors, and
balanced these against long-term benefits for
the Group, the society in which we live, and
the success of the company as a whole for
the long term. Recommendations made to the
Board by the sub-group, including stakeholder
impacts, helped to inform the Board’s
deliberations, leading to its final approval of
the net zero transition plan, published
in January 2024.
22
HSBC Holdings plc Annual Report and Accounts 2023
Board decision making and engagement with stakeholders
Technology
In support of the strategic pillar ‘Digitise’, the
Board continued its oversight of the Group’s
technology strategy, Vision 27, recognising
that technology is an integral part of business
success. In overseeing legal entity and global
business strategies, the Board acts to promote
connectivity of technology strategies across
the organisation.
To help assure the Board that the Vision 27
initiatives remained strategically aligned and
appropriately resourced, it supported the
appointment of a third-party professional
services firm to conduct a review. The third
party engaged with employees from across
the global businesses and functions to explore
how the organisation was executing various
technological initiatives.
The third party’s review was facilitated by its
attendance at the newly formed technology
steering committee, overseen by the Board’s
Technology Governance Working Group.
This steering committee comprised senior
management including global business
representatives to ensure that business views
were well represented. The insights gained
from the steering committee helped to form
its reports to the Technology Governance
Working Group, which in turn reports to the
Board. It also attended a Board meeting in
person to discuss the independent review. The
findings from the report helped deepen the
Board’s understanding of contributing factors
to the success of Vision 27.
As a result of the review and related Board
discussions, in order to enhance governance
around overseeing the progress of the Group’s
long-term technology strategy, the Board
agreed that a new Board committee will be
established in 2024 in place of the Technology
Governance Working Group, to be chaired by
a non-executive Director.
Financial performance and capital returns
When taking its decision to approve the
annual financial resource plan, the Board
engaged in active deliberation, taking into
account stakeholders’ perspectives, including
customers, employees and investors, as
well as market perception and regulatory
expectations. The Board considered the
alignment between the Group’s medium-term
strategic and investment plans with projected
performance throughout the annual financial
resource plan. In addition, consideration
was given to scenario analysis related to the
macroeconomic and geopolitical environment
to ascertain the risks – and potential mitigating
actions – to best protect the Group’s financial
performance and capital returns.
In 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. To this end, in
the Annual Report and Accounts 2022, the
Board approved the Group’s announcement
regarding its intention to revert to paying
quarterly dividends from the first quarter of
2023. Following discussion at the Board,
subject to the completion of the sale of the
banking business in Canada, the Board
agreed its intention to consider the payment
of a special dividend of $0.21 per share as
a priority use of the proceeds generated
by the completion of the transaction. On
21 February 2023, an interim dividend of
$0.23 per share for the 2022 full-year was
announced, followed by interim dividends of
$0.10 each on 2 May 2023, 1 August 2023 and
30 October 2023. In approving the payment of
the dividends, the Board took into account the
interests of the shareholders and sought to act
in the best interests of the members as a whole.
In addition to dividend payments, HSBC
undertook share buy-backs of up to $2bn each
commencing on 10 May 2023 and 3 August
2023, and commenced a further buy-back of
up to $3bn on 1 November 2023. In considering
the buy-backs, the Board (or the Chairman’s
Committee with delegated authority from the
Board) took into account its stated intention
to consider buy-backs subject to appropriate
capital levels, the views of its regulators with
regard to its regulatory capital requirements
and, in particular, the benefit to shareholders,
and determined that the buy-backs would
promote the success of the company.
People and culture
Each Board meeting starts with a culture
moment – a standing agenda item for one
of the Board members, on a rotational basis,
to share insights into their perceptions
on how the Group culture is being lived.
These perceptions help the Board to fulfil
its responsibility of monitoring the Group’s
culture. They also serve to shape and frame
discussions more generally in Board meetings.
The Board regularly considers updates on
people and the workforce, supported by
key metrics and culture insights. These
updates help the Board understand employee
sentiment, including any upward or downward
trends, which informs considerations of how
the tone from the top is being embedded.
Regular reporting to the Board and/or its
committees from the Group Chief Human
Resources Officer includes metrics on attrition,
whistleblowing, escalations, employee
understanding of strategy and pay sentiment
across our legal entities. This, together with the
annual Snapshot survey results, demonstrate
people-related challenges and successes
across the Group and legal entities. In these
ways the Board broadens its understanding of
the interests of our employees, which in turn
helps to shape its decisions or add value when
asked to approve HR policy and other people-
related matters.
The dedicated workforce engagement
non-executive Director provides a regular
report to Board meetings, which together
with the Directors’ own participation in
arranged employment engagement activities,
strengthen the Board’s appreciation of what
matters to employees, and help to inform
decisions related to HR and people matters.
An example of people and culture data
and engagements assisting Board decision
making in 2023 included the discussion held
by the Board on a strategic focus around ‘the
workforce of the future’ programme. This
programme is looking at the key workforce
skills necessary for the future, the role of
technology in the workplace and development
of a plan for its implementation. For further
details of how we structure engagement
between the Board and the workforce,
see page 257.
The Board took the decision in 2023 to
approve HSBC’s new headquarters and
to move to the new Panorama St Paul’s
development. This decision was facilitated
by people data gathered from the Snapshot
survey and other methods that demonstrated
a desire from colleagues to continue to create
an agile and technologically fit-for-purpose
environment to work and succeed together.
The Board took this decision knowing that a
new purpose-built office and the continuation
of a hybrid working model would enable the
Group to continue to attract top talent, and
provide them with collaboration spaces to
support their success and well-being. The
Board concluded the new headquarters would
be in the best interests of the company for the
long term. For further details of the new head
office, see page 99.
HSBC Holdings plc Annual Report and Accounts 2023
23
Strategic report Strategic report
Remuneration
The Group’s financial and strategic performance is
reflected in remuneration outcomes for colleagues.
Our reward principles and commitments to colleagues
Our goal is to deliver a unique and exceptional
experience to colleagues so that we sustain
our performance in competitive markets. Our
reward principles and commitments centre on
rewarding colleagues responsibly, recognising
their success and supporting colleagues
to grow.
Pay is a critical part of our proposition. We
were encouraged by a nine percentage
point improvement to 52% in colleagues’
perceptions they are paid fairly because of
actions we took through 2022. The Group
Remuneration Committee remain very
focused on the need to improve this further.
For 2024, we are putting more structure in
place to improve transparency and clarity
about how we make pay decisions.
Rewarding colleagues responsibly
Fixed pay increases for 2024 were determined
based on consistent principles to help address
wage inflation in the markets where
we operate.
As part of the 2023 pay review we introduced
fixed pay ranges to help managers make
fair and competitive fixed pay decisions and
improve clarity for colleagues.
We will award an overall global fixed pay
increase of 4.4% in 2024, compared with 5.5%
for the previous year, reflecting lower wage
inflation in many markets.
The level of increases vary by market,
depending on the economic situation and
individual roles.
Variable pay pool
($m)
($m)
To ensure fixed pay levels provide financial
security to colleagues, we established Living
Wage benchmarks for every market and have
been certified by the Fair Wage Network as
a global Living Wage employer for 2024. This
is an important commitment we make to our
employees and the communities in which we
operate to help ensure we pay responsibly and
provide financial security.
More than 95% of colleagues have private
medical insurance, a retirement plan and life
insurance.
Recognising colleagues’ success
The Group Remuneration Committee
determined an overall variable pay pool for
Group employees of $3,774m (2022: $3,359m).
This followed a review of our performance
against financial and non-financial metrics set
out in the Group risk framework.
Individual variable pay outcomes varied
significantly depending on role, business area
and performance. Our highest performers
and those who role-model our values-aligned
behaviours received the largest increases in
variable pay compared with the previous year.
2023
2022
3,774
3,359
From 2024, we will introduce a new variable
pay structure for over 150,000 junior and
middle management colleagues, providing
2019
more clarity around the variable pay levels
for on-target performance, while retaining
flexibility to differentiate outcomes
for performance.
Supporting colleagues to grow
Guided by data and colleague feedback,
the pillars of our well-being programme
are mental, physical, financial and social
well-being.
In our 2023 employee Snapshot survey, 83%
of employees said their mental health was
positive, while all measures of physical well-
being (exercise, sleep, nutrition) have improved.
For the second year running, HSBC has been
ranked top tier for mental health in the global
CCLA Corporate Mental Health Benchmark.
For details of how the Group Remuneration
Committee sets the pool, see page 279.
Remuneration for our executive Directors
Variable pay for our executive Directors is
driven by achievement against performance
scorecards set by the Group Remuneration
Committee at the start of the year to align pay
outcomes with the delivery of our strategy
and plan.
The Committee considered carefully the
impact of strategic transactions and one-offs
on the Group’s financial performance in 2023.
Consistent with the approach in prior years,
the Committee judged that it was appropriate
to assess financial performance for the
purpose of the annual scorecard excluding
these items, to ensure that out-turns were not
impacted by one-offs.
Reflecting on the overall risk management
in the year and in respect of the PRA Notice
relating to compliance with the UK Financial
Services Compensation Scheme and related
Depositor Protection rules, the Committee
applied a downward adjustment of 7.5% to
Noel Quinn’s annual incentive outcome.
Executive Directors’ scorecard outcomes
(% of maximum opportunity)
2023 annual incentive
Group Chief Executive
Group Chief Financial Officer
70.24%
76.75%
The Committee also carefully considered
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 2023.
Details of the current executive Directors’
remuneration policy can be found on pages 257
to 265 of our Annual Report and Accounts 2021.
2021–2023 long-term incentive1
Group Chief Executive
75.00%
1 The current Group Chief Financial Officer did not
participate in the 2021–2023 long-term incentive.
For details of Directors’ pay and performance for
2023, see the Directors’ remuneration report on
page 284.
24
HSBC Holdings plc Annual Report and Accounts 2023
Financial overview
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
Our financial performance demonstrates
the execution of our strategy and the
strengthened platform for growth, and
in 2023 it was favourably impacted by a higher
global interest rate environment.
these in 2023, and – where relevant – our
expectations for 2024 and beyond. We also
include a more detailed table covering further
key financial metrics that we consider insightful
for understanding the Group’s performance.
that has driven the outcomes of our
financial targets. It covers income statement
performance on both a reported and constant
currency basis, and the main factors impacting
the strength of our balance sheet, capital and
liquidity position.
This section sets out our key Group financial
targets and the progress we made towards
The Group financial results that follow provide
more detailed insight into the performance
Group financial targets
Return on average tangible equity
14.6%
(2022: 10.0%)
In 2023, RoTE was 14.6%, an increase of
4.6 percentage points from 2022. Excluding
the impact of strategic transactions and the
impairment of our investment in BoCom, RoTE
was 15.6%.
From 2024, we intend to revise the
adjustments made to RoTE to exclude all
notable items, improving alignment with the
treatment of notable items in our other income
statement disclosures. On this basis, we
continue to target a RoTE in the mid-teens for
2024. If this basis had been adopted for 2023,
our RoTE excluding notable items would have
been 16.2%.
Our guidance reflects our current outlook
for the global macroeconomic environment,
including customer and financial
markets activity.
Target basis operating expenses
$31.6bn
(2022: $29.8bn)
In 2023, the Group targeted cost growth of
approximately 3% on a target basis. Our target
basis excluded the impact of foreign currency
translation differences, notable items and
the impact of retranslating the 2022 results
of hyperinflationary economies at constant
currency, as well as cost growth from our
acquisition of SVB UK and related
investments internationally.
primarily due to technology expenditure,
which we did not mitigate. We also increased
performance-related pay, which resulted in
a further rise of around 1%. Costs grew by
an additional 1%, primarily due to a charge
relating to the FDIC special assessment.
In 2024, we will target growth of
approximately 5% compared with 2023, on a
target basis (2023: $31.1bn). This target reflects
our current business plan for 2024, and
includes an increase in staff compensation,
higher technology spend and investment for
growth and efficiency, in part mitigated by
cost savings from actions taken during 2023.
Our cost target basis for 2024 excludes the
direct cost impact of the disposal in France
and the planned disposal in Canada from the
2023 baseline. It is measured on a constant
currency basis and excludes notable items
and the impact of retranslating the prior year
results of hyperinflationary economies at
constant currency.
Capital and dividend policy
CET1 ratio
14.8%
Dividend payout ratio
50%
At 31 December 2023, our CET1 capital
ratio was 14.8%, which was higher than our
medium-term target range of 14% to 14.5%.
We intend to continue to manage the CET1
ratio to within this range.
exclude from earnings per share material
notable items and related impacts. See page
131 for our calculation of earnings per share.
We aim to retain our dividend payout ratio
of 50% for 2024, excluding material notable
items and related impacts. From 2024 this
will be disclosed as our ‘dividend payout ratio
target basis’.
Interest rate management strategy
Our ambition is to maintain strong, resilient
returns through the interest rate cycle. As
part of our balance sheet structural hedging
and risk management strategy we continue
to seek opportunities to stabilise future
earnings and mitigate downside risk from
interest rate movements. During 2023,
we took actions to increase the size and
duration of our structural hedge. This has
the effect of stabilising our future earnings
and contributed to a reduction in the
sensitivity of banking net interest income
(‘NII’), a new alternative performance
measure introduced in 2023, from changes
in interest rates.
Banking NII adjusts our NII, primarily for
the impact of funding trading and fair value
activities reported in interest expense. It
represents the Group’s banking revenue
that is directly impacted by changes in
interest rates. To supplement banking NII,
we also provide banking NII sensitivity to
demonstrate our revenue sensitivity to
interest rate movements. Management
uses these measures to determine the
deployment of our surplus funding, and to
help optimise our structural hedging and
risk management actions.
In 2023, target basis cost growth was
6% compared with 2022. In addition to
our targeted growth of 3%, there was an
incremental rise of approximately 1%,
The total dividend per share in 2023 of $0.61
resulted in a dividend payout ratio of 50%
of earnings per share. For the purposes of
computing our dividend payout ratio, we
HSBC Holdings plc Annual Report and Accounts 2023
25
Strategic report
Strategic report | Financial overview
Key financial metrics
Reported results
Profit before tax ($m)
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 (%)2
Alternative performance measures
Constant currency profit before tax ($m)
Constant currency cost efficiency ratio (%)
Expected credit losses and other credit impairment charges (‘ECL’) as % of average
gross loans and advances to customers (%)
Expected credit losses and other credit impairment charges (‘ECL’) as % of average
gross loans and advances to customers, including held for sale (%)
Basic earnings per share excluding material notable items and related impacts ($)
Return on average ordinary shareholders’ equity (%)
Return on average tangible equity (%)
Return on average tangible equity excluding strategic transactions and impairment of BoCom (%)
Target basis operating expenses ($m)
Balance sheet
Total assets ($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) ($m)4,5
Liquidity coverage ratio (%)4,5
Net stable funding ratio (%)4,5
Share count
2021
18,906
14,693
69.9
1.20
0.62
0.62
0.25
40
17,400
70.0
(0.07)
(0.07)
N/A
7.1
8.3
N/A
N/A
2021
2,957,939
1,045,814
1,710,574
2,209,513
61.1
198,250
158,193
8.76
7.88
For the year ended
2023
30,348
24,559
48.5
1.66
1.15
1.14
0.61
50
20221
17,058
16,249
64.6
1.42
0.72
0.72
0.32
44
30,348
16,541
48.5
0.36
0.33
1.22
13.6
14.6
15.6
64.8
0.36
0.35
N/A
9.0
10.0
11.3
31,614
29,811
At 31 December
2023
20221
3,038,677
2,949,286
923,561
1,570,303
2,143,758
58.8
177,833
146,927
8.01
7.44
938,535
1,611,647
2,161,746
58.2
185,329
155,710
8.82
8.19
14.8
854,114
20.0
5.6
14.2
15.8
839,720
838,263
19.3
5.8
21.2
5.2
647,505
647,046
688,209
136
133
132
136
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)
19,006
19,135
19,739
19,876
20,073
20,189
Average basic number of $0.50 ordinary shares outstanding (millions)
19,478
19,849
20,197
For reconciliation and analysis of our reported results on a constant currency basis, including lists of notable items, see page 111. Definitions and calculations of other
alternative performance measures are included in ‘Reconciliation of alternative performance measures’ on page 130.
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year ended 31
December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 In 2023, our dividend payout ratio was adjusted for material notable items and related impacts, including all associated income statement impacts relating to those
items. In 2022, our dividend payout ratio was adjusted for the loss on classification to held for sale of our retail banking business in France, items relating to the planned
sale of our banking business in Canada, and the recognition of certain deferred tax assets. No items were adjusted for in 2021.
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. 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 submitted in
regulatory filings. Where differences are significant, we may 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.
26
HSBC Holdings plc Annual Report and Accounts 2023
Financial overview
Basis of presentation
IFRS 17 ‘Insurance Contracts’
On 1 January 2023, HSBC adopted IFRS 17
‘Insurance Contracts’. As required by the
standard, the Group applied the requirements
retrospectively with comparative data
previously published under IFRS 4 ‘Insurance
Contracts’ restated from the 1 January 2022
transition date.
For further details, see ‘Changes to presentation
from 1 January 2023’ on page 100.
Changes to our reporting framework
On 1 January 2023, we updated our financial
reporting framework. We no longer report
‘adjusted’ results, which excluded the
impact of both foreign currency translation
differences and significant items. Instead, we
compute constant currency performance by
adjusting comparative reported results only
for the effects of foreign currency translation
differences between the relevant periods.
Constant currency performance
Constant currency performance is computed
by adjusting reported results of comparative
Reported results (vs 2022)
Reported profit
Reported profit before tax of $30.3bn was
$13.3bn higher. This was driven by a $15.4bn
increase in revenue, primarily due to growth
in net interest income, reflecting the impact of
interest rate rises. The increase also included
a provisional gain of $1.6bn recognised on
the acquisition of SVB UK in 2023, as well as
a year-on-year favourable impact of $2.5bn
associated with the sale of our retail banking
operations in France. This reflected an initial
impairment loss of $2.3bn following the initial
classification of these operations as held
for sale in 2022, a reversal of $2.1bn in the
first quarter of 2023 as the sale became less
certain, and a subsequent impairment loss of
$2.0bn as we reclassified these operations as
held for sale in the fourth quarter of 2023.
These increases were in part offset by an
impairment charge in 2023 of $3.0bn relating
to our investment in BoCom. This impairment
reflected a reduction to the accounting
value-in-use in line with recent market-wide
developments in mainland China. For further
details, see page 101. This impairment will
have no material impact on HSBC’s capital,
capital ratios or distribution capacity and
therefore no impact on dividends or share
buy-backs. Reported operating expenses
decreased, primarily reflecting a reduction in
restructuring and other related costs following
the completion of our cost-saving programme
at the end of 2022, which mitigated growth
notably from higher technology spend, an
increase in the performance-related pay
periods for the effects of foreign currency
translation differences, which distort period-
on-period comparisons.
We consider constant currency performance
to provide useful information for investors by
aligning internal and external reporting, and
reflecting how management assesses period-
on-period performance.
Material notable items are a subset of
notable items, which are excluded from our
earnings per share measure for the purposes
of calculating our dividend payout ratio, and
from 2024 will be referred to as on a ‘dividend
payout ratio target basis’. Categorisation as a
material notable is dependent on the nature
of each item in conjunction with the financial
impact on the Group’s income statement.
The results of our global businesses are
presented on a constant currency basis, which
is consistent with how we manage and assess
global business performance.
Notable items
We separately disclose ‘notable items‘, which
are components of our income statement that
management would consider as outside the
normal course of business and generally
non-recurring in nature.
The tables on pages 112 to 113 and pages
123 to 128 detail the effects of notable items
on each of our global business segments and
legal entities during 2023, 2022 and 2021.
Management view of revenue
on a constant currency basis
Our global business segment commentary
includes tables that provide breakdowns of
revenue on a constant currency basis by major
product. These reflect the basis on which
revenue performance of the businesses is
assessed and managed.
Comparative periods
Unless otherwise stated, all performance
commentary that follows compares our results
in 2023 with those of 2022.
These increases were partly offset by lower
Credit and Lending revenue in CMB and
GBM, mainly driven by a fall in balances and
margin compression, and a decline in revenue
in Equities in GBM, reflecting weaker client
demand and softer market conditions.
Revenue reduced in Markets Treasury due
to the impact of rising interest rates on our
funding costs and flattening yield curves,
partly offset by increases from dynamic risk
management and redeployment of asset
disposals. We incurred losses on asset
disposals of $1.0bn relating to repositioning
and risk management activities in our hold-to-
collect-and-sell portfolio in certain key legal
entities. These actions are accretive to net
interest income and reduce the consumption
of the Group‘s financial resources. This
revenue is allocated to our global businesses.
Revenue in 2023 was also adversely affected
by a $1.4bn impact of hyperinflationary
accounting in Argentina, including the
devaluation of the Argentinian peso, compared
with a $0.4bn adverse impact in 2022.
accrual and the impact of inflation. Reported
ECL of $3.4bn decreased by $0.1bn and
included charges of $1.0bn relating to
exposures in the commercial real estate sector
in mainland China.
Reported profit after tax of $24.6bn was
$8.3bn higher than in 2022. This included a
higher tax expense, in part from the non-
recurrence of a $2.2bn gain in 2022 resulting
from the recognition of a deferred tax asset
from historical tax losses in HSBC Holdings.
Reported revenue
Reported revenue of $66.1bn was $15.4bn or
30% higher, which included a $2.5bn year-
on-year favourable impact relating to the sale
of our retail banking operations in France,
and the recognition of a $1.6bn provisional
gain on the acquisition of SVB UK in 2023, as
mentioned above.
The remaining growth primarily reflected the
impact of interest rate rises, mainly in Global
Payments Solutions (‘GPS’) in CMB and GBM,
Personal Banking and Global Private Banking
in WPB, as well as Securities Services in
GBM. There were also good performances in
Capital Markets and Advisory and Securities
Financing in GBM, as well as in life insurance
and asset management in WPB. An increase
in revenue in Corporate Centre was driven
by Central Treasury, mainly due to the non-
recurrence of adverse fair value movements
on financial instruments, and valuation gains
on structural hedging.
HSBC Holdings plc Annual Report and Accounts 2023
27
Strategic report Strategic report | Financial overview
Reported results continued
Reported results
Net operating income before change in expected credit losses
and other credit impairment charges (‘revenue’)
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures less impairment
Profit before tax
Tax expense
Profit after tax
Notable items
Revenue
Disposals, acquisitions and related costs
Fair value movements on financial instruments1
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Currency translation on revenue notable items
Operating expenses
Disposals, acquisitions and related costs
Impairment of non-financial items
Restructuring and other related costs
Currency translation on operating expenses notable items
Share of profit in associates and joint ventures less impairment
Impairment of interest in associate
1 Fair value movements on non-qualifying hedges in HSBC Holdings.
Reported ECL
Reported ECL of $3.4bn were $0.1bn or
4% lower. The charge in 2023 primarily
comprised stage 3 net charges, notably
related to mainland China commercial real
estate sector exposures. ECL charges in this
sector were $1.0bn in 2023. The charge in
2023 also reflected the impact of continued
economic uncertainty, rising interest rates
and inflationary pressures. The charge in
2022 included $1.3bn of charges related
to mainland China commercial real
estate exposures.
For further details of the calculation of ECL,
see pages 156 to 168.
Reported operating expenses
Reported operating expenses of $32.1bn
were $0.6bn or 2% lower, primarily driven by
lower restructuring and other related costs of
$3.0bn following the completion of our cost
to achieve programme, which concluded at
the end of 2022. The reduction also included
favourable foreign currency translation
differences between the periods of $0.4bn, a
$0.2bn reduction due to a reversal of historical
asset impairments, and the effects of our
continued cost discipline. There was also a
favourable impact of $0.2bn due to the impact
of hyperinflationary accounting in Argentina
in 2023.
These reductions were partly offset by
increases in technology costs, the impacts of
inflation, a higher performance-related pay
accrual and severance payments. There was
also an increase in the UK bank levy of $0.3bn,
including adjustments relating to prior years,
and we incurred a $0.2bn charge in the US
relating to the FDIC special assessment.
The number of employees expressed in full-
time equivalent staff (‘FTE’) at 31 December
2023 was 220,861, an increase of 1,662
compared with 31 December 2022. The
number of contractors at 31 December 2023
was 4,676, a decrease of 1,371 due to the
completion of our cost-saving programme.
Reported share of profit from associates
and joint ventures less impairment
Reported share of profit from associates and
joint ventures included an impairment charge
of $3.0bn relating to our investment in BoCom
due to a reduction to the accounting value-
28
HSBC Holdings plc Annual Report and Accounts 2023
2023
$m
2022
$m
2021
$m
2023 vs 2022
$m
66,058
50,620
49,552
15,438
(3,447)
(3,584)
928
137
62,611
47,036
50,480
15,575
(32,070)
(32,701)
(34,620)
631
%
30
4
33
2
30,541
(193)
30,348
14,335
2,723
17,058
15,860
3,046
18,906
16,206
>100
(2,916)
>(100)
13,290
78
(5,789)
(809)
(4,213)
(4,980)
>(100)
24,559
16,249
14,693
8,310
51
2023
$m
2022
$m
1,298
(2,737)
Impact of
FX
%
(2)
1
(2)
(1)
(6)
—
(6)
2021
$m
—
(221)
(307)
—
—
—
(587)
(618)
(247)
—
(105)
(18)
—
14
—
(977)
—
(321)
—
136
—
(2,882)
(1,836)
(31)
113
(3,000)
—
—
in-use of the investment, resulting in a loss of
$0.2bn in 2023. This compared with a profit of
$2.7bn in 2022. The impact of the impairment
in 2023 was partly offset by an increase in the
share of profit from Saudi Awwal Bank (‘SAB’).
Tax expense
The effective tax rate for 2023 of 19.1% was
higher than the 4.7% in 2022. The effective tax
rate for 2023 was increased by 2.3 percentage
points by the non-deductible impairment of
investments in associates, and reduced by 1.6
percentage points by the release of provisions
for uncertain tax positions and reduced by 1.5
percentage points by the non-taxable bargain
purchase gain on the acquisition of SVB UK.
The effective tax rate for 2022 was reduced by
12.8 percentage points by the recognition of
a deferred tax asset on historical tax losses of
HSBC Holdings as a result of improved profit
forecasts for the UK tax group. Excluding
these items, the effective tax rates were 19.9%
for 2023 and 17.5% for 2022.
Financial overview
Constant currency results
Results – on a constant currency basis
Revenue
ECL
Total operating expenses
Operating profit
Share of profit in associates and joint ventures less impairment
Profit before tax
2023
$m
2022
$m
2021
$m
2023 vs 2022
$m
66,058
49,871
46,079
16,187
(3,447)
(3,630)
758
(32,070)
(32,302)
(32,244)
183
232
%
32
5
1
30,541
(193)
30,348
13,939
2,602
16,541
14,593
2,807
17,400
16,602
>100
(2,795)
>(100)
13,807
83
Profit before tax of $30.3bn was $13.8bn
higher than in 2022 on a constant currency
basis, primarily driven by higher revenue.
Revenue increased by $16.2bn or 32% on a
constant currency basis, which included a
$2.6bn year-on-year favourable impact relating
to the sale of our retail banking operations
in France, and a provisional gain of $1.6bn
recognised on the acquisition of SVB UK in
2023. The remaining increase in revenue was
primarily due to growth in net interest income
from the impact of global interest rate rises.
There was also a good performance from
Capital Markets and Advisory in GBM and
higher revenue in Corporate Centre.
Revenue reduced in Markets Treasury due
to the impact of rising interest rates on our
funding costs and flattening yield curves,
partly offset by increases from dynamic risk
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were $89bn higher than
at 31 December 2022 on a reported basis,
and included the favourable effects of foreign
currency translation differences of $58bn.
Within total assets, there were $114bn of
assets held for sale, mainly related to our retail
banking operations in France and our banking
operations in Canada, which was broadly
unchanged compared with 2022.
On a constant currency basis, total assets rose
by $31bn, mainly from an increase in financial
investments and higher trading balances,
while cash and balances at central banks and
derivative asset balances fell.
Reported loans and advances to customers
increased by $15bn. On a constant currency
basis, loans and advances fell by $3bn, which
included an increase in secured home loans,
previously classified as held for sale in France.
There was mortgage balance growth in our
main legal entity in Hong Kong and in HSBC
UK, although lending fell in CMB and GBM
in our main entity in Hong Kong, including a
reduction in commercial real estate lending.
Reported customer accounts of $1.6tn
increased by $41bn. On a constant currency
basis, they grew by $13bn, notably from
growth in WPB in our main legal entity in Asia
and CMB in Europe.
management and the deployment of asset
disposals. Markets Treasury also incurred
losses on asset disposals of $1.0bn relating to
repositioning and risk management activities
in our hold-to-collect-and-sell portfolio in
certain key legal entities. These actions are
accretive to net interest income and reduce
the consumption of the Group‘s financial
resources. This revenue is allocated to our
global businesses.
ECL were $0.2bn or 5% lower on a constant
currency basis. The charge in 2023 primarily
comprised stage 3 net charges, notably
related to mainland China commercial real
estate sector exposures. ECL charges in this
sector were $1.0bn in 2023. The charge in
2023 also reflected the impact of continued
economic uncertainty, rising interest rates and
inflationary pressures.
Operating expenses were $0.2bn or 1% lower
on a constant currency basis, as reduced
restructuring and other related costs following
the completion of our cost-saving programme
were broadly offset by increases in technology
costs, the impacts of inflation, and a higher
performance-related pay accrual. There
was also an increase in the UK bank levy,
including adjustments relating to prior years,
and a charge in the US relating to a special
assessment of the FDIC.
Share of profit in associates and joint
ventures less impairment included a $3.0bn
impairment of our investment in BoCom due
to a revision to the accounting value-in-use of
the investment, resulting in a loss of $0.2bn in
2023. This compared with a share of profit of
$2.6bn in 2022 on a constant currency basis.
The impact of the impairment was partly offset
by an increase in the share of profit from SAB.
Loans and advances to customers as a
percentage of customer accounts was 58.2%,
compared with 58.8% at 31 December 2022.
adjustments, which was partly offset by an
increase in risk-weighted assets (‘RWAs’)
during the year.
Distributable reserves
The distributable reserves of HSBC Holdings
at 31 December 2023 were $30.9bn, a
$4.3bn decrease since 2022, primarily driven
by $18.6bn in ordinary dividend, additional
tier 1 coupon and share buy-back payments,
offset by profits generated and other reserve
movements of $14.3bn. Distributable reserves
are sensitive to impairments of investments in
subsidiaries to the extent they are not offset
by the realisation of related reserves. The
impairment of BoCom in 2023 did not impact
distributable reserves, as its intermediate
parent and direct subsidiary of HSBC
Holdings, HSBC Asia Holdings Limited, was
not impaired.
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 2023 was
14.8%, up 0.6 percentage points from 2022,
mainly driven by capital generation net of
dividends, share buy-backs and regulatory
Liquidity position
We actively manage the Group’s liquidity and
funding to support the 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
2023, the average high-quality liquid assets
we held was $647.5bn. This excludes high-
quality liquid assets in legal entities which are
not transferable due to local restrictions.
For further details, see page 206.
Total assets
($bn)
$3,039bn
(2022: $2,949bn)
Common equity tier 1 ratio
(%)
14.8%
(2022: 14.2%)
HSBC Holdings plc Annual Report and Accounts 2023
29
Strategic report
Strategic report | Global businesses
Wealth and Personal Banking
We serve 41 million customers globally, including
6.7 million who are international, from retail customers
to ultra high net worth individuals and their families.
Contribution to Group profit before tax
$11.5bn
38%
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,
developing our transactional banking and
lending capabilities, and addressing our
customers’ international needs.
Performance in 2023 benefited from rising
interest rates and balance sheet growth,
including Wealth deposits. There was also
positive growth in Wealth, including strong
sales in insurance and net new invested
assets growth. The results included a
broadly stable ECL charge, despite ongoing
macroeconomic uncertainty.
Results – on a constant currency basis
2023
$m
2022
$m
2021
2023 vs 2022
$m
$m
%
31
11
(3)
Calculation is based on profit before tax of our
global businesses excluding Corporate Centre.
Net operating income
27,275
20,884
20,972
6,391
ECL
Operating expenses
(1,058)
(1,186)
195
(14,738)
(14,248)
(15,338)
128
(490)
Launching our
international proposition
We launched our redesigned international
proposition in February 2023 to strengthen
our position as a leading banking
provider for international customers,
which is WPB’s fastest-growing segment
representing 40% of revenue in 2023. The
refresh involved six services launched
across 10 international markets, with the
aim of helping customers move and invest
overseas easier.
This included supporting our international
customers, who generate around
three times the average revenue of a
domestic customer, so they can open
an international account digitally pre-
departure, gain access to a credit card
in their new market with an appropriate
limit, and make use of quick, competitively
priced cross-border payment solutions
with 24/7 global support to manage their
international needs.
Share of profit in associates and JVs
Profit before tax
RoTE (annualised)1 (%)
65
11,544
28.5
30
5,480
13.8
36
35 >100
5,865
6,064 >100
1 RoTE (annualised) in 2022 included a 4.7 percentage point adverse impact from the impairment losses
relating to the sale of our retail banking operations in France.
Divisional highlights
$84bn
WPB net new invested assets in 2023,
up 6% compared with 2022.
6.7 million
International customers at 31 December 2023,
an increase of 12% compared with 2022.
Constant currency profit before tax
($bn)
Constant currency net operating income
($bn)
$11.5bn
$27.3bn
2023
2022
2021
2019
11.5
2023
5.5
5.9
2022
2021
2019
27.3
20.9
21.0
International customers are those who bank with us in our 11 key markets, excluding Canada, and 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.
30
HSBC Holdings plc Annual Report and Accounts 2023
Global businesses
Management view of revenue
Wealth
– investment distribution
– Global Private Banking
net interest income
non-interest income
– life insurance (IFRS 17)1
– life insurance manufacturing (IFRS 4)1
– asset management
Personal Banking
– net interest
– non-interest income
Other2
– of which: impairment (loss)/reversal relating to the sale of
our retail banking operations in France3
2023
$m
7,524
2,528
2,252
1,155
1,097
1,462
1,282
20,463
19,124
1,339
(712)
4
2022
$m
6,970
2,469
2,016
965
1,051
1,354
1,131
15,939
14,631
1,308
(2,025)
(2,354)
2021
$m
8,812
3,367
1,777
630
1,147
—
2,512
1,156
11,648
10,298
1,350
512
—
Net operating income4
27,275
20,884
20,972
2023 vs 2022
$m
554
59
236
190
46
108
151
4,524
4,493
31
1,313
2,358
6,391
%
8
2
12
20
4
8
13
28
31
2
65
>100
31
1 From 1 January 2023 we adopted IFRS 17 and have restated 2022 financial data. Data for 2021 is not restated, and ‘Life insurance manufacturing’ is disclosed on
the basis of preparation prevailing in 2021, which includes our manufacturing business only. Insurance distribution of $518m is presented in ‘investment distribution’.
2 Other’ includes Markets Treasury, HSBC Holdings interest expense and hyperinflation. It also includes the distribution and manufacturing (where applicable) of
retail and credit protection insurance, disposal gains and other non-product-specific income.
3 The amounts associated with the sale of our retail banking operations in France include all related impacts disclosed in notable items, which are presented across
various lines in our consolidated income statement.
4 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Notable items
Revenue
Disposals, acquisitions and related costs
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Currency translation on revenue notable items
Operating expenses
Disposals, acquisitions and related costs
Impairment of non-financial items
Restructuring and other related costs
Currency translation on operating expenses notable items
2023
$m
4
—
(391)
—
(53)
—
20
—
2022
$m
(2,212)
98
—
(142)
(7)
—
(357)
—
2021
$m
—
14
—
(5)
—
(587)
(296)
4
Financial performance
Profit before tax of $11.5bn was $6.1bn higher
than in 2022 on a constant currency basis.
The growth in revenue reflected growth
in both Personal Banking and Wealth. The
increase also reflected a $2.4bn year-on-
year impact relating to the sale of our retail
banking operations in France. ECL remained
broadly stable and operating expenses grew
by $0.5bn.
Revenue of $27.3bn was $6.4bn or 31% higher
on a constant currency basis.
In Wealth, revenue of $7.5bn was up
$0.6bn or 8%.
– Global Private Banking revenue was $0.2bn
or 12% higher due to rising interest rates
and deposit growth of $11bn or 15%.
– Asset management revenue was $0.2bn or
13% higher, driven by an increase in assets
under management of 15%, and from
positive market movements.
– Life insurance revenue rose by $0.1bn or
8%, mainly driven by an increase of $0.2bn
in contractual service margin (‘CSM’)
earnings and favourable net investment
returns of $0.1bn, partly offset by a $0.3bn
loss from corrections to historical valuation
estimates. There was strong growth in the
new business CSM, up $0.6bn or 47%,
mainly in Hong Kong.
In Personal Banking, revenue of $20.5bn was
up $4.5bn or 28%.
– Net interest income was $4.5bn or 31%
higher due to rising interest rates and
balance sheet growth. Mortgage lending
balances rose in Hong Kong by $6bn and
in HSBC UK by $5bn. Unsecured lending
balances increased by $3bn, notably in
HSBC UK, Mexico and Hong Kong. In
addition, there was an increase of $7.8bn
from a reclassification of secured loans in
France from held for sale. Deposit balances
remained broadly stable as growth in Asia
was partly offset by outflows, mainly in
HSBC UK due to higher cost of living and
competitive pressures, and in our main
entity in the US.
Other revenue increased by $1.3bn, mainly
due to a $2.4bn year-on-year impact relating
to the sale of our retail banking operations
in France. This was partly offset by a $0.7bn
reduction in Markets Treasury allocated
revenue, including disposal losses on
repositioning and an adverse impact of $0.5bn
due to hyperinflationary accounting.
ECL were $1.1bn in 2023, down $0.1bn
on a constant currency basis, as credit
performance remained resilient, despite a rise
in inflationary pressures.
Operating expenses of $14.7bn were $0.5bn
or 3% higher on a constant currency basis,
mainly due to continued investments,
notably in wealth in Asia, higher technology
spend, higher performance-related pay
and the impact of higher inflation. These
increases were partly offset by a reduction in
restructuring and other related costs following
the completion of our cost-saving programme
at the end of 2022 and ongoing cost discipline.
HSBC Holdings plc Annual Report and Accounts 2023
31
Strategic report Strategic report | Global businesses
Commercial Banking
We operate in more than 50 markets, serving around 1.3 million
customers, ranging from small enterprises to large companies
operating globally including those in the new innovation economy.
Contribution to Group profit before tax
$13.3bn
43%
We partner with businesses around the
world, supporting every stage of their
growth, their international ambitions and
their sustainability transitions. We deliver
value to our clients through our
international network, financing strength,
digital capabilities and our universal
banking capabilities, including our
industry leading global trade and
payments solutions.
We aim to be a leader in the innovation
economy, with the launch of HSBC Innovation
Banking in 2023 enhancing our proposition
to clients in the technology and healthcare
sectors. During 2023, we delivered a
strong revenue performance, notably in
Global Payments Solutions (‘GPS’) and in
collaboration revenue from GBM products.
Calculation is based on profit before tax of our
global businesses excluding Corporate Centre.
Backing a manufacturer
in its international
expansion
When Polygroup, a leading
manufacturing business specialising in
seasonal goods, decided to expand into
new international markets, it was able to
take advantage of our global network and
local market insights.
The group, which employs more than
15,000 people across four continents,
partnered with us to expand to new
locations in mainland China, Indonesia
and Mexico. With our broad range
of banking capabilities across our
international network, we were able to
provide capital expenditure financing to
help build new manufacturing facilities.
We also supported Polygroup in
improving its cash flow during off-peak
seasons by extending tailor-made
trade solutions delivered through an
international digital platform, and we
continue to support it on its ESG journey.
Results – on a constant currency basis
2023
$m
2022
$m
2021
2023 vs 2022
$m
$m
Net operating income
22,867
16,283
12,699
6,584
ECL
Operating expenses
Share of profit/(loss) in associates
and JVs
Profit before tax
RoTE (annualised)1 (%)
(2,062)
(7,524)
(1,862)
(6,894)
(1)
—
339
(6,691)
1
(200)
(630)
(1)
13,280
23.4
7,527
13.7
6,348
5,753
76
%
40
(11)
(9)
—
1 RoTE (annualised) in 2023 included a 3.1 percentage point favourable impact of the provisional gain
recognised on the acquisition of SVB UK.
Divisional highlights
78%
Increase in GPS revenue.
10%
Increase in collaboration income from the sale
of GBM products to CMB clients.
Constant currency profit before tax
($bn)
Constant currency net operating income
($bn)
$13.3bn
$22.9bn
2023
2022
2021
2019
13.3
2023
7.5
6.3
2022
2021
2019
22.9
16.3
12.7
32
HSBC Holdings plc Annual Report and Accounts 2023
Global businesses
Management view of 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
2023
$m
2,025
5,343
12,381
3,118
1,299
– of which: provisional gain on the acquisition of Silicon Valley
1,591
2022
$m
2,075
5,745
6,966
1,497
1,182
—
2021
$m
1,832
5,752
3,411
1,704
1,008
—
Bank UK Limited
Net operating income2
– of which: transaction banking3
22,867
15,393
16,283
9,940
12,699
5,971
2023 vs 2022
$m
(50)
(402)
5,415
1,621
117
1,591
6,584
5,453
%
(2)
(7)
78
>100
10
>100
40
55
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 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’).
3 Transaction banking comprises Global Trade and Receivables Finance, Global Payments Solutions and CMB’s share of Global Foreign Exchange (shown within
‘share of revenue for Markets and Securities Services and Banking products’).
Notable items
Revenue
Disposals, acquisitions and related costs
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Currency translation on revenue notable items
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs
Currency translation on operating expenses notable items
2023
$m
1,591
—
(316)
—
(55)
32
—
2022
$m
—
(16)
—
1
—
(266)
(5)
2021
$m
—
(3)
—
(6)
—
(83)
7
Financial performance
Profit before tax of $13.3bn was $5.8bn
or 76% higher than in 2022 on a constant
currency basis. This was driven by an increase
in revenue in all our main legal entities,
primarily from a $5.3bn increase in GPS net
interest income. It also included a provisional
gain of $1.6bn from HSBC UK’s acquisition of
SVB UK. These increases were partly offset
by a rise in operating expenses as a result
of the SVB UK acquisition and increases in
technology costs.
Revenue of $22.9bn was $6.6bn or 40%
higher on a constant currency basis.
– In GPS, revenue increased by $5.4bn,
with growth in all main legal entities. The
increase was driven by higher margins,
reflecting interest rate rises and repricing
actions, which were partly offset by lower
average balances notably due to a market-
wide reduction in the UK. There was a
6% increase in fee income, as business
initiatives drove growth in transaction
banking, with higher volumes in cards and
international payments.
– In Global Trade and Receivables Finance
(‘GTRF’), revenue decreased by $0.1bn or
2%, driven by lower average balances in
our main legal entities in Asia and Europe,
primarily reflecting the softer trade cycle,
partly offset by wider margins in our legal
entities in Latin America and the UK. In
addition, there was a $28m or 3% increase
in fee income.
– In Credit and Lending, revenue decreased
by $0.4bn or 7%, notably in our main legal
entities in Asia and Europe, primarily due
to margin compression. It also reflected
lower balances due to softer demand from
customers across these markets, and
reduced exposures in the commercial real
estate sector, notably in mainland China
and the US.
– In GBM products, Insurance and
Investments and Other, revenue increased
by $1.6bn, driven by incremental revenue
from HSBC Innovation Banking of $2.1bn,
which included the provisional gain of
$1.6bn on the acquisition of SVB UK.
There was also an increase in collaboration
revenue from GBM products of $0.1bn,
notably in Foreign Exchange. These
increases were partly offset by a reduction
in Markets Treasury allocated income
of $0.6bn, including disposal losses on
portfolio repositioning and the adverse
impacts of hyperinflationary accounting of
$0.6bn. The remaining increase in revenue
reflected higher interest on capital held in
the business, partly offset by higher HSBC
Holdings interest expense.
ECL were a charge of $2.1bn, compared with
a charge of $1.9bn in 2022 on a constant
currency basis. The increase of $0.2bn was
mainly driven by higher stage 3 charges in
the UK, and included provisions from HSBC
Innovation Banking, and charges in the Middle
East. ECL in both periods reflected charges
relating to the commercial real estate sector
in mainland China, although they were lower
in 2023.
Operating expenses of $7.5bn were higher
by $0.6bn on a constant currency basis. The
increase reflected incremental costs in HSBC
Innovation Banking of $0.3bn including the
acquisition and integration of SVB UK, higher
performance-related pay, ongoing investment
in technology and inflationary impacts. These
increases were in part mitigated by the impact
of continued cost discipline and a reduction in
restructuring and other related costs following
the completion of our cost-saving programme
at the end of 2022.
HSBC Holdings plc Annual Report and Accounts 2023
33
Strategic report Strategic report | 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 profit before tax
$5.9bn
19%
We are a leader in facilitating global trade
and payments, particularly into and
within Asia and the Middle East, helping
to enable 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.
Profit before tax increased in 2023, reflecting
a strong revenue performance due to rising
interest rates and from Capital Markets and
Advisory. This was partly offset by weaker
client activity in our Equities business.
We continued to invest in technology to
modernise our infrastructure, innovate
product capabilities and support our clients.
Calculation is based on profit before tax of our
global businesses excluding Corporate Centre.
Leading on a $2.4bn
rights issue for Link REIT
Our international connectivity and
balance sheet strength help support
clients when they need to carry out
large strategic transactions in the
capital markets.
In March 2023, we supported Asia’s
largest real estate investment trust to
complete the largest ever rights issue
from a non-bank issuer in Hong Kong.
We acted as sole global coordinator and
lead underwriter on a $2.4bn one-for-five
rights issue for Link REIT, which was
conducted to strengthen its capital base
and position itself for the next phase
of growth.
The transaction was the largest ever
rights issue in the Asian real estate sector
and the largest equity offering in Hong
Kong since September 2021.
Results – on a constant currency basis
Net operating income
ECL
Operating expenses
Share of profit/(loss) in associates
and JVs
Profit before tax
RoTE (annualised) (%)
2021
2023 vs 2022
2023
$m
2022
$m
$m
16,115
14,602
13,086
(326)
(573)
221
(9,865)
(9,338)
(9,255)
$m
1,513
247
(527)
%
10
43
(6)
—
(2)
—
2
100
5,924
11.4
4,689
4,052
1,235
26
9.8
Divisional highlights
11.4%
RoTE in 2023, up 1.6 percentage points
compared with 2022.
56%
Increase in GPS revenue.
Constant currency profit before tax
($bn)
Constant currency net operating income
($bn)
$5.9bn
$16.1bn
2023
2022
2021
2019
5.9
2023
4.7
4.1
2022
2021
2019
16.1
14.6
13.1
34
HSBC Holdings plc Annual Report and Accounts 2023
Global businesses
Management view of revenue
Markets and Securities Services
– Securities Services
– 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 Advisory
– Other1
GBM Other
– Principal Investments
– Other2
Net operating income3
– of which: transaction banking4
2023
$m
9,008
2,411
823
4,133
552
1,116
(27)
8,540
669
4,483
1,970
1,033
385
(1,433)
(4)
(1,429)
16,115
11,696
2022
$m
8,874
2,022
697
4,137
1,003
918
97
6,721
678
2,879
2,231
731
202
(993)
55
(1,048)
14,602
9,716
2021
$m
7,684
1,776
819
3,097
1,156
827
9
5,858
626
1,581
2,332
1,180
139
(456)
372
(828)
13,086
7,080
2023 vs 2022
$m
134
389
126
(4)
(451)
198
(124)
1,819
(9)
1,604
(261)
302
183
(440)
(59)
(381)
1,513
1,980
%
2
19
18
—
(45)
22
>(100)
27
(1)
56
(12)
41
91
(44)
>(100)
(36)
10
20
1 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.
2 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinflation.
3 ‘Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
4 Transaction banking comprises Securities Services, Global Foreign Exchange (net of revenue shared with CMB), Global Trade and Receivables Finance and Global
Payments Solutions.
Notable items
Revenue
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Currency translation on revenue notable items
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs
Currency translation on operating expenses notable items
2023
$m
—
(270)
—
3
21
—
2022
$m
2021
$m
(184)
(395)
—
3
—
(252)
(4)
—
25
—
(195)
20
Financial performance
Profit before tax of $5.9bn was $1.2bn or 26%
higher than in 2022 on a constant currency
basis. This was driven by an increase in
revenue of $1.5bn or 10%, notably from higher
net interest income in GPS and Securities
Services. ECL fell by $0.2bn, while operating
expenses increased by $0.5bn or 6%.
Revenue of $16.1bn was $1.5bn or 10% higher
on a constant currency basis.
In Markets and Securities Services (‘MSS’),
revenue was marginally higher by $0.1bn or 2%.
– Securities Services revenue grew by $0.4bn
or 19%, from higher net interest income as
global interest rates rose.
– Global Debt Markets revenue increased by
$0.1bn or 18%, from favourable primary
market conditions and higher client trading
volumes as the market environment
normalised. The 2022 performance
was impacted by lower primary activity
and client flow due to uncertainty and
challenging market conditions.
– Global Foreign Exchange revenue was
largely in line with 2022 and reflected
continued elevated client activity and trading
facilitation, as we captured the benefit of
market-wide volatility relating to interest rate
and inflation differentials.
– Equities revenue fell by $0.5bn or 45%, due
to lower client activity as a result of reduced
market volatility.
– Securities Financing revenue rose by $0.2bn
or 22%, driven by higher client flows,
growth in prime finance and the onboarding
of new clients.
In Banking, revenue increased by
$1.8bn or 27%.
– GPS revenue increased by $1.6bn or 56%,
driven by margin growth as a result of the
rising global interest rate environment and
business pricing actions.
– Capital Markets and Advisory revenue rose
by $0.3bn or 41%, primarily from increased
financing activities and higher interest
rates, against a backdrop of a smaller global
market fee pool.
– Credit and Lending revenue decreased by
$0.3bn or 12%, due to weaker client demand.
– Banking Other revenue increased by $0.2bn
or 91%, from higher interest on capital held
in the business.
In GBM Other, there was a $0.4bn reduction
in revenue, mainly due to lower Markets
Treasury allocated revenue, including disposal
losses on repositioning, higher HSBC Holdings
interest expense and the adverse impacts of
hyperinflationary accounting.
ECL of $0.3bn were $0.2bn lower on
a constant currency basis, reflecting a
favourable credit performance, including lower
charges in the commercial real estate sector in
mainland China.
Operating expenses of $9.9bn increased by
$0.5bn or 6% on a constant currency basis
due to the impact of higher inflation and
strategic investments, which was in part
mitigated by business actions and a reduction
in restructuring and other related costs
following the completion of our cost-saving
programme at the end of 2022.
HSBC Holdings plc Annual Report and Accounts 2023
35
Strategic report Strategic report | Global businesses
Corporate Centre
The results of Corporate Centre primarily comprise the share of profit
from our interests in our associates and joint ventures and related
impairments. It also includes Central Treasury, stewardship costs
and consolidation adjustments.
Corporate Centre performance in 2023
reflected the recognition of an impairment
in our investment in our associate BoCom.
Additionally, the non-recurrence of
restructuring and other related costs following
the completion of our cost-saving programme
at the end of 2022 resulted in lower operating
expenses, while higher revenue included
the non-recurrence of adverse fair value
movements on financial instruments and the
impacts of restructuring our business
in Europe.
Financial performance
Loss before tax of $0.4bn was $0.8bn
or 65% lower than the loss in 2022, on a
constant currency basis. This reflected lower
restructuring and other related costs and
higher revenue, partly offset by the impact of
an impairment of our investment in BoCom.
This impairment reflects a reduction to the
accounting value-in-use in line with recent
market-wide developments in mainland China.
For further details, see page 101.
Revenue was $1.7bn or 90% higher than
in 2022 on a constant currency basis.
The increase was primarily from the non-
recurrence of adverse fair value movements
on financial instruments in Central Treasury
and structural hedges, together with the non-
recurrence of losses and charges associated
with the disposals of our branch operations in
Greece and our French retail banking business,
the planned disposal of our business in Russia,
and legacy portfolios. These favourable year-
on-year impacts were partly offset by adverse
fair value movements in 2023 on foreign
exchange hedges related to the planned sale
of our banking business in Canada.
Operating expenses decreased by $1.9bn on
a constant currency basis, primarily driven
by the non-recurrence of restructuring and
other related costs following the completion
of our cost-saving programme at the end
of 2022. These were partly offset by the
recognition of a charge related to the FDIC
special assessment, costs associated with
the disposal of our retail banking operations
in France and the planned disposal of our
banking business in Canada, and a higher
allocation of the UK bank levy, including
adjustments related to prior years. Since 2021,
the UK bank levy and any related adjustments
have been allocated across our global
businesses and Corporate Centre, primarily
to GBM.
Results – on a constant currency basis
Net operating income
ECL
Operating expenses
2023
$m
2022
$m
(199)
(1,898)
(9)
(1)
57
2021
2023 vs 2022
$m
(678)
3
$m
1,699
8
%
90
89
(1,822)
(960)
1,879 >100
Share of profit in associates and joint
ventures less impairment
(257)
2,574
2,770
(2,831) >(100)
– of which: impairment loss relating
(3,000)
—
—
(3,000)
to our investment in BoCom
Profit/loss before tax
RoTE (annualised) (%)
Management view of revenue
Central Treasury1
Legacy portfolios
Other2,3
Net operating income4
(400)
(1.0)
2023
$m
99
3
(301)
(199)
(1,155)
1,135
755
65
2.8
2022
$m
(742)
(174)
(982)
(1,898)
2021
$m
(324)
(54)
(300)
(678)
2023 vs 2022
$m
841
177
681
1,699
%
>100
>100
69
90
1 Central Treasury comprises valuation differences on issued long-term debt and associated swaps and fair
value movements on financial instruments.
2 Other comprises consolidation adjustments, funding charges on property and technology assets,
revaluation gains and losses on investment properties and property disposals, gains and losses on certain
planned disposals, including charges relating to our business in Russia, and other revenue items not
allocated to global businesses.
3 Revenue from Markets Treasury, HSBC Holdings net interest expense and hyperinflation are allocated out
to the global businesses, to align them better with their revenue and expense. The total Markets Treasury
revenue component of this allocation for 2023 was $(139)m (2022: $1,431m; 2021: $2,142m).
4 ‘Net operating income’ means net operating income before change in expected credit losses and other
credit impairment charges (also referred to as ‘revenue’).
Notable items
Revenue
Disposals, acquisitions and related costs
Fair value movements on financial instruments
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Currency translation on revenue notable items
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs
Currency translation on operating expenses notable items
Impairment of interest in associate
2023
$m
2022
$m
2021
$m
(297)
14
—
—
—
(525)
(618)
(145)
—
33
—
(221)
77
—
(16)
(216)
(11)
—
63
—
(3,000)
(2,007)
(1,262)
(22)
—
81
—
Share of profit in associates and joint ventures
in 2023 included an impairment charge of
$3.0bn in 2023 relating to our investment in
BoCom due to a reduction of the accounting
value-in-use of our investment, resulting in a
loss of $0.3bn. This compared with a share
of profit of $2.6bn in 2022. The impact of the
impairment was partly offset by growth of
$0.2bn, mainly driven by an increase in the
share of profits from SAB.
36
HSBC Holdings plc Annual Report and Accounts 2023
Risk overview
Risk overview
Active risk management helps us to achieve our strategy,
serve our customers and communities and grow our
business safely.
Managing risk
The global economy proved more resilient in
2023 than had been expected, supported by
strong growth in the US, and a stabilisation in
China’s economy, although there continues
to be uncertainty and weakness in Europe. In
most key markets, a fall in energy prices and
other commodity prices facilitated a decrease
in inflation. Central banks in most developed
markets are expected to have concluded
monetary policy tightening in the second half
of 2023 and to start reducing interest rates in
2024. Certain emerging market central banks
began reducing interest rates during 2023.
However, interest rates in the medium term
are likely to remain materially higher than in
recent years.
Geopolitical tensions are a source of
significant risk, including the ongoing Russia-
Ukraine and Israel-Hamas wars. Both could
have significant global economic and political
consequences. The Israel-Hamas war has
led to renewed volatility in energy prices, and
recent attacks on commercial shipping in the
Red Sea and the counter-measures taken to
improve security have begun to disrupt supply
chains. These developments have the potential
to halt or reverse the recent decline in inflation
especially in Europe and North America.
Sanctions and trade restrictions are complex,
novel and evolving. In particular, the US, the
UK and the EU, as well as other countries,
have imposed significant sanctions and trade
restrictions against Russia. In December 2023,
the US established a new secondary sanctions
regime, providing itself broad discretion to
impose severe sanctions on non-US banks
that are knowingly or even unknowingly
engaged in certain transactions or services
involving Russia’s military-industrial base.
This creates challenges associated with the
detection or prevention of third-party activities
beyond HSBC’s control. The imposition of
such sanctions against any non-US HSBC
entity could result in significant adverse
commercial, operational and reputational
consequences for HSBC.
The relationships between China and
several other countries, including the US
and the UK, remain complex. Supply chains
remain vulnerable to a deterioration in these
relationships and this has resulted in efforts
to de-risk certain sectors by reshoring
manufacturing activities. The US, the UK, the
EU and other countries have imposed various
sanctions and trade restrictions on Chinese
Key risk appetite metrics
Component
Measure
Capital
CET1 ratio – end point basis
Change in
expected credit
losses and
other credit
impairment
charges
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%
2023
14.8%
0.21%
≤0.45%
0.40%
the right support to customers in line with
regulatory, government and wider stakeholder
expectations. This follows our adoption of the
UK government’s Mortgage Charter released
in June 2023.
We engage closely with regulators to help
ensure that we continue to meet their
expectations regarding financial institutions’
activities to support economies during times
of market volatility.
Our approach to macroeconomic scenarios
in relation to IFRS 9 ‘Financial Instruments’
remained unchanged in the fourth quarter
of 2023 compared with the corresponding
period in 2022. Adjustments to the design
and narrative of the most severe downside
scenario were made to reflect increased
geopolitical risks.
In addition, management adjustments to ECL
were applied to reflect persisting uncertainty
in certain sectors, driven by inflation, interest
rate sensitivity and other macroeconomic
risks, which were not fully captured by
our models.
We continue to monitor, and seek to manage,
the potential implications of all the above
developments on our customers and our
business. While the financial performance
of our operations varies by geography, our
balance sheet and liquidity remained strong.
For further details of our Central and other
scenarios, see ‘Measurement uncertainty
and sensitivity analysis of ECL estimates’
on page 156.
persons and companies. The approach
of countries to strategic competition and
engagement with China continues to develop.
In response, China has imposed sanctions,
trade restrictions and law enforcement
measures. Further sanctions or counter-
sanctions may adversely affect the Group,
its customers and various markets.
Fiscal deficits are expected to remain large
in both developed and emerging markets, as
public spending on social welfare, defence
and climate transition initiatives is expected
to remain high. In many countries, the fiscal
response to the Covid-19 pandemic has also
left a very high public debt burden. Against
a backdrop of slower economic growth and
high interest rates, elevated borrowing costs
could increase the strains on highly
indebted sovereigns.
Political changes may also have implications
for policy. Many countries are expected to
hold elections in 2024. This may result in
uncertainty in some markets in response to
domestic political priorities.
Sectoral risks are also a focus, and the real
estate sector in particular faces challenges in
many of our major markets. In mainland China,
commercial real estate conditions remain
distressed and signs of a material or sustained
recovery are yet to emerge. Market data
continues to reflect reduced investment and
weak sentiment in the short term, although
authorities are expanding fiscal and monetary
support to the economy including specific
measures to support developers and stimulate
housing demand. We continue to closely
monitor this sector, and take action to manage
our commercial real estate portfolio risk.
The impact of the rising cost of living on retail
customers is a key risk for our society. Our
primary concern is to ensure that we offer
HSBC Holdings plc Annual Report and Accounts 2023
37
Strategic report Strategic report | Risk overview
Managing risk continued
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.
At 31 December 2023, our CET1 ratio and
ECL charges were within their defined risk
appetite thresholds. Our CET1 capital ratio
at 31 December 2023 was 14.8%, up 0.6
percentage points from 2022, mainly driven
by capital generation net of dividends, share
buy-backs and regulatory adjustments, partly
offset by an increase in RWAs during the
year. For further details of the key drivers
of the overall CET1 ratio, see ‘Own funds
disclosure’ on page 207. Wholesale ECL
charges during the year reflected the default of
several mainland China commercial real estate
developer clients. Wholesale ECL charges fell
outside of appetite in the first half of 2023,
although returned within appetite during the
second half of 2023, due to relatively lower
defaults in the UK and most other markets.
During 2023, we enhanced the coverage of
interest rate risk metrics in the banking book
within the Group’s appetite statement.
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 to review and calibrate as required
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.
In January 2023, HSBC Holdings and HSBC
UK, its UK ring-fenced bank, submitted the
internally modelled results of the Bank of
England’s (‘BoE’) 2022–2023 annual cyclical
scenario to the regulator. The BoE uses
Top and emerging risks
In the second half of 2023, we ran further
internal climate scenario analyses. The
outcomes were used to identify challenges
and opportunities to our net zero strategy,
inform capital planning and risk appetite, as
well as to respond to climate stress tests for
regulators, including the Hong Kong Monetary
Authority and the Central Bank of the United
Arab Emirates.
For further details of our approach to climate risk
stress testing, see ‘Insights from scenario
analysis’ on page 225.
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, which 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. In our approach to defending
against these threats, we invest in business
and technical controls to help us detect,
manage and recover from issues in a
timely manner.
We are working to ensure that we balance the
opportunity AI presents to accelerate delivery
of our strategy with the need to ensure
appropriate controls are in place to mitigate
the associated risks. HSBC is committed
to using AI ethically and responsibly. We
continue to refine and embed robust and
effective governance and controls into our
risk management processes to help meet
the Group’s needs and increasing regulatory
expectations for when AI is both developed
internally and enabled through third parties.
We continue to focus on improving the quality
and timeliness of the data used to inform
management decisions, and are progressing
with the implementation of our strategic and
regulatory change initiatives to help deliver
the right outcomes for our customers, people,
investors and communities.
For further details of our risk management
framework and risks associated with our banking
and insurance manufacturing operations, see
pages 137 and 145, respectively.
the annual cyclical scenario stress test to
determine the banking sector’s ability to
withstand an adverse scenario and continue to
serve UK households and businesses.
The results were published on 12 July 2023
by the BoE in its Financial Stability Report
and indicated that both HSBC Holdings and
HSBC UK are sufficiently capitalised with
a CET1 capital ratio remaining well above
the regulatory reference rate on both an
IFRS 9 transitional basis and on a
non-transitional basis.
During the second half of 2023, the Group-
wide internal stress test was completed
alongside testing of the Group’s strategy. The
concluding results of the Group-wide internal
stress test provided updates to the Group
Risk Committee in support of its assessment
of adequacy of HSBC Holdings capital levels.
The underlying conclusions drawn from this
exercise will also be included in the Group
internal capital adequacy assessment process
(‘ICAAP‘) in the first quarter of 2024.
Climate risk
Climate risk relates to the financial and
non-financial impacts that may arise as a
consequence of climate change and the move
to a net zero economy. Climate risk can impact
us either directly or through our relationships
with our clients. These include the potential
risks 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.
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 traditional risk types.
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 42.
Climate stress tests
To support the requirements for assessing the
impacts of climate change, we continue to
develop a set of capabilities to execute climate
stress testing and scenario analysis. These are
used to help improve our understanding of
risk exposures for managing risk and business
decision making.
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.
During 2023, we removed Ibor transition as a
top risk given the cessation of the publication
of US dollar Libor in June 2023. We continue to
monitor closely the identified risks and ensure
management actions are in place, as required.
38
HSBC Holdings plc Annual Report and Accounts 2023
Risk overview
Risk
Trend Description
Externally driven
Geopolitical and
macroeconomic
risks
Technology and
cybersecurity risk
Environmental,
social and
governance (‘ESG’)
risks
Financial crime risk
Digitalisation and
technological
advances
Evolving regulatory
environment risk
Internally driven
Data risk
Risks arising from
the receipt of
services from
third parties
Model risk
Change execution
risk
Risks associated
with workforce
capability, capacity
and environmental
factors with potential
impact on growth
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. Conflict in certain regions and geopolitical tensions are creating a more complicated business
environment. Despite expected reductions, global interest rates are nevertheless likely to remain high in 2024,
which could slow the growth of the global economy and affect our credit portfolio.
There is a risk of service disruption or loss of data resulting from technology failures or malicious activities by
internal or external threats. We continue to monitor changes to the threat landscape, including those arising from
ongoing geopolitical and macroeconomic events, and the impact this may have on third-party risk management.
We operate a continuous improvement programme to help protect our technology operations and counter a
fast-evolving cyber threat environment.
We are subject to ESG risks including in relation to climate change, nature and human rights. These risks have
increased owing to the pace and volume of regulatory developments globally, increasing frequency of severe
weather events, 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 risks, including reputational, legal and regulatory compliance risks.
We are exposed to financial crime risk from our customers, staff and third parties engaging in criminal activity.
The financial crime risk environment is heightened due to increasingly complex geopolitical challenges, the
macroeconomic outlook, the complex and dynamic nature of sanctions compliance, evolving financial crime
regulations, rapid technological developments, an increasing number of national data privacy requirements and
the increasing sophistication of fraud. As a result, we will continue to face the possibility of regulatory
enforcement and reputational risk.
Developments in technology and changes in regulations continue to enable new entrants to the banking industry
and new products and services offered by competitors. This challenges us to continue to innovate with new
digital capabilities and adapt our products, to attract, retain and best serve our customers. Along with
opportunities, new technology, including generative AI, can introduce risks and we seek to ensure these are
understood and managed with appropriate controls.
The regulatory and compliance risk environment remains complex, in part due to the UK’s Financial Conduct
Authority’s (‘FCA’) implementation of its Consumer Duty in July 2023. There continues to be an intense
regulatory focus on ESG matters, including on ‘green’ products. Regulatory scrutiny of financial institutions
following recent banking failures may result in new or additional regulatory requirements impacting the Group in
the short to medium term.
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 seek 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.
We procure goods and services from a range of third parties. Due to the current macroeconomic and
geopolitical climate, the risk of service disruption in our supply chain has heightened. We continue to
strengthen our controls, oversight and risk management policies and processes to select and manage third
parties, including our third parties’ own supply chains, particularly for key activities that could affect our
operational resilience.
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. Evolving regulatory
requirements are driving material changes to the way model risk is managed across the banking industry, with a
particular focus on capital models. New technologies, including AI and generative AI, are driving a need for
enhanced model risk controls.
Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability
to achieve our strategic objectives. We continue to monitor, manage and oversee change execution risk to try to
ensure that our change portfolios and initiatives deliver the right outcomes for our customers, people, investors
and communities.
Our businesses, functions and geographies are exposed to risks associated with employee retention and talent
availability, and compliance with employment laws and regulations. While high employee attrition has continued
to ease generally, a small number of markets still experience heightened inflation, turnover and labour market
difficulties. Failure to manage these risks may impact the delivery of our strategic objectives or lead to regulatory
sanctions or legal claims.
Risk heightened during 2023
Risk remained at the same level as 2022
Risk decreased during 2023
HSBC Holdings plc Annual Report and Accounts 2023
39
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 2026. 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 140):
– 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
2024 –2028.
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, liquidity, 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 38. These
include geopolitical and macroeconomic
risks (including geopolitical tensions and
their impact on sanctions, trade restrictions
and continued distressed Chinese economic
activity), digitalisation and technological
advances, financial crime risk and ESG risks,
all of which have remained at heightened
levels during 2023.
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 11);
– details of the Group’s approach to managing
risk and allocating capital;
– the continued validity of our existing risk
management practices, liquidity monitoring
process and metric assumptions, in light
of the high-profile US and Swiss banking
failures in the first quarter of 2023;
– 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 136) and top
and emerging risks (see page 140);
– the impact on the Group due to the Russia-
Ukraine and Israel-Hamas wars; instability
in China’s commercial real estate sector and
strained economic and diplomatic relations
between China and the US, the UK, the EU
and other countries;
– reports and updates regarding regulatory
and internal stress testing. The 2022–2023
Bank of England annual cyclical scenario
stress test results were published on
12 July 2023. The stress scenario explored
the potential impacts of a global economic
contraction, persistently higher inflation
and interest rates in advanced economies
with materially increased unemployment,
and a sharp fall in asset prices. Additionally
during the second half of 2023, the Group-
wide internal stress test was completed,
which explores a prolonged global stress,
depicting macroeconomic conditions that
are generally more severe than that of the
2022–2023 annual cyclical scenario. The
results of both these exercises indicated the
Group is sufficiently capitalised to withstand
a severe but plausible adverse stress;
– the results of our 2023 internal climate
scenario analysis exercise. The results of
this exercise further demonstrate the Group
is sufficiently capitalised to withstand a
severe stress. Further details of the insights
from the 2023 climate scenario analysis are
explained from page 225;
– 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 36 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 2024
40
HSBC Holdings plc Annual Report and Accounts 2023
Environmental,
social and
governance
review
Our ESG review sets out our approach to
our environment, customers, employees
and governance. It explains how we
aim to achieve our purpose, deliver
our strategy in a way that is sustainable,
and build strong relationships with all of
our stakeholders.
42
44
75
87
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 69 and
440. 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 2023
41
ESG review
Our approach to ESG
We continue to work to incorporate environmental, social and
governance principles throughout the organisation and to embed
sustainability into the way we operate.
About the ESG review
Our purpose is: ‘Opening up a world
of opportunity’.
Our purpose is guided by our values: we value
difference; we succeed together; we take
responsibility; and we get it done.
Our approach to ESG is shaped by our purpose
and values and a desire to create sustainable
long-term value for our stakeholders. We
collaborate and aim to build strong relationships
with all of our stakeholders, which include 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 to deliver the
ESG approach.
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. In January 2024, we published our
net zero transition plan, which is an important
milestone in our journey to achieving our net
zero ambition. The plan will help our people,
customers, investors and other stakeholders to
understand our long-term vision, the challenges,
uncertainties and dependencies that exist,
the progress we are making towards our own
transition and what we plan to do in the future.
In this ESG review, we publish on-balance sheet
financed emissions for thermal coal mining, in
addition to other sectors we have already been
reporting on, noting the challenge of evolving
methodologies and data limitations. We also
publish combined on-balance sheet financed
and facilitated emissions for the oil and gas, and
power and utilities sectors. We expect to iterate
and mature our approach to supporting sector
transitions over time. We also continue to work
on improving our data management processes.
We continue to review policy implementation
as we apply our policies in practice and our
operationalisation of such policies continues to
be enhanced. We take a risk-based approach
when identifying transactions and clients to
which our energy policy and thermal coal
phase-out policies apply, and when reporting
on relevant exposures, adopting approaches
proportionate to risk and materiality.
We are also working with peers and industry
bodies to help mobilise the systemic change
needed to deliver action on climate change,
nature and the just transition.
Environmental – Transition to net zero
– In January 2024, we published our net zero transition plan. This provides an overview of the
progress we have made to date and what we plan to do next, although we acknowledge there
is still much more to do.
– We have now set combined on-balance sheet financed emissions and facilitated emissions
targets for two emissions-intensive sectors: oil and gas, and power and utilities, and report the
combined progress for both sectors.
Read more in the Environmental section on page 44.
Social – Building inclusion and resilience
– In 2023, 34.1% of senior leadership roles were occupied by women, with a target to achieve
35% by 2025, although progress has not been as fast paced as we would have liked. We also
continued on a journey to meet our ethnicity goals.
– Employee engagement, which is our headline measure, increased by three points in 2023 and
is now seven points ahead of the external financial services benchmark.
Read more in the Building inclusion and resilience section on page 75.
Governance – Acting responsibly
– We continue to raise awareness and develop our understanding of our salient human rights
issues. In 2023, we provided practical guidance and training, where relevant, to our colleagues
across the Group on how to identify and manage human rights risk.
– We were ranked as a top three bank against our competitors in 58% of our key six markets,
although we still have work to do to improve our rank positions.
Read more in the Governance section on page 87.
Building inclusion and resilience
Our social approach is centred around
fostering inclusion and building resilience for
our colleagues, our customers, and in the
communities we serve.
We are building a workforce that is
representative of the communities that we
serve and we have targets and programmes in
place to ensure fair and inclusive recruitment
and to support the equitable progression of
under-represented groups. We also strive to
create an inclusive and accessible banking
experience for all of our customers, and to
help them access the finance they need
without unnecessary barriers.
Employee resilience is central to our success,
so we provide a wide range of resources to
support colleagues’ mental, physical and
financial well-being, as well as training and
support so that they are equipped with the
skills they need to further their careers. We
support customer resilience with products,
services and education that build their
capabilities so that they can understand their
finances and manage them effectively.
Acting responsibly
Our governance approach focuses on acting
responsibly and recognises topics such as
human rights, conduct and data integrity.
Our policies and procedures help us to provide
the right outcomes for customers, including
those with enhanced care needs, which in
2023 took into account pressures from the
increased cost of living. Customer experience
is at the heart of how we operate and is
measured through customer satisfaction and
customer complaints.
We are continuing our journey to embed
ESG principles across the organisation,
including incorporating climate 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 2023
ESG review
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 C2 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. Our approach to materiality also
considers disclosure standards and other
applicable rules and regulations as part of our
materiality assessment for specific ESG topics
and relevant disclosures.
Given the recent developments in the ESG
regulatory environment across various
jurisdictions in which we operate, combined
with the relative immaturity of processes,
systems, data quality and controls, our focus
remains on supporting a globally consistent
set of mandatory sustainability standards.
We aim to continue to evolve our reporting
to recognise market developments, such
as the International Sustainability Standard
Board (‘ISSB’) or the Corporate Sustainability
Reporting Directive (‘CSRD’), and support the
efforts to harmonise the disclosures. In this
Annual Report and Accounts, we continue
to report against the core World Economic
Forum (‘WEF’) Stakeholder Capitalism
Metrics, and Sustainability Accounting
Standards Board (‘SASB’) metrics and will
continue to review our approach as the
regulatory landscape evolves.
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 details of our material ESG topics, see
‘Engaging with our stakeholders and our material
ESG topics’ on page 15.
For further details of our approach to reporting,
see ‘Additional information’ on page 439.
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 41 to 98), 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 2023, including
SASB Index 2023 and WEF Index 2023
UK Pay Gap Report 2023
Modern Slavery and Human Trafficking Statement 2023
Green Bond Report 2023
HSBC UN Sustainable Development Goals Bond and Sukuk Report 2023
For further details of our supplementary materials, see our ESG reporting centre at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
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 them. We also acknowledge
that our internal processes to support ESG
disclosures 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, second and
third line of defence. Assurance assists in
reducing the risk of restatement, although it
cannot be fully eliminated given the challenges
in data, evolving methodologies and emerging
standards. We aim to continue to enhance our
approach in line with external expectations.
For 2023, ESG data is subject to stand-
alone independent PwC limited assurance
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 2023 (published in
December 2023);
– our progress towards our ambition to
provide and facilitate $750bn to $1tn of
sustainable finance and investment by 2030
(see page 49);
– our on-balance sheet financed emissions
for 2021 and 2022 for six sectors, our on-
balance sheet financed emissions for 2020
for thermal coal mining, and our facilitated
emissions for two sectors for 2019 to 2022
(see page 61);
– our thermal coal financing drawn balance
exposures for 2020 (see page 67); and
– our own operations’ scope 1, 2 and 3
(business travel) greenhouse gas emissions
data (see page 64), as well as supply chain
emissions data.
The work performed for independent limited
assurance 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
independent PwC’s limited assurance reports
can be found at www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-reporting-
centre.
HSBC Holdings plc Annual Report and Accounts 2023
43
ESG review
ESG review | Environmental
Environmental
Transition to net zero
TCFD
We support the transition of our customers, industries
and markets to a net zero and a sustainable future,
while moving to net zero ourselves.
At a glance
Our approach to transition to net zero
Our net zero ambition represents one of
our four strategic pillars. In January 2024,
we published our net zero transition plan. It
provides an overview of our approach to net
zero and the actions we are taking to help
meet our ambition. It sets out how we are
working to embed net zero across key areas
of our organisation to help ensure that we can
play a role in the transition to net zero in the
markets we serve.
Supporting our customers
To help achieve the scale and speed of change
required to transition to net zero, we know we
need to support our customers not just with
finance, but with the services, insights and
tools to help them to transition. In 2023, we
continued to provide sustainable financing
and investment to our customers in line with
our ambition to provide and facilitate $750bn
to $1tn by 2030. We report our progress
against our 2030 financed emissions targets
and our wider progress towards net zero by
2050, including how we plan to engage with
customers in high-emitting sectors.
Embedding net zero into the way
we operate
We take a risk-based, proportionate and
iterative approach to embedding net zero
into our organisation, focusing our efforts
on where we can help drive material and
implementable change, and applying learnings
as we go along. Our approach will continue
to mature over time with evolving science,
methodologies, industry standards and
regulatory requirements, and improvements in
data and in technology infrastructure.
Partnering for systemic change
Our ability to achieve our own net zero
ambition is heavily reliant on the mobilisation
of all stakeholders, public and private, across
multiple geographies. We continue to support
systemic change through new and existing
partnerships, and we engage through
industry alliances and initiatives to help build a
supportive enabling environment.
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
2023. The effects of climate change are a
source of uncertainty. We capture known and
observable potential impacts of climate-related
risks in our asset valuations and balance sheet
calculations. These are considered in relevant
areas of our balance sheet, including expected
credit losses, classification and measurement
of financial instruments, goodwill and other
intangible assets; and in making the long term
viability and going concern assessment. 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 65). For further details of
our climate risk exposures, see page 221.
For further details of how management
considered the impact of climate-related risks on
its financial position and performance, see
‘Critical estimates and judgements’ on page 343.
In this section
Overview
Our approach to
the transition
Understanding our
climate reporting
We aim to achieve net zero in our financed emissions by 2050, and in
our own operations and supply chain by 2030.
To achieve our climate ambition we need to be transparent on the
opportunities, challenges, related risks and progress we make.
Supporting our
customers
Sustainable finance
and investment
Our ability to help finance the transformation of businesses and
infrastructure is key to building a sustainable future for our customers
and society.
Embedding net
zero into the way
we operate
Financed emissions
We aim to align our financed emissions to achieve net zero by 2050
and support our clients on their transition.
Net zero in 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.
Managing climate risk
Sustainability risk policies
We manage climate risk across all our businesses in line with our
Group-wide risk management framework. Enhancing our climate
change stress testing and scenario analysis capability is crucial in
identifying and understanding climate-related risks and opportunities.
Our sustainability risk policies seek to ensure that the financial
services that we provide to customers do not result in unacceptable
impacts on people or the environment.
Partnering for
systemic change
Supporting systemic
change to deliver net zero
We collaborate with a range of partners to support the development of
an enabling environment and mobilise finance for nature and climate.
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.
Page 45
Page 46
Page 49
Page 53
Page 63
Page 65
Page 66
Page 68
Page 69
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Overview TCFD
Our approach to the transition
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 to 1.5°C, the
global economy would need to reach net
zero greenhouse gas emissions by 2050.
We are working to achieve a 1.5°C-aligned
phase-down of financed emissions from
our portfolio.
In October 2020, we announced our ambition
to become a net zero bank by 2050 and
in 2021 we included the transition to net
zero as one of the four key pillars of our
corporate strategy.
Our starting point in the transition to net
zero is one of a heavy financed emissions
footprint. Our history means our balance sheet
is weighted towards the sectors and regions
which matter the most in terms of emissions,
and whose transitions are therefore key to the
world’s ability to reach net zero on time. This
means we will have a complex transition, with
markets and sectors at different starting points
and moving at different speeds. However, it
also provides us with an opportunity to work
with our customers to help make an impact
– in both the emissions challenge and the
financing challenge.
Responding to the challenges and
opportunities presented by net zero requires
us to work across HSBC to implement and
embed our net zero approach, to manage
associated risks, and to help sustain and grow
value for our customers, our shareholders
and our wider stakeholders. We want to
make financing, facilitating and investment
choices that can lead to a meaningful impact
on emissions reduction in the real economy,
not just in our portfolio. This requires engaging
with our customers on their transitions to help
finance decarbonisation in the sectors and
geographies with the most change ahead.
Our implementation plan
We are working to embed net zero across
our organisation. This includes embedding
net zero into: the way that we support
our customers, both through customer
engagement and the provision of financing
solutions; the way that we operate as an
organisation, including risk management,
policies, governance and own operations;
and how we partner externally in support of
systemic change. It also means focusing first
on the sectors and customers with the highest
emissions and transition risks, and evolving
and expanding our efforts over time.
Our net zero principles
In implementing our approach to net zero,
we aim to be guided by a set of principles
which are aligned with our core values:
science-based, transparent and accountable;
integrating nature; and just and inclusive.
For further details of our approach to the
transition, see our Net Zero Transition Plan 2024
at www.hsbc.com/who-we-are/our-climate-
strategy/our-net-zero-transition-plan.
In January 2024, we published our net zero
transition plan. It provides an overview of
our approach to net zero and the actions
we are taking to help meet our ambition. It
sets out how we intend to use our strengths
as an organisation to help deliver a broader
impact on decarbonisation, how we are
working to embed net zero across key areas
of our organisation, and the principles that
we aim to use to guide the implementation of
our approach.
Our net zero strengths
We aim to rebalance our capital deployment
towards achieving net zero over the coming
decades. We believe we can do this best by
promoting change in three key areas that
play to our strengths as an organisation:
transitioning industry; catalysing the new
economy; and decarbonising trade and
supply chains.
Our net zero strengths
Where we believe we can
best promote change
Transitioning industry
Catalysing the
new economy
Decarbonising trade
and supply chains
Our implementation plan
Embedding net zero into
how we engage, operate
and collaborate
Supporting
our customers
Embedding net zero into
the way we operate
Partnering for
systemic change
HSBC Holdings plc Annual Report and Accounts 2023
45
ESG review ESG review | Environmental
Understanding our climate reporting
The availability of high-quality climate-related
data, transparent reporting standards and
consistent methodology will play a vital role in
helping deliver the economic transformation
required to limit global warming to 1.5°C
at the speed and scale that is needed. We
understand that our existing data, systems,
controls and processes require significant
enhancements to drive effective change,
but we recognise the necessity to balance
this with providing early transparency on
climate disclosures.
Our stakeholder dependency
Critical to our approach is a recognition that
as a bank we cannot do this alone. Our ability
to transition relies on decarbonisation in the
real economy – both the supply and demand
side – happening at the necessary pace. Our
customers and the industries and markets
we serve will need to transition effectively,
supported by strong government policies
and regulation, and substantially scaled
investment. Engagement and collaboration
are therefore key to how we respond.
We acknowledge that to achieve our climate
ambition we need to be transparent about
the opportunities, challenges, related
risks we face and progress we make. Our
reporting must evolve to keep pace with
market developments, and we will aim
to work through challenges and seek to
improve consistency across different markets.
Standard setters and regulators will play
a critical role. Some of the limitations and
challenges that our organisation, and the
wider industry, currently face with regard
to climate reporting are highlighted on
pages 47 to 48.
Explaining scope 1, 2 and 3 emissions
To measure and manage our greenhouse gas 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. 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 including 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. These are:
purchased goods and services (category 1); capital goods (category 2); and business
travel (category 6). We also report data on downstream activities for 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 31
Indirect
Our financed
emissions
See page 53
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 Our analysis of financed emissions comprises ‘on-balance sheet financed emissions’ and
‘facilitated emissions’.
Accelerating investment in Baltic offshore wind energy
Polish multi-energy company Orlen Group and Canadian power producer Northland Power
have set up a joint venture to build the Baltic Power project – the first offshore wind farm in
Polish waters of the Baltic Sea.
In September 2023, we played a key role in supporting the construction and operation of 76
offshore turbines when we acted as a mandated lead arranger for a $3.8bn (€4.4bn) credit
facility. We helped coordinate a syndicate of 25 Polish and international financial institutions
to finance the project.
With a target capacity of almost 1.2 gigawatts, the wind farm is expected to represent a
significant step in reducing Poland’s reliance on fossil fuels and generate enough clean
electricity to power the equivalent of more than 1.5 million homes annually.
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Understanding our climate reporting continued
Keeping up-to-date with real
economy progress
Net zero-aligned scenarios are dynamic by
nature; they are typically updated every few
years to incorporate significant shifts that have
occurred in the real economy. Key drivers
of this include changes in the economic
environment, new data on technology
deployment across sectors and geographies,
new policies, and increased investment in
clean energy and/or in fossil fuels.
The reference scenario we have selected
to date for our published 2030 targets, for
on-balance sheet and facilitated emissions, is
the International Energy Agency’s (‘IEA’) NZE
2021 scenario, which is 1.5°C-aligned with
limited overshoot. In September 2023, the
IEA’s NZE 2023 scenario was published as an
update to reflect developments since 2021. As
outlined in our net zero transition plan, going
forwards we intend to review each updated
set of 1.5°C-aligned scenarios to further
develop and enhance our understanding of
the latest outlooks for evolving pathways to
achieve net zero by 2050. This will help us to
consider whether, how and when to iterate
and update our approach to scenario selection
and target setting, portfolio alignment, and
policies to keep pace with the latest science
and real-world developments. We anticipate
standard setter and industry guidance on the
treatment of updated scenarios in target-
setting to emerge.
We recognise that the so-called ‘hard-to-
abate’ sectors, such as cement, iron, steel
and aluminium, and aviation have a large
dependence on nascent technologies and
the presence (or not) of enabling policies
and regulations. We may consider tracking
progress relative to 1.5°C-aligned ambition
ranges for these sectors in the future, which
could include industry-specific scenarios
alongside the IEA NZE scenario.
Critical dependencies
Progress in the real economy towards net
zero will likely be non-linear and will depend
heavily on external factors including the
policy and regulatory landscape, the speed
of technological innovation, major economic
shifts and geopolitical events. There is also
a risk of government or customer net zero
pledges or transition plans not turning into the
necessary emissions reductions in the coming
decade, or in the case of hard-to abate sectors,
being pared back if technologies do not scale
in time. In addition, climate science, the quality
of data, and the scenarios upon which we
have based our approach will change. We
recognise that while we have limited control of
these external dependencies, we can be clear
on where we intend to focus our efforts to help
drive meaningful change, and that we expect
to iterate and mature our approach over time.
Our internal and external data challenges
Our climate ambition requires us to continue
to enhance our capabilities including
governance, processes, systems and controls.
In addition, there is a heightened need for
subject matter experts for climate-related
topics as well as upskilling of key colleague
groups who are supporting customers
through their net zero transition. We also
need new sources of data, some of which
may be difficult to assure using traditional
verification techniques. This challenge,
coupled with diverse external data sources
and structures, further complicates data
consolidation. Our internal data on customer
groups used to source financial exposure
and emissions data is based on credit and
relationship management attributes, and is not
always aligned to the data needed to analyse
emissions across sector value chains. As a
consequence, this can result in an inconsistent
basis in our financed emissions calculations.
We continue to invest in our climate resources
and skills. Our activities are underpinned
by efforts 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 continue to increase automation of
our processes, with a particular focus on
developing our ESG data capabilities to help
address data gaps and improve consistency.
This includes sourcing more reliable data from
external providers. We are also developing our
processes, systems, controls and governance
to meet the demands of future ESG reporting.
Certain aspects of our reporting rely on
manual sourcing and categorisation of data
that is not always aligned with how our
businesses are managed. We also have a
dependency on emissions data from our
clients. Given the manual nature of the
process, enhanced verification and assurance
procedures are performed on a sample basis
over this reporting, including the first and
second line of defence. Our climate 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.
Policy implementation
We continue to review policy implementation
as we apply our policies in practice, and our
operationalisation of such policies continues to
be enhanced. We take a risk-based approach
when identifying transactions and clients to
which our energy and thermal coal phase-
out policies apply, and when reporting on
relevant exposures, adopting approaches
proportionate to risk and materiality. This helps
to focus our efforts on areas where we believe
we can help drive meaningful change, while
taking into account experience from policy
implementation over time.
An evolving approach to embedding
net zero
We acknowledge that our assessment of
client transition plans – which to date has
focused on clients in scope of our thermal coal
phase-out and energy policies – is at an early
stage with initial learnings on methodology
and client engagement. We are also at
the early stages of embedding transition
plans alongside financed emissions into
transaction and portfolio level business and
risk processes. Our net zero transition plan
provides further details of work underway and
planned.
Limited alignment on sustainable finance taxonomies
Sustainable finance metrics, taxonomies and best practices lack global consistency. As
standards develop over time and as the regulatory guidance around them evolves across
jurisdictions, our methodologies, disclosures and targets may need to evolve. This could lead
to differences in year-on-year reporting and restatements.
We continue to engage with standard setters in different regions to support the development
of transparent and consistent taxonomies to best incentivise science-based decarbonisation,
particularly in high transition risk sectors. We aim to align to enhanced industry standards as
they are further developed, and increase transparency across the different types of green and
sustainable finance and investment categories going forward.
HSBC Holdings plc Annual Report and Accounts 2023
47
ESG review ESG review | Environmental
Understanding our climate reporting continued
Financed emissions reporting challenges
The methodologies and data used to assess
financed emissions and set targets continue
to evolve alongside changes to industry
guidance, market practice and regulation. We
plan to refine our analysis using appropriate
data sources and current methodologies
available for the sectors we analyse. We have
developed an internal recalculation policy (see
page 56) to define the circumstances under
which a recalculating of financed emissions
is necessary to help support the consistency,
comparability and relevance of our reported
emissions data over time.
We have now set combined on-balance sheet
financed emissions and facilitated emissions
targets for two emissions-intensive sectors: oil
and gas, and power and utilities, and report
the combined progress for both sectors. We
continue to report on-balance sheet financed
emissions and targets for cement, iron, steel
and aluminium, aviation, automotive and in
2023 we added thermal coal mining financed
emissions.
Emissions related to our insurance business
are partially captured within the disclosures of
HSBC Asset Management, which manages
the vast majority of our insurance assets. The
Partnership for Carbon Accounting Financials
(‘PCAF’) standard for insurance associated
emissions (part C) is not applicable to our
insurance business as HSBC Insurance
focuses on the manufacturing of life
insurance products.
In November 2023, our asset management
business updated its 2022 thermal coal
phase-out policy and released a new energy
policy. It continues to focus on its portfolios’
scope 1 and scope 2 decarbonisation
target for 2030 with the aim of aligning
with net zero emissions by 2050 or sooner.
The commitment covers listed equity and
corporate fixed income where data is most
reliable and methodologies are most mature.
In January 2023, we withdrew our
commitment to the Science Based Targets
initiative (‘SBTi’), which we had made in 2016,
because we determined that it would not be
feasible for us to meet SBTi’s requirement
to submit a complete set of sector targets
for validation by its deadline. We continue to
engage with SBTi on guidance for financial
institutions and we participated in SBTi’s
consultation process on its revised standards
during the year.
Disclosure revisions
We are committed to timely and transparent
reporting. However, we recognise that
challenges on data sourcing, as well as the
evolution of our processes and industry
standards, may result in us having to restate
certain disclosures. In 2023, there has been
an impact on certain climate disclosures,
as follows:
– Financed emissions: we improved our
methodology for calculating financed
emissions using more granular product
identification to isolate exposure in scope,
more consistent emission factors for
estimates, and a revised aggregation method
for emission intensity. Previously reported on-
balance sheet numbers included non-lending
exposures for market products in error. The
more granular product identification will help
ensure these are not included in future.
– Financed emissions: to reflect these
enhancements we have set out the
recalculated metrics for the oil and gas, and
power and utilities sectors in the financed
emissions section. The oil and gas baseline
for on-balance sheet financed emissions is
now 28.4 million tonnes of carbon dioxide
equivalent (‘Mt CO2e’) for 2019 versus 33.0
Mt CO2e reported in the Annual Report
and Accounts 2022. The power and utilities
baseline for on-balance sheet financed
emissions is now 537.5 tonnes of carbon
dioxide equivalent per gigawatt hour (‘tCO2e/
GWh’) for 2019 versus 589.9 tCO2e/GWh
reported in the Annual Report and Accounts
2022. For other sectors, changes were not
material enough to warrant a recalculation.
– Thermal coal exposures: we have now
revised the basis of preparation for our
thermal coal exposures. Aligned with our
thermal coal phase-out policy, we applied a
risk-based approach to identify clients and
report on relevant exposures. Our thermal
coal financing drawn balance exposure was
approximately $1bn† as at 31 December
2020. We continue to work on our 2021 and
2022 numbers based on our revised basis of
preparation and expect to report on these in
future disclosures.
– Thermal coal power financed emissions: we
have discontinued separate tracking and
reporting of thermal coal power financed
emissions. A review of the counterparties
included within the on-balance sheet
financed emissions calculation showed that
the majority of thermal coal power entities
in scope are included in other financed
emission sector targets. We previously
set separate targets to reduce on-balance
sheet financed emissions for thermal coal
power and thermal coal mining aligned to
our thermal coal phase-out policy. We plan
to maintain a financed emissions target for
thermal coal mining only, and have set an
absolute on-balance sheet reduction target
for 2030 from a 2020 baseline. We used 2020
as a baseline to align with those applied to
our drawn balance exposure targets. These
targets reflect the percentage reduction that
the IEA indicates in its net zero emissions
scenario for global emissions to 2030.
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HSBC Holdings plc Annual Report and Accounts 2023
Continuing to evolve our
climate disclosures
We understand the need to provide early
transparency on climate disclosures but we
must balance this with the recognition that
our existing data and reporting processes
require significant enhancements. Due
to ongoing data availability and quality
challenges, we continue to assess our
financed emissions for our real estate and
agriculture sectors.
We are engaging with standard setters to
support the development of transparent
and consistent climate-related industry
standards in areas such as product
labelling, sustainability disclosures,
sustainable finance taxonomy and
emissions accounting. Voluntary industry
initiatives can also help shape action and
collaboration, and often form the basis of
future climate policy and regulation. For
example, we supported the TCFD, which is
now referenced in climate disclosure rules
around the world.
In 2024, we will continue to review our
approach to disclosures, and enhance
as appropriate.
– Shipping: following a reduction in our
exposure to the shipping sector after the
strategic sale of part of our European
shipping portfolio in 2023, and work
undertaken to assess the materiality of
our remaining portfolio from a financed
emissions perspective, we have concluded
that the remaining exposure as of year-end
2023 is not material enough to warrant
setting a stand-alone target. This aligns with
Net-Zero Banking Alliance (‘NZBA’) guidelines
on sector inclusion for target setting.
For details of assurance over our ESG data, see
page 43.
For details of our approach to calculating
financed emissions and the relevant data and
methodology limitations, see page 55.
For details of our sustainable finance and
investment ambition, see page 49.
For details of our approach to thermal coal
financing exposures, see page 67.
For further details of our asset management
policies, see page 67.
† Data is subject to independent limited assurance by
PwC in accordance with ISAE 3000/ ISAE 3410. For
further details, see our Financed Emissions and
Thermal Coal Exposures Methodology and PWC’s
limited assurance report, which are available at
www.hsbc.com/who-we-are/esg-and-responsible-
business/esg-reporting-centre.
Environmental
Supporting our customers
Sustainable finance and investment TCFD
We recognise that we have an important role
to play in supporting the transition to a net
zero global economy. As a global organisation
with a presence in the regions and sectors
where most significant change is needed, we
are well placed to help transition industry and
catalyse the new economy to reach net zero.
Progress on our sustainable finance
and investment ambition
We aim to help our customers transition to
net zero and a sustainable future by providing
and facilitating between $750bn and $1tn of
sustainable finance and investment by 2030.
Our sustainable finance and investment
ambition aims to help promote green,
sustainable and socially-focused business
and sustainable investment products
and solutions.
Since 1 January 2020, we have provided
and facilitated $267.8bn of sustainable
finance and $26.6bn of ESG and sustainable
investing, as defined in our Sustainable
Finance and Investment Data Dictionary
2023. This included 38% where the use of
proceeds were dedicated to green financing,
12% to social financing, and 15% to other
sustainable financing. It also included 26%
of sustainability-linked financing and 9%
of net new investment flows managed and
distributed on behalf of investors. In 2023, our
underwriting of green, social, sustainability
and sustainability-linked bonds for clients
decreased over the year, measured on a
proportional share basis, in line with the
wider bond market environment, although
it remained at 15% of our total bond
underwriting. On-balance sheet sustainable
lending transactions increased by 7%
compared with 2022. In 2023, transactions
totalling $0.7bn were identified as no longer
fulfilling our eligibility criteria. These were
declassified and removed from the cumulative
progress total, and reported as a negative
entry in 2023.
Continued progress towards achieving
our sustainable finance and investment
ambition is dependent on market demand
for the products and services set out in our
Sustainable Finance and Investment Data
Dictionary 2023.
Sustainable finance and investment summary1
Balance sheet-related transactions provided
Capital markets/advisory (facilitated)
ESG and sustainable investing (net new flows)
Total contribution2
Sustainable finance and investment classification by theme
Green use of proceeds3,4
Social use of proceeds3
Other sustainable use of proceeds3,5
Sustainability-linked6
ESG and sustainable investing7
Total contribution2,8
2023
($bn)
42.7
33.3
7.7
83.7
37.1
8.4
10.7
19.8
7.7
83.7
2022
($bn)
2021
($bn)
Cumulative progress
since 2020
($bn)
2020
($bn)
42.2
34.5
7.5
84.2
29.0
6.7
12.6
28.4
7.5
84.2
26.0
48.7
7.7
82.4
27.1
11.3
11.7
24.6
7.7
82.4
10.4
30.0
3.7
44.1
18.9
9.7
8.3
3.5
3.7
44.1
121.3
146.5
26.6
294.4
112.1
36.1
43.3
76.3
26.6
294.4
1 The 2023 data in this table has been prepared in accordance with our Sustainable Finance and Investment Data Dictionary 2023, 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.
2 The $294.4bn cumulative progress since 2020 is subject to PwC’s limited assurance 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
2023 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, the capital markets products are aligned to the International Capital Markets Association’s (‘ICMA’) Green
Bond Principles, Social Bond Principles or Sustainability Bond Guidelines or the Climate Bonds Initiative as applicable. The lending labelled products are aligned to
the Green Loan Principles (‘GLP’) or Social Loan Principles of the Loan Market Association (‘LMA’), Asia-Pacific Loan Market Association (‘APLMA’) and the Loan
Syndications and Trading Association (‘LSTA’) as applicable; or for our sustainable trade instruments, are aligned to HSBC’s internal sustainable trade instrument
principles which are based on the GLP and reference the UN SDGs. Also included are facilities where HSBC identifies that the use of proceeds would meet
eligibility criteria as defined and approved by appropriate governance committees but these are not labelled or marketed as green or social.
4 Included within the total cumulative contribution towards our ambition are transactions to customers within the six high transition risk sectors (i.e. automotive,
chemicals, construction and building materials, metal and mining, oil and gas, and power and utilities) as described on page 223. Of which approximately $37bn is
defined as green use of proceeds in line with the Sustainable Finance and Investment Data Dictionary 2023.
5 Sustainable use of proceeds can be used for green, social or a combination of green and social purposes.
6 Our sustainability-linked labelled products are aligned to either the ICMA Sustainability-Linked Bond Principles or the Sustainability-Linked Loan Principles of the
LMA, APLMA and the LSTA as applicable. The coupon or interest rate is dependent on whether the borrower achieves predefined sustainability performance
targets. The funds can be used for general purposes.
7 Net new flows of both HSBC-owned (Asset Management) sustainable investment funds and Wealth and Global Private Banking investments assessed against the
Sustainable Finance and Investment Data Dictionary 2023.
8 Additional detailed information on our sustainable finance and investment progress can be found in the ESG Data Pack at www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
HSBC Holdings plc Annual Report and Accounts 2023
49
ESG review ESG review | Environmental
Sustainable finance and investment continued
Sustainable finance and investment
definitions
Our data dictionary defining our sustainable
finance and investment continues to evolve,
and is reviewed annually to take into account
the evolving standards, taxonomies and
practices we deem appropriate. This involves
reviewing and strengthening our product
definitions, where appropriate, adding
and deleting qualifying products, making
enhancements to our internal standards, and
developing our reporting and governance.
Industry and regulatory guidance on
definitions for sustainable finance continue
to evolve. In 2023, the Glasgow Financial
Alliance for Net Zero (‘GFANZ’), NZBA
and the UK government released work-in-
progress definitions of transition finance.
We will continue to monitor these and
other developments in sustainable finance
definitions.
Our progress will be published each year,
and we will seek to continue for it to be
independently assured.
Mobilising capital to support
our customers
In 2023, we continued to focus on providing
our customers with products, services and
initiatives to help enable emissions reduction
in the real economy.
For example, we increased our funding from
$5bn to $9bn for our sustainable finance
scheme that supports businesses of all sizes
in China’s Greater Bay Area to transition to
low-carbon operations. The scheme, launched
in 2022, provides successful loan applicants
access to a range of additional services
including training, subsidised third-party
assessments and assistance from a team
with sustainable financing expertise. For our
Wealth and Personal Banking customers, we
launched green mortgages in Mexico, electric
vehicle loans in India and a referral service to
our electric vehicle leasing partner in the UK.
In 2023, we introduced an internal briefing
series called Net Zero in Practice, which
covers new technologies relevant to the net
zero transition, drawing on expertise from
across the organisation and highlighting
financing opportunities and case studies.
We continue to be a participant in the Just
Energy Transition Partnerships (‘JETPs‘) in
Indonesia and Vietnam, and in the Nexus
for Water, Food and Energy in Egypt.
These initiatives aim to play a catalytic
role in mobilising finance to accelerate the
energy transition. For further details of our
involvement with the JETPs, see page 68.
In 2023, we won three awards at the
Environmental Finance Bond Awards. We
retained the Euromoney award for Best Bank
for Sustainable Finance in Asia for the sixth
year in a row, and won the global award
for Best Bank for Public Sector Clients in
recognition of our innovation in sustainability
and tokenised public-sector bonds.
Our sustainable finance and
investment data dictionary
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.
Details of our revised definitions of the
contributing activities for sustainable
finance and investment and how we
calculate the amounts we count are
available in our Sustainable Finance and
Investment Data Dictionary 2023.
For our ESG Data Pack and Sustainable
Finance and Investment Data Dictionary,
see www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-
reporting-centre.
Developing sustainable food supply chains in south-east Asia
Singapore-based Glife Technologies has developed a digital business-to-business food-
sourcing platform that connects farmers from marginalised communities in south-east Asia
to the hospitality industry.
The distribution network, served by an app, aims to improve the efficiency and sustainability
of supply chains by aggregating orders and sourcing in bulk direct from farmers, in order to
help control costs and reduce the risk of food waste from damage or contamination.
In June 2023, we provided a working capital loan and access to our cross-border network
to help Glife expand its platform into new markets, including Malaysia and Indonesia. The
loan also aims to help Glife finance social projects seeking to improve food security and
creating more sustainable food systems. The loan was drawn from HSBC’s New Economy
fund, which is dedicated to investing in high-growth, pre-profit new economy businesses
in Singapore.
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Sustainable finance and investment continued
HSBC Asset Management’s fixed income,
equity and stewardship teams held over 2,000
meetings with companies in its portfolios. This
included engaging with companies on the
priority list across several thematic priorities,
such as climate change, human rights, public
health, inclusive growth and shared prosperity,
biodiversity and nature, trusted technology
and data, and diversity, equity and inclusion.
For our private banking and wealth customers,
we expanded our investment offering with
the launch of eight ESG and sustainable
investing mutual funds and exchange-traded
funds in 2023. We also enhanced our ESG
and sustainable investing structured products
offering linked to indices such as the MSCI
World Islamic ESG Select 8% Risk Control
Index. Throughout 2023, we published regular
ESG and sustainability-related market insights
and updates such as #WhyESGMatters
and Learning about ESG to help clients
better understand the implications for
their investments.
HSBC Life, our insurance business, continues
to expand the availability of ESG investment
fund options within its investment-linked
products. In 2023, eight new ESG funds were
introduced across Hong Kong, France and
Singapore with a range of investment themes,
including environmental, circular economy
and sustainable energy.
In June, under the United Nations Environment
Programme Finance Initiative (‘UNEP FI’)
Principles for Sustainable Insurance, HSBC
Life co-led a team of insurance organisations
to publish an industry position paper focused
on the role and opportunity for life and health
insurers to help build a more inclusive and
preventative healthcare model. This included
examples of good industry practice to: help
insurers improve access to healthcare; close
the health protection gap; drive better health
outcomes across populations; and mitigate
potential health risks due to climate change
and other environmental factors.
For further details of our asset management
policies, see page 67.
Responsible and sustainable investment
We offer a broad suite of ESG capabilities
across asset management, global markets,
wealth, private banking and securities
services, to help institutional and individual
investors to generate financial returns, manage
risk and pursue ESG-related opportunities.
Our Asset Management business is
committed to further developing our
sustainable product range across asset
classes, as well as enhancing our existing
product suite for ESG and climate-related
criteria where it is in the investors’ interests
to do so. In 2023, we launched 10 funds
within our ESG and sustainable strategies,
which adhere to, and are classified within,
our Sustainable Finance and Investment Data
Dictionary 2023.
HSBC Asset Management managed over
$684bn assets at the end of 2023, of which
$73.3bn comprise assets of funds and
mandates invested in our ESG and sustainable
strategies.
Our ESG and sustainable investing approach
across different investment products can
include but is not limited to the UN SDGs,
including climate. For the avoidance of
doubt, assets invested pursuant to, or
considered to be in alignment with, HSBC’s
ESG and sustainable investing approach
do not necessarily qualify as ‘sustainable
investments’ as defined by the EU Sustainable
Finance Disclosures Regulation (‘SFDR’)
or other relevant regulations. Our ESG and
sustainable investing approach is an HSBC
internal classification approach used to
establish our own ESG and sustainable
investing criteria (recognising the subjectivity
inherent in such an approach and the
variables involved). It is also used to promote
consistency across asset classes and business
lines where relevant, and should not be relied
on externally to assess the sustainability
characteristics of any given product. There
is no single global standard definition of, or
measurement criteria for, ESG and sustainable
investing or the impact of ESG and sustainable
investing products.
We seek to take an active stewardship role to
help drive positive change in the companies
on our priority list in which we invest on behalf
of our customers. The priority list, which is
defined in our Global Stewardship Plan, can be
found at: www.assetmanagement.hsbc.co.uk/
en/institutional-investor/about-us/responsible-
investing/-/media/files/attachments/uk/
policies/stewardship-plan-uk.pdf.
Helping customers to
understand ESG in their
investments
We have launched new metrics to
help our Global Private Banking and
Wealth customers understand the
ESG performance of their investments.
In selected markets in 2023, we also
introduced a sustainability preference
questionnaire to help identify and
understand our customers’ sustainable
investing objectives and ambitions. By
improving clarity on ESG performance,
which traditional financial metrics fail to
capture, we aim to provide customers
with meaningful insights to enable
them to make informed investment
decisions. Examples of these metrics,
available on digital platforms in selected
markets, are:
– ‘ESG rating and score’, which
measures a company’s resilience to
material long-term, industry ESG risks
and opportunities, with data provided
by MSCI.
– ‘Carbon intensity’, which measures
a company’s carbon emissions per
million of revenue, with data provided
by S&P Trucost.
In addition, we have also introduced
‘HSBC ESG and sustainable investing
classifications’, which help customers
to understand and identify ESG and
sustainable investing products in their
investment portfolio according to
HSBC’s definition.
HSBC Holdings plc Annual Report and Accounts 2023
51
ESG review ESG review | Environmental
Sustainable finance and investment continued TCFD
Unlocking climate solutions
and innovation
We recognise the need to find new solutions
and increase the pace of change for the world
to achieve the Paris Agreement goal of being
net zero by 2050.
We are working with a range of partners
to accelerate investment in sustainable
infrastructure, natural resources and climate
technology to help reduce emissions and
address climate change.
Sustainable infrastructure
Addressing climate change requires the
rapid development of a new generation of
sustainable infrastructure.
HSBC continues to support 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. In 2023, the initiative, which aims
to mobilise large-scale financing to develop
sustainable infrastructure, invited pilot
photovoltaic and wind power projects around
the world to apply for the provisional FAST-
Infra label. The label is awarded to projects
that meet specific sustainability criteria. HSBC
is supporting the introduction and widespread
adoption of the labelling system as a standard
for sustainable infrastructure assets globally.
Label applicants included a solar photovoltaic
project submitted by Pentagreen Capital,
our sustainable infrastructure debt financing
partnership with Singapore-based investment
firm Temasek. The project sponsor was
Citicore Solar Energy Corporation, a subsidiary
of the Philippines-focused renewable energy
developer and operator Citicore Renewable
Energy Corporation. Pentagreen acted as
lead arranger of a $100m green loan facility
and committed an initial $30m to help
fund Citicore’s development of six solar
power projects capable of generating 490
megawatts of electricity for the island of
Luzon in the Philippines. The commitment
marks Pentagreen’s first investment in
the construction of ready-to-build clean
energy projects.
In 2023, the Multilateral Investment Guarantee
Agency of the World Bank Group issued HSBC
Holdings a guarantee of $1.8bn in regulatory
capital relief on mandatory reserves held by
its subsidiary in Mexico. The benefits of the
capital relief are expected to be deployed to
exclusively support eligible climate finance
projects in Mexico, including renewable
energy, energy efficiency, clean transportation
and sustainable agriculture.
The HSBC Alternatives business, part of HSBC
Asset Management, continued to develop its
energy transition infrastructure capabilities
in Asia, targeting investments in renewable
energy generation, storage, grids, charging
and hydrogen infrastructure. To help support
the transition to green energy in North Asia,
the energy transition infrastructure strategy
made its first investment in solar photovoltaic
power project developer Tekoma Energy.
Natural capital as an emerging
asset class
Climate Asset Management, a joint venture
we launched with climate investment and
advisory firm Pollination in 2020, continues to
create investment opportunities for investors
to help protect biodiversity and support the
transition to net zero.
It offers two investment strategies that
aim to build resilience across landscapes
while generating returns. Its nature-based
carbon strategy targets nature restoration
and conservation projects in developing
economies, prioritising community benefits
while generating high-quality carbon
credits. Its natural capital strategy invests in
agriculture, forestry and environmental assets
and aims to deliver impact at scale alongside
long-term financial returns.
On behalf of these strategies in 2023, Climate
Asset Management allocated more than $400m
to projects in Kenya, Uganda, Malawi, Spain,
Australia and Portugal.
Backing new technology
and innovation
At the COP28 Summit in the UAE, HSBC
pledged its support for the Energy
Transition Accelerator Financing Platform,
which aims to scale up the development
of renewable energy projects in
developing countries. Established
in 2021 with initial support from the
Abu Dhabi Fund for Development and
the International Renewable Energy
Agency, the platform brings together
public and private institutions. HSBC
signed alongside the European Bank for
Reconstruction and Development, the
International Finance Corporation and
the Multilateral Investment Guarantee
Agency. We will work with platform
partners to expand the pipeline of
investable projects in core HSBC markets,
including in Asia and the Middle East,
bringing financing solutions that support
the transition to net zero.
We also became a founding member
of the Global Climate Finance Centre, a
newly launched UAE-based think tank
created to connect public and private
finance to help accelerate the transition
to net zero.
HSBC Alternatives made direct
investments in assets that help to
promote the transition to a net zero
climate. The venture capital strategy
invests across four themes: power
transformation, transport electrification,
supply chain sustainability and climate
risk mitigation. The strategy raised
additional funds from institutional and
private wealth clients over the course
of 2023. As of 31 December 2023, the
strategy had deployed capital into eight
start-up companies. These included
US-based Electric Era, which provides
electric vehicle fast-charging technology,
and Israel-based SeeTree, which has
developed a software platform that tracks
the health and productivity of trees.
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HSBC Holdings plc Annual Report and Accounts 2023
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 have published initial
financed emissions targets for 2030, and plan to
review them in five-year increments thereafter.
Our analysis of financed emissions comprises
‘on-balance sheet financed emissions’ and
‘facilitated emissions’, which we distinguish
where necessary in our reporting. Our on-
balance sheet financed emissions include
emissions related to on-balance sheet
lending, such as project finance and direct
lending. Our facilitated emissions include
emissions related to financing we help clients
to raise through capital markets activities. Our
analysis covers financing from Global Banking
and Markets, and Commercial Banking.
Financed emissions link the financing we
provide to our customers and their activities
in the real economy, and provide an indication
of the associated greenhouse gas emissions.
They form part of our scope 3 emissions,
which include emissions associated with the
use of a company’s products and services.
In 2021, we started measuring financed
emissions for oil and gas, and power and
utilities. Following the December 2023 release
of the PCAF Global GHG Accounting Standard
for capital markets, we now include facilitated
emissions for these sectors, in recognition of
our role as service provider when customers
issue debt and equity to investors. For target
setting we now track the combined progress
for on-balance sheet financed and facilitated
emissions.
In 2022, we disclosed the on-balance sheet
financed emissions targets for the following
additional sectors: cement; iron, steel and
aluminium; aviation; and automotive. We also
set a target, and now measure, on-balance
sheet financed emissions for the thermal coal
mining sector. As part of our financial reporting,
we present the progress for these sectors
against the financed emissions baselines that
we now measure ourselves against.
Following a reduction in our exposure to the
shipping sector after the strategic sale of part
of our European shipping portfolio in 2023,
and work undertaken to assess the materiality
of our remaining portfolio from a financed
emissions perspective, we have concluded
that the remaining exposure as of year-end
2023 is not material enough to warrant setting
a stand-alone target. This aligns with NZBA
guidelines on sector inclusion for target setting.
We have announced a number of planned
business disposals in recent years, and we will
continue to consider how these may impact
future disclosures, including recalculations.
For all sectors other than oil and gas and
thermal coal mining, we have set emissions
intensity targets. These targets are linked to
real world production and help us to deploy
capital towards decarbonisation solutions.
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, our analysis focuses on the
parts of the value chain where we believe the
majority of emissions are produced to help
reduce double counting of emissions. By
estimating emissions and setting targets for
customers that directly account for, or indirectly
influence, the majority of emissions in each
industry, we can focus our engagement and
resources where we believe the potential for
change is highest. For each sector, our reported
emissions now typically include all the major
greenhouse gases, including carbon dioxide,
methane and nitrous oxide, among others.
These are reported as tonnes of CO2 equivalent,
in line with NZBA guidelines.
To calculate annual on-balance sheet financed
emissions, we use drawn balances as at 31
December in the year of analysis related to
wholesale credit and lending, which include
business loans and project finance as the
value of finance provided to customers. We
excluded products that were short term by
design, and typically less than 12 months
in duration, consistent with guidance from
the PCAF, to reduce volatility. For facilitated
emissions we considered all capital market
transactions in scope for the year of analysis.
These included debt and equity capital
markets, and syndicated loans.
For further details of our financed emissions
methodology, exclusions, and limitations, see our
Financed Emissions and Thermal Coal Exposures
Methodology at www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-reporting-
centre.
The chart below shows the scope of our financed emissions analysis of the seven sectors, including upstream, midstream and downstream
activities within each sector. The allocation of companies to different parts of the value chain is highly dependent on expert judgement and data
available on company revenue streams. As data quality improves, this will be further refined.
Sector
Scope of emissions Value chain in scope
Oil and gas
1, 2 and 3
Upstream
(e.g. extraction)
Midstream
(e.g. transport)
Downstream
(e.g. fuel use)
Integrated/
diversified
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
Thermal coal mining
1, 2 and 3
Key: Included in analysis
Upstream
(e.g. suppliers)
Upstream
(e.g. extraction)
Midstream
(e.g. motor vehicle
manufacture)
Midstream
(e.g. processing)
Downstream
(e.g. retail)
Downstream
(e.g. retail)
Coverage of greenhouse
gases (’GHGs’)
All GHGs
All GHGs
All GHGs
All GHGs
All GHGs
All GHGs
All GHGs
HSBC Holdings plc Annual Report and Accounts 2023
53
ESG review
ESG review | Environmental
Financed emissions continued
Agriculture
For the agriculture sector, due to ongoing
data availability and quality challenges, and
lack of developed methodologies, we are not
in a position to report our financed emissions
or set a target at this time. We aim to build
data availability and continue to work with
partners and industry bodies to develop data
and methodologies across a wider section of
the agriculture value chain – such as farm-
related and downstream emissions, including
from the food and beverage sector – while
assessing the make-up of our portfolio.
Residential real estate
For residential real estate, where our
customers are consumers not corporates,
our approach needs to consider financial
inclusivity, and our ability to provide customers
access to suitable mortgages in addition to
decarbonisation aims. We expect to measure
and report our residential real estate financed
emissions in future disclosures. We continue
to consider our approach to setting an
appropriate target to measure our contribution
to helping the sector transition.
Commercial real estate
For commercial real estate, we continue to
work towards outlining a baseline and a 2030
financed emissions ambition or ambition
range, starting with our major markets and
where sufficient data is available to track
decarbonisation progress. We expect to
review our approach and coverage periodically
in line with evolving data, methodologies,
scenarios and real-world progress.
Methodologies for embedded carbon
need to be developed given the materiality
of financing new property development
within our portfolio, from a financed
emissions perspective.
Investing in battery
health and monitoring
solutions
The global push towards electrification
is accelerating the demand for
systems powered by safe, reliable and
sustainable batteries.
In August 2023, HSBC Asset
Management, as part of its climate
tech venture capital strategy, helped a
Germany-based analytics software start-
up secure $7.8m (€7.2m) of investment
in its battery monitoring platform,
with HSBC Asset Management’s fund
providing $4.1m (€3.8m).
ACCURE Battery Intelligence uses AI,
field data and modelling to forecast and
manage the health and performance
of batteries, and predict failures, fires
and other incidents. With their software
already supporting 3.5 gigawatt-hours
of storage, the fundraising will help
expand and develop the platform
across energy, electric vehicle, transit,
marine, insurance and other industries
worldwide.
Setting our targets
Our target-setting approach to date, for
on-balance sheet financed emissions and
facilitated emissions, has been to utilise a
single net zero reference scenario (IEA NZE
2021) to underpin both energy supply-related
sectors (oil and gas, power and utilities,
and thermal coal mining) and our published
targets for demand-side sectors in transport
and heavy industry.
The impact of our capital markets activities
is now reflected in our combined financed
emissions targets for the oil and gas, and
power and utilities sectors. Our facilitated
emissions, included in our combined metrics,
are weighted at 33%, in accordance with
the PCAF standard. This approach dampens
volatility, apportions responsibility between
underwriters and asset owners, and allows
for flexibility in deploying on and off-balance
sheet financing in line with clients’ needs.
To further reduce the inherent volatility in
facilitated emissions, we apply a three-year
moving average across transactions for our
target metric, building up from 2019 data. This
means that transactions facilitated in 2028
and 2029 will still have an impact on the 2030
progress number and will need to be taken
into consideration as we manage progress
towards our target. We aim to achieve our
target in 2030 notwithstanding the application
of a three-year average.
Our approach for financed emissions
accounting does not rely on purchasing
offsets to achieve any financed emissions
targets we set.
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 support the development of solutions that
are both timely and impactful. We continue to
engage with regulators, standard setters and
industry bodies to help 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
on assumptions of the available carbon
budget and actions that need to be taken to
limit the long-term increase in average global
temperatures to 1.5°C with limited overshoot.
We expect that the scenarios we use will
be updated periodically. We plan to refine
our own analysis of financed emissions as
industry guidance on scenarios, data and
methodologies more broadly evolve in the
years ahead.
54
HSBC Holdings plc Annual Report and Accounts 2023
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 the PCAF, which
defines and develops greenhouse gas
accounting standards for financial
institutions. Its Global GHG Accounting
and Reporting Standards for Financed
Emissions and for Facilitated Emissions
provide detailed methodological guidance
to measure and disclose financed and
facilitated emissions.
– We have found that data quality scores
vary 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 in 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
estimated emissions using proxies based
on company production and revenue
figures. 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 through our vendor datasets.
As data improves, estimates will be
replaced with reported figures.
– Third-party datasets 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. Mapping external datasets to
our internal client entities is challenging
due to complex company ownership
structures.
– 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.
– We remain conscious that the attribution
factor 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.
– To calculate sector-level baselines and
annual updates, our portfolio-level
emissions intensity was previously
weighted by the ratio of our financing
in relation to the value of the financed
company. We believe this introduced
volatility. We have now calculated sector
level emissions intensity metrics using
a portfolio-weighted approach. Due to
data limitations, we are unable to obtain
production data for all of our clients. We
therefore calculate an emissions intensity
figure using the 75th percentile to meet
this data gap.
– 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. Our internal data on customer
groups used to source financial exposure
and emissions data is based on credit and
relationship management attributes and
is not always aligned to the data needed
to analyse emissions across sector value
chains. As a consequence, this can result
in an inconsistent basis in our financed
emissions calculations. As the sub-sector,
and therefore the value chain classification
is based on judgement, this may be
revised as better data becomes available.
Emissions are calculated at a counterparty
group level and each client is mapped to
a single sector. Companies with multiple
activities such as conglomerates, with
near to equal business activity split across
multiple sectors, are excluded as these
can have different activities covered by
multiple sector targets. Once we define a
methodology for conglomerates these may
be covered according to their activity split.
– The operating environment for climate
analysis and portfolio alignment is
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.
For further details of our financed emissions
methodology, see our Financed Emissions
and Thermal Coal Exposures Methodology at
www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
Tackling operational emissions in industry
We are supporting one of the largest producers of textile raw materials in Indonesia to
reduce the greenhouse gas emissions in its operations. PT. Indo-Rama Synthetics Tbk, which
specialises in the integrated production of spun yarn and polyester, wanted to expand its
operations and meet its customer demand in a sustainable way.
To help PT. Indo-Rama Synthetics Tbk invest in reducing energy consumption, we provided
a $20m green loan in September 2023 so that it can install energy efficient machinery and
technology in the expansion of its yarn spinning factory.
HSBC Holdings plc Annual Report and Accounts 2023
55
ESG review ESG review | Environmental
Financed emissions continued
Our approach to financed emissions recalculations
The PCAF recommends that financial
institutions should, in line with the Greenhouse
Gas Protocol Corporate Value Chain (Scope
3) Accounting and Reporting Standard
requirement, establish a recalculation policy.
To adhere to this recommendation, we have
defined the circumstances under which we
consider a recalculation of baseline and/or
progress against financed emissions target
metrics is necessary to help ensure the
consistency, comparability and relevance of
the reported greenhouse gas emissions data
over time. Our recalculation policy covers
revisions of metrics linked to the targets due
to changes in financed emissions accounting,
such as changes to methodology, errors,
and improvements to data. We expect our
recalculation policy to evolve with further
industry guidance.
to the target. Enhancements to internal
or external data, such as changes to the
classification of the population to a different
business activity type or more, or improved
quality data reported by clients, would not
constitute a change to the financed emissions
estimation methodology or an error.
The table below outlines the action we take
when key areas of change, individually or in
aggregate, breach our defined significance
thresholds for the baseline year metric linked
Key reasons for change
What we expect to disclose
Changes to the financed
emissions methodology such as
changes to design choices
– The reasons why applying the new metrics provides reliable and more relevant information
– The actions being taken to remediate same or similar errors in the future
– The nature of the change(s) and errors in financed emissions accounting impacting the baseline progress
metric and all prior year progress metrics disclosed as far as is practicable
Errors such as a failure to carry
out our methodology or errors in
internal financial data
– The aggregate amount of any adjustments impacting the baseline progress metric and all prior year
progress metrics disclosed as far as is practicable
– The change in financed emissions accounting baseline progress metric and all prior year progress metrics
disclosed as far as is practicable
In 2023, we improved our methodology
for calculating financed emissions using
more granular product identification to
isolate exposure in scope, more consistent
emission factors for estimates, and a revised
aggregation method for emissions intensity.
Previously some reported on-balance sheet
numbers included non-lending exposures for
market products in error. The more granular
product identification will help ensure these
are not included in future.
To reflect these enhancements we have set
out the recalculated metrics for the oil and
gas, and power and utilities sectors in the
table below. For other sectors, changes were
not material enough to warrant a recalculation.
The oil and gas baseline for on-balance sheet
financed emissions is now 28.4 million tonnes
of carbon dioxide equivalent (‘Mt CO2e’) for
2019 versus 33.0 Mt CO2e reported in the
Annual Report and Accounts 2022. Of this
change, 62% (2.9 Mt CO2e) was related to
the inclusion of non-lending products in error
and the remaining 38% (1.8 Mt CO2e) was
due to the enhanced product mapping and
streamlined approach for emissions estimates.
The power and utilities baseline for on-balance
sheet financed emissions is now 537.5 tonnes
of carbon dioxide equivalent per gigawatt
hour (‘tCO2e/GWh’) for 2019 versus 589.9
tCO2e/GWh reported in the Annual Report
and Accounts 2022. This change reflects the
implementation of the revised aggregation
method and enhanced product mapping.
Revisions
Sector
Oil and gas
Reporting metrics
On-balance sheet financed – Mt CO2e
Facilitated (100% weighting) – Mt CO2e
Power and utilities
On-balance sheet financed – tCO2e/GWh
Facilitated (100% weighting) – tCO2e/GWh
Previously reported
Recalculated metrics
Percentage change
2019
33.0
29.5
589.9
360.0
2020
30.1
N/A
509.6
N/A
2019
28.4
43.2
537.5
420.7
2020
25.0
N/A
511.1
N/A
2019
(14)%
47%
(9)%
17%
2020
(17)%
N/A
—%
N/A
56
HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Financed emissions continued
Targets and progress
We have set out in the table below our
combined on-balance sheet financed and
facilitated emissions targets for the oil and
gas, and power and utilities sectors. These
show the revised baselines.
numbers for the relevant year to track
progress to target. We set out the annual
figures before the application of the three-year
average in the facilitated emissions table
on page 61.
For facilitated emissions, we track progress
to target using a three-year average
moving window (average of 2020, 2021
and 2022 for the 2022 progress number)
and figures weighted at 33%. This means
that transactions facilitated in 2028 and
2029 will still have an impact on the 2030
progress number and will need to be taken
into consideration as we manage progress
towards our target. We aim to achieve our
target in 2030 notwithstanding the application
of a three-year average.
The facilitated emissions values total
17.5 Mt CO2e in 2021 and 14.4 Mt CO2e
in 2022 for the oil and gas sector,
and 398.3 tCO2e/GWh for 2021 and
377.6 tCO2e/GWh in 2022 for the power
and utilities sector. These values are then
combined with the on-balance sheet
We have also set out our defined targets for
the on-balance sheet financed emissions of
the following sectors: cement; iron, steel and
aluminium; aviation; automotive; and thermal
coal mining. We disclose emissions in 2021
and 2022 and progress achieved in 2022
versus baseline for each sector.
We have implemented a revised approach
to calculate the sector-level intensity metric
in 2023, which has been applied for the
recalculated power and utilities baseline
metric, and for 2021 and 2022 actual data
for all intensity-based sectors. Emissions
intensity is a weighted average according to
the portfolio weight of each investment, as a
proportion of the total portfolio value.
The progress figures show the trend in
financed emissions before targets were set.
Targets were set for oil and gas, and power
and utilities in February 2022, for thermal coal
mining in December 2022, and for the other
sectors in February 2023. On the following
pages, we provide more granular details of our
financed emissions within these sectors.
When assessing the changes from 2019 to
2022, 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. In the
hard-to-abate sectors, where decarbonisation
progress is expected to be slower, we are
taking steps to engage with clients on their
transition plans.
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 2022 progress at this stage.
Sector1
Baseline
2021
2022
2022 %
change vs.
baseline
2030 target
Unit2
Target scenario
Combined on-balance sheet financed and facilitated emissions at 33% with three-year moving average
Oil and gas
Power and utilities
42.6 in 2019
513.4 in 2019
On-balance sheet financed emissions
Cement
Iron, steel and aluminium
Aviation
Automotive
Thermal coal mining
0.64 in 2019
1.8 in 2019
84.0 in 2019
191.5 in 2019
4.0 in 2020
37.9
405.1
0.70
2.4
85.9
215.7
N/A
31.9
396.8
0.71
2.5
86.5
216.6
N/A
(25)%
(23)%
10%
38%
3%
13%
N/A
(34)%
138.0
Mt CO2e
IEA NZE 2021
tCO2e/GWh
IEA NZE 2021
0.46
tCO2e/t cement
IEA NZE 2021
1.05 (1.43)3
tCO2e/t metal
IEA NZE 2021
63.04
66.0
(70)%5
tCO2e/million rpk
IEA NZE 2021
tCO2e/million vkm
IEA NZE 2021
Mt CO2e
IEA NZE 2021
1 Our absolute and intensity emission metrics and targets are measured based on the drawn exposures of the counterparties in scope for each sector. For oil and
gas; and power and utilities, the baseline, 2021, 2022 and target type figures represent revised combined on-balance sheet financed and facilitated emissions. For
iron, steel and aluminium; cement; aviation; automotive; and thermal coal mining, the baseline, 2021, 2022 and target type figures represent on-balance sheet
financed emissions (no revisions applied).
2 For the oil and gas sector, absolute emissions are measured in million tonnes of carbon dioxide equivalent (‘Mt CO2e’); for the power and utilities sector, intensity is
measured in tonnes of carbon dioxide equivalent per gigawatt hour (‘tCO2e/GWh’); for the cement sector, intensity is measured in tonnes of carbon dioxide
equivalent per tonne of cement (‘tCO2e/t cement’); for the iron, steel and aluminium sector, intensity is measured in tonnes of carbon dioxide equivalent per tonne
of metal (‘tCO2e/t metal’); for the aviation sector, intensity is measured in tonnes of carbon dioxide equivalent per million revenue passenger kilometres (‘tCO2e/
million rpk’); for the automotive sector, intensity is measured in tonnes of carbon dioxide equivalent per million vehicle kilometres (‘tCO2e/million vkm’); and for the
thermal coal mining sector, absolute emissions are measured in million tonnes of carbon dioxide equivalent (‘Mt CO2e’).
3 While the iron, steel and aluminium 2030 target is aligned with the IEA NZE 2021 scenario, we also reference the Mission Possible Partnership Technology
Moratorium scenario, whose 2030 reference range is shown in parentheses.
4 Our aviation unit includes passenger and cargo tonnes, converted into revenue passenger kilometre (‘rpk‘), to align with our target pathway. This is comparable to
revenue tonne kilometre (rtk) using a 100kg per passenger conversion factor as we already include belly and dedicated cargo in our production figures. The
conversion factor changed from 95kg per passenger in the previous disclosure to align with industry practice.
5 The thermal coal mining scope differs from the other sectors. We include solely emissions from thermal coal production and coal power generation, rather than the
total emissions of a counterparty within a sector, to reflect the absolute financed emissions reduction thermal coal mining sector target.
HSBC Holdings plc Annual Report and Accounts 2023
57
ESG review ESG review | Environmental
Financed emissions continued
We plan to report financed emissions and
progress against our targets annually and to
be transparent in our disclosures about the
methodologies applied and any challenges or
dependencies. However, financed emissions
figures may not be reconcilable or comparable
year on year in future, and baselines and
targets may require recalibration as data,
methodologies and reference scenarios
develop.
Consistent with PCAF guidance on financed
emissions accounting, we only consider
the outstanding drawn financing amount
given this has a direct link to real economy
emissions.
A number of clients have material undrawn
balances that, if drawn, could significantly
increase the financed emissions related to
those clients. We expect to assess how to
manage these exposures on a forward-looking
basis as we progress towards our 2030
targets. In addition, for the intensity-based
sectors, the emissions intensity is sensitive
to material clients and changes to drawn
balances year on year can therefore influence
the trend.
We are developing portfolio modelling
capabilities that integrate risk, profitability and
financed emissions to inform decision making
and determine how to best steer our portfolios
to meet our financed emissions targets and
commercial and strategic ambitions. As part of
this we are testing and developing an analytics
capability that will provide an up-to-date view
of our position relative to our 2030 targets
and an indication of the financed emissions
impact of a transaction to consider alongside
risk-return metrics.
Oil and gas
For the oil and gas sector, our analysis
included scope 1, 2 and 3 emissions,
including carbon dioxide and methane, for
upstream and integrated companies. We
revised our baseline for 2019 and progress
figures to reflect combined on-balance sheet
financed and facilitated emissions and our
revised approach.
We have set a target to reduce absolute
on-balance sheet financed emissions and
facilitated emissions for our oil and gas
portfolio by 34% by 2030 relative to a 2019
baseline. This is consistent with a global
1.5°C-aligned pathway as defined by the IEA
NZE 2021 scenario. This target is unchanged
with the inclusion of facilitated emissions.
We plan to update our target following
the periodic release of new 1.5°C-aligned
scenarios in the years ahead to reflect shifts in
the real economy.
Our core approach as we progress towards
our portfolio decarbonisation targets is to
engage with major oil and gas customers
to understand their transition plans and to
help support and accelerate those efforts.
This is in line with the Group’s energy policy,
which supports the phasing down of fossil
fuel sources with the highest emission
intensity as well as financing restrictions for
projects relating to new oil and gas fields,
and infrastructure.
In 2022, absolute combined on-balance sheet
financed and facilitated emissions decreased
by 25% to 31.9 Mt CO2e relative to the 2019
baseline, and by 16% from 2021 to 2022. This
decline was achieved through a risk-weighted
assets reduction strategy and aided by market
conditions, with stronger oil and gas cash flows
and higher interest rates resulting in reduced
demand for bank debt and capital markets
financing. Market dynamics will continue to
create volatility in future years as we make
progress towards our financed emissions target.
Power and utilities
For the power and utilities sector, our analysis
included scope 1 and 2 emissions for upstream
power generation companies. Although
scope 1 emissions are most material for the
sector, most companies report scope 1 and 2
emissions together making it challenging to
split out the data. We revised our baseline for
2019 and progress figures to reflect combined
on-balance sheet financed and facilitated
emissions and our revised approach.
We have set a target to reduce the financed
emissions intensity of our on-balance sheet
and facilitated power and utilities portfolio
to 138 tCO2e/GWh by 2030. This target is
unchanged with the inclusion of facilitated
emissions. We have chosen an intensity-
based target as electricity demand is
expected to more than double by 2050 due
to both population growth and electrification
required to decarbonise mobility, buildings,
and industry. We have focused on power
generation companies because they control
sector output. By engaging with them, we
believe we can help drive the most material
emissions impact in the real economy.
Our target is consistent with a global
1.5°C-aligned pathway, as defined by the IEA
NZE 2021 scenario. We plan to refresh our
target following the periodic release of new
1.5°C-aligned scenarios in the years ahead.
In 2022, our combined on-balance sheet
financed and facilitated emissions intensity
decreased by 23% to 396.8 tCO2e/GWh
relative to the 2019 baseline. This reduction
was driven by an increase in financing of
renewable energy projects and companies,
and a decrease in financing of high emissions
intensity clients. Over the period from 2022
to 2021 the fall in sector portfolio financed
emissions was a more modest 2%.
Over the reported period, the average
emissions intensity of clients for whom we
helped raise funds in the capital markets
was lower than for clients financed directly
on our balance sheet. This means the
combined on-balance sheet financed and
facilitated emissions intensity from 2019 to
2022 was lower than for on-balance sheet
financing alone.
58
HSBC Holdings plc Annual Report and Accounts 2023
Oil and gas
Mt CO2e
2022 progress
from baseline
(25)%
e
2
O
C
t
M
45
40
35
30
25
20
15
10
5
0
2019 2020 2021 2022
2030
Power and utilities
tCO2e/GWh
2022 progress
from baseline
(23)%
/
h
W
G
e
2
O
C
t
700
600
500
400
300
200
100
0
2019 2020 2021 2022
2030
Key:
HSBC sector target
HSBC sector portfolio emissions
Mission Possible Partnership (‘MPP’) pathway
Environmental
Financed emissions continued
Cement
For the cement sector, our analysis included
scope 1 and 2 emissions for midstream
companies with clinker and cement
manufacturing facilities.
Our 2022 emissions intensity was 10% higher
than the 2019 baseline due to higher drawn
balances for emissions intensive clients, but at
0.71 tCO2e/t cement in 2022, it was marginally
up by 1% from 2021.
In line with the IEA NZE 2021 scenario,
we target an on-balance sheet financed
emissions intensity of 0.46 tonnes of carbon
dioxide equivalent per tonne of cement
(‘tCO2e/t cement’) by 2030, using 2019 as our
baseline. While some emissions reductions
can be achieved through energy efficiency,
we believe that to significantly reduce
fuel and process emissions from cement
manufacturing, and to meet our targets,
large-scale investments are required in new
technologies, including clinker substitution,
alternative fuel use such as bioenergy, and
carbon capture use and storage.
Our cement portfolio is relatively concentrated
in customer numbers, and even where
customers have set science-based targets
there is still a risk of pledges not turning
into the necessary emissions reductions
if technologies do not scale in time. It will
be important, therefore, to regularly review
progress on technology scaling across the
industry over the years ahead to 2030. For
cement and the other intensity-based sectors
we plan to integrate net zero considerations
into our transaction processes and controls
and we expect this to help guide our activities
towards progressive alignment of the portfolio
with our 2030 targets.
Iron, steel and aluminium
We covered scope 1 and 2 for midstream
iron, steel and aluminium production in our
analysis. Due to the low significance of the
aluminium sector’s financed emissions within
our portfolio, we combined them with our iron
and steel financed emissions. In the event that
aluminium becomes a more material part of
our portfolio in the future, we may consider
creating a separate target for aluminium
production given the varied decarbonisation
pathway for this metal.
For the iron, steel and aluminium sector, we
target an on-balance sheet financed emissions
intensity of 1.05 tonnes of carbon dioxide
equivalent per tonne of metal (‘tCO2e/t metal’)
by 2030, using the IEA NZE 2021 scenario as
our core scenario and 2019 as our baseline.
Due to the challenges of decarbonising this
hard-to-abate sector, we also outline an
alternative scenario from the Mission Possible
Partnership (‘MPP’).
The emissions intensity in 2022 rose by 38%
to 2.5 tCO2e/t metal against our 2019 baseline
and by 4% versus 2021. This was due to
increased financing to the aluminium sector,
which has a higher carbon intensity than that
of steel.
We aim to actively manage our portfolio to
achieve our 2030 financed emissions target
for our iron, steel and aluminium portfolio,
taking into account the actions our customers
are taking to achieve emissions reductions.
Aviation
In the aviation sector, we included passenger
airlines’ scope 1 and aircraft lessors‘ scope
3 downstream emissions. We excluded
military and dedicated cargo flights as the
emissions intensity of such cargo flights is
different to that of passenger airlines. This
approach is in line with industry practice to
ensure consistency of financed emissions
measurement and target setting.
Aligned with the IEA NZE 2021 scenario, we
target an on-balance sheet financed emissions
intensity of 63.0 tonnes of carbon dioxide
equivalent per million revenue passenger
kilometres (‘tCO2e/million 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 in alternative fuels, such as
sustainable aviation fuel, and new aircraft to
reduce emissions.
The industry is also adopting the unit of
revenue tonne kilometre (‘rtk’) to take into
account the transport of cargo for airlines in
scope of the target. We will consider this as
part of our methodology enhancement.
At 86.5 tCO2e/million rpk in 2022, the
emissions intensity increased by 3% versus
the 2019 baseline and was marginally up by
1% from 2021. In 2020 there was a peak in
emissions intensity due to the impact of the
Covid-19 pandemic, as planes carried fewer
passengers.
We plan to engage with our major customers
on their transition plans, as well as integrate
financed emissions implications into
transaction and portfolio management for
the sector.
Cement
tCO2e/t cement
2022 progress
from baseline
10%
t
n
e
m
e
c
t
/
e
2
O
C
t
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2019 2020 2021 2022
2030
Iron, steel and aluminium
tCO2e/t metal
2022 progress
from baseline
38%
l
a
t
e
m
t
/
e
2
O
C
t
2.5
2.0
1.5
1.0
0.5
0
2019 2020 2021 2022
2030
Aviation
tCO2e/million rpk
2022 progress
from baseline
3%
k
p
r
n
o
i
l
l
i
/
m
e
2
O
C
t
140
120
100
80
60
40
20
0
Key:
2019 2020 2021 2022
2030
HSBC sector target
HSBC sector portfolio emissions
Mission Possible Partnership (‘MPP’) pathway
HSBC Holdings plc Annual Report and Accounts 2023
59
ESG review
ESG review | Environmental
Financed emissions continued
aligned pathway, modified to match the share
of new in-year vehicle sales for light-duty
vehicles. 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 2022 emissions intensity rose by 13%
to 216.6 tCO2e/million vkm against our 2019
baseline and stayed level with 2021. This
increase, after an 8% reduction in 2020
versus 2019, was caused by a shift in the
portfolio towards companies producing
more emissions-intensive vehicles. This can
be the case for manufacturers that produce
more sports utility vehicles or fewer electric
vehicles.
When calculating our financed emissions from
thermal coal mining, we focused on thermal
coal extraction and processing companies,
and diversified mining companies. We aim to
measure and focus on our customers with the
most material thermal coal-related emissions
in order to help drive a meaningful impact in
the real economy.
Automotive
For the automotive sector, we looked at scope
1, 2 and 3 emissions from the midstream
manufacturing of vehicles, and tank-to-wheel
exhaust pipe emissions for light-duty vehicles.
We excluded heavy-duty vehicles from our
analysis as the target pathway derived from
the IEA excludes them, as they have a different
decarbonisation pathway relative to light-duty
vehicles. This approach is in line with industry
practice to ensure consistency of financed
emissions measurement and target setting.
We will consider including heavy-duty vehicle
manufacturers as well as heavy-duty vehicle
production at a later stage of our analysis, as
data and methodologies develop.
We target an on-balance sheet financed
emissions intensity of 66.0 tonnes of carbon
dioxide equivalent per million vehicle
kilometres (‘tCO2e/million vkm’) by 2030
using 2019 as our baseline. This is in line with
the IEA NZE 2021 scenario, which is a 1.5C°
Thermal coal mining
For the thermal coal mining sector, our
analysis focused on scope 1, 2 and 3
emissions in upstream companies, including
those involved in extraction. The majority
of our financed emissions relate to scope 3
emissions associated with coal mining.
We set an absolute on-balance sheet
reduction target of 70% for 2030, from an
absolute 2020 baseline measure of 4.0 Mt
CO2e. We used 2020 as a baseline to align
with the baseline used for our drawn balance
exposure targets in the thermal coal phase-
out policy. The financed emissions target is
aligned with the IEA NZE 2021 scenario.
Automotive
tCO2e/million vkm
2022 progress
from baseline
13%
m
k
v
n
o
i
l
l
i
m
/
e
2
O
C
t
300
250
200
150
100
50
0
2019 2020 2021 2022
2030
Thermal coal mining
Mt CO2e
2022 progress
from baseline
N/A
10
8
6
4
2
0
e
2
O
C
t
M
Key:
2019
2020
2030
HSBC sector target
HSBC sector portfolio emissions
Mission Possible Partnership (‘MPP’) pathway
60
HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Financed emissions continued
On-balance sheet financed emissions
The table below summarises the results of our assessment of on-balance sheet financed emissions using 2021 and 2022 data. For thermal coal
mining, disclosures commenced in 2020 to align with thermal coal exposure reporting metrics. The PCAF data quality score has not improved for
2022 due to limited availability of actual reported emissions from our customers.
Sector
Oil and gas
Power and utilities
Cement
Iron, steel and aluminium
Aviation
Automotive
Thermal coal mining
Year
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2020
On-balance sheet financed emissions – wholesale credit lending and project finance1,2
PCAF data quality score3,†
Scope 1–2 (Mt CO2e)† Scope 3 (Mt CO2e)† Emissions intensity4
Scope 1 and 2
Scope 3
2.1
1.3
8.1
7.6
2.2
4.5
2.0
2.7
2.7
2.6
0.07
0.12
0.17
18.4
16.2
N/A
N/A
N/A
N/A
N/A
N/A
0.16
0.15
3.6
5.4
3.8
N/A
N/A
407.0
401.7
0.70
0.71
2.4
2.5
85.9
86.5
215.7
216.6
N/A
2.8
3.2
2.9
3.3
2.8
2.9
3.0
3.0
3.0
3.3
2.8
2.7
3.0
2.9
3.2
N/A
N/A
N/A
N/A
N/A
N/A
3.3
2.4
2.9
2.9
3.0
Facilitated emissions
The table below summarises the results of our assessment of facilitated emissions from 2019 to 2022 for the oil and gas, and power and utilities sectors.
Applying a 100% weighting, the oil and gas values for scope 1 to 3 emissions decreased from 43.2 Mt CO2e in 2019 to 15.2 Mt CO2e in 2022. For
the power and utilities sector, the values for scope 1 and 2 emissions fell from 8.5 Mt CO2e in 2019 to 3.8 Mt CO2e in 2022. For all 100%-weighted
facilitated values, please refer to the ESG Data Pack. The total capital markets activity analysed applying a 100% weighting in 2019 was $22.6bn,
representing 5.5% of capital markets activity at 31 December 2019. In 2020, it was $26.0bn, representing 6.2% of capital markets activity at 31
December 2020. In 2021, it was $18.1bn, representing 4.1% of capital markets activity at 31 December 2021. In 2022, it was $10.4bn representing
3.2% of capital markets activity at 31 December 2022.
Sector
Oil and gas
Power and utilities
Facilitated emissions – ECM, DCM and syndicated loans (33% weighting)
PCAF data quality score3,†
Scope 1–2 (Mt CO2e)†
Scope 3 (Mt CO2e)†
Emissions intensity4
Scope 1 and 2
Scope 3
1.6
2.7
0.90
0.36
2.8
2.1
1.5
1.2
12.7
24.0
10.5
4.7
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
420.7
410.1
364.1
358.7
2.3
2.0
2.9
3.3
2.5
2.5
2.9
2.9
2.7
2.1
3.1
3.3
N/A
N/A
N/A
N/A
Year5
2019
2020
2021
2022
2019
2020
2021
2022
1 The total amount of short-term finance excluded for the thermal coal mining sector was $0.37bn in 2020; for all other sectors it was $7.0bn in 2021 and $8.5bn in 2022.
2 The total loans and advances analysed in 2020 for the thermal coal mining sector were $2.89bn, representing 0.28% of total loans and advances to customers at 31
December 2020. For all other sectors in 2021, they were $24.1bn representing 2.3% of total loans and advances to customers at 31 December 2021 and in 2022,
they were $23.6bn representing 2.6% of total loans and advances to customers at 31 December 2022. The total loans and advances analysed for the purpose of
the financed emissions calculation and reporting have not been adjusted for assets held for sale.
3 PCAF scores where 1 is high and 5 is low. This is a weighted average score based on financing for on-balance sheet financed emissions.
4 Emissions intensity under the new aggregation method.
5 Due to timing differences the approach for calculating 2021-2022 facilitated emissions has been enhanced compared to that of 2019-2020. Enhancements are
mainly data and process-related for the later years to include more consistent and higher quality data sources and are therefore applied prospectively in line with
our recalculation policy. Small methodology changes were applied as well but these do not materially change our 2019-2020 numbers.
† Data is subject to independent limited assurance by PwC in accordance with ISAE 3000/ ISAE 3410. For further details, see our Financed Emissions and Thermal
Coal Exposures Methodology and PWC’s limited assurance report, which are available at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-
reporting-centre.
HSBC Holdings plc Annual Report and Accounts 2023
61
ESG review ESG review | Environmental
Financed emissions continued
Integrating net zero into transaction and portfolio
decision making
In 2023, we began to embed net zero factors
alongside standard risk-return and other
considerations when evaluating specific
transactions starting with oil and gas, power
and utilities, and thermal coal mining sectors.
Once completed, these assessments can
be used to support business decisions in
relation to our financed emissions portfolio
management and alignment, and our climate
risk management efforts.
Our processes and controls will continue to
evolve as we look at net zero considerations
for sectors, customers and deals with higher
climate impact and risk. These considerations
include: adherence with our sustainability risk
policies; climate-related credit risk; customer
transition plan assessment outcomes (where
relevant); reputational risk considerations; and
financed and, where applicable, facilitated
emissions implications (where transactions are
in scope of our financed emissions disclosures
and 2030 targets). We have dedicated
governance, with escalation pathways for
deals deemed high risk, including in terms
of financed emissions implications and
reputation risk.
We have been testing and developing an
analytics capability that, where relevant,
begins to provide front-line business teams
and management with insight on the up-to-
date on-balance sheet financed emissions and
facilitated emissions position of a sector, the
impact of a transaction where material, and
implications relative to pathways in line with
our 2030 targets.
We continued our efforts to design and
implement a differentiated approach to
understand and assess the transition plans
and risks of our corporate customers,
including state-owned enterprises. These
assessments help us to identify opportunities,
manage climate risks and define areas to drive
strategic engagement with each corporate
customer.
In 2023, we completed assessments for most
customers in scope of our thermal coal phase-
out policy. We also completed assessments
for customers that make the most material
contribution to our financed emissions in the
oil and gas, and power and utilities sectors.
Reducing landfill waste
and emissions in
the Philippines
We are supporting a company that
is seeking to tackle the problem of
overflowing landfills, which will help
reduce methane emissions and create
potential new jobs in the Philippines.
In June 2023, we provided a subsidiary
of Prime Infrastructure Capital, a
sustainable infrastructure firm with
services that span energy, water
distribution and waste management,
with a $24.5m green loan. The loan
was provided to finance its acquisition
and expansion of a waste management
facility in Cebu, Philippines.
The company has increased the facility’s
capacity to treat and recycle domestic
and industrial solid waste, and is
developing its capabilities to convert
organic and agricultural feedstock waste
into sustainable, refuse-derived fuel.
The funding is expected to help to divert
waste away from landfill, which will
reduce methane emissions generated
by decomposing organic waste.
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 managing assets in
line with achieving net zero emissions by
2050 or sooner. HSBC Asset Management
continues to work towards its ambition of
reducing scope 1 and 2 financed emissions
intensity by 58% by 2030 for 38% of its total
assets under management. These listed
equity and corporate fixed income assets
amounted to $193.9bn at 31 December
2019. We use 2019 as the baseline year for
our calculations. Implementation of the net
zero targets remains subject to consultation
with stakeholders including investors, fund
boards and regulators.
In 2023, HSBC Asset Management
worked to develop solutions for clients to
address climate ambitions while investing.
Further data science expertise will be
added to support sustainability through
the creation of a Sustainable Investment
Solutions Lab. HSBC Asset Management
reported an update through the Principles
for Responsible Investment annual
submission, as required under its Net
Zero Asset Managers commitment. As
part of its thermal coal policy, it fulfilled a
commitment to initiate engagement with
all listed issuers held in active fundamental
portfolios with more than 10% revenue
exposure to thermal coal.
62
HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Embedding net zero into the way we operate
Net zero in 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.
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. We are working on our carbon
credits strategy by engaging with a range of
market participants.
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 2023
we achieved 26.3%. We continue to work
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.
As part of our ambition to achieve 100%
renewable electricity across our operations by
2030, we continue to look for opportunities
to procure green electricity in each of our
markets. In 2023, our fourth UK renewable
power purchase agreement (’PPA’) went live in
Sorbie, Scotland. A key challenge remains the
limited opportunity to pursue PPAs or green
tariffs in key markets due to regulations.
Business travel
Our ambition is to halve travel emissions by
2030, compared with pre-pandemic levels. In
2023, our travel emissions remained below
50% of our 2019 baseline, despite the lifting
of international travel restrictions. We are
closely managing the gradual resumption of
travel through internal reporting and review
of emissions, internal carbon budgets and
the introduction of emissions information at
the point of booking. 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 2023, we reduced
the company car fleet size by 9% compared
with 2022. 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. Since 2020, we have
been 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. In 2023, suppliers representing
70.6% of total supplier spend completed the
CDP questionnaire, compared with 63.5%
in 2022.
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 2023, we launched our supplier net zero
guides, providing further details to support
suppliers in understanding our net zero
ambitions, as set out in our supplier code
of conduct. We are developing internal
decarbonisation plans for the highest-emitting
procurement categories (IT hardware, real
estate, data centre and servers, and telecom
services), to be included in category strategies
and to support future supplier selection.
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 presence in environmentally
sensitive areas
As a global organisation, our branches,
offices and data centres may be located in
areas of high or very high water stress and/
or protected areas of biodiversity, as we
support our customers and communities in
these locations.
Approximately 55% 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 50%
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, 0.9% of our global office, branch
and data centre portfolio lies in protected
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.
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,
seeking to ensure that 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, such as 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.
HSBC Holdings plc Annual Report and Accounts 2023
63
ESG review ESG review | Environmental
Net zero in our own operations continued
Emissions from our energy and travel
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. Our environmental data for
our own operations is based on a 12-month
period to 30 September.
In 2023, we reduced emissions from our
energy consumption and travel to 293,333
tonnes CO2e, which represents a 57.3%
reduction compared with our 2019 baseline.
This was mainly attributed to:
– travel volumes remaining low compared
with pre-pandemic levels;
– an increase in our consumption of
renewable electricity to 58.4%; and
– the reduction of energy consumption as
a result of strategic footprint reductions
and the implementation of over 450 energy
conservation measures, which amounted
to an estimated energy avoidance in
excess of 12 million kWh.
Emissions from business travel increased
compared with 2022, due to the easing of
pandemic-related travel restrictions which
resulted in a return to travel. A decrease in
scope 1 emissions was partly attributed to a
correction in the classification of road-based
business travel in the UK and India from scope
1 to scope 3.
In 2023, we collected data on energy use
and business travel for our operations in 34
countries and territories, which accounted
for approximately 96.0% of our full-time
employees (‘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 96.0% 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.
Emissions from our supply chain
Our calculation methodology uses supplier
emissions data where we have it from
suppliers, through CDP. Where we do not
have actual emissions data, we use industry
Energy and travel greenhouse gas emissions in tonnes CO2e
Scope 11
Scope 2 (market-based)1
Scope 3
2023
2022
2019
baseline
16,918
19,329
22,066
167,174
223,334
392,270
1,090,280 1,052,264
1,139,260
Category 1: Purchased goods and services1,2
859,256
865,747
829,635
Category 2: Capital goods1,2
Category 6: Business travel1
Total
Included energy UK
121,783
144,232
37,617
109,241
42,285
272,008
1,274,372 1,294,927 1,553,596
5,909
9,264
10,432
1 Our data is now presented on an absolute value basis and not rounded values. Data in 2023 is subject to an
independent limited assurance by PwC in accordance with International Standard on Assurance engagements
3410 (Assurance Engagements on Greenhouse Gas Statements). For further details, see GHG Reporting
Guidance 2023 and third-party limited assurance report at www.hsbc.com/our-approach/esg-information/
esg-reporting-and-policies. In respect of data in 2019 and 2022, see our relevant Annual Report and Accounts.
2 Supply chain emissions calculated using a combination of supplier emissions data and industry averages.
A data quality score is applied to this calculation 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. Data quality scores can be found in the ESG Data Pack.
For further details of our methodologies, our PwC limited assurance reports and relevant environment key
facts, see our ESG Data Pack at www.hsbc.com/esg.
Greenhouse gas emissions in tonnes
CO2e per FTE
Energy consumption in kWh in 000s
Scope 1, 2 and
3 (Category 6)
Scope 1, 2 and
3 (Category 1,
2 and 6)
2023
2022
2019
baseline
1.3
1.3
2.9
5.8
5.9
6.6
Total
UK only
2023
2022
2019
baseline
772,736 797,264 913,556
209,939 222,322 281,271
average carbon intensities and spend data
to determine their 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. For
further details, see our GHG (Greenhouse Gas)
Reporting Guidance at www.hsbc.com/esg.
averages remain significantly elevated. Due
to volatility in industry average data, we
will undertake a review of our data sources
and methodology during 2024. As supplier
emissions reporting matures, we will be able
to include more actual data and fewer industry
averages in the methodology. Our initial supply
chain emission figures may require updating
as data availability changes over time and
methodologies and climate science evolve.
For further details of our methodologies and
relevant environmental key facts, see the ESG
Data Pack at www.hsbc.com/esg.
In 2022, we disclosed our supply chain
emissions for the first time, using supplier
emissions data and industry averages where
actual data was not available. This approach
is heavily dependent on external data
sources to calculate estimates of our supply
chain emissions.
In 2023, emissions from our supply chain
reduced by 3% compared with 2022. This is
due to a reduction in spend and an increase
in the availability of actual emissions data
from our suppliers. Emissions have increased
by 13% compared with 2019, as industry
64
HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Managing climate risk TCFD
Climate risk relates to the financial and non-
financial impacts that may arise as a result of
climate change and the move to a net zero
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 material exposure to climate risk relates
to wholesale and retail client financing activity
within our banking portfolio. We are also
exposed to climate risk in relation to asset
ownership by our insurance business and
employee pension plans. Our clients are
exposed to climate-related investment risk in
our 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 141 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
Employees
Customers
Communities
Customers
Investors
Employees
Investors
Communities
Suppliers
Investors
Customers
Regulators and
Employees
governments
Customers
Regulators and
governments
Communities
Communities
Employees
Employees
Suppliers
Regulators and
governments
Regulators and
Investors
governments
Investors
Customers
Suppliers
Employees
Customers
Communities
Suppliers
Communities
Customers
Investors
Employees
Regulators and
governments
Regulators and
Employees
governments
Customers
Communities
Investors
Suppliers
Suppliers
Investors
Employees
Regulators and
governments
Communities
Customers
Investors
Communities
Suppliers
Regulators and
Employees
governments
Regulators and
Communities
governments
Suppliers
Regulators and
Investors
Suppliers
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
engagement questionnaire to understand
clients’ climate strategies and risks. We
have set out a suite of policies to guide our
management of climate risk. We continue
to develop our climate risk appetite and
metrics to help manage climate exposures in
our wholesale and retail portfolios. We also
develop and use climate scenario analysis
to gain insights on the long-term effects
of transition and physical risks across our
wholesale and retail banking portfolios (for
further details, see page 225).
faced by companies are considered when
making investment decisions and to assess
ESG risks and opportunities that could impact
investment performance.
HSBC Asset Management engages with
investee companies on a priority list as defined
in its Global Stewardship Plan, and votes at
company general meetings, including on the
topic of climate change. It also works with
collaborative engagement initiatives such as
Climate Action 100+ and Nature Action 100.
For further details of the HSBC Global Asset
Management (UK) Limited’s annual TCFD
Report, see https://www.assetmanagement.
hsbc.co.uk/-/media/files/attachments/uk/
common/tcfd-report-2022.pdf.
Asset management
HSBC Asset Management recognises that
climate risk may manifest as transition and
physical risks over the short, medium and
long term. The impact of climate-related risk
will vary depending on characteristics such
as asset class, sector, business model and
geography. Where applicable and relevant,
HSBC Asset Management incorporates
climate-related indicators, such as carbon
intensity and management of carbon
emissions, into investment decisions as well as
insights from its climate-related engagement.
Work continues on the integration of ESG
and climate analysis into HSBC Asset
Management’s actively managed product
offerings to help ensure the climate risks
Employee pensions
The Trustee of the HSBC Bank (UK) Pension
Scheme, our largest plan with $36bn 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.
The Scheme, which has reported emission
reductions for its listed equity and corporate
bond mandate portfolios between 2019
and 2022 through its annual TCFD Report,
will continue to report against the 2030
targets and aims to widen the coverage of its
assessment and reporting over time. In 2023,
its asset managers were formally notified of
the Trustee’s ESG risk mitigation priorities and
encouraged to develop commensurate risk
mitigation strategies. The manager monitoring
and selection processes now explicitly
include assessment of these strategies where
financially material.
For further details of the HSBC Bank (UK)
Pension Scheme’s annual TCFD statements and
climate action plan, see http://futurefocus.staff.
hsbc.co.uk/active-dc/information-centre/
other-information.
Insurance
In 2023, our Insurance business updated its
sustainability procedures to align with the
Group’s updated energy and thermal coal-
phase out policies. We also delivered ESG
product marketing guidelines with insurance
examples and training.
In response to various ESG regulatory
initiatives and developments, HSBC’s
insurance manufacturing entities in the EU,
which are in Malta and France, have continued
to implement key disclosure-related regulatory
requirements, including pre-contractual
reporting, client periodic reporting and
sustainable investment impact statements.
Related requirements for the UK are expected
to be introduced in 2024.
HSBC Holdings plc Annual Report and Accounts 2023
65
ESG review ESG review | Environmental
Sustainability risk policies TCFD
Our sustainability risk policies help to set
out our appetite for financing and advisory
activities in certain sectors. Our policies are
important mechanisms for delivering our
net zero ambitions, as well as for managing
sustainability risks.
Our policies
Our sustainability risk policies comprise
our core net zero-aligned policies – thermal
coal phase-out and energy – and our
broader sustainability risk policies covering:
agricultural commodities, chemicals, forestry,
mining and metals, and World Heritage Sites
and Ramsar-designated wetlands. We also
apply the Equator Principles when financing
relevant projects.
Our sustainability risk policies focus on
mitigating the negative impacts of specific
sectors on people and the environment.
Our net zero policies, including energy and
thermal coal phase-out, also support our
ambition to transition to net zero. Engaging
with customers on their transition plans is a
key aspect of our net zero policy approach.
These policies aim to provide clear signals
to our customers on how our appetite and
expectations for different activities are
changing, as well as how we will consider
their plans for the future.
We continue to review policy implementation
as we apply our policies in practice, and our
operationalisation of such policies continues
to be enhanced. We take a risk-based
approach when identifying transactions and
clients to which our energy and thermal coal
phase-out policies apply, and when reporting
on relevant exposures, adopting approaches
proportionate to risk and materiality. This
helps to focus our efforts on areas where we
believe we can help drive meaningful change,
while taking into account experience from
policy implementation over time.
We regularly review our policies, incorporating
feedback and building on experience from
policy implementation over time.
Where we identify activities that could
cause material negative impacts, we expect
customers to demonstrate that they are
identifying and mitigating risks responsibly,
and we will look to take required actions as
outlined in our policies, which may include
applying financing restrictions or enhanced
due diligence.
For further details of how we manage
sustainability risk, as well as our full policies,
see www.hsbc.com/our-approach/risk-and-
responsibility/sustainability-risk.
Governance and implementation
Our Group Risk and Compliance function
has specialists who review and support
implementation of our sustainability risk
policies. Our relationship managers are the
primary point of contact for many of our
business customers and are responsible
for managing customers’ adherence to
the sustainability risk policies. They are
supported by sustainability risk managers
across the Group who have local or regional
responsibility for advising on, and overseeing,
the management of risks as outlined in the
policies. Where considered appropriate, policy
matters are escalated to relevant internal
governance committees.
Oversight of the development and
implementation of policies is the responsibility
of relevant governance committees comprising
senior members of the Group Risk and
Compliance function and global businesses.
Biodiversity and natural
capital-related policies
Our sustainability risk policies impose
restrictions on certain financing activities
that may have material negative impacts on
nature. While a number of our sustainability
risk policies have such restrictions, our
forestry and agricultural commodities policies
focus specifically on a key nature-related
impact: deforestation. These policies require
customers involved with major deforestation-
risk commodities to operate in accordance
with sustainable business principles. We
also require palm oil customers to obtain
certification under the Roundtable on
Sustainable Palm Oil, and commit to ‘No
Deforestation, No Peat and No Exploitation’
(see ‘Our respect for human rights’ on
page 89).
Our energy policy
Our energy policy covers the broader energy
system, including upstream oil and gas, fossil
fuel power generation, hydrogen, renewables
and hydropower, nuclear, biomass and waste-
to-energy sectors.
The policy seeks to balance three objectives:
driving down global greenhouse gas
emissions; enabling an orderly transition
that builds resilience in the long term; and
supporting a just and affordable transition,
recognising the local realities in all the
communities we serve.
The energy policy was first published in
December 2022 and updated in January 2024.
We review the policy annually to help ensure
that it remains aligned with our net zero by
2050 ambition and strategic objectives.
For further details of our oil and gas, and power
and utilities financed emissions targets, see the
‘Targets and progress’ section in ‘Financed
emissions on page 57.
For further details of our energy policy, see
www.hsbc.com/our-approach/risk-and-
responsibility/sustainability-risk.
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Considering materiality criteria helps us to
focus our efforts on areas where we believe
we can help drive meaningful change, while
taking into account experience from policy
implementation over time.
Applying our revised basis of preparation,
our thermal coal financing drawn balance
exposure was approximately $1bn† as at
31 December 2020. We continue to work on
our 2021 and 2022 numbers based on our
revised basis of preparation and expect to
report on these in future disclosures.
For further details of our approach to financed
emissions, see ‘Our Approach to financed
emissions’ on page 53.
† Data is subject to independent limited assurance
by PwC in accordance with ISAE 3000/ISAE 3410.
For further details, see our Financed Emissions
and Thermal Coal Exposures Methodology and
PwC’s limited assurance report, which are
available at www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-reporting-centre.
Sustainability risk policies continued
Our thermal coal phase-out policy
As set out in the thermal coal phase-out
policy, we are committed to phasing out the
financing of thermal coal-fired power and
thermal coal mining in EU and OECD markets
by 2030, and globally by 2040.
Our policy aims to support thermal coal
phase-out aligned to science-based
timeframes, recognising the different pace
between advanced and emerging economies.
In turn our policy supports progress towards
our financed emissions targets for the power
and utilities and thermal coal mining sectors.
The policy was first published in December
2021 and is reviewed annually, with the most
recent update in January 2024, to help ensure
that it remains aligned with our commitments
and takes into consideration relevant changes
in external factors.
For our thermal coal phase-out policy, see www.
hsbc.com/-/files/hsbc/our-approach/risk-and-
responsibility/pdfs/240125-hsbc-thermal-coal-
phase-out-policy.pdf.
For further details of our thermal coal phase-out
policy January 2024 update, see page 71 of our
Net Zero Transition Plan 2024, which is available
at www.hsbc.com/who-we-are/our-climate-
strategy/our-net-zero-transition-plan.
Thermal coal financing exposures
We intend to reduce thermal coal financing
drawn balance exposure from a 2020 baseline
by at least 25% by 2025 and aim to reduce it
by 50% by 2030.
In our Annual Report and Accounts 2022 we
acknowledged that our processes, systems,
controls and governance were not yet designed
to fully identify and disclose thermal coal
exposures and that we planned to reassess the
reliability of our data and review our basis of
preparation to help ensure that we are reporting
all relevant thermal coal exposures aligned to
our thermal coal phase-out policy.
We have now revised the basis of preparation
for our thermal coal exposures. Aligned with
our thermal coal phase-out policy, we applied
a risk-based approach to identify clients and
report on relevant exposures. This includes
the use of globally recognised third-party
data sources to screen clients and applies
materiality considerations to product type,
customer type and exposure type, which
informs inclusion and exclusion requirements.
Specifically, for product types, short-term
lending exposures are excluded from our
thermal coal financing exposures reporting in
line with our financed emissions methodology.
For customer types, exclusions are applied for
certain customer types such as sovereigns
and individuals. For exposure types, a
threshold of $15m for drawn balances is
applied for thermal coal financing exposures
reporting. For the avoidance of doubt, the
$15m threshold applies only to exposure
reporting analysis and does not apply to
the application of the thermal coal
phase-out policy.
For further details of our Financed Emissions and
Thermal Coal Exposures Methodology, see
www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
Asset Management policy
HSBC Asset Management published its own
policy on thermal coal in September 2022,
and its own energy policy in November
2023. As an asset manager, it is subject to
separate regulatory and legal obligations to
deliver customers’ investment interests and
deliver fair outcomes.
Under its thermal coal 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 funds beyond 2030 for EU
and OECD markets, and globally by 2040.
The policy also includes 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.
Under its energy policy, HSBC Asset
Management will engage with – and
assess the transition plans of – oil and gas,
and power and utilities companies held in
its portfolios. For its active fundamental
sustainable named funds, it will exclude
listed issuers whose overall operations are
substantially in unconventional oil and gas,
subject to data availability, and with the level
and scope of exclusions to be set out in fund
prospectuses. In its alternatives business, it
will not undertake new direct investments
in projects associated with the energy-
related activities identified as excluded
from new finance or advisory services
under the Group energy policy. HSBC Asset
Management’s policy work will continue to
support the Group’s sustainability objectives
and the commitment made under the Net
Zero Asset Managers initiative to support
investing aligned with net zero by 2050.
We continue on the journey of policy
implementation, including engaging with
the companies in which we invest, and
improving the data we rely on to monitor
the policies.
For further details of the energy policy, see
www.assetmanagement.hsbc.lu/-/media/files/
attachments/common/energy-policy-en.pdf.
For further details of the thermal coal policy,
see www.assetmanagement.hsbc.co.uk/-/
media/files/attachments/common/coal-policy-
en.pdf.
HSBC Holdings plc Annual Report and Accounts 2023
67
ESG review ESG review | Environmental
Partnering for systemic change
Supporting systemic change to deliver net zero
We recognise that collective action is critical
to achieve net zero. We seek to collaborate
with a range of partners to develop a
supportive environment for achieving net zero
and mobilising finance for climate action and
nature-based solutions. Our partnerships vary
in scope and form depending on the sector
and geography, as well as our presence in
local markets. We act independently and
voluntarily in our decision making, based on
our own business interests, priorities and
objectives, and in accordance with the laws
and regulations of the markets in which we
operate.
Working with the public sector
We engage with governments and public
bodies to support the implementation of
policies and regulations, including promoting
good practice to develop globally consistent
approaches to nature and climate-related
financial regulation. In 2023, this included:
– working with the UK Net Zero Council, a
cross-government business partnership, to
help address market barriers to delivering
net zero, including high start-up costs for
renewable energy projects, regulatory
challenges and uncertainty around policy
frameworks; and
– continuing to engage with Just Energy
Transition Partnerships contributing to
Indonesia’s comprehensive investment
and policy plan and Vietnam’s resource
mobilisation plan, which provide roadmaps
for minimising the negative impact on local
communities of phasing out fossil fuels and
how banks can support the transition.
Working with industry
We participate in cross-industry alliances and
initiatives to stimulate industry engagement in
nature and climate-related issues, and improve
consistency in global financial standards,
guidance and frameworks to accelerate
implementation. In 2023, these included:
– We are supporting the widespread adoption
of the GFANZ net zero transition plan
framework, as a member of its Principals
Group. We also jointly led a working group
to develop guidance for financial institutions
on financing the managed phase-out of
coal-fired power plants in Asia-Pacific.
– As Chair of the Sustainable Markets
Initiative’s (‘SMI’) Financial Services
Taskforce, we have been actively involved in
the publication of industry guidance to help
encourage investment in critical ecosystems
and sustainable agricultural practices.
These include sponsorship of a report by
Pollination on financing coastal nature-
based solutions, as well as contributing
to the Mangrove Breakthrough initiative’s
financial roadmap and the SMI Agribusiness
Task Force’s blended finance framework for
regenerative farming.
– As a member of the Taskforce on Nature-
related Financial Disclosures (‘TNFD’), we
have piloted the TNFD beta framework
to better understand our exposure to
nature-related risks, including on subsets
of customers. We are currently focused
on assessing and preparing for mandatory
nature-related disclosure requirements,
and we continue to engage with TNFD and
explore ways it can help us and our clients
to strengthen nature-related reporting.
In 2023, we also supported financial product
development to help mobilise the allocation
of capital towards halting and reversing
nature loss:
– We worked with the ICMA to help develop
global guidance for issuers launching
blue bonds – debt instruments that raise
capital to finance sustainable marine and
ocean-based projects – including eligibility
criteria, standards for evaluating the impact
of projects, and the steps needed to build
the integrity of the blue economy and
mobilise investment.
– We partnered with Earth Security to explore
the barriers, opportunities and design options
for creating a ‘mangrove bond’ in Queensland,
Australia to help generate funding to
enhance mangrove ecosystems. This led to
the publication of a practical blueprint for
investors, banks, corporates and governments
to develop new sustainable fixed income and
investment product opportunities.
Working with civil society and
non-governmental organisations
As part of our global philanthropy, we have
partnered with a range of organisations to
support the acceleration of climate action and
investments in nature.
Our five-year Climate Solutions Partnership
initiative with the World Resources Institute,
WWF and over 50 local partners, continues to
support the scaling up of nature-based solutions
and the transition of the energy sector in Asia.
This includes engaging with local enterprises
across Asia to make climate commitments
and take corporate action. Under the Asia
Sustainable Palm Oil Links programme, we are
working closely with smallholders and traders
to transition to more sustainable practices and
reduce nature-related losses.
We have also established several new
partnerships focused on transitioning industry,
decarbonising global trade and catalysing the
new economy. These include:
– a three-year partnership with the Apparel
Impact Institute to mobilise blended finance
for projects to reduce supply chain emissions
in the global fashion industry;
– a founding membership of the Capacity-
building Alliance for Sustainable Investment,
a global platform providing local capacity
building services and technical assistance
to support growth of transition financing
in emerging markets and developing
economies; and
– a two-year partnership with Repower,
a global non-profit initiative analysing
the technical and commercial feasibility
of various options for repowering and
repurposing coal-fired power plants to
accelerate the transition to clean energy.
Unlocking the potential of Chinese ecosystems
We have been working with the SEE Foundation in China on a multi-stakeholder pilot project
to enhance the climate resilience and biodiversity of forests, inland wetlands, and mangroves
in several selected local provinces. The project aims to restore and promote sustainable
management of key ecosystems and improve ecosystem services such as carbon sinks,
as a model for other areas in China and around the world. Its efforts to reduce emissions,
and generate jobs through the support of sustainable local enterprises, has also unlocked
government and public funding for expansion and gained recognition from the World Bank
and the Chinese government.
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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 both the UK’s Financial Conduct Authority’s Listing Rules and Sections 414CA and
414CB of the UK Companies Act 2006, and confirm that we have made disclosures consistent with the TCFD Recommendations and Recommended
Disclosures, including its annexes and supplemental guidance, save for certain items, which we summarise below and in the additional information
section on page 440.
Recommendation
Response
Governance
Disclosure
location
a) Describe the Board’s oversight of climate-related risks and opportunities (Companies Act 2006 – Sections 414CA and 414CB 2A (a))
Process, frequency
and training
– The Board takes overall responsibility for ESG strategy, overseeing executive management in developing the
approach, execution and associated reporting. It considered ESG at eight meetings during the year.
Sub-committee accountability,
processes and frequency
– 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 Audit Committee (‘GAC’) considered ESG and climate reporting matters at eight meetings during
2023. Furthermore, as an area of expanded assurance, the GAC, supported by the executive-level ESG
Committee, provided close oversight of the disclosure risks in relation to ESG and climate reporting, amid
rising stakeholder expectations.
– The Group Risk Committee (‘GRC’) received reports on climate risk management, energy and thermal coal
phase-out policies, while maintaining oversight of delivery plans to ensure that the Group develops robust
climate risk management capabilities. It considered ESG risk at five meetings in 2023.
– The diagram on page 88 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.
Examples of the Board and
relevant Board committees
taking climate into account
– 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 2023, the Board oversaw the implementation of ESG strategy through regular dashboard reports and
detailed updates including: review and approval of the net zero transition plan, deep dives on the sustainability
execution programme, reviews of net zero-aligned policies and climate-aligned financing initiatives.
Pages 88
and 256
Page 88
Page 267
Pages 275
and 278
Page 88
Page 254
Page 254
b) Describe management’s role in assessing and managing climate-related risks and opportunities (Companies Act 2006 – Sections 414CA and 414CB
2A (a))
Who manages climate-related
risks and opportunities
– The 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 Chief Sustainability Officer and the Group Chief Financial Officer.
How management reports to
the Board
Processes used to
inform management
– In 2023, we enhanced our ESG governance with the establishment of a new Sustainability Execution
Committee, which focuses on defining and measuring the success of our climate ambition, and developing
commercial opportunities that support it through the sustainability execution programme.
– The Group Chief Risk and Compliance Officer is the senior manager responsible for the management of
climate risk under the UK Senior Managers Regime, which involves holding overall accountability for the
Group’s climate risk programme.
– 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, an executive forum comprising
members of senior management that include chief executive officers of the global businesses, regional chief
executive officers and functional heads.
– The Group Executive Committee further enhanced its governance model of ESG matters with the
introduction of a new Sustainability Execution Committee and supporting forums. These support senior
management in the operationalisation of the Group’s sustainability strategy, through the oversight of the
sustainability execution programme.
– The Group Risk Management Meeting oversees the enterprise-wide management of all risks, including
updates relating to the Group’s climate risk profile and risk appetite, top and emerging climate risks, and key
climate initiatives.
– The Environmental Risk Oversight Forum oversees global risk activities relating to environmental risk
management, including the transition and physical risks from climate change. Equivalent forums have been
established at regional level, where appropriate.
Page 222
Page 88
Page 222
Page 250
Page 254
Page 88
Page 88
HSBC Holdings plc Annual Report and Accounts 2023
69
ESG review
ESG review | Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Strategy
Disclosure
location
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term (Companies Act
2006 – Sections 414CA and 414CB 2A (d))
Processes used to
determine material risks
and opportunities
– To support the requirements for assessing the impacts of climate change, we continue to develop 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.
– We also develop and use climate scenario analysis to gain insights on the long-term effects of transition and
physical risks across our wholesale and retail banking portfolios.
– Our sustainable finance and investment ambition aims to help promote green, sustainable and socially-
focused business and sustainable investment products and solutions.
Relevant short-, medium-, and
long-term time horizons
– 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.
– In 2023, we continued to provide sustainable financing and investment to our customers in line with our
ambition to provide and facilitate $750bn to $1tn by 2030.
– 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.
These time periods are aligned to the Climate Action 100+ framework v1.2.
Transition or physical
climate-related
issues identified
– We aim to help our customers transition to net zero and a sustainable future by providing and facilitating
between $750bn and $1tn of sustainable finance and investment by 2030. Our sustainable finance data
dictionary includes a detailed definition of contributing activities.
– For transition risk, we have metrics in place to monitor the exposure of our wholesale corporate lending
portfolio to six high transition risk sectors. As at 31 December 2023, the overall exposure to six high transition
risk sectors was $112bn. Our relationship managers engage with our key wholesale customers through
a transition engagement questionnaire (formerly the transition and physical risk questionnaire) to gather
information and assess the alignment of our wholesale customers’ business models to net zero and their
exposure to physical and transition risks. We use the responses to the questionnaire to create a climate risk
score for our key wholesale customers.
– 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 2023, there were 27 major storms that had a minor impact on
five premises with no impact on the availability of our buildings.
Risks and opportunities by
sector and/or geography
– For transition risk, we have metrics in place to monitor the exposure of our wholesale corporate lending
portfolio to six high transition risk sectors. These are automotive, chemicals, construction and building
materials, metals and mining, oil and gas, and power and utilities.
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)
– Within our mortgage portfolios, properties or areas with potentially heightened physical risk are identified
and assessed locally, and potential exposure is monitored through quarterly metrics. We have also set risk
appetite metrics for physical risk in our largest mortgage markets, the UK and Hong Kong, as well as those
with local regulatory requirements, including Singapore.
– We aim to help our customers transition to net zero and a sustainable future by providing and facilitating
between $750bn and $1tn of sustainable finance and investment by 2030. For a detailed breakdown of our
sustainable finance progress, 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.
– The UK is our largest mortgage market, which at September 2023 made up 40.0% of our global mortgage
portfolio. We estimate that 0.2% of our UK retail mortgage portfolio is at very high risk of flooding and 3.5% is
at high risk. This is based on approximately 94.2% climate risk data coverage by value of our UK portfolio as
at September 2023.
– Our material exposure to climate risk relates to wholesale and retail client financing activity within our banking
portfolio.
– We are also exposed to climate risk in relation to asset ownership by our insurance business and employee
pension plans.
– HSBC Asset Management recognises that climate risk may manifest as transition and physical risks over
the short, medium and long term. The impact of climate-related risk will vary depending on characteristics
such as asset class, sector, business model and geography. Where applicable and relevant, HSBC Asset
Management incorporates climate-related indicators, such as carbon intensity and management of carbon
emissions, into investment decisions as well as insights from its climate-related engagement.
Page 37
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Page 50
Page 42
Page 44
Page 141
Page 50
Page 223
Page 229
Page 223
Page 224
Page 50
Page 223
Page 224
Page 65
Page 65
Page 65
– In climate scenario analysis on page 227, we show the relative size of exposures at default in 2023 and the
increase in cumulative ECL under each scenario compared with a counterfactual scenario by 2035 (expressed
as a multiple).
Page 227
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Disclosure
location
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning (Companies
Act 2006 – Sections 414CA and 414CB 2A (e))
Impact on strategy, business,
and financial planning
– Our net zero ambition represents one of our four strategic pillars. We aim to achieve net zero in our financed
emissions by 2050, and in our own operations and supply chain by 2030.
– Scenario analysis supports our strategy by assessing our potential exposures to risks and vulnerabilities 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. 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.
Page 44
Page 225
– We continue to enhance our climate scenario analysis exercises so that we can have a more comprehensive
understanding of climate headwinds, risks and opportunities to support our strategic planning and actions.
Page 225
Impact on products
and services
Impact on supply chain
and/or value chain
Impact on adaptation and
mitigation activities
– We have used climate scenarios to inform our organisation’s business, strategy and financial planning. In
2023, we continued to incorporate certain aspects of sustainable finance and financed emissions within our
financial planning process.
– We do not fully disclose impacts from 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, although nascent work is ongoing in these areas. We expect these data limitations
to be addressed in the medium term as more reliable data becomes available and technology solutions are
implemented.
– We aim to help our customers transition to net zero and a sustainable future by providing and facilitating
between $750bn and $1tn of sustainable finance and investment by 2030.
– 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.
– We recognise that collective action is critical to achieve net zero. We seek to collaborate with a range of
partners to develop a supportive environment for achieving net zero and mobilising finance for climate
action and nature-based solutions. Our partnerships vary in scope and form depending on the sector and
geography, as well as our presence in local markets.
– HSBC Asset Management engages with investee companies on a priority list as defined in its Global
Stewardship Plan, and votes at company general meetings, including on the topic of climate change.
– 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 electricity across our operations by 2030,
we continue to look for opportunities to procure green electricity in each of our markets. In 2023, our fourth
UK renewable PPA went live in Sorbie, Scotland. A key challenge remains the limited opportunity to pursue
PPAs or green tariffs in key markets due to regulations.
– 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 address
the potential impacts of climate change.
Impact on operations
– 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.
– We use stress testing to evaluate the potential for impact on our owned or leased premises. Our scenario
stress test, conducted in 2023, analysed how eight climate change-related hazards could impact 1,000 of
our critical and important buildings. These hazards were coastal inundation, extreme heat, extreme winds,
wildfires, riverine flooding, pluvial flooding, soil movement due to drought, and surface water flooding.
Impact on investment in
research and development
– Throughout 2023, we published regular ESG and sustainability-related market insights and updates such
as #WhyESGMatters and Learning about ESG to help clients better understand the implications for their
investments.
Impact on acquisitions
or divestments
Impact on access to capital
Transition plan to a
low-carbon economy
– We recognise the need to find new solutions and increase the pace of change for the world to achieve the
Paris Agreement goal of being net zero by 2050. We are working with a range of partners to accelerate
investment in sustainable infrastructure, natural resources and climate technology to help reduce emissions
and address climate change.
– We have updated our merger and acquisition process to consider potential climate and sustainability-related
targets, net zero transition plans and climate strategy, and how this relates to HSBC.
– 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.
– We published our Group-wide net zero transition plan in January 2024. In this plan, we provided an overview
of our approach to net zero and the actions we are taking to help meet our ambitions. We want to be clear
about our approach, the change underway today and what we plan to do in the future. We also want to
be transparent about where there are still unresolved issues and uncertainties. We are still developing our
disclosures, including considerations of possible additional data in relation to our financial plans, budgets,
and related financial approach for the implementation of the transition plan in the medium term (e.g. amount
of capital and other expenditures supporting our decarbonisation strategy). The UK Transition Plan Taskforce
published its final transition plan disclosure framework in October 2023. We will continue to evolve our
transition plan disclosures to take into account new and evolving regulatory developments.
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71
ESG review
ESG review | Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Disclosure
location
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower
scenario (Companies Act 2006 – Sections 414CA and 414CB 2A (f))
Embedding climate into
scenario analysis
– Scenario analysis supports our strategy by assessing our potential exposures to risks and vulnerabilities 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 our 2023 climate scenario analysis exercises, we explored five scenarios that were created to examine the
potential impacts from climate change for the Group and its entities.
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 and impact
the resilience of our customers and our portfolios, particularly in respect of credit losses. Under the Current
Commitments scenario, we expect lower levels of losses relating to transition risks, although we would
expect an increase in the effects of climate-related physical risks over the longer term.
Scenarios used and
how they factored in
government policies
– Scenario analysis results have been used to support the Group’s ICAAP. This is an internal assessment of
the capital the Group needs to hold to meet the risks identified on a current and projected basis, including
climate risk.
– In addition, scenario analysis informs our risk appetite statement metrics. As an example, it supports the
calibration of physical risk metrics for our retail mortgage portfolios and it is used to consider climate impact
in our IFRS 9 assessment.
– Our scenarios are: the Net Zero scenario, the Current Commitments scenario, the Delayed Transition Risk
scenario, the Downside Physical Risk scenario and the Near Term scenario.
– Our scenarios reflect different levels of physical and transition risks over a variety of time periods. 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.
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 to change over time.
– Climate scenario analysis plays a crucial role helping us to identify and understand the impact of climate-
related risks and potential opportunities as we navigate the transition to net zero.
– Our target-setting approach to date, for on-balance sheet financed emissions and facilitated emissions, has
been to utilise a single net zero reference scenario (IEA NZE 2021) to underpin both energy supply-related
sectors (oil and gas, power and utilities, and thermal coal mining) and our published targets for demand-side
sectors in transport and heavy industry.
– We recognise that the so-called ‘hard-to-abate’ sectors, such as cement, iron, steel and aluminium, and
aviation have a large dependence on nascent technologies and the presence (or not) of enabling policies and
regulations. We may consider tracking progress relative to 1.5°C-aligned ambition ranges for these sectors in
the future, which could include industry-specific scenarios alongside the IEA NZE scenario.
– 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 2023, 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 two scenarios. We have also disclosed a heat map showing how
we expect the risks to evolve over time.
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Risk management
a) Describe the organisation’s processes for identifying and assessing climate-related risks (Companies Act 2006 – Sections 414CA and 414CB 2A (b))
Process
– We continue to integrate climate risk into 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.
– We updated our climate risk management approach to incorporate net zero alignment risk and developed
guidance on how climate risk should be managed for non-financial risk types. While we have made progress
in enhancing our climate risk framework, further work remains. This includes the need to develop additional
metrics and tools to measure our exposure to climate-related risks, and to incorporate these tools within decision
making.
– In 2023, we enhanced our internal climate scenario analysis exercise by focusing our efforts on generating more
granular insights for key sectors and regions to support core decision-making processes, and to respond to our
regulatory requirements. In climate scenario analysis, we consider, jointly, both physical risks and transition risks.
– We continue to review policy implementation as we apply our policies in practice, and our operationalisation
of such policies continues to be enhanced. We take a risk-based approach when identifying transactions
and clients to which our energy and thermal coal phase-out policies apply, and when reporting on relevant
exposures, adopting approaches proportionate to risk and materiality.
Integration into policies
and procedures
– We continue to integrate climate risk into 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.
Consider climate-related risks
in traditional banking industry
risk categories (supplementary
guidance for banks)
– We provide further details of how we have embedded the management of climate risk across key risk
types, including wholesale credit risk, retail credit risk, treasury risk, traded risk, reputational risk, regulatory
compliance risk, resilience risk, model risk, and financial reporting risk.
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HSBC Holdings plc Annual Report and Accounts 2023
Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Disclosure
location
b) Describe the organisation’s processes for managing climate-related risks (Companies Act 2006 – Sections 414CA and 414CB 2A (b))
Process and how we
make decisions
– 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.
– The Environmental Risk Oversight Forum (formerly the Climate Risk Oversight Forum) oversees risk activities
relating to climate and sustainability risk management, including the transition and physical risks from climate
change. Equivalent forums have been established at a regional level.
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c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk
management framework (Companies Act 2006 – Sections 414CA and 414CB 2A (c))
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.
– We are developing our climate risk capabilities across our businesses, by prioritising sectors, portfolios and
counterparties with the highest impacts.
– In 2023, we updated our climate risk materiality assessment, to understand how climate risk may impact
across HSBC’s risk taxonomy.
– In addition to this assessment, we also consider climate risk in our emerging risk reporting and scenario
analysis.
– 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.
– Through our climate risk programme, we continued to embed climate considerations throughout the
organisation, including through risk policy updates and the completion of our annual climate risk materiality
assessment. We also developed risk metrics to monitor and manage exposures, and further enhanced our
internal climate scenario analysis.
– We continue to make progress in enhancing our climate risk capabilities, and recognise it is a long-term
Page 221
iterative process. This includes updating our approach to reflect how the risks associated with climate change
continue to evolve in the real world, and maturing how we embed climate risk factors into strategic planning,
transactions and decision making across our businesses.
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How we take into account
interconnections between
entities and functions
Metrics and targets
a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its strategy and risk management
process (Companies Act 2006 – Sections 414CA and 414CB 2A (h))
Metrics used to assess the
impact of climate-related risks
on our loan portfolio
– We have metrics in place to monitor the exposure of our wholesale corporate lending portfolio to six
high transition risk sectors. As at 31 December 2023, the overall exposure to six high transition risk sectors
was $112bn.
– The UK is our largest mortgage market, which at September 2023 made up 40.0% of our global mortgage
portfolio. We estimate that 0.2% of our UK retail mortgage portfolio is at very high risk of flooding, and 3.5%
is at high risk. This is based on approximately 94.2% climate risk data coverage by value of our UK portfolio as
at September 2023.
– In 2023, we further developed our risk metrics to monitor our performance against our net zero targets for
both financed emissions and own operations.
Metrics used to assess
progress against opportunities
– 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. For a detailed breakdown of our
sustainable finance progress, see the 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 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 this disclosure in the medium term.
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Board or senior
management incentives
– 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.
Page 16
Internal carbon price
– We do not currently disclose internal carbon prices due to transitional challenges such as data challenges.
Metrics used to assess the
impact of climate risk on
lending and financial
intermediary business
(supplemental guidance
for banks)
But we considered carbon prices as an input for our climate scenario analysis exercise. We expect to further
enhance this disclosure in the medium term.
– As part of our 2023 internal climate scenario analysis, we completed a detailed climate risk assessment for
the UK, Hong Kong, mainland China and Australia, which together represent 75% of the balances in our
global retail mortgage portfolio. Our analysis shows that over the longer term, we expect minimal losses to
materialise when considering the Current Commitments scenario.
– In insights from climate scenario analysis on page 227, we showed the relative size of exposures at default in
2023 and the increase in cumulative ECL under each scenario compared with a counterfactual scenario by
2035 (expressed as a multiple).
– We do not fully disclose metrics used to assess the impact of climate-related physical (chronic) and
transitions (policy and legal, technology and 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 and average tenor). We are aiming
to develop the appropriate systems, data and processes to provide these disclosures in future years. We
disclose the exposure to six high transition risk wholesale sectors and the flood risk exposure and Energy
Performance Certificate breakdown for the UK portfolio.
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HSBC Holdings plc Annual Report and Accounts 2023
73
ESG review
ESG review | Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks (Companies Act 2006 –
Sections 414CA and 414CB 2A (h))
Our own operations
– We report greenhouse gas emissions resulting from the energy used in our buildings and employees’
Greenhouse gas emissions
for lending and financial
intermediary business
(supplemental guidance
for banks)
business travel. In 2023, we also continue to disclose our scope 3 (category 1 and category 2) supply chain
emissions. Our initial supply chain emission figures may require updating as data availability changes over
time and methodologies and climate science evolve.
– Our analysis of financed emissions comprises ‘on-balance sheet financed emissions’ and ‘facilitated
emissions’. Our on-balance sheet financed emissions include emissions related to on-balance sheet lending,
such as project finance and direct lending. Our facilitated emissions include emissions related to financing we
help clients to raise through capital markets activities.
– Work continues on the integration of ESG and climate analysis into HSBC Asset Management’s actively
managed product offerings to help ensure the climate risks faced by companies are considered when making
investment decisions and to assess ESG risks and opportunities that could impact investment performance.
Disclosure
location
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– We currently disclose four out of 15 categories of scope 3 greenhouse gas emissions including business
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travel, supply chain and financed emissions. In relation to financed emissions, we publish on-balance sheet
financed emissions for a number of sectors as detailed on page 18. We also publish facilitated emissions for
the oil and gas, and power and utilities sectors. Future disclosures on financed emissions and related risks are
reliant on our customers publicly disclosing their greenhouse gas emissions, targets and plans, and related
risks. We recognise the need to provide early transparency on climate disclosures but balance this with the
recognition that existing data and reporting processes require significant enhancements.
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
(Companies Act 2006 – Sections 414CA and 414CB 2A (g))
Details of targets set and
whether they are absolute or
intensity based
– 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.
– 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.
– 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 defines 2030 as intermediate, we use
different time horizons for climate risk management. For climate, 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 2023, we disclosed interim 2030 targets for
financed emissions for a number of sectors as we outline on page 18.
– 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 2023, we further progressed our internal review and enhancement of the green bond framework,
with further refinement including internal and external review to be undertaken in 2024. This will be subject
to continuous review and monitoring to ensure that they remain up to date and reflect updated standards,
taxonomies and best practices. Any such developments in standards, taxonomies and best practices over
time could result in revisions in our reporting going forward and lead to differences year-on-year as compared
to prior years. See the HSBC Green Bond Report for further information.
– We do not currently disclose internal carbon pricing target 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.
– 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, we do not use targets to measure and
manage physical risk. In 2023 we introduced internally a global ‘soft trigger’ monitoring and review process
for physical risk exposure where a market reaches or exceeds a set threshold, as this ensures markets are
actively considering their balance sheet risk exposure to peril events. We also consider physical and transition
risk as an input for our climate scenario analysis exercise. We expect to further enhance our disclosures as
our data, quantitative scenario analysis, risk metrics and physical risk targets evolve, and technology solutions
are implemented in the medium term.
– 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.
Other key performance
indicators used
– In October 2020, we announced our ambition to reduce our energy consumption by 50% by 2030, against a 2019
baseline, and in 2023 we achieved 26.3%.
– As part of our ambition to achieve 100% renewable electricity across our operations by 2030, we continue to look
for opportunities to procure green electricity in each of our markets. In 2023, our fourth UK renewable PPA went
live in Sorbie, Scotland.
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HSBC Holdings plc Annual Report and Accounts 2023
Social
Social
Building inclusion and resilience
We play an active role in opening up a world of opportunity for
our customers, colleagues and communities by connecting
across our international networks to help build a more inclusive
and resilient society.
At a glance
Inclusion is key to opening up a world of
opportunity. It involves a commitment to
identifying and addressing barriers that may
stop people from accessing opportunities
because of who they are or where they
are from.
Inclusion goes hand in hand with resilience.
We aim to help people build the capabilities
they need to achieve their goals and to deal
with the challenges they face, so we are
focused on delivering products, services
and education that support our colleagues,
customers and communities.
Colleagues
We believe that an inclusive, healthy and
rewarding workplace helps the whole Group
succeed. We are focused on recruiting and
retaining diverse talent by offering fair pay
and career progression so we can ensure our
colleagues – and particularly our leadership
– are representative of the communities we
serve. We do this by setting meaningful goals
and tracking and monitoring our progress. In
2023, we continued to make progress against
all of our goals, although the progress we are
making with women in senior leadership roles
has not been as fast paced as we would like.
Employee well-being is essential. We offer
all colleagues a wide range of resources
that help support their mental, physical and
financial well-being so they can thrive in and
out of work. We are working to ensure that
our offices, branches and digital spaces are
accessible and safe for all.
We also help our colleagues build resilience
by ensuring that they are equipped with the
skills and knowledge they need to progress
their careers during a period of significant
economic transformation.
Customers
We are committed to helping our customers
access the financial services they need. They
should not find it more difficult to access
finance because of their gender, their ethnicity,
their sexual orientation, their neurodiversity
or their disability. Our ambition is to create a
welcoming, inclusive and accessible banking
experience for all our customers.
We build resilience by creating products and
services that simplify the banking experience,
so customers can manage and grow their
wealth more easily. We also help protect
what people value most – their health,
families, homes and belongings. We also
build resilience by providing education so
customers can understand how to manage
their finances more effectively.
Communities
We are developing an updated global
philanthropy strategy that allows us to work
alongside the communities we operate within,
and which aligns with our ESG areas of focus
– ‘transition to net zero’ and ‘building inclusion
and resilience’.
We believe that fostering inclusion and
building resilience helps us to create long-term
value and growth. By removing unnecessary
barriers and striving to be a fair and equitable
organisation, we can attract and retain the
best talent, support a wider customer base
to achieve their goals 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.
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.
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Being a great place to work We aim to create a great workplace that will help in attracting,
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retaining and motivating our colleagues so they can deliver for our
customers across countries and territories.
Developing skills,
careers and
opportunities
Building customer
inclusion and
resilience
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.
Engaging with our
communities
Building a more
inclusive and resilient 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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ESG review ESG review | Social
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. Inclusion is an
enabler for our ‘energise’ strategic pillar, and
is embedded in the values of our organisation.
By valuing difference and seeking different
perspectives, we can more accurately reflect
the societies we serve, creating better
outcomes for customers and colleagues.
Our data-driven strategy enables us to set
aspirational goals to track and monitor our
progress. We remain focused on specific
Group-wide priorities for which we hold senior
executives accountable. Some executives
also have local priorities, which ensures
our diversity and inclusion agenda remains
locally relevant.
How we hold ourselves to account
We set meaningful goals
Our executive Directors and Group
Executives are accountable for progressing
our agenda through a series of diversity and
inclusion aspirational goals that align to three
public commitments that we have made. In
2023, we continued to make progress against
our three goals by:
– achieving a 34.1% representation of
women in senior leadership roles, with
a goal of achieving 35% by 2025;
– attaining a 3.0% representation of Black
heritage colleagues in senior leadership
in the UK and US combined, against a
goal to achieve 3.4% by 2025; and
– increasing our Inclusion index as measured
in our Snapshot survey, to 78% against a
2023 target of 75%.
We report and track progress
Measuring our performance ensures we
consistently and accurately monitor the progress
made against our aspirational goals. Our data-
backed approach tracks this through:
We benchmark our performance
External disclosures and benchmarks allow
us to measure the progress that we are
making and identify opportunities for future
prioritisation. In 2023, we:
– an inclusion dashboard, which monitors
– scored 87.2% in the Bloomberg
progress against goals with trend data on
hiring, promotion and exit ratios, is reported
to the Group Executive Committee on a
quarterly basis; and
– semi-annual review meetings where our
Head of Inclusion meets each Group
Executive to review data, their progress
against their aspirational goals, and to
support further progress.
Gender-Equality Index measuring our
gender-related data, transparency
and performance;
– maintained our Stonewall Gold standard
and rank as a top global LGBTQ+ inclusion
employer; and
– ranked as a Top 75 employer in the UK
Social Mobility Index in our first year of
entering a submission.
A data-driven approach to inclusion
We are evolving our data-driven approach by enabling more of our colleagues to self-identify across a range of data points. This data has
enabled us to set locally relevant priorities and identify areas of our organisation where we need to focus our attention. We invite colleagues
to self-identify on a broad range of data points where we can, although given the international nature of our business, there are some
jurisdictions where we are unable to invite colleagues to share their diversity data with us. We have enabled 91% of our colleagues to disclose
their ethnic background, with 62% of colleagues choosing to do so, where this is legally permissible.
Our approach goes beyond ethnic heritage and considers broader representation within the workplace. We have enabled 90% of the
workforce to share whether they have a disability, 71% of our workforce to share their sexual orientation, and all UK-based colleagues to
share their socio-economic background.
Our approach to Asian heritage representation
Our roots as an organisation trace back over 150 years to Hong Kong, where HSBC opened
its doors to serve clients with international needs. Asia remains a strategic focus for us today.
To better reflect the communities we serve, we have a focus on increasing representation
across our global workforce, including Asian heritage representation. Defining Asian heritage
can be complex due to the vast range of ethnicities and identities across the region. In
2023, 37.8% of our senior leaders were able to self-identify as being from an Asian heritage
background. To deliver our international strategy it is vital that we are both representative
of our local communities, and able to mobilise leaders with global perspective and diverse
heritage backgrounds across our international network.
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Social
Creating a diverse environment
Women in senior leadership
Since 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 34.1% of
senior leadership roles held by women at the
end of 2023, excluding our Canada business,
which is planned for sale in 2024. Progress in
the past year has not been as fast paced as
we would like. A total of 37.7% of all external
appointments into senior positions were
female, compared with 35.7% in 2022, and
women represented 39.6% of all promotions
into senior leadership roles in 2023.
Development programmes, including our
Accelerating Female Leaders initiative, have
helped to increase the visibility, sponsorship
and network of our high performing, senior
women. Since the start of the programme in
2017, 24% of participants have been promoted
and 2% have taken a lateral move to develop
their careers. We have also retained over 79%
of colleagues who completed the programme.
In our 2023 Accelerating into Leadership
programme, which prepares high potential,
mid-level colleagues for leadership roles, 43%
of participants were women. More than 5,200
women also participated in our Coaching
Circles programme, which matches senior
leaders with a small group of colleagues
to provide advice and support on the
development of leadership skills and network
building.
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 roles critical to
our organisation and the successors to those
roles. In 2023, 40% of the succession pool for
these roles were women, compared with 36%
in 2022.
Black colleagues in senior leadership
We remain 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 62% since 2020.
In 2022, we set a new Group-wide ethnicity
strategy, which is overseen by a senior
working group and led by our Group Chief
Risk and Compliance Officer. The aim of
the strategy is to ensure we accurately
reflect the communities we serve and the
societies in which we operate. We continue
to identify challenges colleagues from
diverse backgrounds face in achieving their
aspirations at HSBC.
We have continued to focus on the
development of Black heritage colleagues
through the delivery of dedicated development
programmes. Using data analytics, we have
identified that in the UK, Black heritage female
colleagues are less likely to hold positions
as people managers. To address this, we
introduced the Solaris programme to provide
coaching and development for our UK-based
Black heritage female colleagues. Forty
women have successfully completed the
programme and 29% have been promoted.
We also partnered with Vivida, a virtual
reality firm, to launch an immersive learning
programme designed to bring to life the
experiences of Black heritage and ethnic
minority colleagues, highlighting the
pressures, barriers and biases faced by these
communities. The programme has been
completed by 11,900 colleagues, and was
nominated for awards at the 2023 European
Diversity Awards and as finalists at The 2024
Learning Awards.
In 2023 EmpowHER was launched, a
programme created by Black heritage
women for Black heritage women at mid-
management levels across the UK business.
The programme encourages participants to
support each other with the tools and shared
experiences to structure their careers, expand
their network and seek job opportunities. It
also helps to create improved visibility of talent
to senior leadership.
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
53%
47%
79%
21%
66%
34%
65%
35%
66%
34%
62%
38%
51%
49%
48%
52%
Male
Female
1 Combined Group Executives and direct reports
includes HSBC Group Executives and their direct
reports (excluding administrative staff) as of 31
December 2023.
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 publish this data annually to ensure
both transparency and a maintained focus
on addressing representation gaps within
the organisation. Our gender and ethnicity
pay gap reporting shows the difference in
average pay between two groups of people
(regardless of roles or seniority). We have
reported our UK gender representation and
pay gap data since 2017 in line with reporting
regulations, and have voluntarily extended
this to include the US, mainland China, Hong
Kong, India, Mexico, Singapore and the UAE,
alongside ethnicity data for the UK and US.
In 2023, we also included gender pay gap
data for Argentina and Malaysia, covering
approximately 80% of our workforce
(excluding our Canada business held for
sale. In 2023, our mean aggregate UK-wide
gender pay gap was 43.2%, compared
with 45.2% in 2022, and the ethnicity pay
gap was 4.5%, compared with 0.4% in
2022. Our UK gender pay gap is driven by
several factors including the shape of our
workforce, where there are more men than
women in senior higher-paid roles, and more
women than men in junior roles. While we
are confident in our approach to pay equity,
until women and ethnic minority 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 ethnicity and
have processes to ensure that remuneration
is free from bias. We review our pay practices
and undertake a pay equity review annually,
including a regular 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
Our inclusion strategy seeks to make HSBC
an organisation in which every colleague can
feel like they belong, and are empowered
to contribute their perspectives and ideas.
Our strategy sits above a range of diversity
and inclusion strands from gender, ethnicity
and faith to disability and socio-economic
background – we want to ensure that
all colleagues are able to realise their
full potential.
We use the Inclusion index in our annual
Snapshot survey to measure the extent
to which our colleagues feel a sense of
belonging and psychological safety within
the organisation, alongside their perception
of fairness and trust. In 2023, we achieved
a score of 78%, which is three percentage
points ahead of our annual aspirational goal,
and two percentage points ahead of the
financial services industry benchmark.
Analysis of our Inclusion index allows us
to measure engagement levels of specific
colleague groups in greater detail, in
particular different diversity strands, to better
understand the experiences of our colleagues
globally. We found that scores from
colleagues who identify as male and female
were broadly in line with the overall Group-
wide result, at 79% and 77% respectively.
From an ethnicity perspective, our Black
heritage colleagues were four percentage
points below the Group-wide average, while
our Asian heritage colleagues’ results were on
a par with the overall score, at 78%.
Our employee resource groups
Our employee resource groups (‘ERGs’)
foster an inclusive culture and contribute
significantly to the experience of tens of
thousands of colleagues. They operate
globally and are led by colleagues with a
range of shared values, identities, interests
and goals, including disability, LGBTQ+,
ethnicity, faith and gender.
Each of our non-executive Directors and most
Group Executives are aligned with one of our
global ERGs, ensuring there is a direct link
between senior leadership and our colleagues.
The non-executive Director dedicated to
workforce engagement is closely aligned to
our diversity and inclusion strategy and has
attended events such as our 2023 Global
ERG Summit.
the UK Business Disability Forum’s roundtable
and conference. We have enhanced the
support we provide to colleagues through our
workplace adjustment programme partnering
with Microlink, extending the availability of
this service to almost 37,790 colleagues in our
global service centres and technology centres
in India.
In 2023, our ERGs led numerous initiatives
and events, including the Ability network
hosting a global summit aimed at driving
cultural change to build confidence for
colleagues with a disability. Our Nurture
ERG, which supports working parents and
carers, launched the #LeaveLoudly Campaign
globally. Its aim is to drive engagement by
counteracting ‘presenteeism’, acknowledging
that everyone has multifaceted lives, and to
show that leaders across HSBC support a
healthy work-life balance.
Looking to the future on disability
Enhancing the experience of our employees,
particularly those with disabilities, is a vital
part of our commitment to build an inclusive
organisation. A key initiative has been a
targeted career development programme to
empower colleagues with confidence to drive
their careers forward.
Recognising the pivotal role of line managers,
we have introduced a learning plan through
our Degreed platform to help managers
support team members with physical,
sensory, long-term, and mental health
conditions, as well as those who identify as
neurodiverse. Our Ability ERG has hosted
support sessions globally, where colleagues
shared their experiences and raised
awareness for disability inclusion, and the
support provided by HSBC.
In collaboration with PurpleSpace, the
disability network and professional
development hub, we sponsored and
published a Leadership Model resource for
employee groups. In 2023, we also sponsored
UK socio-economic diversity
We believe that no-one should be limited
by their socio-economic background and
are committed to driving socio-economic
inclusion within our workforce.
In 2022, we began exploring the impact socio-
economic background has on our colleagues,
working with them, and internal and external
stakeholders to develop our understanding on
socio-economic diversity.
In 2023, we entered the Social Mobility Index
for the first time and gained recognition as a
top 75 employer. Our Strive ERG, sponsored
by the Group Chief Human Resources Officer,
now has over 1,000 members. We have
continued to be an active member of Progress
Together, focused on helping members
progress and retain a socio-economically
diverse workforce, including taking part in
the largest financial services study of socio-
economic diversity.
We launched a career development
programme through the Strive ERG, enabling
colleagues from different backgrounds to lead
with impact and build career confidence.
We continue to improve the socio-economic
diversity data we collect by running
campaigns encouraging our colleagues and
job applicants to share their socio-economic
background. In 2023, we extended our
socio-economic focus to Asia, with an initial
data collection pilot in Singapore through
our employee engagement survey. We also
launched a new learning plan, available for all
employees to better understand what socio-
economic diversity is and why it matters.
Supporting colleagues experiencing menopause
Many of our female colleagues will experience menopause symptoms during their career. We
do not want menopause to be a silent struggle and we have put in place the right support so
it does not need to be. In 2023, we launched a new global framework centred around three
principles of: creating awareness; removing barriers; and being adaptable. These form the
basis of our menopause toolkit, which is available to all colleagues, and includes guidance on
how to access menopause support and guidance for line managers on how to best support
those in need.
We recognise that there is much more we can do to support those who are experiencing
menopause and those who are supporting others experiencing it. Senior sponsorship is
helping to raise awareness and our first step is to provide access to dedicated resources
on menopause.
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Building a healthy workplace
Listening to our colleagues
Listening to our colleagues is an essential
part of building a healthy workplace at HSBC.
We capture employee feedback in a variety
of ways to understand how our colleagues
feel about HSBC and to help us improve the
employee experience.
How we listen
Our annual Snapshot survey runs every
September and gives all HSBC employees
the opportunity to share their experiences of
working at the organisation. Our 2023 survey
achieved a record response rate of 85%,
up from 78% in 2022, with nearly 180,000
colleagues choosing to share their views.
The results of Snapshot are discussed at all
levels. Our record participation has enabled
us to put more data directly in the hands of
our people managers, with more than 11,000
teams able to access their results, while
maintaining the confidentiality of individual
employees’ responses. Managers are
supported by a guided action planning tool to
help them understand and interpret insights
relevant to their team, while directing them
towards support resources for them and their
teams to explore. Results are also shared with
executive leadership teams across the Group,
with detailed reporting provided to our Group
People Committee and the Board.
We complement the Snapshot survey
with our annual Performance and Reward
survey, which runs every March. Open to
all employees, it captures feedback on our
annual performance and pay review cycle,
providing valuable insight into how well
we are meeting our colleagues’ needs and
expectations on compensation, development
and professional growth.
We also run targeted listening activities for
employees at key moments in their careers,
capturing detailed feedback from new joiners,
internal movers and voluntary leavers.
Employee conduct and harassment
We expect all our employees to treat each
other with respect and dignity, and we do not
tolerate or condone harassment or bullying
in any form. We continually strive to improve
awareness and education around such
behaviours, and strengthen our understanding
and response to these issues across all levels
of the organisation. In 2023, our overall
Snapshot Speak up index improved slightly to
76%, up one percentage point from 2022.
We encourage our colleagues to speak
up about poor behaviour or things that
do not seem right, and we have included
bullying, harassment, discrimination and
retaliation in our 2023 Global Mandatory
Training curriculum. Our Snapshot survey
revealed an increase in colleagues able to
state their opinion without fear of negative
consequences, with 72% of colleagues feeling
able to do so, up from 70% in 2022.
In 2023, we launched our global code of
conduct which is supported by our global anti-
bullying and harassment code. This continues
to help us to maintain high standards of
conduct across the Group.
We have mandatory procedures, both
globally and locally, for handling and
investigating employee concerns, which
include those for bullying and harassment.
Cases are continually monitored from our
speak-up channels, and data is reported to
management committees to ensure there is
visibility at leadership level.
In 2023, we had a total of 834 concerns raised
relating to bullying, harassment, discrimination
and retaliation. Where the concerns were
substantiated following an investigation,
appropriate action was taken, which included
termination of services, where appropriate.
In 2023, 38% of concerns raised were either
partly or fully substantiated and 24 colleagues
were dismissed in relation to bullying,
harassment, discrimination or retaliation.
We are committed to addressing this type
of behaviour and will continue to take action
where we find that an employee has breached
our values and high standards of conduct.
Employee engagement:
77%
Employee engagement score
(2022: 74%)
81%
Of colleagues who feel confident
about this company’s future
(2022: 77%)
85%
Of colleagues who completed our
annual Snapshot survey
(2022: 78%)
Promoting mental health awareness
A poll posted by a senior leader on our intranet revealed that 94% of colleagues said they
trust leadership more when they open up about their own mental health.
To build on this sentiment, we celebrated World Mental Health Day by running a global
awareness campaign ‘The Big Mental Health Conversation’ in October 2023. We encouraged
leaders to post questions on our intranet to gather feedback from colleagues on their
experiences and how we can improve mental health support. We surveyed our colleagues
during the campaign and half said they were very satisfied with the mental health support
HSBC offers. Supporting the mental health of our colleagues continues to be a priority,
including ensuring that we continue to signpost how colleagues can access available
support. Throughout 2023, we also held over 200 virtual events, featuring internal and
external experts providing advice on mental health and topics related to well-being.
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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. The table below sets out how we performed.
Index
Score1
vs
20222
HSBC vs
benchmark3 Questions that make up the index
Employee
engagement
77% +3
+7
Employee
focus
76% +4
+4
Strategy
78% +3
+5
I am proud to say I work for this company.
Right now, I feel motivated by this organisation to do the best job I can.4
I would recommend this company as a great place to work.
I generally look forward to my work day.
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.
Change
leadership
76%
0
+4
Speak up
76% +1
Trust
78% +1
0
0
Career
71% +3
+6
Inclusion
78% +2
+2
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.
I believe my views are genuinely listened to when I share my opinion.5
I feel able to speak up when I see behaviour which I consider to be wrong.
I can state my opinion without the fear of negative consequences.6
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.
I can state my opinion without the fear of negative consequences.6
1 Each index comprises constituent questions, with the average of these questions forming the index score.
2 We revised the questions that comprise some of our indices to ensure the reliability of external benchmark data. New questions were trialled in 2022 so
comparisons are all reported on a like-for-like basis; as such, historical comparison figures differ slightly from those reported last year.
3 We benchmark Snapshot results against a peer group of global financial services institutions, provided by our research partner, Ipsos Karian and Box. Scores for
each question are calculated as the percentage of employees who agree to each statement. For further details of the constituent questions and past results, see
the ESG Data Pack at www.hsbc.com/esg.
4 Previously: I feel valued at this company.
5 Previously: My company is genuine in its commitment to encourage colleagues to speak up.
6 Previously: Where I work, people can state their opinion without fear of negative consequences.
For further details of well-being, see page 82, and for further details of inclusion, see page 76.
What employees told us
Seven of our eight Snapshot indices improved
in 2023, while our change leadership index
remained static. Our headline measure
of employee engagement captures how
employees feel about HSBC: whether they
are proud to say they work here, whether they
would recommend working at HSBC, and
how motivated they feel to do their best work.
Employee engagement increased by three
percentage points compared with 2022, and
seven percentage points above the external
financial services benchmark. Our employee
focus index, which measures how employees
feel about their day-to-day work, increased
by four percentage points to put HSBC four
points ahead of the industry benchmark.
Analysis of the key drivers of our engagement
scores showed that engaged colleagues are
more likely to feel positive about their career,
our strategy and our leadership. Our free
text responses also showed that training and
progression opportunities was the most cited
reason for recommending HSBC, followed by
our approach to flexible and hybrid working
and the strength of our management.
Negative comments continued to focus
around pay and benefits but were mentioned
less than in 2022. For further details of our
approach to being a great place to work,
including pay transparency, see
page 81.
Our Snapshot survey showed that 67% of
employees plan to stay at HSBC for five or
more years, a two percentage point increase
since 2022. This aligned with a drop in
voluntary turnover in 2023 to 9.3%, compared
with 14.1% in 2022, and reflects trends in
the wider employment market. Results from
our listening channels continued to show
that career opportunities and competitive
reward packages remain the two key drivers
behind our ability to attract and retain
talented colleagues.
We are committed to building on our
high levels of engagement and feedback
throughout 2024.
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Being a great place to work
To deliver our purpose, ambition and strategy
we need the best people, performing at their
best. Creating a great workplace helps us
attract, retain and motivate our colleagues so
they can deliver for our customers.
Underpinning this is our reward strategy,
which we updated in 2022 to create an
environment where the best people want to
work. Our workforce proposition is rooted in
our purpose and values, and the principles of
rewarding colleagues responsibly, recognising
colleagues’ success and supporting our
colleagues to grow.
Rewarding colleagues responsibly
We believe in rewarding our colleagues
responsibly, which means ensuring that our
pay and benefits provide financial security
for all. Our annual Performance and Reward
survey measures several factors, including
how colleagues feel about our reward
proposition. In 2023, seven key performance
indicators related to our year-end review
improved by four or more percentage points,
including a nine percentage point increase in
colleagues who feel they are paid fairly for the
work they do.
As part of our commitment to rewarding
colleagues responsibly, we went beyond
compliance in assessing statutory minimum
wages, to ensure that all colleagues are paid at
least a living wage.
A living wage should be sufficient to cover an
adequate standard of living considering the
cost of goods and services in each country
and territory in which we operate. In 2023,
we worked with the Fair Wage Network,
which provided an independent source of
wage levels. As a result, HSBC achieved
accreditation as a global living wage employer
in 2024. We will continue to review our pay
levels to ensure that no colleague falls below a
living wage level.
For further details of our approach to colleague
remuneration, see page 290.
Recognising colleagues’ success
We are committed to recognising the
achievements of our colleagues’ success.
Variable pay, which forms part of total
compensation alongside fixed pay, allows us
to recognise the performance and behaviours
of our colleagues.
We have continued to enhance our ‘At Our
Best’ platform that allows colleagues to
recognise each other’s contributions, by
providing mobile access to encourage real-
time acts of appreciation. In 2023, colleagues
made more than 1.4 million At Our Best
recognitions, an increase of 13% from 2022.
At the beginning of each year, we ask
colleagues to set goals with support from
their line managers to ensure they are aligned
with the overall Group strategy and business
priorities. As a result, 87% of colleagues said
they have a clear understanding of what is
expected of them throughout the year.
We expect our people managers to hold
regular performance and development
conversations to review progress, incorporate
feedback and discuss well-being. In 2023,
our Snapshot survey revealed that 81% of
colleagues said they had regular performance
conversations with their manager, while 63%
had them at least once a month, up from 57%
in 2022. These conversations also provide an
opportunity for colleagues to regularly revisit
any goals set to maintain the right level of
challenge in their day-to-day work.
At year-end, employees are rated on both
performance and behaviour. In our Pay and
Benefits survey, 72% of colleagues said their
year-end performance assessment fairly
reflected their performance and 83% agreed
that rating decisions were determined in an
unbiased way, regardless of any protected
characteristics or work patterns. In our
Snapshot survey, 81% of employees said they
receive feedback that helps them improve
their performance, compared with 74% in
2022, and 81% feel motivated to do the best
job they can, up from 78% last year.
Managers are encouraged to recognise
colleagues’ service anniversaries every
five years up to 40 years of service. This
also includes the presentation of a special
commemorative HSBC medallion. The
At Our Best platform supports the global
service recognition programme, which in
2023 helped to celebrate more than 30,000
service anniversaries.
Share plans are another way to empower
colleagues to participate in the Group’s
success and to have a share in the rewards.
In 2023, we expanded our global share plan
to include the Philippines, making it available
to 91% of colleagues globally. Our 2020 three-
year Sharesave plan, in which 42% of UK
employees took part, matured in November
2023. The share price at maturity represented
more than double the option price, providing
employees with significant share price growth.
We ran information webinars, attended by
more than 11,000 colleagues, and offered
support resources to help our colleagues
understand tax considerations and the choices
available to them at maturity.
Supporting our colleagues to grow
To help our colleagues to grow personally and
professionally, we are committed to providing
flexibility and choice around how, when and
where they work, supporting their well-being,
and helping them develop skills. The sections
on the next page detail the ways in which we
support our colleagues. For further details of
our approach to skills and career development,
see page 83.
Increasing social connection in the office
Since the Covid-19 pandemic and the return of colleagues to the office, we identified the
need for changes to improve team cohesion and a sense of belonging among our colleagues
in Hong Kong. To help address, this we created a new type of work and social space at the
HSBC Centre office in Kowloon, Hong Kong.
‘The Hub’ is a flexible informal space that can be adapted to accommodate a range of
different group activities and number of people, from large social events to smaller team
training sessions. It is also designed to be a multi-level and interconnected space, with
a central social meeting point to enhance the sense of community, improve levels of
engagement and encourage greater social connection between colleagues.
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Being a great place to work continued
Social well-being and flexible working
In 2023, we focused on embedding hybrid
working across the Group and helping
colleagues strike the right balance of office
and remote working.
Our colleagues continue to embrace hybrid
working, with 78% now splitting their time
between home and the workplace, compared
with 58% in 2022. To support managers
and colleagues to continue to find the right
balance between individual flexibility and
social connection, we have refreshed our
training to equip managers with skills to
lead flexible teams. In 2023, hybrid workers
spent approximately 47% of their time in the
workplace, compared with 36% in 2022.
We know that getting the balance right has a
positive effect on our colleagues. Colleagues
who spend around 40% of their time in the
workplace reported the highest positive
sentiment across key employee indices,
including engagement, trust and inclusion.
We track and measure responses from
our Snapshot survey to ensure our broader
approach to flexibility works for our customers
and teams. A total of 81% of colleagues said
they feel a genuine sense of belonging to their
team, a two percentage point increase from
2022. A new question in the survey also found
that 87% of new joiners feel they receive the
right level of face-to-face support in order
to succeed.
In the same survey, 76% of colleagues said
they are able to integrate their work and
personal life positively, a slight increase
compared with 75% in 2022. To help the work-
life balance of our colleagues, in Australia,
we have introduced 20-weeks paid, gender-
neutral parental leave for when a child joins
their family. Longer periods of paid parental
leave have also been introduced in Mexico,
Singapore, South Korea, Taiwan and Thailand.
Mental well-being
Supporting the mental health of our
colleagues remains a top priority. Cost-of-
living pressures and global crises continue
to increase mental health challenges in
many countries and territories. Our Snapshot
survey revealed a slight decrease in mental
well-being, with 83% of colleagues rating
their mental health as positive, compared
with 84% in 2022. However, it also found that
74% of colleagues feel comfortable talking to
their manager about their mental health, and
77% said they know how to access mental
health support at work. Both increased one
percentage point compared with 2022.
We have continued to make the meditation
app Headspace and counselling services
available to all colleagues globally.
More than 200,000 colleagues took part in
mental health awareness training as part
of global mandatory training. Our voluntary
mental health education modules have been
completed by 31,000 employees, with people
managers making up 74% of the completions.
Our network of mindfulness champions, who
are specially trained colleagues who volunteer
to run mindfulness sessions, community
events and courses for the benefit of fellow
colleagues, has almost 200 members with
representation in 22 countries and territories.
In 2023, we held 1,400 mindfulness sessions,
a 26% increase compared with 2022, and
these were attended by 25,000 colleagues.
Physical well-being
The Snapshot survey also revealed an increase
in physical well-being, with 74% of colleagues
rating their physical health as positive,
compared with 71% in 2022.
In February 2023, our Pay and Benefits
survey showed that 69% of colleagues highly
valued the health benefits we offer, and 34%
of colleagues wanted more support with
physical activity and exercise. In response, we
launched a platform called Virgin Pulse, which
incentivises colleagues to set and track health
goals, and to take part in active challenges.
Since launching globally in November 2023,
more than 5,700 colleagues have downloaded
the app and more than 30 activity challenges
have been run.
We have continued to provide access
to private medical insurance as well as
telemedicine healthcare services in the
majority of our countries and territories,
covering 98% of permanent employees. In
certain countries and territories, we also
provide on-site medical centres that the
majority of colleagues can access.
Financial well-being
We recognise that financial challenges remain
a concern for colleagues, caused by increases
in the cost of living globally. Our Snapshot
survey revealed a slight increase in financial
well-being, with 61% of colleagues reporting
positively, compared with 60% in 2022. Just
over half (56%) of colleagues said they have
at least three months of essential outgoings
saved, the same as in 2022.
In 2023, we ran campaigns in all regions
to raise awareness of financial education
and tools, and more than 1,000 colleagues
attended our seminars on psychology
and spending habits. We continue to offer
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Prioritising benefits that
matter most to
colleagues
For a second year our Pay and Benefits
survey showed that 59% of colleagues
feel their benefits meet their needs
and those of their family ‘well’. To
improve sentiment, we have focused
on enhancing benefits in areas that
colleagues tell us are most important
including health, saving for the future
and time off.
Cancer checks were made available to
all UK colleagues, as early detection
can result in higher survival rates. In
the US, we have enhanced our fertility,
adoption and surrogacy benefits to
support colleagues starting a family. We
also expanded our gender dysphoria
benefits for LGBTQ+ colleagues in
the UK.
Carer leave of five paid working days
has also been introduced in the UAE,
Egypt, Algeria, Bahrain, Kuwait, Qatar,
Türkiye, Saudi Arabia and Mexico.
To help employees plan for their
retirement, we became the first
international bank to launch a defined
contribution pension plan in Vietnam.
We also implemented a new defined
contribution plan in Guernsey and
enhanced our retirement savings plan
in Egypt, to support employees to
plan for retirement with the benefit of
employer contributions.
retirement or longer-term savings plans to
95% of permanent employees, and our life
insurance cover is available to 99.9% of
colleagues to help provide financial security
for their families.
Awards
CCLA Global 100 Mental Health
Benchmark
– Ranked number 1 global employer for
the second consecutive year
Social
Developing skills, careers and opportunities
Learning and skills development
We have continued to deliver targeted
skills programmes, including our Vision
27 programme that aims to ensure we are
attracting, developing and retaining critical
technology talent. We have also expanded
our Accelerating Wealth Programme, which
prioritises hiring for transferable skills rather
than experience. For further details of how we
are achieving our wealth goals in Asia,
see page 84.
Building skills with Talent Marketplace
Our people capability teams partner with
businesses and functions to identify the key
skills we need now and in the future. We also
continue to support colleagues to develop
new skills that achieve their career aspirations.
We have helped colleagues identify
opportunities to enhance their skills through
our Talent Marketplace. More than 38,000
colleagues have created a profile on the
platform to help identify their existing skills
and those they would like to develop. In 2023,
it matched colleagues to a number of projects
and networking opportunities unlocking over
123,000 hours of skills development.
Projects centred around Cloud computing,
data analytics, software development
and project management have created
opportunities for colleagues to work on in-
demand skills.
Training at HSBC
In 2023, we continued to enable colleagues to
learn via a range of channels including digital
and on-the-job learning. This is reflected
in a reduction in overall learning hours as
colleagues access different learning channels.
5.3 million
Training hours by our colleagues in 2023.
(2022: 6.3 million)
23.9 hours
Training hours per FTE in 2023.
(2022: 28.8 hours)
Identifying and retaining
future talent
The need for talent is greater than ever.
In 2023, a further 9,000 managers
completed our compulsory inclusive
hiring training, promoting cognitive
awareness of bias. Our targeted talent
programmes and enterprise-wide
solutions are designed to support
employees transitioning to more
complex roles, and provide wider career
opportunities and career growth.
Our recruitment programmes are a
key enabler of achieving our broader
diversity goals (see page 76). In 2023,
we welcomed more than 720 graduates
and 651 interns to the organisation.
The graduate intake represented
48 nationalities, over 25 ethnic
backgrounds, and 51% were women.
In 2023, we continued to broaden our
emerging talent programmes beyond
traditional graduate and internship
programmes, developing early access
schemes for those in school and first
year of university, as well as expanding
our apprenticeship scheme (see
page 84).
We continually refresh all our talent
programmes to ensure they remain
aligned to HSBC’s strategic priorities.
Our key programmes include:
– Accelerating Female Leaders,
which has been re-designed in
partnership with Cranfield School
of Management. This programme
supports female colleagues with
learning materials, coaching and
senior sponsorship to help them
prepare for leadership roles; and
– Accelerating into Leadership, which
aims to improve role mobility and
retention, and supports colleagues
identified as having the capacity,
interest and drive to succeed in more
complex roles.
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 meet
our key strategic priorities and support our
colleagues to achieve their career goals.
Our learning and skills platforms
We continue to evolve the opportunities to
learn and develop at HSBC. We use a range
of skill development platforms, learning
courses and resources to help colleagues
take ownership of their development and
career, including:
– HSBC University, our home for learning
and skills accessed online and through a
network of training centres, where learning
is organised through technical academies
on topics of strategic importance;
– Degreed, our learning experience platform
that provides access to internal and
external learning content and courses,
where colleagues can share, collaborate
and learn with individuals and in groups via
learning pathways;
– Talent Marketplace, our online platform that
uses artificial intelligence (‘AI’) to match
colleagues interested in developing specific
skills or career goals with opportunities that
exist throughout our global network; and
– Careers at HSBC, which enables all
employees to set alerts and search for
internal career opportunities.
Our learning fundamentals
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 with our purpose, values and strategy.
As the risks and opportunities our business
faces change, our global 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,
and also offers more specific development
for those in senior leadership, high-risk roles
and learning for colleagues on emerging
issues such as ESG risk, terrorist financing,
proliferation financing and sanctions.
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Energising our colleagues for growth
We aspire to offer colleagues the opportunity
to develop their skills while ensuring we build
a pipeline of talent to support our strategic
priorities. It is vital that we demonstrate
the right leadership and create the right
environment to energise our colleagues
for growth.
Skilling the transition to net zero
The Sustainability Academy was launched in
2022 to support our net zero ambitions. As
the academy has evolved we have shifted the
focus from knowledge building to capability
building across key colleague groups who are
supporting customers on their transition to net
zero. In 2023, we applied four main activities
to support this effort:
– supplying on-demand learning modules
based on role, region and client-base for
colleagues who support customers with
core transition activities;
– creating advanced workshops across
our global businesses and functions
to build colleagues’ knowledge and
develop practical skills to achieve
business outcomes;
– encouraging external certifications and
qualifications, where required, to deepen
colleagues’ expertise; and
– designing a 16-week sustainability
leadership programme, in partnership
with Imperial College London, which
combines education on core sustainability
concepts with change management,
purpose and leadership principles. In
2023, the programme was completed by
more than 170 senior leaders. Additional
net zero learning opportunities were also
provided to the Board and 100 of our most
senior leaders.
We need to build strong leadership and
develop our colleagues’ capabilities to
navigate the transition to net zero and achieve
our climate goals. In 2023, we worked with our
internal experts from the Sustainability Centre
of Excellence to provide more advanced skills
training in key transition areas such as energy
transition, climate technology and financed
emissions, alongside other core sustainability
topics such as biodiversity.
In 2023, our technology colleagues completed
more than 800,000 hours of learning and
gained over 950 certifications in software
development, cyber, AI, data processes, Cloud
computing and app development, among
others. Our new Principle Engineer and
Principle Architecture accelerator programmes
have equipped colleagues with advanced
technical knowledge and skills, enhancing
their ability to innovate in their roles.
Supporting our Asia wealth strategy
Our ambition is to become the preferred
international financial partner for clients, and
the expansion of our wealth management
services particularly in Asia, sits at the heart of
this ambition.
To help achieve this, we have continued to
expand our Accelerating Wealth Programme,
which offers a skills-based development plan
for colleagues who are looking to pursue a
career as a relationship manager in wealth
management. The programme enables HSBC
to develop talent from within and hire talented
people with different career backgrounds from
outside the business. In 2023, we extended
the programme to external applicants in Hong
Kong and to internal applicants in mainland
China, India and Singapore. We will continue
to add new countries and territories in 2024 to
provide a sustainable hiring channel for front-
line roles.
Technology transformation
We are committed to delivering better
customer outcomes through digital
transformation. Our technology transformation
skills programme aims to ensure we attract,
develop and retain the skilled talent we need
to execute our strategy.
Leadership development
We continue to strengthen the training and
development opportunities we offer our
leaders at all levels of the Group, to ensure
they are equipped with the clarity, alignment
and capability with our goals to drive the
performance of our organisation. In 2023,
we significantly increased investment in the
development of our leadership population.
For senior leaders, our Executive and
Managing Director Leadership Programmes
helped bring our purpose and strategy to
life through innovative flagship courses,
masterclasses and strategy briefing sessions.
We recognise the importance of people
managers in shaping the experience of our
colleagues. In 2023, we re-designed our
People Management Excellence programme
to better support managers at all levels. The
face-to-face and virtual training includes
a focus on the role and expectations of
managers, how to design and organise
work, and how to nurture a productive team
environment. In 2023, over 3,800 colleagues
attended this programme.
Supporting UK emerging talent
We continue to extend our emerging talent programmes beyond traditional graduate and
internship schemes to support our socio-economic diversity ambitions (see page 78). In 2023,
we awarded more than 100 apprenticeships to external and internal applicants. Our degree
apprenticeship programmes provided an alternative to the traditional university route for 47
individuals, and we launched a disability apprenticeship programme for our Marketing function.
We have also offered over 460 structured work placements to secondary school students and
continued to support the #merkybook financial literacy programme for young people.
HSBC has funded 30 University of Cambridge scholarships for Black and socially
disadvantaged students through our Stormzy partnership, and will invest a further £2m
to achieve 60 scholarships by 2026 to support underrepresented groups. In 2023, Black
heritage representation in our graduate and summer internship programmes was 10% of job
applicants and 11% of new hires.
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Social
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 are playing 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 provide innovative solutions to help
improve customer access to products and
services. HSBC UK and HSBC Hong Kong
provide no-cost accounts for customers
who do not qualify for a standard account
or who might need additional support due
to social or financial vulnerability. In 2023,
HSBC Egypt ran a campaign that allowed
new customers to open bank accounts
with no minimum balance required and no
account opening fees. In the UK, we continue
to make our branches more accessible by
providing ‘safe spaces’ for domestic abuse
victims, where they can seek specialist
support and advice. In 2023, we also launched
a specialist training programme to raise
awareness among our colleagues of modern
slavery and human trafficking. This has been
completed by more than 5,300 UK colleagues.
In addition, our strategic partnership with
housing and homelessness charity Shelter
UK aims to support those in crisis and build
financial resilience solutions to help prevent
homelessness in the future.
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.
2023
2022
2021
718,306
716,957
692,655
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.
Since 2020, we received over 6.6 million
unique visitors to our global digital financial
education content. We continue to help
customers expand their financial capabilities
through our personal financial management
tools. In 2023, HSBC UK launched new
capabilities on our app enabling customers
to manage their budgets, see their spending
insights and view financial fitness content.
This new tab on the app has attracted over
4.5 million unique visitors. We also added
investment pots and goals to help motivate
customers to save for the future.
In 2022, we launched our ‘Well+’ reward
programme on the HSBC HK Mobile Banking
app to help customers improve the health
of their body, money and mind. Reward
points are earned by completing a series
of simple activities, such as building their
financial knowledge. In 2023, we added new
capabilities, such as bonus badges, and more
than 212,000 customers have engaged with
Well+ in Hong Kong since launch.
To help customers understand complex
products and make informed decisions,
HSBC Life UK launched a series of quick
video guides to explain the key benefits,
exclusions and underwriting process of critical
illness cover.
To support Hong Kong customers with special
educational needs, we launched simple
step-by-step guides, which were shared with
our partners, to explain how to access basic
banking services.
We also support programmes that help
expand the financial knowledge of children
and young people to ensure future resilience.
HSBC Egypt partnered with Injaz Al-Arab,
a member of JA Worldwide, to deliver its
‘building a financially capable generation’
programme to students in seven schools
in Cairo. In Mexico, we created a podcast,
targeted at developing the financial
capabilities of young people with each
episode covering a specific theme, to
enhance their basic financial knowledge.
We continued to build on our financial literacy
programmes for young people in the UK, with
the launch of the first financial capability skills
module for the Duke of Edinburgh’s Award.
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.
A simplified version of the HSBC HK Mobile
Banking app aims to continue to enhance
digital inclusion for all, including seniors. The
app is the first of its kind among Hong Kong
banks and has attracted more than 477,000
unique users since launch.
We are committed to improving accessibility
experiences across our digital channels and
continuously review our browser-based
websites in 23 markets, and our mobile
banking services in 18 markets, against the
WCAG 2.0 AA standards. We also share
our digital accessibility expertise with
partners, companies and colleagues. More
than 10,000 people and 66 companies have
taken advantage of our specialised training
programmes. To further share our best
practice externally, HSBC sponsored and
hosted AbilityNet’s Techshare Pro event in
our Group head office in London. Our work
on digital accessibility was recognised with
11 awards in 2023.
Support for customers extends beyond our
digital channels and we recognise that not all
disabilities are visible or immediately obvious
to others. We have expanded our commitment
to the Hidden Disabilities Sunflower Lanyard
Scheme, rolling it out across the UK, Hong
Kong, the Channel Islands and Australia. The
lanyard indicates that an individual may need
a little more help, support or time. HSBC UK is
also making use of virtual reality tools, such as
EBOX (Empathy Box), to give colleagues the
opportunity to experience vulnerability from
the perspective of the customer.
In 2023, HSBC UK was awarded the
UK Construction Industry Council’s
Inclusive Environments Recognition at
the Organisational Level certification. This
recognises the strong organisation and design
processes HSBC has put in place to support
accessible and inclusive design.
Supporting women
HSBC UAE and HSBC Singapore have
collaborated with digital financial education
provider Sophia, to create a programme
designed specifically to help female customers
build their financial knowledge. It covers a
range of topics, including budgeting, ways to
invest and investment strategies.
In Mexico, our Mujeres Al Mundo programme
continues to support women as customers
through products, services, education and
networking. In 2023, we also supported
female-owned businesses through our $1bn
Female Entrepreneur Fund, alongside hosting
bespoke Pitch Day events for a number of
female entrepreneurs seeking investment.
HSBC Holdings plc Annual Report and Accounts 2023
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ESG review ESG review | Social
Engaging with our communities
Building a more inclusive and resilient world
We have a long-standing commitment to
support the communities in which we operate.
We aim to empower people and communities
to develop the skills and knowledge needed to
thrive in the future.
Through the global reach of our charitable
partnerships we bring together diverse people,
ideas and perspectives that help us open up
opportunities and build a more inclusive world.
Building community and future skills
We work with charity partners to initiate
programmes that help people and
communities respond to opportunities and
challenges as global economies transition
towards a low-carbon future. In 2023,
these included:
– launching a three-year partnership with
the British Council in Brazil, Mexico, India,
Indonesia and Vietnam, and extending The
Prince’s Trust programmes in Australia,
Canada, India and Malaysia, to help young,
marginalised people develop the skills they
need to thrive in the green economy;
– partnering with the Guangdong Lvya Rural
Women Development Foundation in China
to help equip women in remote mountain
areas with sustainable farming skills; and
– partnering with the Ghabbour Foundation
in Egypt to help provide technicians with
specialist skills training to work in the
electric vehicle market.
We also work with our charity partners around
the world to strengthen the resilience of
disadvantaged communities:
– In Hong Kong, we announced a three-year
partnership with Food Angel to increase its
capacity to provide meals to underprivileged
elderly groups.
– In the US, we expanded our workforce
development programme with Feeding
America to support communities to
find meaningful employment, especially
mothers and Black, Indigenous People of
Colour women.
– In the UK, we announced a three-year
partnership with Shelter to help develop the
homeless charity’s training, guidance, tools
and support within local communities to
help build financial resilience.
– In France, we continued our work with
Article 1 to help young people from deprived
communities succeed in higher education
through mentoring programmes.
– We supported disaster relief agency
response to humanitarian needs, including
those in Israel, Libya, Morocco, the
Palestinian territories, Türkiye, and the
Hawaiian island of Maui.
Community engagement
and volunteering
We offer paid volunteering days, and
encourage our people to offer their time,
skills and knowledge to causes within their
communities. In 2023, our colleagues gave
over 181,800 hours to community activities
during work hours.
Awards
– National CSR Fund 2023 UAE –
Platinum Impact Seal
– Charitable giving by HSBC in China
received recognition from the China
Philanthropy Times
Charitable giving in 2023 (%)
Social, including Future Skills: 26%
Environment, including the Climate
Solutions Partnership: 37%
Local priorities: 24%
Disaster relief and other giving: 13%
Total cash giving towards
charitable programmes
$107.3m
Hours volunteered during work time
>181,800
People projected to be reached through
our Future Skills programme
1.25m
Advancing financing and digital literacy
Over the past five years, HSBC worked with three microfinance networks to advance
financial and digital literacy of women from unbanked and underbanked communities in
India. The programme has engaged with more than 550,000 women to build awareness
and understanding of digital payment platforms, and enhance their ability to access banking
services, such as savings, credit and insurance, as well as government welfare schemes. By
the end of 2023, 56,000 women had undertaken loan repayments worth $521,000 via digital
channels. Insights from the initiative will be shared with financial institutions and the National
Payment Corporation of India, set up by the banking regulator to oversee retail payments and
settlement systems in India, to increase unbanked households’ access to financial services
and products.
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HSBC Holdings plc Annual Report and Accounts 2023
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 global businesses, listen carefully to
customer feedback so we know where we
need to improve, and take steps to do this. Our
customer satisfaction performance improved
in many markets in which we operate,
although we still have work to do to improve
our rank position against competitors.
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 238.
In this section
Setting high
standards of
governance
Human rights
Customer
experience
How ESG is governed
We expect that our approach to ESG governance is likely to continue
to develop, in line with our evolving approach to ESG matters and
stakeholder expectations.
Our respect for
human rights
We have continued to raise awareness and develop our
understanding of our salient human rights issues.
Customer satisfaction
While we are ranked in the top three banks against our competitors in
58% of our key markets across WPB and CMB, we still 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.
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 third-party risk compliance
standards and we assess them to identify any financial
stability concerns.
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.
Cybersecurity
We invest in our business and technical controls to help prevent,
detect and mitigate cyber threats.
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HSBC Holdings plc Annual Report and Accounts 2023
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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 customer experience and
employee sentiment. The Board is regularly
provided with specific updates on ESG
matters, including the financed emissions
sector targets, 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 239. For further details of their
induction and training in 2023, see page 253.
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,
including climate risk management in the
Environmental 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.
In 2023, we enhanced our ESG governance
with the establishment of a new Sustainability
Execution Committee, which focuses on
defining and measuring the success of our
climate ambition, and developing commercial
opportunities that support it through the
sustainability execution programme.
We expect that our approach to ESG
governance is likely to continue to develop,
in line with our evolving approach to ESG
matters and stakeholder expectations.
How HSBC’s climate
strategy is cascaded
Opportunities
Risks
Board level governance
Group Executive Committee
Group Audit Committee
Group Risk Committee
Management level governance
ESG Committee
Has oversight of ESG strategy, policy,
material commitments and external
disclosure. Oversees and monitors
progress against ESG strategy, policies,
plans, targets, commitments and
execution processes. Reports to the
Board of progress on the commitments,
deliverables and targets under the
sustainability execution programme.
Co-Chairs: Group Chief Financial Officer,
and Group Chief Sustainability Officer
Group Risk Management Meeting
Oversees the enterprise-wide
management of all risks, including
updates relating to the Group’s climate
risk profile and risk appetite, top and
emerging climate risks, and key
climate initiatives.
Chair: Group Chief Risk and
Compliance Officer
Supporting governance
Sustainability Execution Committee
Has oversight of environmental strategy,
including commercial execution and
operationalisation through the
sustainability execution programme.
This included financed and facilitated
emissions targets and commitments,
implementation and execution of
transition plans, and delivery of $750bn
to $1tn sustainable finance and
investment by 2030.
Chair: Group Head of Commercial
Banking, and Group Chief
Sustainability Officer
Environmental Risk Oversight Forum
Oversees risk activities relating to
climate and sustainability risk
management, including the transition
and physical risks from climate
change. Equivalent forums have been
established at a regional level, where
appropriate.
Chair: Senior adviser, ESG 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.
Group Reputational
Risk Committee
Provides recommendations
and advice on significant
reputational risk matters
with impact across
the Group.
Chair: Group Chief
Operating Officer
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
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HSBC Holdings plc Annual Report and Accounts 2023
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 is guided by
the UN Guiding Principles on Business and
Human Rights (‘UNGPs’) and the OECD
Guidelines for Multinational Enterprises on
Responsible Business Conduct.
Our salient human rights issues
We continue to raise awareness and develop
our understanding of our salient human rights
issues. These are the human rights at risk of
the most severe negative impact through our
business activities and relationships.
An extensive review of our salient human
rights issues conducted in 2022 identified
five human rights risks inherent to HSBC’s
business globally, and five types of activity
through which such risks might arise. These
are represented in the adjacent table.
In 2023, building on this assessment, we
provided practical guidance and training,
where relevant, to our colleagues across the
Group on how to identify and manage human
rights risk.
We are now focusing on translating this into
risk management enhancements in two key
areas of activity. These are the services we
provide to business customers and the goods
and services we buy from third parties.
Managing risks to human rights
In 2023, we continued the process of adapting
our risk management procedures to reflect
what we learned from our work on salient
human rights issues and related guidance.
We continued to embed and build on
the Sustainable Procurement Mandatory
Procedure, which sets out the minimum
sustainability requirements for procurement
activity. This included enhanced procedures
for human rights risk identification through
the introduction of a human rights residual
risk questionnaire for suppliers as part of our
global onboarding assessment process, and
human rights supplier audit pilots in our Asia-
Pacific and Latin America regions to assess
the potential need for further supplier audits in
the future.
New approaches to identifying and managing
human rights risk in respect of our business
customers have also been piloted. These
included screening for indicators of potential
negative impacts on people, including media
monitoring and other relevant third-party data.
Our salient human rights issues
Illustration of HSBC Group’s inherent human rights risks mapped to business activities.
Inherent human rights risks
Employer
Buyer
HSBC activities
Provider of products and
services
Personal
customers
Business
customers
Investor1
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.
Through our membership of international
certification schemes such as the Forestry
Stewardship Council, the Roundtable
on Sustainable Palm Oil and the Equator
Principles, we support standards aimed at
respecting human rights.
Our sustainability risk policies are reviewed
periodically to ensure they reflect our priorities.
For further details, see our sustainability risk
policies at www.hsbc.com/who-we-are/esg-and-
responsible-business/managing-risk/
sustainability-risk.
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
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.
We continued to develop our in-house
capability on human rights with the launch
of further online resources for all staff and
bespoke human rights training for colleagues
in key roles, including those managing
relationships with suppliers, and those
with responsibility for overseeing risk
management processes.
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 WEF metrics
on risk for incidents of child, forced or
compulsory labour.
For further details of the actions taken to respect
the right to decent work, see our 2023 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 76.
Sustainability risk policies
Some of our business customers operate
in sectors where the risk of adverse human
rights impact is high. Our sustainability risk
policies for agricultural commodities, energy,
forestry, mining and metals consider human
rights issues such as forced labour, harmful or
exploitative child labour and land rights. They
also consider the rights of indigenous peoples
such as ‘free prior and informed consent’,
workers’ rights, and the health and safety
of communities.
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Our respect for human rights continued
Driving change
We continued to participate 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, and the UN Global Compact
Human Rights Working Group.
HSBC has been a member of the Mekong
Club since 2016. We are a participant of its
monthly financial services working group, and
we use its informative typological toolkits,
infographics, and other multimedia resources
covering current and emerging issues. Our
Compliance teams regularly collaborate and
engage with the Mekong Club in designing
Group-wide knowledge sharing and
training sessions.
Investments
Since 2022, HSBC Asset Management has
published an annual Global Stewardship
Plan outlining its approach to engagement,
prioritisation of investee companies, objective-
setting and escalation procedures. The plan
also highlights its thematic priorities including
human rights.
HSBC Asset Management recognises
collaborative engagement as a tool to promote
change. It participates in investor-led joint
engagement initiatives where it believes
these can have a positive influence. It is a
signatory to the Principles for Responsible
Investment Advance initiative to promote
active stewardship on human rights and social
issues. It has also actively contributed to other
sector-specific initiatives, including engaging
with technology firms on digital rights and
responsible AI, and working with ESG data
providers to promote higher quality human
rights data set.
HSBC Asset Management has also
incorporated human rights and modern
slavery considerations into its Global
Voting Guidelines. This helps to identify
non-compliance with UN Global Compact
principles, as well as a company’s
competency in human rights management
and disclosures. Where a company falls below
expectations, HSBC Asset Management may
vote against the re-election of the board chair
or relevant board director.
As a signatory to the Net Zero Asset
Management Initiative, HSBC Asset
Management is taking steps to reduce the
carbon exposure of its portfolios and engage
with issuers on their climate strategies. It
also recognises the impact that the climate
transition can have on workers, communities,
consumers and other stakeholders, and has
published its perspectives on a just transition.
For the Global Stewardship Plan, see
www.assetmanagement.hsbc.co.uk/-/media/files/
attachments/uk/policies/stewardship-plan-uk.pdf.
For further details of the Net Zero Asset
Management Initiative, see www.
assetmanagement.hsbc.co.uk/en/institutional-
investor/about-us/road-to-net-zero/a-transition-
for-everyone.
Supporting those impacted and those
potentially at risk
We continued to expand our Survivor Bank
programme, which has now supported over
3,000 survivors of modern slavery and human
trafficking in the UK, and is a model for
making financial services more accessible to
vulnerable communities worldwide.
We built on this experience in developing
access to banking services for customers
with no fixed abode in the UK and in Hong
Kong, providing over 5,700 accounts under
these programmes.
For further details of our work to support
vulnerable communities, see page 86.
Effectiveness
The table below includes some indicative
metrics we use to measure year-on-year
continual improvement to our human
rights processes.
For further diversity and inclusion metrics, see
page 76 in this ESG review, as well as Section 4
of the 2023 Annual Statement under the UK
Modern Slavery Act, which is available at www.
hsbc.com/who-we-are/esg-and-responsible-
business/modern-slavery-act.
Monitoring effectiveness
Metric
Contracted suppliers who either confirmed adherence to the code of
conduct or provided their own alternative that was accepted by our
Global Procurement function
Employees who have received training on human rights
Votes by HSBC Asset Management against management for reasons
including human rights1
2023
2022
95%
93%
8,176
213
520
87
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
Just Energy Transition Partnerships are becoming increasingly popular bringing key stakeholders
together to enable a clean, fair energy transition in emerging economies that rely heavily on coal.
Essentially, they are multilateral financial agreements aimed at accelerating the phase-out of fossil
fuels, in a way that addresses the social consequences of doing so.
For further details on HSBC’s role in Just Energy Transition Partnerships with Indonesia and Vietnam, see
www.hsbc.com/news-and-views/views/hsbc-views/jetps-powering-a-faster-energy-transition.
Read more on Just Energy Transition Partnerships on page 68 of this ESG Review.
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Governance
Customer experience
We remain committed to improving
customers’ experiences. In 2023, we gathered
feedback from over one million customers
across our three global businesses to help us
understand our strengths and the areas we
need to focus on. We were ranked among
the top three banks against our competitors
in 58% of our six key markets across WPB
and CMB1. This was lower than in 2022 when
we were ranked among the top three banks
against our competitors in 66% of our key
markets.
Customer satisfaction
Listening to drive improvement
We have 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. 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 realise opportunities.
In 2023, we launched the CMB Customer
Impact Forum, a dedicated global forum
set up to provide oversight of our business
and corporate customers’ experiences and
promote continuous improvement. This,
alongside our WPB ‘Customer in the room’
programme launched in 2022, helps ensure
we use feedback in all aspects of how we
run our business and prioritise initiatives that
matter most to our customers.
How we fared
In WPB, our NPS increased in four of our
six key markets, which were Hong Kong,
Mexico, India and Singapore. Our NPS in
the UK declined slightly, largely among our
mass affluent customers. In Hong Kong, we
remained first overall against our competitors,
driven by our mass affluent customers.
In India we ranked in first place, driven by
increased digitalisation. We introduced digital
self-service solutions for updating customer
details and downloading key documents,
and digitised our onboarding process. We
were also a top three bank in mainland China,
based on 2022 data (see footnote 3 in the
adjacent table).
In our private bank, our global NPS increased
to 42 points, compared with 25 points in 2022.
This was largely due to increased customer
satisfaction in Asia, with improved scores in
Hong Kong, Singapore, Taiwan and mainland
China. This was driven by relationship
manager engagement and enhancements to
our digital services.
In CMB, we were ranked among the top three
banks against our competitors in four of our
six key markets. We ranked first in Hong Kong
and as a top three bank in mainland China,
Singapore and Mexico. In India and the UK,
we were ranked outside the top three. Our
NPS rank improved in the UK, driven by our
business banking customers and our top three
ranking among UK corporate customers. Our
NPS declined slightly among our mid-market
enterprise customers.
In GBM, we had one of the highest NPS
scores in the market against our competitors,
including the quality of our digital trade
finance platforms and for satisfaction with our
digital capabilities.
Number of markets in top three
or improving rank1,2
WPB3
CMB
2023
3 out of 6
5 out of 6
1 The six markets comprise: the UK, Hong Kong,
Mexico, mainland China, India and Singapore.
Rank positions are provided using data gathered
through third-party research agencies.
2 We benchmark our NPS against our key
competitors to create a rank position in each
market. This table is based is on the number of
markets where we are in the top three or have
improved rank from the previous year.
3 Our WPB NPS ranking in mainland China is based
on 2022 results. Due to data integrity challenges,
we are unable to produce a 2023 ranking. The next
mainland China results will be in 2024.
Acting on feedback
We have continued to focus on developing
our products and services, and enhancing
our digital capabilities to improve
customer experience.
In WPB, we redesigned our international
products and services to make it quicker
and easier to bank internationally. This
involved the launch of six products and
services across 10 international markets.
International customers can open an
international account digitally pre-departure,
gain access to a credit card in their new
market, and make use of cross-border
payment solutions with 24/7 global support
to manage their international needs.
In CMB, we introduced a new credit
application system, the Digital Credit Portal, in
15 markets. It uses internal and external data
combined with automation to streamline
credit journeys. In Hong Kong, the portal
also integrates with a credit decision engine
to automate credit decisions for qualifying
customers, reducing the assessment time
on loan approvals from days to as little
as a few minutes. Our digital onboarding
tool, SmartServe, has been implemented
in 21 markets to support international
and domestic account opening. We have
onboarded 89% of eligible customers
through the digital platform, with 72% of
customers rating this experience as ‘easy’.
In GBM, we continued to execute our
strategy and refine the client coverage
model. In 2023, we accelerated our
‘originate-to-distribute’ model, providing
clients with an effective capital efficiency
strategy. We have refinanced our in-country
and cross-border coverage model in
mainland China and refreshed our growth
plans in India based on client feedback. We
also launched growth initiatives against
our Asia-MENAT corridor to better service
our clients.
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How we listen
To improve how we serve our customers, we
must be open to feedback and acknowledge
when things go wrong. We continue to adapt
at pace to provide support for customers
facing new challenges, new ways of working
and those that require enhanced care needs.
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 of 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 through the channel that best suits them.
We provide a point of contact along with clear information on next
steps and timescales.
Acknowledging
complaints
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.
Keeping the
customer up
to date
Ensuring fair
resolution
We set clear expectations and keep customers informed throughout
the complaint resolution process through 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 2023, we received approximately 1.2 million
complaints from customers. The ratio of
complaints per 1,000 customers per month
in our large markets remained stable at
around 2.3.
In the UK, complaints fell 19%. In 2023, we
applied the new UK Consumer Duty rules
to our complaint handling processes and
invested in root cause analysis to ensure good
outcomes and avoid instances of foreseeable
harm. We will continue to focus on enhancing
our processes and on training complaint
handlers to improve the customer experience
and reduce our complaint volumes further.
The decrease in complaints in Hong Kong was
primarily driven by improvements in our digital
capabilities to make it easier for customers to
connect with us. Regular reviews, analysis of
customer feedback and greater collaboration
across business lines to address emerging
customer pain points also contributed to the
fall in complaints.
In response to an increase in credit and debit
card fraud attacks in Mexico during the first
quarter of 2023, we focused on strengthening
our monitoring and fraud detection capabilities
to help protect our customers. In October,
we also released the new Visa Account
Attack Intelligence tool to mitigate foreign
e-commerce attacks on customer debit cards.
As a result of these efforts, average monthly
complaints in Mexico for the last nine months
of the year decreased by 20.5% compared
with the first quarter.
In our private bank, we received 507
complaints, an increase of 176 compared with
2022. This was largely due to growth in our
customer base since establishing new private
banking operations in the UAE and Mexico,
along with an increase in complaints in the
US. This led to an increase in administration
and service issues, a high proportion of
which were attributable to delays and errors
in processing client instructions. Overall,
the private bank resolved 465 complaints.
Complaint data for the new private banking
operation in India was reported within the
WPB figures, pending system development to
separately report the complaint figures.
WPB complaint volumes1
(per 1,000 customers per month)
Total2
UK3
Hong Kong3
Mexico3
2023
2022
2.3
2.3
1.1
1.4
0.9
1.0
5.2
5.1
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 2023, we continued to develop and embed tools and capabilities across our business to deliver improved experiences for our customers
around the world. Through our measurement of customer experience, we identify opportunities for improvement, develop agile customer
experience plans and track and measure our progress. As a result of standardising our approach to customer experience globally, we have
strengthened our capability to listen, understand and act on what our customers are telling us on a regular basis.
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Governance
How we listen continued
Commercial Banking (‘CMB’)
In 2023, we received 45,899 customer and
client complaints, a decrease of 27% from
2022. Of the overall volumes, 33,777 came
from HSBC UK and 7,354 from Asia-Pacific.
The most common complaint related to
servicing and transactions, with the largest
volume of complaints globally coming
from business banking customers, which
represented 87% of our total complaints.
We attribute the overall decrease in our
complaint volumes to enhanced training of
our front-line colleagues to ensure they can
identify the differences between a complaint,
query and feedback. We also focused on
addressing the root causes of the complaint
trends, as well on improvements to our
systems, processes and advice to our clients.
We resolved 47,812 complaints globally
in 2023. The average resolution time for
complaints was 24 days, which was just above
our global target of 20 days.
CMB complaint volumes1
(000s)
Total
UK
2023
2022
46
63
33.8
49.2
Hong Kong
6.5
8.1
Acting on feedback
In 2023, we focused on improvements to our governance of complaints, creating regular forums in key markets to ensure that analysis of the
root cause of issues and trends are prioritised to enhance our understanding of pain points for our customers. Since the Covid-19 pandemic,
there has been increased efforts Group-wide to identify customers who are more exposed to harm or declare as vulnerable. In 2023, we
focused on identifying these complaint types to ensure that we can offer adjustments and support within our processes. This new process helps
to improve our understanding and support of clients at risk of financial or non-financial harm to ensure our banking services are accessible to all.
Global Banking and Markets (‘GBM’)
In 2023, we received 1,552 customer
complaints in Global Banking, a decrease
of 27% from 2022. Of the overall complaint
volumes, 49% came from Europe and 23%
came from the Middle East, North Africa and
Türkiye. The most common complaint, at 38%
of total complaints, related to servicing, which
was in line with previous years.
In Markets and Securities Services (‘MSS’)
complaints increased by 21% to 354.
We attribute some of the increase to
improvements in our data reporting processes
globally. The majority of complaints were
operational in nature and resolved in a timely
manner. Of the overall MSS complaints, 47%
came from Europe and 34% from Asia, our
two largest markets.
GBM complaint volumes1
Total
2023
2022
1,906 2,419
Global Banking2
1,552 2,127
Global Markets and
Securities Services3
354
292
Acting on feedback
We have continued to invest in our client feedback tool to create a more consistent and streamlined experience for colleagues across GBM
and our wholesale businesses globally. In 2023, we introduced additional automation to improve the process of logging complaints, and
simplified our procedures to make it easier for front-line colleagues to record feedback. We have also introduced mandatory training around
conduct and complaints to ensure our people are acting on the feedback they receive and are consistent in how they evaluate queries
and complaints.
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.
3 Contains Global Research complaint volumes.
HSBC Holdings plc Annual Report and Accounts 2023
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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 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 have
a financial crime risk management framework
that is applicable across all global businesses
and functions, and in 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
policy that is designed to enable adherence
to applicable laws and regulations globally.
Annual global mandatory training is provided
to all colleagues, with additional targeted
training tailored to certain individuals.
We carry out regular risk assessments
to identify where we need to respond to
evolving financial crime threats, as well as
to monitor and test 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. We are also enhancing our fraud
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 policy for acts of retaliation.
Listening through
whistleblowing channels
Our global whistleblowing channel,
HSBC Confidential, is one of our speak-up
channels, which allows 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, such as dismissal and adjustments
monitoring capability and our trade screening
controls, and investing in 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 financial crime 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. There were
no concluded legal cases regarding bribery
or corruption brought against HSBC or its
employees in 2023. Our global financial crime
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 1.35 billion transactions for signs
of financial crime. In 2023, we filed over
96,000 suspicious activity reports to law
enforcement and regulatory authorities
where we identified potential financial
crime. We perform daily screening
of 125 million customer records for
sanctions exposure. In 2022, we
reported screened customer records as
a monthly average, although screening
was, and continues to be, performed on
a daily basis.
98%
Total percentage of permanent and non-
permanent employees who received financial
crime training, including on anti-bribery and
corruption.
to variable pay and performance ratings, or
operational actions including changes to
policies and procedures.
We actively promote our full range of speak-
up channels to colleagues to help ensure
their concerns are handled through the most
effective route. In 2023, 4% fewer concerns
were raised through HSBC Confidential
compared with 2022. Of the concerns
investigated through the HSBC Confidential
channel in 2023, 81% related to individual
behaviour and personal conduct, 14% to
security and fraud risks, 4% to compliance
risks and less than 1% to other categories.
The Group Audit Committee has 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 Group’s policies and procedures.
Regulatory Compliance sets the
whistleblowing policy and procedures, and
provides the Group Audit Committee with
periodic updates on their effectiveness.
Specialist 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 270.
HSBC Confidential concerns raised
in 2023:
1,746
(2022: 1,817)
Substantiation rate of concerns
investigated through HSBC
Confidential in 2023:
41%
(2022: 41%)
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Governance
A responsible approach to tax
– We seek to ensure that our entities
– We implement processes that aim to
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.
– 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.
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.
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 19.1%
was higher than in the previous year (2022:
4.7%). The effective tax rate for the year was
increased by 2.3% from the non-taxable
impairment of the Group’s interest in BoCom,
and reduced by 1.6% by the release of
provisions for uncertain tax positions and by
1.5% by the non-taxable provisional gain on
the acquisition of SVB UK. Further details are
provided on page 369.
The UK bank levy charge for 2023 of $339m
was higher than the charge of $13m in 2022,
mainly due to adjustments arising upon filing
prior year returns, which represented a credit
in 2022 and a charge in 2023.
As highlighted below, in addition to paying
$6.8bn of our own tax liabilities during 2023,
we collected taxes of $10.8bn on behalf
of governments around the world. A more
detailed geographical breakdown of the taxes
paid in 2023 is provided in the ESG Data Pack.
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 including the ‘Pillar Two’
global minimum tax rules which will apply
to the Group from 2024. These rules seek
to ensure that the Group pays tax at a
minimum rate of 15% in each jurisdiction
in which it operates. We have identified 12
jurisdictions that may have an effective tax
rate below 15% in 2024. We continually
monitor the number of active subsidiaries
within each jurisdiction as part of our
ongoing entity rationalisation programme.
Taxes paid – by type of tax
Taxes paid – by region
Taxes collected – by region
Tax on profits $3,685m (2022: $2,429m)
Withholding taxes $432m (2022: $361m)
Employer taxes $1,052m (2022: $1,041m)
Bank levy $57m (2022: $314m)
Irrecoverable VAT $1,298m (2022: $1,152m)
Other duties and levies $249m1 (2022: $232m)
Europe $2,945m (2022: $2,745m)
Asia-Pacific $2,488m (2022: $1,894m)
Middle East, North Africa
and Türkiye $296m (2022: $259m)
North America $389m (2022: $207m)
Latin America $655m (2022: $424m)
Europe $4,714m (2022: $4,197m)
Asia-Pacific $3,226m (2022: $3,274m)
Middle East, North Africa
and Türkiye $77m (2022: $67m)
North America $1,119m (2022: $1,129m)
Latin America $1,680m (2022: $1,493m)
1 Other duties and levies includes property taxes of $91m (2022: $94m)
HSBC Holdings plc Annual Report and Accounts 2023
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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 colleagues on our approach
to customer and market 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 in
challenging economic times’ on page 15).
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
third-party risk compliance standards and
we assess them to identify any financial
stability concerns.
Sustainable procurement
Supporting and engaging with our supply
chain is vital to the development of our
sustainable procurement processes. In 2023:
– We published net zero guides to help
buyers and suppliers understand our
net zero ambitions. The guides explain
our carbon reduction requirements and
provide practical advice for meeting these
ambitions, as laid out in our supplier code
of conduct.
– We began developing decarbonisation
plans for high-emitting procurement
categories, including real estate services,
telecommunications, data centres
and servers, and computer hardware.
Engagement with suppliers has given
us a better understanding of their
decarbonisation efforts and the challenges
and opportunities of achieving net zero in
these categories. As a result, strategies for
these procurement categories will include
decarbonisation plans from 2024 onwards.
– We completed analysis to understand the
impacts and dependencies of our supply
chain on biodiversity. The analysis will
inform the development of a biodiversity
strategy for global procurement in 2024, to
reduce supply chain biodiversity impacts.
– We launched the supplier diversity portal in
the UK and US. The portal enables small and
medium-sized enterprises or businesses,
which are majority-owned, operated and
controlled by historically underrepresented
groups, to register interest in becoming
an HSBC supplier. For further details, see
www.hsbc.com/our-approach/risk-and-
responsibility/working-with-suppliers.
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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 management policy covers
the entire lifecycle of the product. This
helps ensure that our products meet our
requirements before we sell them and
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.
Supplier code of conduct
Our supplier code of conduct sets out our
ambitions, targets and commitments on the
environment, diversity and human rights,
and outlines the minimum standards we
expect of our suppliers on these issues. We
seek to formalise adherence 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 2023, 95% of
approximately 10,400 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.
For further details of the number of suppliers in
each geographical region, see the ESG Data
Pack at www.hsbc.com/esg.
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 ensure appropriate management
of privacy risk. Our Group-wide privacy policy
and principles provide a consistent global
approach to managing data privacy risk, and
must be applied by all our global businesses
and 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 mandatory training for all our
colleagues globally, 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 about 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 a group intellectual property risk
policy, supported by controls and guidance, to
manage risk relating to intellectual property.
This is to help ensure that commercially and
strategically valuable intellectual property
is identified and protected appropriately,
including by applying to register trademarks
and patents and enforcing our intellectual
property rights against unauthorised use
by third parties. Our intellectual property
framework also helps us avoid infringement
of third-party intellectual property rights,
supporting our consistent and effective
management of intellectual property risk in
line with our risk appetite.
Data Privacy Day
In January 2023, we held a hybrid
roundtable event for our colleagues to
mark International Data Privacy Day.
The event was hosted by our Global
Head of Data Legal, and guest speakers
included the former UK Information
Commissioner and industry specialists
from an external law firm, with HSBC’s
own data privacy experts in attendance.
The event covered privacy-related
developments likely to have the greatest
impact across the Group. Key themes
included upcoming data privacy
reforms in the UK and the implications
for global organisations, and trends
in enforcement of data privacy laws
and regulations. We also reviewed the
impact, successes and challenges of
General Data Protection Regulation
(‘GDPR’) implementation globally.
The ethical use of data and AI
Artificial intelligence and other emerging technologies provide the opportunity 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 a set of principles to help ensure
we 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.
We continue to develop and enhance our approach to, and oversight of, AI, taking into
consideration the fast-evolving regulatory landscape, market developments and best practice.
HSBC Holdings plc Annual Report and Accounts 2023
97
ESG review ESG review | Governance
Cybersecurity
The threat of cyber-attacks remains a concern
for our organisation, as it does across the
financial sector and other industries. As
cyber-attacks continue to evolve, failure to
protect our operations may result in the loss
of sensitive data, disruption for our customers
and our business, or financial loss. This could
have a negative impact on our customers and
our reputation, among other risks.
We continue to monitor ongoing geopolitical
events and changes to the cyber threat
landscape and take 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. Our cybersecurity controls follow
a ’defence in depth’ approach, making use
of multiple security layers, recognising the
complexity of our environment. Our ability
to detect and respond to attacks through
round-the-clock security operations centre
capabilities is intended to help reduce the
impact of attacks.
We have a cyber intelligence and threat
analysis team, which proactively collects
and analyses internal and external cyber
information to continuously evaluate threat
levels for the most prevalent attack types
and their potential outcomes. We actively
participate in the broader cyber intelligence
community, including by sharing technical
expertise in investigations, alongside others in
the financial services industry and government
agencies around the world.
In 2023, we further strengthened our cyber
defences and enhanced our cybersecurity
capabilities with the objective 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 and
malicious behaviour.
We work with our third parties, including
suppliers, financial infrastructure bodies and
other non-traditional third parties, in an effort
to help reduce the threat of cyber-attacks
impacting our business services.
We have a third-party security risk
management process in place to assess,
identify and manage the risks associated with
cybersecurity threats with supplier and other
third-party relationships. The process includes
risk-based cybersecurity due diligence reviews
that assess third parties’ cybersecurity
programmes against our standards
and requirements.
Policy and governance
We have a robust suite of cybersecurity
policies, procedures and key controls
designed to help ensure that the organisation
is well managed, with effective oversight and
control. This includes but is not limited to
defined information security responsibilities
for employees, contractors and third parties,
as well as standard procedures for cyber
incident identification, investigation, mitigation
and reporting.
We operate a three lines of defence model,
aligned to the enterprise 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 cyber risk. They work with
cybersecurity control owners to apply the
appropriate risk treatment in line with our
risk appetite. Our controls are designed to
be executed in line with our policies and are
reviewed and challenged by our risk stewards
representing the second line of defence.
They are independently assured by the
Global Internal Audit function, the third line of
defence. The assessment and management of
our cybersecurity risk is led and coordinated
by a Global Chief Information Security Officer,
who has extensive experience in financial
services, security and resilience, as well as
in strategy, governance, risk management
and regulatory compliance. The Global Chief
Information Security Officer is supported by
regional and business level chief information
security officers. In the event of incidents, the
Global Chief Information Security Officer and
relevant supporting officers are informed by
our security operations team and are engaged
in alignment with our cybersecurity incident
response protocols.
Key performance indicators, control
effectiveness and other matters related to
cybersecurity, including significant cyber
incidents, are presented on a regular basis
to various management risk and control
committees including to the Board, the Group
Risk Management Meeting and across global
businesses, functions and regions. This is
done to ensure ongoing awareness and
management of our cybersecurity position.
Our cybersecurity capabilities are regularly
assessed against the National Institute of
Standards and Technology framework by
independent third parties, and we proactively
collaborate with regulators to participate in
regular testing activities. HSBC also engages
external independent third parties to support
our penetration and threat-led penetration
testing, which help to identify vulnerabilities to
cyber threats and test security resilience.
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HSBC Holdings plc Annual Report and Accounts 2023
Cyber training and awareness
We understand the important role our people
play in protecting against cybersecurity
threats. Our aim 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 our people, ranging from
our top executives to IT developers to front-line
relationship managers around the world.
Over 94% 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 a wide range
of education and guidance to both customers
and our colleagues about how to identify and
prevent online fraud.
Over 99%
Employees completed mandatory
cybersecurity training on time.
Over 94%
IT developers hold at least one of our internal
secure developer certifications.
Over 90
Cybersecurity education events were
held globally.
Over 96%
Of survey respondents to cybersecurity
education events said they have a better
understanding of cybersecurity following
these events.
Financial
review
The financial review gives detailed reporting
of our financial performance at Group level
as well as across our different global
businesses and legal entities.
100 Financial summary
111
Global businesses and legal entities
130
Reconciliation of alternative performance measures
Moving to a dynamic new London HQ
Our global headquarters is to relocate to the heart of the City
of London, after we signed contracts to move to the new
Panorama St Paul’s development.
When selecting our future location, we wanted a head office
that provides flexible, dynamic and inclusive workspaces for
colleagues and clients. We also wanted the choice of building
to contribute to our net zero commitments through sustainable
design, with the building constructed to high sustainability
standards, using predominantly repurposed materials.
With our lease at our existing Canary Wharf office expiring in
early 2027, we expect colleagues to start moving to Panorama
St Paul’s from late 2026.
HSBC Holdings plc Annual Report and Accounts 2023
99
Financial summary
Financial summary
Contents
100
100
101
101
102
103
106
107
Changes to presentation from 1 January 2023
Use of alternative performance measures
Critical estimates and judgements
Impact of hyperinflationary accounting
Consolidated income statement
Income statement commentary
Supplementary table for planned disposals
Consolidated balance sheet
Changes to presentation from
1 January 2023
Changes to our reporting framework
On 1 January 2023, we updated our financial reporting framework.
We no longer report ‘adjusted’ results, which excluded the impact of
both foreign currency translation differences and significant items.
Instead, we compute constant currency performance by adjusting
comparative reported results only for the effects of foreign currency
translation differences between the relevant periods. This will enable
users to understand the impact of foreign currency translation
differences on the Group’s performance. We separately disclose
‘notable items‘, which are components of our income statement that
management would consider as outside the normal course of
business and generally non-recurring in nature. While our primary
segmental reporting by global business remains unchanged, effective
from 1 January 2023, the Group changed the supplementary
presentation of results from geographical regions to main legal
entities to better reflect the Group’s structure.
IFRS 17 ‘Insurance Contracts’
On 1 January 2023, HSBC adopted IFRS 17 ‘Insurance Contracts’. As
required by the standard, the Group applied the requirements
retrospectively with comparative data previously published under
IFRS 4 ‘Insurance Contracts’ restated from the 1 January 2022
transition date. As required by IAS 1 ‘Presentation of Financial
Statements’ a third statement of financial position as at the transition
date of 1 January 2022 has been disclosed (for further details, see
page 331). Under IFRS 17 there is no present value of in-force
business (‘PVIF’) asset recognised up front. Instead the measurement
of the insurance contract liability takes into account fulfilment cash
flows and a contractual service margin (‘CSM’) representing the
unearned profit. In contrast to the Group’s previous IFRS 4 accounting
where profits are recognised up front, under IFRS 17 they are
deferred and systematically recognised in revenue as services are
provided over the expected coverage period. The CSM also includes
directly attributable costs, which had previously been expensed as
incurred and which are now incorporated within the insurance liability
measurement and recognised over the expected coverage period.
In conjunction with the implementation of IFRS 17, the Group has
made use of the option to re-designate to fair value through profit or
loss assets that were previously held at amortised cost totalling
$55.1bn, and eligible assets previously held at fair value through other
comprehensive income totalling $1.1bn. The re-designation of
amortised cost assets generated a net increase to assets of $4.9bn
because the fair value measurement on transition was higher than the
previous amortised cost carrying amount.
The impact of the transition was a reduction of $1.1bn on the Group’s
full-year 2022 reported revenue and a reduction of $0.5bn on full-year
2022 reported profit before tax. The Group’s total equity at 1 January
2022 reduced by $10.5bn to $196.3bn on the transition, and tangible
equity reduced by $2.4bn to $146.9bn. For further details of our
adoption of IFRS 17, see Note 38 ‘Effects of adoption of IFRS 17’ on
page 422.
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HSBC Holdings plc Annual Report and Accounts 2023
Cost target
At our full-year 2022 results, we set a target for our ‘adjusted‘
operating expenses of growth for 2023 compared with 2022. Under
our new reporting framework we no longer present ‘adjusted‘ results.
The exception to this is for operating expenses, where our ‘target
basis’ will adjust reported results for notable items and the period-on-
period effects of foreign currency translation differences. We also
exclude the impact of retranslating comparative period financial
information at the latest rates of foreign exchange in hyperinflationary
economies, which is not within our control. We consider that this
measure provides useful information to investors by quantifying and
excluding the items that management considered when setting and
assessing cost-related targets. In our target basis, we also exclude
the costs related to the acquisition of SVB UK and related
investments internationally, which are expected to add approximately
1% to our cost growth compared with 2022.
Our 2022 baseline for operating expenses on this basis is $29.8bn,
which has been retranslated at the average rates of foreign exchange
for 2023.
Resegmentation
In the first quarter of 2023, following an internal review to assess
which global businesses were best suited to serve our customers’
respective needs, a portfolio of our Global Banking customers within
our entities in Latin America was transferred from GBM to CMB for
reporting purposes. Comparative data have been re-presented
accordingly. Similar smaller transfers from GBM to CMB were also
undertaken within our entities in Australia and Indonesia, where
comparative data have not been re-presented.
Banking NII
At our interim 2023 results, we introduced banking net interest
income. This alternative performance measure is reconciled on
page 104, and deducts from Group reported net interest income: the
impact of the cost of funding reported in net interest income used to
fund trading and fair value net assets; the impact of foreign exchange
swaps in Markets Treasury, where an offsetting income or loss is
recorded in trading and fair value income, and third-party net interest
income from our insurance business.
This resulting measure is intended to approximate the Group’s
banking revenue that is directly impacted by changes in interest rates.
Use of alternative performance
measures
Our reported results are prepared in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board (‘IFRS Accounting Standards’),
as detailed in the financial statements starting on page 329.
To measure our performance, we supplement our IFRS Accounting
Standards figures with non-IFRS Accounting Standards 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 ‘constant currency
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 130. In addition, insurance-specific
non-GAAP measures including ‘Insurance manufacturing value of new
business‘, ‘Insurance manufacturing proxy embedded value‘, and
‘Insurance equity plus CSM net of tax‘ are provided on pages 116 to
117, together with their definitions and reconciliation to GAAP
measures. All alternative performance measures are reconciled to the
closest reported performance measure.
The global business segmental results are presented on a constant
currency basis in accordance with IFRS 8 ‘Operating Segments’ as
detailed in Note 10 ‘Segmental analysis’ on page 372.
Constant currency performance
Constant currency performance is computed by adjusting reported
results for the effects of foreign currency translation differences,
which distort year-on-year comparisons.
We consider constant currency performance to provide useful
information for investors by aligning internal and external reporting,
and reflecting how management assesses year-on-year performance.
Notable items
We separately disclose ‘notable items’, which are components of our
income statement that management would consider as outside the
normal course of business and generally non-recurring in nature.
The tables on pages 112 to 113 and pages 123 to 128 detail the
effects of notable items on each of our global business segments,
legal entities and selected countries/territories in 2023, 2022 and
2021.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the
US dollar against most major currencies during 2023.
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.
Foreign currency translation differences for 2023 are computed by
retranslating into US dollars for non-US dollar branches, subsidiaries,
joint ventures and associates:
– the income statements for 2022 and 2021 at the average rates of
exchange for 2023; and
– the balance sheets at 31 December 2022 and 31 December 2021
at the prevailing rates of exchange on 31 December 2023.
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 have 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 have 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.
Critical 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 material accounting policies,
including the policies which include critical 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, making
assumptions and estimates to incorporate relevant information
about late-breaking and past events, current conditions and
forecasts of economic conditions, and selecting applicable
recovery strategies for certain wholesale credit-impaired loans. 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 348.
– Deferred tax assets: The most significant judgements relate to
those made in respect of recoverability, which are based on
expected future profitability. See Note 1.2(l) on page 353.
– 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 345.
– Impairment of investment in subsidiaries: Impairment testing,
including testing for reversal of impairment, 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. See Note 1.2(a) on page 343.
– Impairment of interests in associates: Impairment testing,
including testing for reversal of impairment, 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 343.
– 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 343 and Note 1.2(n) on
page 353.
– 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 353.
– 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 352.
– Non-current assets and disposal groups held for sale:
Management judgement is required in 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 354.
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.
Impact of hyperinflationary
accounting
We continue to treat Argentina and Türkiye as hyperinflationary
economies for accounting purposes. The impact of applying IAS 29
‘Financial Reporting in Hyperinflationary Economies’ and the
hyperinflation provisions of IAS 21 ’The Effects of Changes in Foreign
Exchange Rates’ in the current period for our operations in both
Argentina and Türkiye was a decrease in the Group’s profit before tax
of $1,297m (2022: $548m), comprising a decrease in revenue,
including loss on net monetary position, of $1,586m (2022: $541m)
and a decrease in ECL and operating expenses of $289m
(2022: increase of $7m). The CPI at 31 December for Argentina was
3,576, with an increase in the year of 2,429.13 (2022: 563.92
increase). The CPI for Türkiye was 1,859 with an increase in the year
of 730.89 (2022: 359.94 increase).
HSBC Holdings plc Annual Report and Accounts 2023
101
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
Net insurance premium income
Insurance finance (expense)/income
Insurance service result
Gain on acquisition2
(Impairment)/reversal of impairment relating to the sale of our retail banking operations in
France3
Other operating (expense)/income4
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 charges5
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
Impairment of interest in associate
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)6
Dividend payout ratio7
Post-tax return on average total assets
Return on average ordinary shareholders’ equity
Return on average tangible equity
Effective tax rate
2023
$m
35,796
11,845
16,661
20221
$m
30,377
11,770
10,278
2021
$m
26,489
13,097
7,744
2020
$m
27,578
11,874
9,582
2019
$m
30,462
12,023
10,231
7,887
(13,831)
4,053
2,081
3,478
—
(7,809)
1,078
1,591
—
13,799
809
—
10,870
—
—
—
10,093
—
—
—
10,636
—
—
—
150
(2,316)
—
—
—
(1,141)
66,058
—
(266)
50,620
—
1,687
63,940
(14,388)
1,866
63,074
(12,645)
4,194
71,024
(14,926)
66,058
50,620
49,552
50,429
56,098
(3,447)
62,611
(32,355)
285
30,541
2,807
(3,000)
30,348
(5,789)
24,559
22,432
—
1,101
1,026
24,559
2023
$
1.15
1.14
0.53
%
50
0.8
13.6
14.6
19.1
(3,584)
47,036
(32,554)
(147)
14,335
2,723
—
17,058
(809)
16,249
14,346
—
1,213
690
16,249
928
50,480
(33,887)
(733)
15,860
3,046
—
18,906
(4,213)
14,693
12,607
7
1,303
776
14,693
(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
20221
$
2021
$
2020
$
0.72
0.72
0.27
%
44
0.5
9.0
10.0
4.7
0.62
0.62
0.22
%
40
0.5
7.1
8.3
22.3
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
$
0.3
0.3
0.51
%
100
0.3
3.6
8.4
34.8
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the years ended 31 December 2021, 2020 and 2019 are prepared on
an IFRS 4 basis.
2 Provisional gain recognised in respect of the acquisition of SVB UK.
3 In the fourth quarter of 2023, an impairment loss of $2.0bn was recognised relating to the sale of our retail banking operations in France. This largely
offset the $2.1bn recognised in the first quarter of 2023 on the reversal of the held for sale classification at that time. In 2023, a total net $0.1bn of
credit was recognised in other operating income, reflecting the net asset value disposed under the final terms of sale. The $0.4bn impairment of
goodwill recognised in the third quarter in 2022 has not been reversed.
4 Other operating (expense)/income includes a loss on net monetary positions of $1,667m (2022: $678m; 2021: $576m) as a result of applying IAS 29
‘Financial Reporting in Hyperinflationary Economies’ and disposal losses on capitalised markets treasury repositioning of $977m in 2023.
5 Net operating income before change in expected credit losses and other credit impairment charges also referred to as revenue.
6
Includes dividend paid during the period, which consisted of a second interim dividend of $0.23 per ordinary share in respect of the financial year
ended 31 December 2022 paid in April 2023 and the first, second and third interim dividends of $0.30 per ordinary share in respect of the financial year
ending 31 December 2023.
In 2023, our dividend payout ratio was adjusted for material notable items and related impacts. In 2022, our dividend payout ratio was adjusted for the
loss on classification to held for sale of our retail banking business in France, items relating to the planned sale of our banking business in Canada, and
the recognition of certain deferred tax assets. No items were adjusted for in 2021, 2020 or 2019.
7
Unless stated otherwise, all tables in the Annual Report and Accounts 2023 are presented on a reported basis.
For a summary of our financial performance in 2023, see page 27.
For further financial performance data for each global business and legal entity, see pages 111 to 114 and 120 to 130 respectively. The global
business segmental results are presented on a constant currency basis in accordance with IFRS 8 ‘Operating Segments’ as set out in Note 10:
Segmental analysis on page 372.
102
HSBC Holdings plc Annual Report and Accounts 2023
Income statement commentary
The following commentary compares Group financial performance for the year ended 2023 with 2022, unless otherwise stated.
Net interest income
Interest income
Interest expense
Net interest income
Average interest-earning assets
Gross interest yield2
Less: gross interest payable2
Net interest spread3
Net interest margin4
31 Dec
2023
$m
100,868
(65,072)
35,796
2,161,746
%
4.67
(3.47)
1.20
1.66
Year ended
31 Dec
20221
$m
31 Dec
2021
$m
52,826
(22,449)
30,377
2,143,758
36,188
(9,699)
26,489
2,209,513
Quarter ended
31 Dec
2023
$m
26,714
(18,430)
8,284
2,164,324
30 Sep
2023
$m
27,198
(17,950)
9,248
2,157,370
%
2.46
(1.24)
1.22
1.42
%
1.64
(0.53)
1.11
1.20
%
4.90
(3.83)
1.07
1.52
%
5.00
(3.80)
1.20
1.70
31 Dec
20221
$m
18,957
(9,971)
8,986
2,116,018
%
3.55
(2.21)
1.34
1.68
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 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 of average interest-bearing liabilities.
3 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.
4 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Summary of interest income by type of asset
2023
Short-term funds and loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading2
Financial investments
Other interest-earning assets
Total interest-earning assets
Summary of interest expense by type of liability
Deposits by banks3
Customer accounts4
Repurchase agreements – non-trading2
Debt securities in issue – non-trading
Other interest-bearing liabilities
Total interest-bearing liabilities
Average
balance
Interest
income Yield
%
3.66
4.98
5.99
4.14
4.70
4.67
$m
403,674
957,717
240,263
407,363
152,729
$m
14,770
47,673
14,391
16,858
7,176
2,161,746 100,868
2023
Average
balance
Interest
expense
$m
60,392
1,334,803
146,605
184,867
146,216
1,872,883
$m
2,401
34,162
10,858
11,223
6,428
65,072
Cost
%
3.98
2.56
7.41
6.07
4.40
3.47
20221
Average
balance
Interest
income
$m
$m
445,659
5,577
1,022,320 32,543
4,886
7,704
2,116
2,143,758 52,826
231,058
372,702
72,019
20221
Average
balance
Interest
expense
$m
$m
75,739
770
1,342,342 10,903
3,085
5,607
2,084
1,804,129 22,449
118,308
179,775
87,965
2021
Average
balance
Interest
income
$m
$m
450,678
1,105
1,060,658 26,071
1,019
6,729
1,264
2,209,513 36,188
206,246
438,840
53,091
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
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
Yield
%
1.25
3.18
2.11
2.07
2.94
2.46
Cost
%
1.02
0.81
2.61
3.12
2.37
1.24
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 The average balances for repurchase and reverse repurchase agreements include net amounts where the criteria for offsetting are met, resulting in a
lower net balance reported for repurchase agreements and thus higher cost.
Including interest-bearing bank deposits only.
Including interest-bearing customer accounts only.
3
4
Net interest income (‘NII’) for 2023 was $35.8bn, an increase of
$5.4bn or 18% compared with 2022. This reflected higher average
interest rates across major currencies compared with 2022.
Excluding the unfavourable impact of foreign currency translation
differences, net interest income increased by $6.0bn or 20%.
NII for the fourth quarter of 2023 was $8.3bn, down 10% compared
with the previous quarter, and down 8% compared with the fourth
quarter of 2022. The decrease was predominantly driven by the
impact of higher funding costs across our liabilities, which included
the impact of deposit migration in our main legal entities in Asia and
Europe. In addition, the fourth quarter of 2023 included an adverse
impact of $0.2bn, relating to the first nine months of 2023, due to
reclassifications to NII from ‘net income from financial instruments
held for trading or managed on a fair value basis’ related to hedges in
Canada that will not recur given the expected sale of the business.
The impact of hyperinflation in Argentina on NII in 2023 was an
adverse movement of $0.5bn, with an associated impact on NIM of
2bps. The impact in the fourth quarter of 2023 was an adverse
movement of $0.5bn, with an associated impact on NIM of 9bps. This
compared with minimal movements in the equivalent periods in 2022.
The increase in hyperinflationary accounting impacts in 2023 was
notably due to the impact of the devaluation of the Argentinian peso.
Net interest margin (‘NIM’) for 2023 of 1.66% was 24bps higher
compared with 2022, as the rise in the yield on average interest-
earning assets (‘AIEA’) of 220bps was partly offset by the rise in the
funding costs of average interest-bearing liabilities of 196bps.
HSBC Holdings plc Annual Report and Accounts 2023
103
Financial review
Financial summary
The increase in NIM in 2023 included the unfavourable impact of
foreign currency translation differences. Excluding this, NIM increased
by 27bps.
NIM for the fourth quarter of 2023 was 1.52%, down 18bps
compared with the previous quarter, and down 16bps compared with
the fourth quarter of 2022. The decreases were predominantly driven
by a rise in funding costs of average interest-bearing liabilities, which
included the impact of customer deposit migration in our main legal
entities in Asia and Europe, as well as the Argentina hyperinflation
impact as noted above, partly offset by an increase in the yield on
AIEA.
Interest income for 2023 of $100.9bn increased by $48.0bn
compared with 2022. Interest income of $26.7bn in the fourth quarter
of 2023 was down $0.5bn compared with the previous quarter, and
up $7.8bn compared with the fourth quarter of 2022. The respective
increases of $48.0bn and $7.8bn were predominantly driven by the
impact of higher market interest rates. The decrease of $0.5bn
compared with the previous quarter was predominantly due to
hyperinflation in Argentina.
The change in interest income in 2023 compared with 2022 included
an adverse impact of foreign currency translation differences of
$1.2bn. After excluding foreign currency translation differences,
interest income increased by $49.2bn.
Interest expense for 2023 of $65.1bn increased by $42.6bn
compared with 2022. This reflected an increase in funding costs of
223bps, mainly due to the impact of higher interest rates on our
liabilities including customer deposit migration, notably in Asia and
Europe. Within interest expense was the effect of higher funding
costs associated with supporting our trading and fair value activities,
as explained below in banking net interest income.
The rise in interest expense included the favourable effects of foreign
currency translation differences of $0.6bn. Excluding this, interest
expense increased by $43.2bn.
Interest expense of $18.4bn in the fourth quarter of 2023 was up
$0.5bn compared with the third quarter of 2023, and up $8.5bn
compared with the fourth quarter of 2022. The increase was
predominantly driven by the impact of higher market interest rates,
and the impact of deposit migration.
Banking net interest income
Net interest income
Banking book funding costs used to generate ‘net income from financial instruments
held for trading or managed on a fair value basis’
Third-party net interest income from insurance
Banking net interest income
Year ended
Quarter ended
31 Dec
2023
$bn
35.8
8.7
(0.4)
44.1
31 Dec
2022
$bn
30.4
2.5
(0.4)
32.5
31 Dec
2023
$bn
8.3
2.5
(0.1)
10.7
30 Sep
2023
$bn
9.2
2.4
(0.1)
11.5
31 Dec
2022
$bn
9.0
1.3
(0.1)
10.2
Banking net interest income is an alternative performance measure,
and is defined as Group reported net interest income after deducting:
– the internal cost to fund trading and fair value net assets for which
associated revenue is reported in ‘Net income from financial
instruments held for trading or managed on a fair value basis’, also
referred to as ‘trading and fair value income’. These funding costs
reflect proxy overnight or term interest rates as applied by internal
funds transfer pricing;
– the funding costs of foreign exchange swaps in Markets Treasury,
where an offsetting income or loss is recorded in trading and fair
value income. These instruments are used to manage foreign
currency deployment and funding in our entities; and
– third-party net interest income in our insurance business.
In our segmental disclosures, the funding costs of trading and fair
value net assets are predominantly recorded in GBM in ‘net income
from financial instruments held for trading or managed on a fair value
basis’. On consolidation, this funding is eliminated in Corporate
Centre, resulting in an increase in the funding costs reported in net
interest income with an equivalent offsetting increase in ‘net income
from financial instruments held for trading or managed on a fair value
basis’ in this segment. In the second quarter of 2023 we
implemented a consistent reporting approach across our most
material entities that contribute to our trading and fair value net
assets, which resulted in an increase to the first half of 2023
associated funding costs reported through the intersegment
elimination in Corporate Centre of approximately $0.4bn, recognised
in the second quarter of 2023. In the consolidated Group results, the
cost to fund these trading and fair value net assets is reported in net
interest income.
The internally allocated funding cost of $8.7bn, which was incurred in
2023 to generate trading and fair value income, related to trading, fair
value and associated net asset balances predominantly in GBM. At 31
December 2023, these stood at approximately $164bn.
Net fee income of $11.8bn was $0.1bn higher than in 2022, and
included an adverse impact from foreign currency translation
differences of $0.1bn. The rise in net fee income in CMB and WPB
was partly offset by a reduction in GBM.
104
HSBC Holdings plc Annual Report and Accounts 2023
In CMB, net fee income increased by $0.2bn driven by higher fees
from credit facilities, notably in Europe and the UK due to an increase
in trade products. Fee income also grew in account services,
reflecting greater client activity in transaction banking, mainly in Global
Payments Solutions (‘GPS’), and in cards, as spending increased
compared with 2022. These increases were partly offset by a
reduction in fees from funds under management and broking
activities.
In WPB, net fee income increased by $0.1bn. The rise was mainly
due to higher cards income, mainly in our legal entities in Hong Kong
and in Mexico, as customer spending increased. However, income
from broking fell, notably in Hong Kong, due to weaker equity markets
and muted customer sentiment. The rise in cards activity resulted in
higher fee expenses.
In GBM, net fee income decreased by $0.2bn. This was driven by
higher fee expense, notably in our main entities in Hong Kong, mainly
relating to GBM products sold to customers in other global
businesses. In Europe, fee expense grew in our private credit
business, and we incurred higher interbank and clearing fee expense.
There was a decrease in corporate finance fee income, reflecting
lower client activity in Europe, and a fall in broking income due to
lower equity turnover. Global custody income also fell. This was partly
offset by an increase in underwriting income, from an increase in
syndicated fees in Europe and a rise in fees in the US following
historical lows in 2022.
Net income from financial instruments held for trading or
managed on a fair value basis of $16.7bn was $6.4bn higher
compared with 2022. This reflected a rise in income, primarily relating
to trading activities in GBM, for which the associated funding costs
are reported in net interest income, notably in our main legal entities
in Hong Kong and Europe. The rise also included a favourable
movement on non-qualifying hedges of $0.5bn due to the non-
recurrence of fair value losses in 2022. These increases were partly
offset by an adverse fair value movement on foreign exchange
hedges related to the planned sale of our banking business in Canada.
Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through
profit or loss of $7.9bn compared with a net expense of $13.8bn in
2022. This increase reflected favourable movements on debt
securities, due to movements in interest rates, and equities. The
increases were notably in our portfolios in Hong Kong and France.
This favourable movement resulted in a corresponding movement in
insurance finance expense, which has an offsetting impact for the
related liabilities to policyholders.
Insurance finance expense of $7.8bn compared with an income of
$13.8bn in 2022, reflecting the impact of investment returns on
underlying assets on the value of liabilities to policyholders, which
moves inversely with ‘net income from assets and liabilities of
insurance businesses, including related derivatives, measured at fair
value through profit or loss’.
Insurance service result of $1.1bn increased by $0.3bn compared
with 2022, primarily due to an increase in the release of the
contractual service margin (‘CSM’). This primarily reflected a higher
CSM balance from higher new business written and favourable
assumption updates, primarily from updates to lapse rate
assumptions. The increase also reflected a reduction in losses from
onerous contracts. Under IFRS 17, the measurement of the insurance
contract liability takes into account fulfilment cash flows and a CSM
representing the unearned profit. In contrast to the Group’s previous
IFRS 4 accounting where profits are recognised up front, under IFRS
17 they are deferred and systematically recognised in revenue as
services are provided over the life of the contract. The CSM also
includes attributable cost, which had previously been expensed as
incurred and which is now incorporated within the insurance liability
measurement and recognised over the life of the contract.
Gain on acquisition of $1.6bn related to the provisional gain
recognised in respect of the acquisition of Silicon Valley Bank UK
Limited.
Impairment loss relating to the sale of the retail banking
operations in France was a net impairment reversal of $0.2bn in
2023, compared with an impairment of $2.3bn in 2022.
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 $2.3bn, which included impairment of
Operating expenses
goodwill of $0.4bn and related transaction costs. In the first quarter of
2023, $2.1bn of this impairment loss was reversed as the sale
became less certain. It was reinstated in the fourth quarter of 2023 as
we reclassified these operations as held for sale and remeasured the
disposal group at the lower of carrying value and fair value less costs
to sell, resulting in a $2.0bn impairment loss, reflecting the final terms
of the sale. The sale completed on 1 January 2024.
Other operating expense of $1.1bn was $0.9bn higher than in 2022.
The increase primarily related to losses in 2023 in Markets Treasury
on asset disposals of $1.0bn relating to repositioning and risk
management activities in our hold-to-collect-and-sell portfolio in
certain key legal entities. These actions are accretive to net interest
income and reduce the consumption of the Group‘s financial
resources.
The increased expense also included a loss of $0.3bn in 2023 relating
to corrections to historical valuation estimates in our life insurance
business, and losses related to the disposal of our New Zealand retail
mortgage loan portfolio and the merger of HSBC Bank Oman in 2023
with Sohar International. These were partly offset by losses in 2022
relating to the disposal of our branch operations in Greece and the
planned disposal of our business in Russia.
Change in expected credit losses and other credit impairment
charges (‘ECL’) were a charge of $3.4bn, a decrease of $0.1bn or 4%
compared with 2022.
The charge in 2023 primarily comprised stage 3 net charges, notably
related to mainland China commercial real estate sector exposures.
ECL charges in this sector were $1.0bn in 2023. The charge in 2023
also reflected the impact of continued economic uncertainty, rising
interest rates and inflationary pressures. The charge in 2022 of $3.6bn
included charges related to mainland China commercial real estate
exposures of $1.3bn.
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 156 to 168.
Gross employee compensation and benefits
Capitalised wages and salaries
Goodwill impairment
Property and equipment
Amortisation and impairment of intangibles
UK bank levy
Legal proceedings and regulatory matters
Other operating expenses2
Reported operating expenses
Currency translation
Constant currency operating expenses
Year ended
2023
$m
19,623
(1,403)
—
4,285
1,827
339
188
7,211
32,070
2022¹
$m
19,288
(1,285)
—
4,949
1,701
13
246
7,789
32,701
—
32,070
(399)
32,302
2021
$m
19,612
(870)
587
5,145
1,438
116
106
8,486
34,620
(2,376)
32,244
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Other operating expenses includes professional fees, contractor costs, transaction taxes, marketing and travel. The decrease was driven by favourable
currency translation differences and lower restructuring and other related costs following the completion of our cost-saving programme at the end of
2022.
Staff numbers (full-time equivalents)1
Global businesses
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
Corporate Centre
At 31 Dec
2023
2022
2021
128,399
45,884
46,241
337
220,861
128,764
43,640
46,435
360
219,199
130,185
42,969
46,166
377
219,697
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 2023
105
Financial review
Financial summary
Operating expenses of $32.1bn were $0.6bn or 2% lower than in
2022, including a favourable impact of $0.4bn from foreign currency
translation differences.
Notable items
Year ended
2023
$m
207
—
427
2022
$m
1,026
2,333
(142)
Tax
Tax (charge)/credit on notable items
Recognition of losses
Uncertain tax positions
Tax expense
The effective tax rate for 2023 of 19.1% was higher than the 4.7% in
2022. The effective tax rate for 2023 was increased by 2.3 percentage
points by the non-deductible impairment of investments in associates,
and reduced by 1.6 percentage points by the release of provisions for
uncertain tax positions and reduced by 1.5 percentage points by the
non-taxable accounting gain on the acquisition of SVB UK. The
effective tax rate for 2022 was reduced by 12.8 percentage points by
the recognition of a deferred tax asset on historical tax losses of
HSBC Holdings as a result of improved profit forecasts for the UK tax
group. Excluding these items, the effective tax rates were 19.9% for
2023 and 17.5% for 2022.
Return on average tangible equity
In 2023, RoTE was 14.6%, compared with 10.0% in 2022. Excluding
the impact of strategic transactions and the impairment of BoCom,
RoTE was 15.6%.
Supplementary table for planned
disposals
The income statements and selected balance sheet metrics for the
year ended 31 December 2023 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 2023.
Income statement and selected balance sheet metrics of disposal
groups held for sale
Year ended 2023
Revenue
ECL
Operating expenses
of which: costs expected to be exited
Profit before tax
Loans and advances to customers
Customer accounts
RWA3
Canada1
$bn
2.0
—
(1.0)
(0.7)
0.9
56.1
63.0
31.9
France
retail2
$bn
0.3
—
(0.6)
(0.4)
(0.2)
16.9
22.3
4.1
1 Under the terms of the sale agreement, the pre-tax profit on 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 of the retail banking business,
HSBC SFH and associated supporting services. For further details, see
Note 23: Assets held for sale and liabilities of disposal groups held for
sale on page 401.
3 Includes $3.5bn in Canada in respect of operational risk RWAs, and
$0.6bn associated with our retail banking business in France.
This was driven by lower restructuring and other related costs
following the completion of our cost to achieve programme, which
concluded at the end of 2022, as well as a $0.2bn reduction due to a
reversal of historical asset impairments, and the effects of our
continued cost discipline. There was also a favourable impact of
$0.2bn due to the impact of hyperinflationary accounting in Argentina
in 2023.
These reductions were partly offset by an increase in technology
costs, the impacts of inflation, a higher performance-related pay
accrual and severance payments. In addition, the UK bank levy
increased by $0.3bn, which included adjustments related to prior
years, and we incurred a $0.2bn charge in the US relating to the FDIC
special assessment.
The number of employees expressed in full-time equivalent staff
(‘FTE’) at 31 December 2023 was 220,861, an increase of 1,662
compared with 31 December 2022. The number of contractors at
31 December 2023 was 4,676, a decrease of 1,371.
Share of profit in associates and joint ventures of $2.8bn was
$0.1bn or 3% higher than in 2022, reflecting an increase in the share
of profit from Saudi Awwal Bank (‘SAB’).
Impairment of interest in associate of $3.0bn related to our
investment in BoCom.
We maintain a 19.03% interest in BoCom. Since our investment in
2004, BoCom has grown its business significantly to the extent that it
has recently been designated as a global systemically important bank
(‘GSIB’).
For accounting purposes, the balance sheet carrying value attributed
to BoCom represents our share of its net assets. We perform
quarterly impairment tests incorporating a value-in-use calculation,
recognising the gap between this carrying value and the fair value
(based on the list share price). We have previously disclosed that the
excess of the value-in-use calculation over its carrying value has been
marginal in recent years, and that reasonably possible changes in
assumptions could generate an impairment.
Recent macroeconomic, policy and industry factors resulted in a
wider range of reasonably possible value-in-use outcomes for our
BoCom valuation. At 31 December 2023, the Group performed an
impairment test on the carrying value which resulted in an impairment
of $3.0bn, as the recoverable amount as determined by a value-in-use
calculation was lower than the carrying value. Our value-in-use
calculation uses both historical experience and market participant
views to estimate future cash flows, relevant discount rates and
associated capital assumptions.
This impairment will have no material impact on HSBC’s capital,
capital ratios or distribution capacity, and therefore no impact on
dividends or share buy-backs. The insignificant impact on HSBC’s
capital and CET1 ratio is due to the compensating release of
regulatory capital deductions to offset the impairment charge.
We remain strategically committed to mainland China as
demonstrated by our recent announcements to acquire Citi’s retail
wealth management portfolio and the investments made into
mainland China in recent years. BoCom remains a strong partner in
China, and we remain focused on maximising the mutual value of our
partnership. Our positive views on the medium- and long-term
structural growth opportunities in mainland China are unchanged.
For further details, see Note 18: Interests in associates and joint
ventures on page 391.
Tax expense
Tax (charge)/credit
Reported
Currency translation
Constant currency tax (charge)/credit
Year ended
2023
$m
(5,789)
—
(5,789)
2022
$m
(809)
160
(649)
106
HSBC Holdings plc Annual Report and Accounts 2023
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 sale
Other assets
Total assets at 31 Dec
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Insurance contract liabilities
Liabilities of disposal groups held for sale
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
2023
$m
20221
$m
2021
$m
2020
$m
2019
$m
285,868
289,159
327,002
218,093
403,018
248,842
304,481
231,990
154,099
254,271
110,643
100,101
49,804
45,553
43,627
229,714
112,902
938,535
252,217
442,763
114,134
262,742
3,038,677
73,163
1,611,647
172,100
73,150
141,426
234,772
93,917
120,851
108,406
216,635
2,846,067
284,159
104,475
923,561
253,754
364,726
115,919
257,496
2,949,286
66,722
1,570,303
127,747
72,353
127,321
285,762
78,149
108,816
114,597
212,319
2,764,089
196,882
83,136
1,045,814
241,648
446,274
3,411
239,110
2,957,939
101,152
1,710,574
126,670
84,904
145,502
191,064
78,557
112,745
9,005
190,989
2,751,162
307,726
81,616
1,037,987
230,628
490,693
299
253,191
2,984,164
82,080
1,642,780
111,901
75,266
157,439
303,001
95,492
107,191
—
204,019
2,779,169
185,329
7,281
192,610
3,038,677
177,833
7,364
185,197
2,949,286
198,250
8,527
206,777
2,957,939
196,443
8,552
204,995
2,984,164
242,995
69,203
1,036,743
240,862
443,312
123
229,917
2,715,152
59,022
1,439,115
140,344
83,170
164,466
239,497
104,555
97,439
—
194,876
2,522,484
183,955
8,713
192,668
2,715,152
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
A more detailed consolidated balance sheet is contained in the financial statements on page 331.
HSBC Holdings plc Annual Report and Accounts 2023
107
Financial review
Financial summary
Five-year selected financial information
Called up share capital
Capital resources2
Undated subordinated loan capital
Preferred securities and dated subordinated loan capital3
Risk-weighted assets
Total shareholders’ equity
Less: preference shares and other equity instruments
Total ordinary shareholders’ equity
Less: goodwill and intangible assets (net of tax)
Tangible ordinary shareholders’ equity
Financial statistics
Loans and advances to customers as a percentage of customer accounts
Average total shareholders’ equity to average total assets
Net asset value per ordinary share at year-end ($)4
Tangible net asset value per ordinary share at year-end ($)5
Tangible net asset value per fully diluted share at year-end ($)
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: €
2023
$m
9,631
171,204
18
36,413
854,114
185,329
(17,719)
167,610
(11,900)
155,710
58.2%
6.01%
8.82
8.19
8.14
19,263
19,006
20221
$m
10,147
162,423
1,967
29,921
839,720
177,833
(19,746)
158,087
(11,160)
146,927
58.8%
5.97%
8.01
7.44
7.39
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
19,135
19,876
20,189
20,272
20,280
0.784
0.903
0.830
0.937
0.739
0.880
0.732
0.816
0.756
0.890
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
2 Capital resources are regulatory total capital, the calculation of which is set out on page 206.
3 Including perpetual preferred securities, details of which can be found in Note 29: Subordinated liabilities on page 406.
4 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.
5 The definition of tangible net asset value per ordinary share is total ordinary shareholders’ equity excluding goodwill, PVIF (for 2021, 2020 and 2019)
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
Loans and advances to customers
– of which: HSBC Innovation Bank
Limited (formerly SVB UK)
Loans and advances to customers of
disposal groups reported in ‘Assets held
for sale’
– banking business in Canada
– retail banking operations in France
– other
Non-current assets held for sale
Combined customer lending
Currency translation
Combined customer lending at
constant currency
Customer accounts
– of which: HSBC Innovation Bank
Limited (formerly SVB UK)
Customer accounts reported in ‘Liabilities
of disposal groups held for sale’
– banking business in Canada
– retail banking operations in France
– other
Combined customer deposits
Currency translation
Combined customer deposits at
constant currency
2023
$m
938,535
2022
$m
923,561
7,955
—
73,285
80,576
56,129
16,902
254
92
1,011,912
—
55,197
25,029
350
112
1,004,249
20,454
1,011,912
1,024,703
1,611,647
1,570,303
6,019
—
85,950
85,274
63,001
22,307
642
1,697,597
—
60,606
22,348
2,320
1,655,577
30,773
1,697,597
1,686,350
108
HSBC Holdings plc Annual Report and Accounts 2023
Balance sheet commentary compared with
31 December 2022
At 31 December 2023, total assets of $3.0tn were $89bn or 3%
higher on a reported basis and increased by $31bn or 1% on a
constant currency basis.
Reported loans and advances to customers as a percentage of
customer accounts was 58.2% compared with 58.8% at
31 December 2022. The movement in this ratio reflected a higher
growth in customer accounts than in lending.
Assets
Cash and balances at central banks decreased by $41bn or 13%,
which included a $13bn favourable impact of foreign currency
translation differences. The decrease was mainly in HSBC UK,
reflecting a reduction in customer accounts and repurchase
agreements, as well as an increase in the deployment of our cash
surplus into financial investments. Cash fell in HSBC Bank plc as our
European branches managed liquidity requirements and due to the
completion of the sale of our retail banking operations in France. Cash
also decreased in the UK as we deployed our commercial surplus into
reverse repurchase agreements and financial investments.
Trading assets increased by $71bn or 33%, mainly as we captured
increased client activity in equity and debt securities, particularly in
Hong Kong and HSBC Bank plc. The increase in trading assets also
reflected the use of surplus liquidity to fund trading activities given
the subdued demand for customer lending.
Derivative assets decreased by $54bn or 19%, mainly in Europe,
reflecting adverse revaluation movements on interest rate contracts
due to a stabilisation and downward shift in long-term yield curve
rates in most major markets. Foreign exchange contracts also fell,
primarily in HSBC Bank plc, as a result of reduced volatility in foreign
exchange rate movements in 2023. The decrease in derivative assets
was consistent with the decrease in derivative liabilities, as the
underlying risk is broadly matched.
Loans and advances to customers of $939bn increased by $15bn or
2% on a reported basis. This included a favourable impact of foreign
currency translation differences of $18bn.
On a constant currency basis, loans and advances to customers fell
by $3bn, reflecting the following movements.
In WPB, customer lending increased by $21bn, reflecting growth in
mortgage balances, notably in our main legal entities in Hong Kong
(up $6bn), the UK (up $5bn), Mexico (up $1bn) and Australia (up
$1bn). There was an increase of $7.8bn in secured lending in our main
entity in Europe following the reclassification of a portfolio of home
loans previously classified as assets held for sale, relating to the sale
of our retail banking operations in France. The increase also included
growth of $3bn in credit card balances, mainly in our entities in Hong
Kong, the UK and Mexico. These increases were partly offset by
reductions due to business divestments in Oman and New Zealand.
In GBM, lending fell by $16bn due to a reduction in term lending,
primarily in our main legal entities in Hong Kong, including a reduction
in the commercial real estate sector, and in Europe, reflecting muted
client demand. Lending also fell by $1bn due to the merger of our
operations in Oman with Sohar International. In addition there was a
transfer of GBM customers to CMB in Australia and Indonesia,
resulting in a $3bn reduction.
In CMB, customer lending was $7bn lower, mainly in our main legal
entities in Hong Kong, including in the commercial real estate sector,
and in the US, as well as in HSBC Bank plc, reflecting weaker client
demand in a higher interest rate environment. Lending also fell by
$1bn due to the sale of our business in Oman. In HSBC UK, lending
grew by $4bn, as an increase from the acquisition of SVB UK of $8bn
partly mitigated reductions from clients repaying their facilities. The
transfer of customers to CMB from GBM in Australia and Indonesia,
referred to above, led to an increase of $3bn.
Financial investments increased by $78bn or 21%, mainly in Asia
and Europe from the purchase of debt securities, treasury and other
eligible bills, as we redeployed our commercial surplus to benefit from
higher yield curves and enhance our hedging activities on net interest
income. The increase was across both debt instruments held at fair
value through other comprehensive income and instruments held at
amortised cost.
Assets held for sale of $114bn primarily comprised the assets
relating to the sale of our retail banking operations in France and the
planned sale of our banking business in Canada. This balance was
broadly stable compared with 2022, as a decrease of $8bn relating to
the transfer to loans and advances to customers of a portfolio of
secured home loans in France was largely offset by a transfer of cash
into assets held for sale, related to the completion of the sale of our
retail banking operations there.
Liabilities
Customer accounts of $1.6tn increased by $41bn or 3% on a
reported basis. This included a favourable impact of foreign currency
translation differences of $28bn.
On a constant currency basis, customer accounts increased by $13bn,
reflecting the following movements.
In WPB, customer accounts grew by $12bn, reflecting higher interest-
bearing term and money market deposit balances, as interest rates
rose, primarily in our main legal entity in Asia, notably Hong Kong (up
$10bn, or 3%), Singapore (up $5bn, or 15%), Australia (up $3bn, or
19%), mainland China (up $3bn, or 19%) and Taiwan up ($2bn, or
34%). However, customer accounts fell by $14bn in HSBC UK,
reflecting cost of living and competitive pressures. There was also a
reduction due to the sale of our business in Oman.
In CMB, customer accounts increased by $3bn. The growth included
an increase of $6bn related to our acquisition of SVB UK, as well as
increases in our entities in Asia, excluding Hong Kong, and in
continental Europe, mainly in term and money market deposits. In
addition, a transfer of customers from GBM to CMB in Australia and
Indonesia resulted in a rise of $4bn. These increases mitigated
reductions in our main entities in Hong Kong and the UK and a
reduction of $2bn due to the sale of our business in Oman.
In GBM, customer accounts were marginally lower, falling $2bn.
Balances fell in Hong Kong and the UK, although there was growth in
continental Europe and Singapore. Balances fell by $1bn following the
sale of our business in Oman, and by $4bn due to the transfer of
customers from GBM to CMB in Australia and Indonesia.
Repurchase agreements – non-trading increased by $44bn or 35%,
notably in HSBC Bank plc, reflecting higher client demand, and in our
main entity in Asia due to a higher requirement for short-term funding.
Derivative liabilities decreased by $51bn or 18%, which is
consistent with the reduction in derivative assets, since the
underlying risk is broadly matched.
Debt securities in issue increased by $16bn or 20%, due to a net
increase in debt issuances.
Liabilities of disposal groups held for sale of $108bn primarily
comprised the liabilities relating to the sale of our retail banking
operations in France and the planned sale of our banking business in
Canada.
Equity
Total shareholders’ equity, including non-controlling interests,
increased by $7bn or 4% compared with 31 December 2022.
Shareholders’ equity was increased by profits generated of $25bn and
net gains through other comprehensive income (‘OCI’) of $5bn. These
increases were partly offset by the impact of dividends paid of $12bn,
the redemption of perpetual subordinated contingent convertible
capital securities of $4bn and the impact of our $7bn share buy-back
activities in 2023.
The net gains through OCI of $5bn included favourable movements of
$3bn on financial instruments designated as hold-to-collect-and-sell,
which are held as hedges to our exposure to interest rate
movements. The favourable movement was a result of the fall in long-
term market yield curves in 2023. The net gain also included a
favourable movement on cash flow hedges of $3bn and from the
effects of hyperinflation of $2bn. These gains were partly offset by
fair value losses on liabilities related to changes in own credit risk of
$1bn, as well as other smaller losses.
Financial investments
As part of our interest rate hedging strategy, we hold a portfolio of
debt instruments, reported within financial investments, which are
classified as hold-to-collect-and-sell. As a result, the change in value of
these instruments is recognised through ‘debt instruments at fair
value through other comprehensive income’ in equity.
At 31 December 2023, we recognised a pre-tax cumulative unrealised
loss reserve through other comprehensive income of $3.9bn related
to these hold-to-collect-and-sell positions. This reflected a $2.6bn pre-
tax gain in 2023, inclusive of movements on related fair value hedges.
The gain in 2023 included a reduction in unrealised losses due to the
disposal of securities as part of repositioning actions taken in this
portfolio of $1.0bn. Overall, the Group is positively exposed to rising
interest rates through net interest income, although there is an
adverse impact on our capital base in the early stages of a rising
interest rate environment due to the fair value of hold-to collect-and-
sell instruments.
Over time, these adverse movements will unwind as the instruments
reach maturity, although not all will necessarily be held to maturity.
We also hold a portfolio of financial investments measured at
amortised cost, which are classified as hold-to-collect. At
31 December 2023, there was a cumulative unrealised loss of $1.7bn,
although the unrealised loss is not reflected on our balance sheet.
This included $1.0bn that related to debt instruments held to manage
our interest rate exposure, representing a $0.8bn improvement during
2023.
HSBC Holdings plc Annual Report and Accounts 2023
109
Financial review Financial summary
Risk-weighted assets
Risk-weighted assets (‘RWAs’) totalled $854.1bn at 31 December
2023, a $14.4bn increase since 2022, including foreign currency
translation differences of $2.0bn. This was mainly due to:
– a $26.2bn increase in asset size, which was mostly attributed to
WPB lending growth and a rise in operational risk RWAs, offset by
reduced lending in CMB and GBM;
Customer accounts by country/territory
– a $6.2bn increase from acquisitions, mainly from SVB UK, partly
offset by a disposal of our Oman business; and
– a $19.9bn decrease in RWAs due to changes in methodology and
policy.
Hong Kong
UK
US
Singapore
Mainland China
France1
Australia
Germany
Mexico
UAE
India
Taiwan
Malaysia
Switzerland
Egypt
Indonesia
Türkiye
Other2
At 31 Dec
2023
$m
543,504
508,181
99,607
73,547
56,006
42,666
32,071
30,641
29,423
24,882
24,377
16,949
15,983
8,047
5,858
5,599
3,510
90,796
1,611,647
20221
$m
542,543
493,028
100,404
61,475
56,948
33,726
28,506
28,949
25,531
23,331
22,636
15,316
16,008
5,167
6,045
5,840
3,497
101,353
1,570,303
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
2 At 31 December 2023, customer accounts of $86bn (2022: $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 $63bn (2022: $61bn) and $22bn (2022: $22bn) belongs to the planned sale of the
banking business in Canada and sale of our retail banking operations in France, respectively. Refer to Note 23 on page 401 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
Loans and advances to banks
Loans and advances to customers
Total loans and advances
Deposits by banks
Customer accounts
Total deposits
USD
33,231
170,274
203,505
28,744
441,967
470,711
34,495
182,719
217,214
23,133
430,866
453,999
GBP
15,632
284,261
299,893
18,231
423,725
441,956
12,292
265,988
278,280
16,963
422,087
439,050
At
31 Dec 2023
HKD
7,106
213,079
220,185
2,597
305,520
308,117
EUR
4,688
68,655
73,343
6,997
128,444
135,441
31 Dec 20222
5,188
221,150
226,338
4,002
312,052
316,054
6,328
57,077
63,405
8,830
112,399
121,229
CNY
8,772
49,594
58,366
4,517
63,535
68,052
7,833
49,036
56,869
4,707
63,032
67,739
Others1
43,473
152,672
196,145
12,077
248,456
260,533
Total
112,902
938,535
1,051,437
73,163
1,611,647
1,684,810
38,339
147,591
185,930
9,087
229,867
238,954
104,475
923,561
1,028,036
66,722
1,570,303
1,637,025
1 ‘Others’ includes items with no currency information available of $1,592m for loans to banks (2022: $1,112m), $1,904m for loans to customers (2022:
$2,112m), $11m for deposits by banks (2022: $13m) and $8m for customer accounts (2022: $6m).
2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
RWAs by currency
$m
RWAs1
RWAs1
At
31 Dec 2023
USD
202,697
GBP
155,231
HKD
135,701
EUR
69,996
CNY
57,907
Others
232,582
Total
854,114
223,657
143,474
152,804
60,843
49,867
209,075
839,720
31 Dec 2022
1 RWAs includes credit risk, market risk and operational risk RWAs.
110
HSBC Holdings plc Annual Report and Accounts 2023
Global businesses and legal entities
Contents
111
111
114
114
120
123
128
Summary
Supplementary analysis of constant currency results and notable
items by global business
Reconciliation of reported and constant currency risk-weighted
assets
Supplementary tables for WPB and GBM
Analysis of reported results by legal entities
Summary information – legal entities and selected countries/
territories
Analysis by country/territory
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 legal entities. 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 372.
On 1 January 2023, we updated our financial reporting framework and
changed the supplementary presentation of results from geographical
regions to main legal entities to better reflect the Group’s structure.
The results of main legal entities are presented on a reported and
constant currency basis, including HSBC UK Bank plc, HSBC Bank plc,
The Hongkong and Shanghai Banking Corporation Limited, HSBC
Bank Middle East Limited, HSBC North America Holdings Inc., HSBC
Bank Canada and Grupo Financiero HSBC, S.A. de C.V.
The results of legal entities are presented on a reported basis on page
120 and a constant currency basis on page 123.
Basis of preparation
The Group Chief Executive, supported by the rest of the 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 constant
currency performance. We separately disclose ‘notable items’, which are
components of our income statement that management would consider
as outside the normal course of business and generally non-recurring in
nature. Constant currency performance information for 2022 and 2021
are presented as described on page 101. As required by IFRS 8,
reconciliations of the total constant currency global business results to
the Group’s reported results are presented on page 373.
Supplementary reconciliations from reported to constant currency results
by global business are presented on pages 111 to 113 for information
purposes.
Global business performance is also assessed using return on tangible
equity (‘RoTE’). A reconciliation of global business RoTE to the Group’s
RoTE is provided on page 132.
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 and legal entities. 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.
HSBC Holdings incurs the liability of the UK bank levy, with the cost
being recharged to its UK operating subsidiaries. The current year
expense will be reflected in the fourth quarter as it is assessed on our
balance sheet position as at 31 December.
In the first quarter of 2023, following an internal review to assess which
global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our entities in Latin America
was transferred from Global Banking and Markets to Commercial
Banking for reporting purposes. Comparative data have been re-
presented accordingly. Similar smaller transfers from Global Banking and
Markets to Commercial Banking were also undertaken within our entities
in Australia and Indonesia, where comparative data have not been re-
presented.
Supplementary analysis of constant currency results and notable items by global business
Constant currency results1
Revenue3
ECL
Operating expenses
Share of profit in associates and joint ventures
Profit/(loss) before tax
Loans and advances to customers (net)
Customer accounts
Wealth and
Personal
Banking
$m
27,275
(1,058)
(14,738)
65
11,544
454,878
804,863
2023
Commercial
Banking2
$m
22,867
(2,062)
(7,524)
(1)
13,280
309,422
475,666
Global
Banking and
Markets2
$m
16,115
(326)
(9,865)
—
5,924
173,966
330,522
Corporate
Centre
$m
(199)
(1)
57
(257)
(400)
269
596
Total
$m
66,058
(3,447)
(32,070)
(193)
30,348
938,535
1,611,647
1
2
In the current period constant currency results are equal to reported as there is no currency translation.
In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our markets in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data
have been re-presented accordingly.
3 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 2023
111
Financial review
Global businesses
Notable items
Notable items
Revenue
Disposals, acquisitions and related costs1,2,3
Fair value movements on financial instruments4
Disposal losses on Markets Treasury repositioning
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs5
Impairment of interest in associate6
Wealth and
Personal
Banking
Commercial
Banking
2023
Global
Banking and
Markets
Corporate
Centre
$m
$m
$m
$m
4
—
(391)
(53)
20
—
1,591
—
(316)
(55)
32
—
—
—
(270)
3
21
—
(297)
14
—
(216)
63
(3,000)
Total
$m
1,298
14
(977)
(321)
136
(3,000)
1 Includes the impact of the sale of our retail banking operations in France.
2 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.
3 Includes fair value movements on the foreign exchange hedging of the expected proceeds from the planned sale of our banking operations in Canada.
4 Fair value movements on non-qualifying hedges in HSBC Holdings.
5 Amounts relate to reversals of restructuring provisions recognised during 2022.
6 Relates to an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.
Reconciliation of reported results to constant currency results – global businesses (continued)
Wealth and
Personal
Banking
$m
Commercial
Banking1
$m
20221
Global
Banking and
Markets2
$m
Corporate
Centre
$m
Revenue3
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Constant currency
Profit/(loss) before tax
Reported
Currency translation
Constant currency
Loans and advances to customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
21,103
(219)
20,884
(1,130)
(56)
(1,186)
(14,415)
167
(14,248)
30
—
30
5,588
(108)
5,480
422,309
11,813
434,122
779,310
14,000
793,310
16,494
(211)
16,283
(1,849)
(13)
(1,862)
(7,052)
158
(6,894)
—
—
—
7,593
(66)
7,527
311,957
4,906
316,863
463,928
8,496
472,424
14,899
(297)
14,602
(595)
22
(573)
(9,383)
45
(9,338)
(2)
—
(2)
4,919
(230)
4,689
188,940
1,262
190,202
326,630
5,673
332,303
Total
$m
50,620
(749)
49,871
(3,584)
(46)
(3,630)
(32,701)
399
(32,302)
2,723
(121)
2,602
17,058
(517)
16,541
(1,876)
(22)
(1,898)
(10)
1
(9)
(1,851)
29
(1,822)
2,695
(121)
2,574
(1,042)
(113)
(1,155)
355
6
361
435
23
458
923,561
17,987
941,548
1,570,303
28,192
1,598,495
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
2 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data
have been re-presented accordingly.
3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
112
HSBC Holdings plc Annual Report and Accounts 2023
Notable items (continued)
Notable items
Revenue
Disposals, acquisitions and related costs2
Fair value movements on financial instruments3
Restructuring and other related costs4
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs
Wealth and
Personal
Banking
$m
Commercial
Banking
$m
20221
Global
Banking and
Markets
$m
Corporate
Centre
$m
(2,212)
—
98
(7)
(357)
—
—
(16)
—
(266)
—
—
(184)
—
(252)
(525)
(618)
(145)
(11)
(2,007)
Total
$m
(2,737)
(618)
(247)
(18)
(2,882)
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
2 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.3bn (inclusive of
$0.4bn in goodwill impairments) related to the planned sale of the retail banking operations in France.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Reconciliation of reported results to constant currency results – global businesses (continued)
Wealth and
Personal
Banking
Commercial
Banking
$m
$m
20211
Global
Banking and
Markets
$m
Corporate
Centre
$m
Revenue2
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Constant currency
Profit/(loss) before tax
Reported
Currency translation
Constant currency
Loans and advances to customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
22,117
(1,145)
20,972
13,743
(1,044)
12,699
14,276
(1,190)
13,086
288
(93)
195
397
(58)
339
240
(19)
221
(16,306)
968
(15,338)
(7,213)
522
(6,691)
(10,045)
790
(9,255)
34
2
36
6,133
(268)
5,865
488,786
(15,482)
473,304
859,029
(24,262)
834,767
1
—
1
6,928
(580)
6,348
353,182
(12,579)
340,603
511,195
(15,703)
495,492
—
—
—
4,471
(419)
4,052
203,106
(6,913)
196,193
339,698
(17,392)
322,306
Total
$m
49,552
(3,473)
46,079
928
(170)
758
(34,620)
2,376
(32,244)
3,046
(239)
2,807
18,906
(1,506)
17,400
(584)
(94)
(678)
3
—
3
(1,056)
96
(960)
3,011
(241)
2,770
1,374
(239)
1,135
740
(28)
712
652
(30)
622
1,045,814
(35,002)
1,010,812
1,710,574
(57,387)
1,653,187
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Notable items (continued)
Notable items
Revenue
Fair value movements on financial instruments2
Restructuring and other related costs3
Operating expenses
Impairment of non-financial items
Restructuring and other related costs
Wealth and
Personal
Banking
$m
Commercial
Banking
$m
20211
Global
Banking and
Markets
$m
Corporate
Centre
$m
—
14
(587)
(296)
—
(3)
—
(83)
—
(395)
—
(195)
(221)
77
—
(1,262)
Total
$m
(221)
(307)
(587)
(1,836)
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Fair value movements on non-qualifying hedges in HSBC Holdings.
3 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 2023
113
Financial review
Global businesses
Reconciliation of reported and constant currency risk-weighted assets
Risk-weighted assets
Reported
Constant currency
Risk-weighted assets
Reported
Currency translation
Constant currency
Risk-weighted assets
Reported
Currency translation
Constant currency
Wealth and
Personal
Banking
$bn
Commercial
Banking1
$bn
At 31 Dec 2023
Global
Banking and
Markets1
$bn
Corporate
Centre
$bn
192.9
192.9
354.5
354.5
218.5
218.5
88.2
88.2
At 31 Dec 2022
182.9
1.7
184.6
342.4
1.8
344.2
225.9
(0.1)
225.8
At 31 Dec 2021
178.3
(6.1)
172.2
340.0
(15.9)
324.1
229.1
(8.4)
220.7
88.5
—
88.5
90.9
(1.4)
89.5
Total
$bn
854.1
854.1
839.7
3.4
843.1
838.3
(31.8)
806.5
1 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data
have been re-presented accordingly.
Supplementary tables for WPB and GBM
WPB constant currency 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 (constant currency basis)
2023
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
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
Consists of1
Total
WPB
$m
Banking
operations
Life
insurance
$m
$m
Global
Private
Banking
$m
Asset
management
$m
27,275
20,491
5,355
1,429
(1,058)
26,217
(14,738)
11,479
65
11,544
20,884
15,971
5,307
(394)
(1,186)
19,698
(14,248)
5,450
30
5,480
22,279
19,055
3,213
11
(1,056)
21,223
(11,474)
9,749
15
9,764
16,383
14,673
3,260
(1,550)
(1,173)
15,210
(11,132)
4,078
13
4,091
1,462
282
151
1,029
4
1,466
(682)
784
50
834
1,354
339
154
861
(8)
1,346
(785)
561
17
578
2,252
1,155
794
303
(6)
2,246
(1,627)
619
—
619
2,016
965
788
263
(4)
2,012
(1,477)
535
—
535
1,282
(1)
1,197
86
—
1,282
(955)
327
—
327
1,131
(6)
1,105
32
(1)
1,130
(854)
276
—
276
114
HSBC Holdings plc Annual Report and Accounts 2023
WPB – summary (constant currency basis) (continued)
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
$m
Life
insurance
manufacturing3
$m
Global Private
Banking
Asset
management
$m
$m
20,972
13,447
5,677
1,848
195
21,167
(15,338)
5,829
36
5,865
15,527
10,563
4,249
715
204
15,731
(12,379)
3,352
19
3,371
2,512
2,256
(603)
859
(21)
2,491
(629)
1,862
17
1,879
1,777
630
916
231
13
1,790
(1,538)
252
—
252
1,156
(2)
1,115
43
(1)
1,155
(792)
363
—
363
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the year ended
31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 is prepared on an IFRS 4 basis.
3 We adopted IFRS 17 from 1 January 2023 and have restated 2022 financial data. Data for 2021 has not restated, and ‘Life insurance manufacturing’ is
disclosed on the basis of preparation prevailing in 2021, which includes results from our manufacturing business only, with insurance distribution
presented in ‘banking operations’.
Life insurance business performance
The following table provides an analysis of the performance of our life insurance business for the period. It comprises income earned by our
insurance manufacturing operations within our WPB business, as well as income earned and costs incurred within our Wealth insurance
distribution channels, consolidation and inter-company elimination entries.
Results of WPB’s life insurance business unit (constant currency basis)
Year ended 31 Dec 2023
Net interest income
Net fee income/(expense)
Other income
– insurance service results
– net investment returns (excluding net interest income)
– other operating income
Net operating income before change in expected credit losses and other credit impairment charges2
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit/(loss) in associates and joint ventures
Profit before tax
Net interest income
Net fee income/(expense)
Other income
– insurance service results
– net investment returns (excluding net interest income)
– other operating income
Net operating income before change in expected credit losses and other credit impairment charges2
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit/(loss) in associates and joint ventures
Profit before tax
Insurance
manufac-
turing
operations
$m
283
(27)
990
1,127
(119)
(18)
1,246
4
1,250
(571)
679
50
729
Wealth
insurance
and other1
$m
(1)
178
39
(34)
30
43
216
—
216
(111)
105
—
105
Year ended 31 Dec 20223
345
(31)
847
861
(176)
162
1,161
(8)
1,153
(594)
559
17
576
(6)
185
14
(18)
(28)
60
193
—
193
(191)
2
—
2
Life
insurance
$m
282
151
1,029
1,093
(89)
25
1,462
4
1,466
(682)
784
50
834
339
154
861
843
(204)
222
1,354
(8)
1,346
(785)
561
17
578
1 ‘Wealth insurance and other’ includes fee income earned and operating expenses incurred within our Wealth distribution channels. It also includes the
IFRS 17 consolidation entries arising from transactions between our insurance manufacturing operations and Wealth distribution channels and with
the wider Group, as well as allocations of central costs benefiting life insurance.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly. This table presents an IFRS 17-specific analysis of results and therefore does not include 2021 comparatives.
HSBC Holdings plc Annual Report and Accounts 2023
115
Financial review
Global businesses
WPB insurance manufacturing (constant currency basis)
The following table shows the results of our insurance manufacturing operations for our WPB business and for all global business segments in
aggregate.
Results of insurance manufacturing operations1,2,3
Net interest income
Net fee expense
Other income
Insurance service result
– release of contractual service margin
– risk adjustment release
– experience variance and other
– loss from onerous contracts
Net investment returns (excluding net interest income)4
– insurance finance income/(expense)
– other investment income
Net insurance premium income
Other operating income
Total operating income
2023
All global
businesses
WPB
$m
283
(27)
990
1,127
1,094
44
30
(41)
(119)
(7,809)
7,690
—
(18)
1,246
$m
320
(14)
981
1,125
1,094
44
28
(41)
(125)
(7,809)
7,684
—
(19)
1,287
2022
2021
All global
businesses
All global
businesses
WPB
$m
345
(31)
847
861
902
45
42
(128)
(176)
13,850
(14,026)
—
162
$m
370
(16)
847
866
902
45
47
(128)
(187)
13,853
(14,040)
—
168
WPB
$m
2,255
(599)
14,257
—
—
—
—
—
3,948
—
3,948
10,145
164
$m
2,430
(629)
14,745
—
—
—
—
—
3,980
—
3,980
10,617
148
1,161
1,201
15,913
16,546
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 charges5
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 business operations6
Additional information
Insurance manufacturing new business contractual service margin (reported
basis)
Consolidated Group new business contractual service margin (reported basis)
Annualised new business premiums of insurance manufacturing operations
—
—
—
—
(13,366)
(13,863)
1,246
4
1,250
(571)
679
50
729
1,686
1,812
3,797
1,287
4
1,291
(581)
710
50
760
1,686
1,812
3,797
1,161
(8)
1,153
(594)
559
17
576
1,111
1,229
2,354
1,201
(9)
1,192
(589)
603
17
620
1,111
1,229
2,354
2,547
(18)
2,529
(564)
1,965
17
1,982
—
—
2,777
2,683
(22)
2,661
(590)
2,071
17
2,088
—
—
2,830
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for 2022 have been
restated accordingly; comparative data for 2021 are reported under IFRS 4 ‘Insurance Contracts’.
2 Constant currency results are derived by adjusting for period-on-period effects of foreign currency translation differences. The impact of foreign
currency translation differences on ‘All global businesses’ profit before tax was a $13m increase for 2022 and a $53m decrease in 2021.
3 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance
operations. The ‘All global businesses‘ result consists primarily of WPB business, as well as a small proportion of CMB business.
4 Net investment return under IFRS 17 for all global businesses for 2023 was $195m (2022: $183m), which consisted of net interest income, net
income/(expenses) on assets held at fair value through profit or loss, and insurance finance income/(expense).
5 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
6 The effect of applying hyperinflation accounting in Argentina on insurance manufacturing operations in all global business resulted in a decrease of
$41m in revenue in 2023 (2022: decrease of $7m, 2021: increase of $1m) and a decrease of $41m in profit before tax in 2023 (2022: decrease of $6m,
2021: increase of $1m).
Insurance manufacturing
The following commentary, unless otherwise specified, relates to the
‘All global businesses’ results.
Profit before tax of $0.8bn increased by $0.1bn compared with 2022.
This primarily reflected the following:
– Insurance service result of $1.1bn increased by $0.3bn compared
with 2022. This was driven by an increase in the release of CSM of
$0.2bn as a result of a higher closing CSM balance from the effect
of new business written and favourable assumption updates
primarily from updates to lapse rate assumptions. The improved
insurance service result also reflected a reduction to losses from
onerous contracts of $0.1bn, mainly in Hong Kong and Singapore,
in part due to improved market conditions in 2023.
– Net investment return (excluding net interest income) increased by
$0.1bn, with positive asset returns in 2023 compared with losses
in the prior period.
– Other operating income reduced by $0.2bn compared with 2022,
and included a $0.3bn loss from corrections to historical valuation
estimates, partly offset by gains of $0.2bn from reinsurance
contracts in Hong Kong.
116
HSBC Holdings plc Annual Report and Accounts 2023
Profit before tax of $0.6bn in 2022 reduced by $1.5bn compared with
2021, primarily reflecting the change in reporting basis from IFRS 4
‘Insurance Contracts’ in 2021 to IFRS 17 ‘Insurance Contracts’ in
2022. Further information regarding the impact of transition is
provided in Note 38 ‘Effects of adoption of IFRS 17’ on page 422.
Annualised new business premiums (‘ANP’) is used to assess new
insurance premiums generated by the business. It is calculated as
100% of annualised first year regular premiums and 10% of single
premiums, before reinsurance ceded. ANP in 2023 increased by 61%
compared with 2022, primarily from strong new business sales in
Hong Kong and a shift in product mix from single to multi-premium
products.
Insurance manufacturing value of new business
Insurance manufacturing value of new business is a non-GAAP
alternative performance measure that provides information about
value generation from new business sold during the period. Since
transitioning to IFRS 17, insurance manufacturing value of new
business is a metric used internally to measure the long-term
profitability of new business sold, and its disclosure supports the
consistent communication of this performance measure, albeit on a
new calculation basis. Insurance manufacturing value of new
business is calculated as the sum of the IFRS 17 new business CSM
and loss component adjusted for:
necessitates changes to the underlying economic scenario models
used in the valuation of policyholder guarantees to reflect this
basis.
– a full attribution of expenses incurred within our insurance
manufacturing operations. IFRS 17 considers only directly
attributable expenses within the new business CSM
measurement; and
– long-term asset spreads expected to be generated over the
contract term. Under IFRS 17, new business CSM is in contrast
calculated on a market consistent risk neutral basis. This also
Insurance manufacturing value of new business
There were no other adjustments made, with demographic and
expense assumptions remaining unchanged, except for inclusion of
future non-attributable expenses as described above. The IFRS 17 risk
adjustment remained unchanged, with no additional allowances made
for market risks. Insurance manufacturing value of new business was
measured before tax and after inclusion of the impact of reinsurance.
Insurance manufacturing operations new business CSM and loss component1
Inclusion of incremental expenses not attributable to the contractual service margin
Long-term asset spreads
Insurance manufacturing value of new business
2023
$m
1,678
(342)
238
1,574
2022
$m
1,095
(285)
362
1,172
1 Insurance manufacturing new business contractual service margin was $1,686m (2022: $1,111m) and the loss component was $8m (2022: $16m).
Insurance equity plus CSM net of tax
Insurance equity plus CSM net of tax is a non-GAAP alternative
performance measure that provides information about our insurance
manufacturing operations’ net asset value plus the future earnings
from in-force business. At 31 December 2023, insurance equity plus
CSM net of tax was $16,583m (31 December 2022: $14,646m).
At 31 December 2023, insurance equity plus CSM net of tax was
calculated as insurance manufacturing operations equity of $7,731m
plus CSM of $10,786m less tax of $1,934m. At 31 December 2022, it
was calculated as insurance manufacturing operations equity of
$7,236m plus CSM of $9,058m less tax of $1,648m.
Insurance manufacturing proxy embedded value
Insurance manufacturing proxy embedded value is a non-GAAP
alternative performance measure that provides information about the
value of the insurance manufacturing operations and is defined as
total shareholders’ equity plus the present value of projected future
profits. It is not comparable with peer embedded value disclosure as
there is no single industry standard basis of calculation.
Insurance manufacturing proxy embedded value
The present value of projected future profits is calculated as the CSM
net of tax adjusted for:
– a full attribution of expenses incurred within our insurance
manufacturing operations, net of tax. IFRS 17 considers only
directly attributable expenses within the CSM measurement; and
– long-term asset spreads expected to be generated over the
contract term, net of tax. Under IFRS 17, CSM is in contrast
calculated on a market consistent risk neutral basis. This also
necessitates changes to the underlying economic scenario models
used in the valuation of policyholder guarantees to reflect this
basis.
There are no other adjustments made, with demographic and
expense assumptions remaining unchanged, except for inclusion of
future non-attributable expenses as described above. The IFRS 17 risk
adjustment remained unchanged, with no additional allowances made
for market risks. Insurance manufacturing proxy embedded value was
measured after tax and after inclusion of the impact of reinsurance.
Total shareholders’ equity and contractual service margin net of tax
Inclusion of incremental expenses not attributable to the contractual service margin, net of tax
Long-term asset spreads, net of tax
Insurance manufacturing proxy embedded value
WPB: Wealth balances
At 31 Dec 2023
At 31 Dec 2022
$m
16,583
(582)
2,368
18,369
$m
14,646
(559)
2,369
16,456
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
2023
$bn
363
61
302
383
178
205
445
1,191
536
1,727
2022
$bn
312
57
255
363
198
165
340
1,015
503
1,518
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 2023, $32bn 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 $805bn (2022: $779bn) on page 111. At 31 December 2023, $42bn of wealth deposits were classified as held for sale and are not included
in the table above.
HSBC Holdings plc Annual Report and Accounts 2023
117
Financial review
Global businesses
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. 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.
Asset Management – reported funds under management1
Opening balance
Net new invested assets
Net market movements
Foreign exchange and others
Closing balance
Asset Management – reported funds under management by legal entities
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities2
Closing balance
2023
$bn
595
54
23
12
684
2023
$bn
162
198
71
15
238
684
2022
$bn
630
45
(36)
(44)
595
2022
$bn
134
184
60
8
209
595
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.
2 Funds under management of $177bn in 2023 and $143bn in 2022 relating to our Asset Management entity in the UK are reported under ‘other trading
entities’ in the table above.
At 31 December 2023, Asset Management funds under management
amounted to $684bn, an increase of $89bn or 15%. The increase
reflected net new invested assets of $54bn and a positive impact
from market performances and foreign exchange translation. Net new
Global Private Banking: client balances
invested assets were notably from additions in money market and
exchange traded funds, as well as passive and private equity
products.
Global Private Banking client balances 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.
Global Private Banking – reported client balances1
Opening balance
Net new invested assets
Increase/(decrease) in deposits
Net market movements
Foreign exchange and others
Closing balance
Global Private Banking – reported client balances by legal entities
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Closing balance
2023
$bn
383
17
9
19
19
447
2023
$bn
32
54
209
64
3
85
447
2022
$bn
423
18
(1)
(53)
(4)
383
2022
$bn
28
58
174
56
—
67
383
1 Client balances 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 balances are on balance sheet.
118
HSBC Holdings plc Annual Report and Accounts 2023
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 legal entities
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Closing balance
2023
$bn
363
26
7
(13)
383
2023
$bn
29
31
292
3
14
9
5
383
2022
$bn
434
26
(47)
(50)
363
2022
$bn
27
27
284
2
12
7
4
363
1
‘Retail net new invested assets’ covers nine markets, comprising Hong Kong including Hang Seng Bank (Hong Kong), mainland China, Malaysia,
Singapore, HSBC UK, UAE, US, Canada and Mexico. The net new invested assets relating to all other geographies is reported in ‘foreign exchange
and others’.
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 legal entities
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Total
2023
$bn
1,015
84
43
49
1,191
2022
$bn
1,119
80
(118)
(66)
1,015
2023
$bn
2022
$bn
1
3
47
1
7
—
5
20
84
2
6
59
—
8
(1)
1
5
80
HSBC Holdings plc Annual Report and Accounts 2023
119
Financial review
Global businesses
GBM: Securities Services and Issuer Services
Assets held in custody
Assets under administration
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 2023, we held $9.7tn of assets
as custodian, an increase of 6% compared with 31 December 2022.
The balance comprised $8.8tn of assets in Securities Services, which
were recorded at market value, and $0.9tn of assets in Issuer
Services, recorded at book value.
Our assets under administration business 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 and complements the custody business. At
31 December 2023, the value of assets held under administration by
the Group amounted to $4.9tn, which was 9% higher than at
31 December 2022. The balance comprised $2.9tn of assets in
Securities Services, which were recorded at market value, and $2.0tn
of assets in Issuer Services, recorded at book value.
The increase was mainly in Securities Services balances. This was
driven by net asset inflows in Europe and Asia, favourable market
movements in Asia, North America and Latin America, and a positive
impact of currency translation differences in Europe.
The increase was mainly driven by Securities Services balances due
to net asset inflows in Europe and Asia together with a favourable
impact of currency translation differences, market movements and
onboarding of new clients in Europe. Issuer Services balances also
rose driven by new issuances, notably in the US and the UK, as well
as a favourable impact of currency translation differences in the UK.
Analysis of reported results by legal entities
HSBC reported profit/(loss) before tax and balance sheet data
2023
The
Hongkong
and
Shanghai
Banking
Corporation
Limited
HSBC
UK Bank
plc
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A. de
C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
$m
9,684
1,597
$m
2,674
1,527
$m
16,705
4,859
$m
1,551
475
$m
$m
$m
$m
1,712 1,275
559
1,237
2,148 3,765
581 1,225
$m
(3,718)
(215)
Total
$m
35,796
11,845
516
4,220
9,507
397
729
110
437 1,054
(309)
16,661
—
1,438
—
—
1,608
(1,460)
154
736
6,258
(6,237)
838
(31)
—
—
—
2
—
—
—
185
—
—
—
22
39
(44)
87
65
323
(166)
9
(1,481)
(171)
98
(10)
(506)
7,887
(7,809)
1,078
600
13,405
9,289
31,899
2,425
3,863 1,966
3,313 4,729
(4,831)
66,058
(523)
(212)
(1,641)
(90)
(94)
(46)
(696)
(279)
134
(3,447)
12,882
9,077
30,258
2,335
3,769 1,920
2,617 4,450
(4,697)
62,611
(4,602)
(6,483)
(13,379)
(1,095)
(3,473)
(1,049)
(1,823)
(2,631)
2,180
(32,355)
(10)
97
(16)
(1)
8,270
2,691
16,863
1,239
222
518
—
871
(3)
(4)
—
285
791 1,815
(2,517)
30,541
—
(52)
(696)
—
—
—
14
544
(3)
(193)
8,270
%
27.2
34.4
$m
2,639
%
8.7
68.7
$m
16,167
%
53.3
42.0
$m
1,239
%
4.1
45.2
$m
518
%
1.7
84.2
$m
871
%
2.9
53.4
$m
805 2,359
%
2.6
55.1
$m
%
7.8
55.7
$m
(2,520)
%
(8.3)
45.1
$m
30,348
%
100.0
48.5
$m
270,208 95,750
455,315 20,072
54,829
—
26,410 15,951
— 938,535
423,029 896,682
339,611 274,733
129,211 131,468
1,333,911 50,612 252,339 90,731
99,607
—
72,248 31,890
801,430 31,341
396,677 24,294
47,309 59,051
29,423 35,326
32,639 59,574
(114,987) 3,038,677
176 1,611,647
6,704 854,114
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
Insurance finance income/(expense)
Insurance service result
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 in associates and
joint ventures less impairment3
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 assets4,5
120
HSBC Holdings plc Annual Report and Accounts 2023
HSBC reported profit/(loss) before tax and balance sheet data (continued)
20226
The
Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A. de
C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
HSBC UK
Bank plc
HSBC
Bank plc
$m
$m
7,615
1,536
2,357
1,601
$m
14,031
4,924
$m
903
458
$m
$m
$m
$m
$m
1,922 1,251
598
1,223
1,796 2,244
455 1,127
(1,742)
(152)
30,377
11,770
Total
$m
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
Insurance finance income/(expense)
Insurance service result
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 in associates and
joint ventures less impairment
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 assets4,5
472
3,564
5,270
360
485
76
351
639
(939)
10,278
—
(1,761)
(12,117)
—
—
148
1,431
149
(1,920)
12,407
636
491
—
—
—
22
—
—
—
533
—
—
—
29
(9)
3
50
67
66
(32)
(20)
(521)
(10)
(13,831)
(10)
(6)
(1,431)
13,799
809
(2,582)
9,771
5,421
25,642
1,743
4,163 1,954
2,713 3,503
(4,290)
50,620
(563)
(292)
(2,090)
21
(20)
(84)
(507)
(61)
12
(3,584)
9,208
5,129
23,552
1,764
4,143 1,870
2,206 3,442
(4,278)
47,036
(4,667)
(6,497)
(13,011)
(1,033)
(3,429)
(1,017)
(1,631)
(2,359)
1,090
(32,554)
(54)
11
(42)
(3)
(9)
(21)
(5)
(2)
(22)
(147)
4,487
(1,357)
10,499
728
705
832
570 1,081
(3,210)
14,335
—
(38)
2,400
—
—
—
13
351
(3)
2,723
4,487
%
26.3
48.3
$m
(1,395)
%
(8.2)
119.6
$m
12,899
%
75.6
50.9
$m
728
%
4.3
59.4
$m
705
%
4.1
82.6
$m
832
%
4.9
53.1
$m
583 1,432
%
3.4
60.3
$m
%
8.4
67.4
$m
(3,213)
%
(18.8)
24.9
$m
17,058
%
100.0
64.6
$m
245,921 86,964
473,985 19,762
54,159
—
20,446 22,325
(1) 923,561
412,522 863,308
336,086 253,075
110,919 127,017
1,297,806 48,086 239,117 94,604
—
72,446 31,876
784,236 29,893 100,404
406,985 22,490
39,939 67,345
25,531 41,078
26,744 60,289
(113,441) 2,949,286
— 1,570,303
8,144 839,720
HSBC Holdings plc Annual Report and Accounts 2023
121
Financial review
Legal entities
HSBC reported profit/(loss) before tax and balance sheet data (continued)
2021
The
Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A. de
C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
HSBC UK
Bank plc
HSBC
Bank plc
$m
$m
6,397
1,484
2,411
1,945
$m
12,623
5,828
$m
633
445
$m
1,809
1,426
$m
978
634
$m
$m
$m
1,542 1,586
406 1,044
(1,490)
(115)
26,489
13,097
Total
$m
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
Insurance finance income/(expense)
Insurance service result
Other income/(expense)
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 less impairment
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 assets4,5
437
2,382
3,649
275
226
89
272
474
(60)
7,744
—
1,670
—
—
278
—
—
16
2,340
—
—
(1,446)
—
—
—
55
—
—
—
595
—
—
—
67
4
44
(5)
4,053
—
—
136
—
—
(152)
—
—
(1,380)
—
—
(1,831)
8,596
8,424
22,994
1,408
4,056 1,768
2,360 2,996
(3,050)
49,552
1,362
239
(840)
142
205
37
(224)
2
5
928
9,958
8,663
22,154
1,550
4,261 1,805
2,136 2,998
(3,045)
50,480
(5,147)
(7,448)
(12,975)
(955)
(3,678)
(1,036)
(1,558)
(2,060)
970
(33,887)
(25)
(63)
(24)
(3)
(5)
(8)
(7)
(6)
(592)
(733)
4,786
1,152
9,155
592
578
761
571
932
(2,667)
15,860
—
263
2,486
—
—
—
17
280
—
3,046
4,786
%
25.3
60.2
$m
1,415
%
7.5
89.2
$m
11,641
%
61.6
56.5
$m
592
%
3.1
68.0
$m
578
%
3.1
90.8
$m
761
%
4.0
59.0
$m
588 1,212
%
3.1
66.3
$m
%
6.4
69.0
$m
(2,667)
%
(14.1)
12.4
$m
18,906
%
100.0
69.9
$m
264,624 122,954
492,523 18,623
52,678 54,226
18,043 22,142
1 1,045,814
468,362 807,541
381,482 270,975
113,501 136,038
1,259,270 46,773 261,335 94,570
792,099 26,802 111,921 58,071
77,775 30,198
393,742 22,855
35,525 66,425
23,583 45,643
24,578 56,112
(81,862) 2,957,939
(2) 1,710,574
9,072 838,263
1 Other income/(expense) in this context comprises gain on acquisitions, impairment gain/(loss) relating to the sale of our retail banking operations in
France, and other operating income/(expense).
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom.
4 Risk-weighted assets are non-additive across the principal entities due to market risk diversification effects within the Group.
5 Balances are on a third-party Group consolidated basis.
6 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
122
HSBC Holdings plc Annual Report and Accounts 2023
Summary information – legal entities and selected countries/territories
Legal entity reported and constant currency results¹
2023
The
Hongkong
and
Shanghai
Banking
Corpo-
ration
Limited
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A.
de C.V.
$m
9,289
(212)
(6,386)
$m
31,899
(1,641)
(13,395)
$m
2,425
(90)
(1,096)
$m
$m
3,863 1,966
(46)
(1,049)
(94)
(3,251)
$m
3,313
(696)
(1,826)
Other
trading
entities2
$m
4,729
(279)
(2,635)
HSBC
UK
Bank plc
$m
13,405
(523)
(4,612)
Holding
companies,
shared
service
centres and
intra-Group
eliminations
Total
$m
66,058
(3,447)
(32,070)
$m
(4,831)
134
2,180
Revenue3
ECL
Operating expenses
Share of profit in associates and joint
ventures
Profit/(loss) before tax
Loans and advances to customers (net)
Customer accounts
8,270
2,639
270,208 95,750
339,611 274,733
16,167
1,239
455,315 20,072
801,430 31,341
518
54,829
99,607
—
(52)
(696)
—
—
—
871
—
—
14
544
(3)
(193)
805
2,359
26,410 15,951
29,423 35,326
(2,520)
30,348
— 938,535
176 1,611,647
In the current period, constant currency results are equal to reported, as there is no currency translation.
1
2 Other trading entities includes the results of entities located in Oman, Türkiye, Egypt and Saudi Arabia (including our share of the results of Saudi
Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited. These entities had an aggregated impact on the Group’s reported profit
before tax of $1,286m. Supplementary analysis is provided on page 130 to provide a fuller picture of the MENAT regional performance.
3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Legal entity results: notable items
2023
The
Hongkong
and
Shanghai
Banking
Corpo-
ration
Limited
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A.
de C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
HSBC
UK Bank
plc
HSBC
Bank plc
$m
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
Revenue
Disposals, acquisitions and related
costs1,2,3
Fair value movements on financial
instruments4
Restructuring and other related costs
Disposal losses on Markets Treasury
repositioning
Operating expenses
Disposals, acquisitions and related
costs
Restructuring and other related costs5
Impairment of interest in associate6
1,591
(14)
—
—
—
—
—
—
(279) 1,298
—
—
—
361
—
—
—
—
—
—
—
—
—
—
—
—
14
(361)
14
—
(145)
(94)
(473)
(20)
(246)
—
—
—
1
(977)
(45)
(111)
20
—
30
—
—
10
(3,000)
—
2
—
(11)
(115)
10
—
—
—
—
6
—
—
2
—
(39)
(321)
56
136
— (3,000)
1 Includes the impacts of the sale of our retail banking operations in France.
2 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.
3 Includes fair value movements on the foreign exchange hedging of the expected proceeds from the planned sale of our banking operations in Canada.
4 Fair value movements on non-qualifying hedges in HSBC Holdings.
5 Balances relate to reversals of restructuring provisions recognised during 2022.
6 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom.
Selected countries/territories results1
Revenue3
ECL
Operating expenses
Share of profit/(loss) in associates and joint ventures
Profit before tax
Loans and advances to customers (net)
Customer accounts
Hong
Kong
$m
20,611
(1,529)
(8,244)
30
10,868
279,551
543,504
2023
Mainland
China
$m
3,923
(93)
(2,713)
(746)
371
44,275
56,006
UK2
$m
19,092
(594)
(12,485)
(53)
5,960
309,262
508,181
US
Mexico
$m
3,796
(94)
(3,251)
—
451
54,829
99,607
$m
3,313
(696)
(1,826)
14
805
26,410
29,423
In the current period, constant currency results are equal to reported, as there is no currency translation.
1
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
3 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 2023
123
Financial review
Legal entities
Selected countries/territories results: notable items
Revenue
Disposals, acquisitions and related costs1,2,3,4
Fair value movements on financial instruments5
Disposal losses on Markets Treasury repositioning
Operating expenses
Disposals, acquisitions and related costs
Restructuring and other related costs6
Impairment of interest in associate7
Hong
Kong
$m
—
—
(473)
(1)
9
—
2023
Mainland
China
$m
—
—
—
(5)
4
(3,000)
UK1
$m
1,272
14
(239)
(71)
75
—
US
$m
Mexico
$m
—
—
(246)
(11)
10
—
—
—
—
—
6
—
1 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
2 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.
3 Includes the impairment gain relating to the sale of our retail banking operations in France.
4 Includes fair value movements on the foreign exchange hedging of the expected proceeds from the planned sale of our banking operations in Canada.
5 Fair value movements on non-qualifying hedges in HSBC Holdings.
6 Balances relates to reversals of restructuring provisions recognised during 2022.
7 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom.
Legal entity reported and constant currency results (continued)
20221
The
Hongkong
and
Shanghai
Banking
Corpo-
ration
Limited
HSBC UK
Bank plc
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
Grupo
Financiero
HSBC,
S.A.
de C.V.
HSBC
Bank
Canada
$m
$m
$m
$m
$m
$m
$m
Holding
companies,
shared
service
centres and
intra-Group
eliminations
$m
Other
trading
entities2
$m
Total
$m
9,771
125
9,896
5,421
(11)
5,410
25,642
(278)
25,364
1,743
3
1,746
4,163
—
4,163
1,954
(67)
1,887
2,713
370
3,083
3,503
(789)
2,714
(4,290)
(102)
(4,392)
50,620
(749)
49,871
(563)
(43)
(606)
(292)
14
(278)
(2,090)
6
(2,084)
21
—
21
(20)
—
(20)
(84)
2
(82)
(507)
(67)
(574)
(61)
41
(20)
12
1
13
(3,584)
(46)
(3,630)
(4,721)
(45)
(4,766)
(6,486)
(81)
(6,567)
(13,053)
134
(12,919)
(1,036)
(1)
(1,037)
(3,438)
—
(3,438)
(1,038)
37
(1,001)
(1,636)
(221)
(1,857)
(2,361)
500
(1,861)
1,068
76
1,144
(32,701)
399
(32,302)
—
—
—
(38)
1
(37)
2,400
(123)
2,277
4,487
37
4,524
(1,395)
(77)
(1,472)
12,899
(261)
12,638
—
—
—
728
2
730
—
—
—
705
—
705
245,921
14,412
260,333
86,964 473,985
(2,105)
90,973 471,880
4,009
19,762
22
19,784
54,159
—
54,159
336,086 253,075 784,236
(2,671)
355,783 265,475 781,565
19,697
12,400
29,893 100,404
—
29,928 100,404
35
—
—
—
832
(28)
804
—
—
—
—
—
—
13
1
14
583
83
666
351
—
351
1,432
(248)
1,184
(3)
—
(3)
2,723
(121)
2,602
(3,213)
(25)
(3,238)
17,058
(517)
16,541
20,446
3,044
23,490
22,325
(1,396)
20,929
25,531
3,802
29,333
41,078
(5,072)
36,006
(1) 923,561
1
17,987
— 941,548
— 1,570,303
28,192
1
1 1,598,495
Revenue3
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in
associates and joint ventures
Reported
Currency translation
Constant currency
Profit/(loss) before tax
Reported
Currency translation
Constant currency
Loans and advances to
customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
2 Other trading entities includes the results of entities located in Oman, Türkiye, Egypt and Saudi Arabia (including our share of the results of Saudi
Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited. These entities had an aggregated impact on the Group’s reported profit
before tax of $997m and constant currency profit before tax of $840m. Supplementary analysis is provided on page 130 to provide a fuller picture of
the MENAT regional performance.
3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
124
HSBC Holdings plc Annual Report and Accounts 2023
Legal entity results: notable items (continued)
20221
The
Hongkong
and
Shanghai
Banking
Corporation
Limited
HSBC UK
Bank plc
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
$m
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
Revenue
Disposals, acquisitions and
related costs2
Fair value movements on
financial instruments3
Restructuring and other
related costs4
Operating expenses
Disposals, acquisitions and
related costs
Restructuring and other
related costs
—
(2,242)
—
—
—
—
—
—
—
—
—
—
—
—
1
(278)
46
(13)
98
1
(17)
—
—
—
(495)
(2,737)
(618)
(618)
(85)
(247)
—
(18)
—
—
—
—
—
—
—
(18)
(521)
(656)
(741)
(64)
(421)
(87)
(115)
(150)
(127)
(2,882)
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
2
ended 31 December 2022 have been restated accordingly.
Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.3bn (inclusive of
$0.4bn in goodwill impairments) relates to the planned sale of the retail banking operations in France.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Selected countries/territories results (continued)
Revenue3
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Constant currency
Profit before tax
Reported
Currency translation
Constant currency
Loans and advances to customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
UK2
$m
17,268
223
17,491
(712)
(36)
(748)
(13,232)
(140)
(13,372)
(41)
1
(40)
3,283
48
3,331
286,032
16,763
302,795
493,028
28,895
521,923
Hong
Kong
$m
15,712
8
15,720
(1,683)
(2)
(1,685)
(7,935)
(1)
(7,936)
5
—
5
6,099
5
6,104
294,580
(626)
293,954
542,543
(1,153)
541,390
20221
Mainland
China
$m
US
$m
Mexico
$m
4,104
(212)
3,892
(326)
16
(310)
(2,757)
139
(2,618)
2,386
(122)
2,264
3,407
(179)
3,228
50,481
(1,476)
49,005
56,948
(1,664)
55,284
4,107
—
4,107
(20)
—
(20)
(3,438)
—
(3,438)
—
—
—
649
—
649
54,159
—
54,159
100,404
—
100,404
2,713
370
3,083
(507)
(67)
(574)
(1,636)
(221)
(1,857)
12
2
14
582
84
666
20,446
3,044
23,490
25,531
3,802
29,333
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
3 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 2023
125
Financial review
Legal entities
Selected countries/territories results: notable items (continued)
Revenue
Disposals, acquisitions and related costs
Fair value movements on financial instruments3
Restructuring and other related costs4
Operating expenses
Restructuring and other related costs
20221
Mainland
China
$m
—
—
71
Hong
Kong
$m
—
—
(124)
UK2
$m
(60)
(617)
407
US
$m
—
—
99
Mexico
$m
—
—
(17)
(1,741)
(393)
(70)
(424)
(115)
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with RWA reduction commitments.
Legal entity reported and constant currency results (continued)
20211
The
Hongkong
and
Shanghai
Banking
Corpo-
ration
Limited
HSBC UK
Bank plc
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
Grupo
Financiero
HSBC,
S.A.
de C.V.
HSBC
Bank
Canada
$m
$m
$m
$m
$m
$m
$m
Holding
companies,
shared
service
centres and
intra-Group
eliminations
$m
Other
trading
entities1
$m
Total
$m
Revenue2
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in
associates and joint ventures
Reported
Currency translation
Constant currency
Profit/(loss) before tax
Reported
Currency translation
Constant currency
Loans and advances to
customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
8,596
(824)
7,772
1,362
(128)
1,234
8,424
(737)
7,687
22,994
(841)
22,153
1,408
1
1,409
4,056
—
4,056
1,768
(127)
1,641
2,360
344
2,704
2,996
(871)
2,125
(3,050)
(418)
(3,468)
49,552
(3,473)
46,079
239
(25)
214
(840)
24
(816)
(5,172)
499
(4,673)
(7,511)
677
(6,834)
(12,999)
471
(12,528)
—
—
—
263
(27)
236
2,486
(214)
2,272
4,786
(453)
4,333
1,415
(112)
1,303
11,641
(560)
11,081
264,624 122,954 492,523
(13,319)
249,344 118,453 479,204
(15,280)
(4,501)
381,482 270,975 792,099
(16,539)
359,454 258,575 775,560
(22,028)
(12,400)
142
—
142
(958)
(1)
(959)
—
—
—
592
—
592
205
—
205
37
(3)
34
(224)
(36)
(260)
2
(3)
(1)
5
1
6
928
(170)
758
(3,683)
1
(3,682)
(1,044)
75
(969)
(1,565)
(250)
(1,815)
(2,066)
582
(1,484)
378
322
700
(34,620)
2,376
(32,244)
—
—
—
578
1
579
—
—
—
761
(55)
706
17
3
20
588
61
649
280
—
280
1,212
(292)
920
—
(1)
(1)
3,046
(239)
2,807
(2,667)
(96)
(2,763)
18,906
(1,506)
17,400
18,623
22
18,645
52,678
—
52,678
54,226
(2,183)
52,043
18,043
3,749
21,792
22,142
(3,491)
18,651
26,802 111,921
—
26,821 111,921
19
58,071
(2,338)
55,733
23,583
4,900
28,483
45,643
(9,003)
36,640
1 1,045,814
1
(35,002)
2 1,010,812
(2) 1,710,574
2
(57,387)
— 1,653,187
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
126
HSBC Holdings plc Annual Report and Accounts 2023
Legal entity results: notable items (continued)
20211
The
Hongkong
and
Shanghai
Banking
Corporation
Limited
HSBC UK
Bank plc
HSBC
Bank plc
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc.
HSBC
Bank
Canada
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
$m
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
Revenue
Fair value movements on
financial instruments2
Restructuring and other
related costs3
Operating expenses
Impairment of non-financial
items
Restructuring and other
related costs
—
—
—
—
4
(280)
1
1
—
(6)
—
—
—
(221)
(221)
2
(15)
2
(16)
(307)
—
—
—
—
—
—
—
(1)
(586)
(587)
(356)
(473)
(406)
(31)
(355)
(68)
(59)
(78)
(10)
(1,836)
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Fair value movements on non-qualifying hedges in HSBC Holdings.
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Selected countries/territories results (continued)
Revenue3
Reported
Currency translation
Constant currency
ECL
Reported
Currency translation
Constant currency
Operating expenses
Reported
Currency translation
Constant currency
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Constant currency
Profit before tax
Reported
Currency translation
Constant currency
Loans and advances to customers (net)
Reported
Currency translation
Constant currency
Customer accounts
Reported
Currency translation
Constant currency
UK2
$m
16,415
(1,571)
14,844
1,645
(154)
1,491
(14,808)
1,212
(13,596)
267
(27)
240
3,519
(540)
2,979
306,464
(17,696)
288,768
535,797
(30,939)
504,858
Hong
Kong
$m
14,463
(101)
14,362
(608)
3
(605)
(7,955)
51
(7,904)
16
—
16
5,916
(47)
5,869
311,947
(553)
311,394
549,429
(974)
548,455
20211
Mainland
China
$m
US
$m
Mexico
$m
3,734
(340)
3,394
(89)
11
(78)
(2,773)
255
(2,518)
2,461
(213)
2,248
3,333
(287)
3,046
54,239
(5,689)
48,550
59,266
(6,217)
53,049
4,006
(1)
4,005
205
—
205
(3,683)
1
(3,682)
—
—
—
528
—
528
52,678
—
52,678
111,921
—
111,921
2,341
343
2,684
(224)
(36)
(260)
(1,565)
(250)
(1,815)
17
3
20
569
60
629
18,043
3,749
21,792
23,583
4,900
28,483
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
3 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 2023
127
Financial review
Legal entities
Selected countries/territories results: notable items (continued)
Revenue
Fair value movements on financial instruments3
Restructuring and other related costs4
Operating expenses
Restructuring and other related costs
20211
Mainland
China
$m
Hong
Kong
$m
—
(54)
—
41
UK2
$m
(221)
227
US
$m
—
(9)
(1,121)
(225)
(32)
(355)
Mexico
$m
—
(15)
(59)
1 Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc (non-ring-fenced bank).
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with RWA reduction commitments.
Analysis by country/territory
Profit/(loss) before tax by country/territory within global businesses
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
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
Saudi Arabia2
US
Canada
Mexico
Other3
Year ended 31 Dec 2023
Wealth and
Personal
Banking
Commercial
Banking
2023
Global
Banking and
Markets
Corporate
Centre
$m
2,415
2,754
396
(735)
(35)
44
25
6,808
177
56
23
(90)
111
233
99
141
387
—
225
293
317
315
11,544
$m
4,437
5,282
295
(1,140)
235
144
29
2,970
319
398
124
339
158
436
72
98
212
—
513
561
504
1,731
13,280
$m
(692)
144
121
(957)
128
128
—
1,394
85
774
68
662
219
444
198
303
377
118
111
120
15
1,472
5,924
$m
(200)
90
177
(467)
10
4
5
(304)
(15)
289
(7)
(540)
(21)
(31)
(7)
(11)
(83)
539
(398)
(96)
(31)
497
(400)
Total
$m
5,960
8,270
989
(3,299)
338
320
59
10,868
566
1,517
208
371
467
1,082
362
531
893
657
451
878
805
4,015
30,348
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, Saudi Awwal Bank.
3 Corporate Centre includes the profit and loss impact of inter-company debt eliminations of $571m.
128
HSBC Holdings plc Annual Report and Accounts 2023
Profit/(loss) before tax by country/territory within global businesses (continued)
UK2
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring-fenced bank)
– of which: Holdings and other
France3
Germany
Switzerland
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
Saudi Arabia4
US
Canada
Mexico
Other5
Year ended 31 Dec 2022
Wealth and
Personal
Banking
Commercial
Banking
20221
Global
Banking
and Markets
Corporate
Centre
$m
1,764
2,112
294
(642)
(2,248)
17
25
4,435
147
45
4
(100)
110
218
36
101
128
30
209
243
241
183
5,588
$m
2,094
2,662
315
(883)
210
8
17
1,278
180
304
71
303
89
255
43
76
107
—
557
548
414
1,039
7,593
$m
(534)
143
141
(818)
81
133
13
955
157
622
100
526
219
351
137
194
320
94
270
140
39
1,102
4,919
$m
(41)
(430)
(473)
862
(231)
(147)
(30)
(568)
(36)
306
(8)
2,678
(36)
(77)
(17)
(4)
(86)
345
(387)
(89)
(112)
(2,502)
(1,042)
Total
$m
3,283
4,487
277
(1,481)
(2,188)
11
25
6,100
448
1,277
167
3,407
382
747
199
367
469
469
649
842
582
(178)
17,058
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for financial year
ended 31 December 2022 have been restated accordingly.
2 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
3 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. At 31
December 2022, HSBC’s cash-generating units were based on geographical regions, sub-divided by global businesses.
4 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, Saudi Awwal Bank.
5 Corporate Centre includes the profit and loss impact of inter-company debt eliminations of $1,850m.
Profit/(loss) before tax by country/territory within global businesses (continued)
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
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
Saudi Arabia2
US
Canada
Mexico
Other3
Year ended 31 Dec 2021
Wealth and
Personal
Banking
Commercial
Banking
2021
Global
Banking
and Markets
Corporate
Centre
$m
1,511
2,047
176
(712)
236
17
46
4,076
146
20
14
(95)
37
145
14
79
91
17
(131)
141
305
(536)
6,133
$m
2,475
2,929
259
(713)
163
82
10
1,303
132
265
12
288
(23)
107
16
42
3
—
472
544
88
698
6,677
$m
(487)
127
220
(834)
(97)
155
—
920
131
593
111
586
145
231
106
163
342
65
524
145
222
867
4,722
$m
20
(318)
(17)
355
(133)
67
(12)
(383)
(26)
232
(8)
2,554
(20)
(13)
(5)
(2)
(61)
274
(337)
(62)
(46)
(665)
1,374
Total
$m
3,519
4,785
638
(1,904)
169
321
44
5,916
383
1,110
129
3,333
139
470
131
282
375
356
528
768
569
364
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, Saudi Awwal Bank.
3 Includes the impact of goodwill impairment of $587m. At 31 December 2021, HSBC’s cash-generating units were based on geographical regions, sub-
divided by global businesses.
HSBC Holdings plc Annual Report and Accounts 2023
129
Financial review
Legal entities
Middle East, North Africa and Türkiye supplementary information
The following tables show the results of our Middle East, North Africa and Türkiye business operations on a regional basis (including results of
all the legal entities operating in the region and our share of the results of Saudi Awwal Bank). They also show the profit before tax of each of
the global businesses.
Middle East, North Africa and Türkiye regional performance
Revenue1
Change in expected credit losses and other credit impairment charges
Operating expenses
Share of profit in associates and joint ventures
Profit before tax
Loans and advances to customers (net)2
Customer accounts2
2023
$m
3,688
(133)
(1,592)
538
2,501
22,766
40,708
2022
$m
2,936
8
(1,586)
342
1,700
26,475
43,933
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
In the second quarter of 2023, loans and advances to customers of $2,975m were classified as ‘Assets held for sale’, and customer accounts of
$4,878m were classified as ‘Liabilities of disposal groups held for sale’ in respect of the planned merger of our business in Oman. The merger was
subsequently completed in August 2023.
Profit before tax by global business
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
Corporate Centre
Total
2023
$m
612
400
1,104
385
2,501
2022
$m
313
290
861
236
1,700
Reconciliation of alternative performance measures
Contents
130
131
132
133
133
133
133
134
Use of alternative performance measures
Alternative performance measure definitions
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
Target basis operating expenses
Basic earnings per share excluding material notable items and
related impacts
134 Multi-jurisdictional client revenue
Use of alternative performance
measures
Our reported results are prepared in accordance with IFRS Accounting
Standards as detailed in our financial statements starting on page 329.
As described on page 100, 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.
On 1 January 2023, HSBC adopted IFRS 17 ‘Insurance Contracts’. As
required by the standard, the Group applied the requirements
retrospectively with comparative data previously published under
IFRS 4 ‘Insurance Contracts’ restated from the 1 January 2022
transition date.
In addition to the alternative performance measures set out in this
section, further alternative performance measures in relation to the
Group’s insurance manufacturing operations are set out on pages 116
to 117.
130
HSBC Holdings plc Annual Report and Accounts 2023
Alternative performance measure definitions
Alternative performance
measure
Return on average ordinary
shareholders’ equity (‘RoE’)
Return on average tangible equity
(‘RoTE‘)
Definition
Profit attributable to the ordinary shareholders
Average ordinary shareholders’ equity
Profit attributable to the ordinary shareholders, excluding impairment of goodwill and other intangible assets
Average ordinary shareholders’ equity adjusted for goodwill and intangibles
Return on average tangible equity
(‘RoTE‘) excluding strategic
transactions and impairment of
BoCom
Profit attributable to the ordinary shareholders, excluding impairment of goodwill and other intangible assets,
the impact of strategic transactions and impairment of BoCom1
Average ordinary shareholders’ equity adjusted for goodwill and
intangibles, the impact of strategic transactions and impairment of BoCom1
Net asset value per ordinary share
Tangible net asset value per ordinary
share
Post-tax return on average total
assets
Average total shareholders’ equity on
average total assets
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
Target basis operating expenses
Total ordinary shareholders’ equity2
Basic number of ordinary shares in issue excluding treasury shares
Tangible ordinary shareholders’ equity3
Basic number of ordinary shares in issue excluding treasury shares
Profit after tax
Average total assets
Average total shareholders’ equity
Average total assets
Annualised constant currency ECL4
Constant currency average gross loans and advances to customers4
Annualised constant currency ECL4
Constant currency average gross loans and advances to customers,
including held for sale4
Reported operating expenses excluding notable items, foreign exchange
translation and other excluded items5
Basic earnings per share excluding
material notable items and related
impacts
Profit attributable to ordinary shareholders excluding material notable items
and related impacts6
Weighted average number of ordinary shares outstanding, excluding own shares held
Multi-jurisdictional client revenue
Total client revenue we generate from clients that hold a relationship with
us that generates revenue in more than one market
1 Excluding the impacts of the sale of our retail banking operations in France, the provisional gain of $1.6bn recognised in respect of the acquisition of
SVB UK and the impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom.
2 Total ordinary shareholders’ equity is total shareholders‘ equity less non-cumulative preference shares and capital securities.
3 Tangible ordinary shareholders’ equity is total ordinary shareholders’ equity excluding goodwill and other intangible assets (net of deferred tax).
4 The constant currency numbers are derived by adjusting reported ECL and average loans and advances to customers for the effects of foreign
5
currency translation differences.
Includes impact of re-translating comparative period financial information at the latest rates of foreign exchange in hyperinflationary economies, which
we consider to be outside of our control, and the incremental costs associated with our acquisition of SVB UK and related international investments.
6 Excluding the impacts of material M&A transactions, the 2022 deferred tax adjustment in HSBC Holdings and the impairment loss of $3.0bn
recognised in 2023 in respect of the Group’s investment in BoCom.
HSBC Holdings plc Annual Report and Accounts 2023
131
Financial review Reconciliation of alternative performance measures
Return on average ordinary shareholders’ equity, return on average tangible equity and return on average tangible equity excluding strategic
transactions and impairment of BoCom
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)1
Profit attributable to the ordinary shareholders, excluding goodwill, other
intangible assets impairment and PVIF
Impact of strategic transactions and impairment of BoCom2,3,4
Profit attributable to the ordinary shareholders, excluding goodwill, other intangible assets impairment,
strategic transactions and impairment of BoCom
Equity
Average total shareholders’ equity
Effect of average preference shares and other equity instruments
Average ordinary shareholders’ equity
Effect of goodwill, other intangibles and PVIF (net of deferred tax)
Average tangible equity
Average impact of strategic transactions and impairment of BoCom
Average tangible equity excluding strategic transactions and impairment of BoCom
Ratio
Return on average ordinary shareholders’ equity
Return on average tangible equity
Return on average tangible equity excluding strategic transactions and impairment of BoCom
2023
$m
22,432
43
—
22,475
1,275
2022¹
$m
14,346
535
—
14,881
1,886
23,750
16,767
184,029
(18,794)
165,235
(11,480)
153,755
(1,277)
152,478
%
13.6
14.6
15.6
180,263
(21,202)
159,061
(10,786)
148,275
748
149,023
%
9.0
10.0
11.3
2021
$m
12,607
608
(58)
13,157
N/A
N/A
199,295
(22,814)
176,481
(17,705)
158,776
N/A
N/A
%
7.1
8.3
N/A
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Includes the impacts of the sale of our retail banking operations in France.
3 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.
4 Includes the impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 394.
From 2024, we intend to revise the adjustments made to return on average tangible equity (‘RoTE’) to exclude all notable items, improving
alignment with the treatment of notable items in our other income statement disclosures. On this basis, we continue to target a RoTE in the
mid-teens for 2024. If this basis had been adopted for 2023, our RoTE excluding notable items would have been 16.2%.
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
Other adjustments
Profit attributable to ordinary shareholders
Average tangible shareholders’ equity
Return on average tangible equity (%)
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
Other adjustments
Profit attributable to ordinary shareholders
Average tangible shareholders’ equity
Return on average tangible equity (%)
Year ended 31 Dec 2023
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
$m
11,544
(2,141)
9,403
(828)
8,575
(221)
8,354
29,352
28.5
5,588
(1,150)
4,438
$m
13,280
(2,945)
10,335
$m
5,924
(1,165)
4,759
(485)
(588)
9,850
364
10,214
43,687
23.4
4,171
168
4,339
38,036
11.4
Year ended 31 Dec 2022
7,593
(1,796)
5,797
4,919
(761)
4,158
(688)
(344)
(510)
3,750
432
4,182
30,290
13.8
5,453
328
5,781
42,271
13.7
3,648
255
3,903
39,935
9.8
$m
(400)
462
62
(226)
(164)
(268)
(432)
42,680
(1.0)
(1,042)
2,898
1,856
(362)
1,494
(499)
995
35,780
2.8
Total
$m
30,348
(5,789)
24,559
(2,127)
22,432
43
22,475
153,755
14.6
17,058
(809)
16,249
(1,903)
14,346
515
14,861
148,276
10.0
132
HSBC Holdings plc Annual Report and Accounts 2023
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
2023
$m
185,329
(17,719)
167,610
(11,900)
155,710
19,006
$
2022¹
$m
177,833
(19,746)
158,087
(11,160)
146,927
19,739
$
2021
$m
198,250
(22,414)
175,836
(17,643)
158,193
20,073
$
8.82
8.19
8.01
7.44
8.76
7.88
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
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
2023
$m
24,559
184,029
3,059,887
2022¹
$m
16,249
180,263
3,017,495
2021
$m
14,693
199,295
3,012,437
%
0.8
6.01
%
0.5
5.97
%
0.5
6.62
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers and expected credit
losses and other credit impairment charges as % of average gross loans and advances to customers, including held for sale
Expected credit losses and other credit impairment charges (‘ECL’)
Currency translation
Constant currency
Average gross loans and advances to customers
Currency translation
Constant currency
Average gross loans and advances to customers, including held for sale
Currency translation
Constant currency
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
2023
$m
(3,447)
—
(3,447)
955,585
11,629
967,214
1,020,992
12,688
1,033,680
%
0.36
0.33
2022¹
$m
(3,584)
(46)
(3,630)
1,014,148
6,701
1,020,849
1,035,678
7,837
1,043,515
%
0.36
0.35
2021
$m
928
(170)
758
1,057,412
(43,098)
1,014,314
1,058,947
(43,098)
1,015,849
%
(0.07)
(0.07)
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Target basis operating expenses
Target basis operating expenses is computed by excluding the impact
of notable items and foreign exchange translation impacts from
reported results. We also exclude the impact of retranslating
comparative period financial information at the latest rates of foreign
exchange in hyperinflationary economies, which we consider to be
outside of our control. Our target basis also excludes the impact of
the acquisition of SVB UK and related investments internationally,
which added approximately 1% to our cost growth in 2023 compared
with 2022. We consider this measure to provide useful information to
investors by quantifying and excluding the notable items that
management considered when setting and assessing cost-related
targets.
Target basis operating expenses
Reported operating expenses
Notable items
Disposals, acquisitions and related costs
Impairment of non-financial items
Restructuring and other related costs1
Excluding the impact of SVB UK and related international investments
Currency translation2
Excluding the impact of retranslating prior year costs of hyperinflationary economies at a constant currency foreign exchange rate
2023
$m
32,070
(185)
(321)
—
136
(271)
2022
$m
32,701
(2,900)
(18)
—
(2,882)
—
(430)
440
Target basis operating expenses
31,614
29,811
1 Amounts in 2023 relate to reversals of restructuring provisions recognised during 2022.
2 Currency translation on reported operating expenses, excluding currency translation on notable items.
HSBC Holdings plc Annual Report and Accounts 2023
133
Financial review Reconciliation of alternative performance measures
Basic earnings per share excluding material notable items and related impacts
Material notable items are a subset of notable items. Material notable
items are components of our income statement that management
would consider as outside the normal course of business and
generally non-recurring in nature, which are excluded from our
dividend payout ratio calculation and our earnings per share measure,
along with related impacts. Categorisation as a material notable item
is dependent on the nature of each item in conjunction with the
financial impact on the Group’s income statement.
Related impacts include those items that do not qualify for
designation as notable items but whose adjustment is considered by
management to be appropriate for the purposes of determining the
basis for our dividend payout ratio calculation.
In 2023, material notable items comprised the impacts of the sale of
our retail banking operations in France, the planned sale of our
banking business in Canada, the acquisition of SVB UK and the
impairment of BoCom. The impairment of BoCom is included within
material notables given that the impairment relates to the accounting
assessment of the future value-in-use. The impairment has no
material impact on our distribution capacity, dividends or share buy-
backs. Related items comprised HSBC Bank Canada‘s financial results
from the 30 June 2022 net asset reference date onwards, as a
component of the gain on sale will be recognised through the
consolidation of HSBC Bank Canada‘s results in the Group‘s results,
with the remainder recognised at completion.
Commencing in 2024, we will establish a dividend payout ratio on a
‘target basis’. We will disclose at each quarter the adjustments that
we will designate as material notable items and related impacts.
Basic earnings per share excluding material notable items and related impacts
Profit attributable to shareholders of company
Coupon payable on capital securities classified as equity
Profit attributable to ordinary shareholders of company
Impairment of interest in associate2
Provisional gain on acquisition of SVB UK
Impairment loss relating to the sale of our retail banking operations in France (net of tax)
Impact of the planned sale of our banking business in Canada3
Profit attributable to ordinary shareholders of company excluding material notable items and related impacts
Number of shares
Weighted average basic number of ordinary shares (millions)
Basic earnings per share excluding material notable items and related impacts
Basic earnings per share
Dividend per ordinary share (in respect of the period) ($)
Dividend payout ratio (%) (dividend per ordinary share divided by basic earnings per share excluding material notable items and related impacts)
20231
$m
23,533
(1,101)
22,432
3,000
(1,549)
108
(311)
23,680
19,478
1.22
1.15
0.61
50%
1
In 2023, earnings per share (‘EPS’) was adjusted for material notable items and related impacts. 2022 comparatives have not been provided due to the
change our reporting framework and restatement due to the adoption of the IFRS 17. See our Annual Report and Accounts 2022 for details of the
impacts of adjustments to our EPS in 2022.
2 Represents an impairment loss of $3bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 392.
3 Represents the earnings recognised by the banking business in Canada, net of gains and losses on foreign exchange hedges held at Group level, that
will reduce the gain on sale recognised by the Group on completion.
Multi-jurisdictional revenue
Multi-jurisdictional revenue is a financial metric we use to assess our
ability to drive value from our international network.
In our wholesale businesses, we identify a client as multi-jurisdictional
if they hold a relationship with us that generates revenue in any
market outside of where the primary relationship is managed. A client
is defined as a mastergroup (HSBC’s own client groupings) that
includes both the parent and, where relevant, any subsidiaries.
Multi-jurisdictional client revenue is a component of wholesale client
revenue and represents the total client revenue we generate from
multi-jurisdictional clients. Wholesale client revenue is derived by
excluding from CMB and GBM reported revenue the revenue we
generate from client facilitation in fixed income and equities, the 2023
provisional gain on the acquisition of SVB UK, as well as other non-
client revenue.
In WPB, we identify a customer as multi-jurisdictional if they bank
with us in more than one of our 11 key markets. It is derived by
excluding from WPB reported revenue the revenue from Canada and
our retail business in France, as well as other non-customer income.
Wholesale multi-jurisdictional client revenue
WPB multi-jurisdictional customer revenue
CMB and GBM revenue
Allocated revenue and other1
Client facilitation in Fixed Income and Equities
Provisional gain on acquisition of SVB UK
Wholesale client revenue
– clients banked in multiple jurisdictions (‘multi-jurisdictional’)
– domestic only clients
2023
$bn
39.0
0.9
(4.8)
(1.6)
33.5
20.4
13.1
WPB revenue
Allocated revenue and other1
France retail and Canada
WPB customer revenue
– international customer revenue
of which: customers banked in multiple jurisdictions (‘multi-
jurisdictional’)
of which: non-resident and resident foreigner
– domestic only clients
2023
$bn
27.3
(0.5)
(1.4)
25.4
10.2
5.3
4.9
15.2
1 including allocations of Market Treasury revenue, HSBC Holdings
interest expense and hyperinflationary accounting adjustments, and
interest earned on capital held in the global businesses.
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HSBC Holdings plc Annual Report and Accounts 2023
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.
136 Our approach to risk
136 Our risk appetite
136 Risk management
139 Key developments in 2023
140 Top and emerging risks
140 Externally driven
143
Internally driven
145 Our material banking risks
147 Credit risk
203 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
Our partnership with Google to
fight financial crime
Google Cloud in 2023 officially launched an anti-money
laundering artificial intelligence capability, which HSBC
co-developed, that has the potential to transform how
financial crime is tackled across the industry.
We first implemented the solution, known at HSBC as the
Dynamic Risk Assessment, in the UK in 2021 and have since
deployed it in six markets, covering 80% of our customers.
As a result of the tool, we can now identify more financial
crime risk, twice as fast and with greater accuracy.
We are also continuing to work with Google Cloud on other
use cases for artificial intelligence.
HSBC Holdings plc Annual Report and Accounts 2023
135
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 ultimate supervisory oversight residing with the Board. Our
risk appetite defines the level and types of risk that we are willing to
take, while informing the financial planning process and guiding
strategic decision making.
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 and regional levels, 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.
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;
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HSBC Holdings plc Annual Report and Accounts 2023
– 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 helps ensure 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 help
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 138.
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
continuous 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. It provides
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
Risk governance
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 254).
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
138 and 145).
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 138).
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 processes that support the identification,
capture and exchange of information to support risk management
activities.
The Board has ultimate supervisory responsibility for the effective
management of risk and approves our risk appetite.
The Group Chief Risk and Compliance Officer, supported by members
of 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/who-we-are/esg-and-responsible-
business/managing-risk.
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, including regulatory
compliance and financial crime, 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.
Governance structure for the management of risk and compliance
Authority
Membership
Responsibilities include:
Group Risk Management
Meeting
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
All other Group Executive Committee
members
– 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
HSBC Holdings plc Annual Report and Accounts 2023
137
Risk review Risk review
Governance structure for the management of risk and compliance (continued)
Authority
Membership
Responsibilities include:
Group Risk and
Compliance Executive
Committee
Global business/regional
risk management
meetings
Group Chief Risk and Compliance
Officer
Chief risk and compliance officers of
HSBC’s global businesses
Regional chief risk and compliance
officers and chief risk officers
Heads of Global Risk and Compliance
sub-functions
Global business/regional chief risk and
compliance officers and chief risk
officers
Global business/regional chief
executive officers
Global business/regional chief financial
officers
Global business/regional heads
of global functions
– 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 252.
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 203.
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
effective 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, guidance and
assurance of the first line of defence to ensure it is managing risk
effectively.
– 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
functions. It provides challenge, appropriate oversight and balance in
risk/return decisions.
Responsibility for minimising both financial and non-financial risk,
including regulatory compliance and financial crime, 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 and
compliance officers.
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HSBC Holdings plc Annual Report and Accounts 2023
We have continued to strengthen the control environment and our
approach to the management of risk, as set out in our risk
management framework. Our ongoing focus is on helping to ensure
more effective oversight and better end-to-end identification and
management of financial and non-financial risks. This is overseen by
the Enterprise Risk Management function, headed by the Global Head
of Enterprise Risk Management.
Stress testing and recovery planning
Our stress testing programme assesses our capital and liquidity
strength through a rigorous examination of our resilience to external
shocks, and forms part of our risk management and capital and
liquidity planning. As well as undertaking regulatory-driven stress
tests, we conduct our own internal stress tests in order to understand
the nature and level of material risks, quantify the impact of such risks
and develop plausible mitigating actions. The outcome of a stress test
provides management with key insights into the impact of severely
adverse events on the Group and provides an indication of resilience
to regulators on the Group’s financial stability.
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, climate 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.
During 2023, we completed a Group-wide internal stress test
alongside testing of the Group’s strategy, otherwise known as the
corporate plan, to test and inform our strategy and assumptions. The
stress scenario explored the potential impact of interest rate shocks
and a deep recession. Under this scenario, inflation re-intensifies as
accentuated geopolitical tensions lead to severe global supply chain
disruptions and a rise in energy prices.
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, including in
relation to the Resolvability Assessment Framework.
Ibor transition
Interbank offered rates (‘Ibors’) were previously used extensively to
set interest rates on different types of financial transactions and for
valuation purposes, risk measurement and performance
benchmarking.
The publication of sterling, Swiss franc, euro, Japanese yen and US
dollar Libor interest rate benchmarks, as well as the Euro Overnight
Index Average (‘Eonia’) and other local interbank interest rates
globally, has ceased following regulatory announcements and industry
initiatives. To support any remaining contracts referencing sterling and
US dollar Libor benchmarks, the UK’s Financial Conduct Authority
(‘FCA’) has compelled the ICE Benchmark Administration Limited to
publish the three-month sterling Libor setting using an alternative
‘synthetic’ methodology until 31 March 2024, and the one-month,
three-month and six-month US dollar Libor settings until
30 September 2024. We continue to support our customers in the
transition of the limited number of outstanding contracts relying on
‘synthetic’ Libor benchmarks in line with these dates.
There are approximately 90 of these contracts remaining, which are
predominantly syndicated lending contracts, where Commercial
Banking and Global Banking customers have required additional time
to enable refinancing or restructuring, with transition expected to be
completed prior to 30 September 2024. Additionally, there are a small
number of Group-issued MREL and capital securities and client retail
mortgages that are contingent on demised Ibors after the end of their
fixed interest rate periods. HSBC remains committed to seeking to
remediate and/or mitigate relevant risks relating to Ibor-demise, as
appropriate, for these contracts. HSBC expects to be able to
remediate and/or mitigate these risks by the relevant interest rate
calculation dates, which may occur post-cessation of the relevant
Ibor. All other contracts referencing benchmarks that are no longer
published have been transitioned in line with client and investor
discussions.
Although we continue to track the transition of remaining contracts to
alternative interest rate benchmarks, overall, our regulatory
compliance, conduct and legal risks have materially diminished. We
will continue to monitor until all contracts are fully transitioned.
Key developments in 2023
In 2023, we actively managed the risks related to macroeconomic and
geopolitical uncertainties, as well as other key risks described in this
section. In addition, we sought to enhance our risk management in
the following areas:
– We enhanced our model risk frameworks and controls as we seek
to manage the increasing numbers of climate risk, artificial
intelligence (‘AI’) and machine learning models being embedded in
business processes. Focus is also on generative AI due to the
pace of technological changes and regulatory and wider interest in
adoption and usage.
– We implemented two revised risk appetite frameworks to better
manage and strengthen our controls with respect to concentration
risks. These relate to concentration risks arising from exposures to
countries and territories, and to single customer groups.
– We enhanced our processes, framework and capabilities to seek
to improve the control and oversight of our material third parties,
and to help maintain our operational resilience and meet new and
evolving regulatory requirements.
– We continued to make progress with our comprehensive
regulatory reporting programme in seeking to strengthen our
global processes, improve consistency and enhance controls
across regulatory reports.
– Through our climate risk programme, we continued to embed
climate considerations throughout the organisation, including
through risk policy updates and the completion of our annual
climate risk materiality assessment. We also developed risk
metrics to monitor and manage exposures, and further enhanced
our internal climate scenario analysis.
– We deployed industry-leading technology and advanced analytics
capabilities into new markets to improve our ability to identify
suspicious activities and prevent financial crime.
– We continued to develop and enhance our electronic
communication policies and standards to help ensure that we act
on the most substantive issues. A Group-wide approach to
providing corporate device access is being implemented to meet
regulatory expectations.
– We are embedding our suite of regulatory management systems
following the Group-wide roll-out of regulatory horizon scanning
capabilities, and enhanced regulation mapping tooling.
– We continued to stabilise our net interest income, despite the
fluctuations in interest rate expectations, driven by central bank
rate increases and a reassessment of the trajectory of inflation in
major economies.
HSBC Holdings plc Annual Report and Accounts 2023
139
Risk review Risk review
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
HSBC faces elevated geopolitical risks, with the Russia-Ukraine war
continuing to have global economic and political implications, and the
Israel-Hamas war increasing tensions in the Middle East, leading to
recent attacks on shipping in the Red Sea and countermeasures,
which have begun to disrupt supply chains. HSBC is monitoring and
assessing the impacts of these wars.
The Russia-Ukraine war has continued to elevate geopolitical
instability, which could have continued ramifications for the Group and
its customers. HSBC continues to monitor and respond to financial
sanctions and trade restrictions that have been adopted in response.
These sanctions and trade restrictions are complex, novel and
evolving. In particular, the US, the UK and the EU, as well as other
countries, have imposed significant sanctions and trade restrictions
against Russia. Such sanctions and restrictions target certain Russian
government officials, politically exposed persons, business people,
Russian oil imports, energy products, financial institutions and other
major Russian companies and sanctions evasion networks. These
countries have also enacted more generally applicable investment,
export, and import bans and restrictions. In December 2023, the US
established a new secondary sanctions regime, providing itself broad
discretion to impose severe sanctions on non-US banks that are
knowingly or even unknowingly engaged in certain transactions or
services involving Russia’s military-industrial base. This creates
challenges associated with the detection or prevention of third-party
activities beyond HSBC’s control. The imposition of such sanctions
against any non-US HSBC entity could result in significant adverse
commercial, operational, and reputational consequences for HSBC,
including the restriction or termination of the non-US HSBC entity’s
ability to access the US financial system and the freezing of the
entity’s assets that are subject to US jurisdiction. In response to such
sanctions and trade restrictions, as well as asset flight, Russia has
implemented certain countermeasures, including the expropriation of
foreign assets.
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. The planned sale of
our business in Russia became less certain and remains subject to
regulatory approval.
The US-China relationship remains complex. To date, the US, the UK,
the EU and other countries have imposed various sanctions and trade
restrictions on Chinese persons and companies, and the countries’
respective approaches to strategic competition with China continue to
develop. Although sanctions and trade restrictions are difficult to
predict, increases in diplomatic tensions between China and the US
and other countries could result in further sanctions and trade
restrictions that could negatively impact the Group, its customers and
the markets in which the Group operates. For example, there is a
continued risk of additional sanctions and trade restrictions being
imposed by the US and other governments in relation to human
rights, technology, and other issues, and this could create a more
complex operating environment for the Group and its customers.
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HSBC Holdings plc Annual Report and Accounts 2023
China, in turn, imposed a number of its own sanctions and trade
restrictions that target, or provide authority to target, foreign
individuals and companies as well as certain goods such as rare earth
minerals and metals, and technology and services. These, as well as
certain law enforcement measures, have been imposed against
certain countries, Western consulting and data intelligence firms,
defence companies and public officials associated with the
implementation of foreign sanctions against China.
Further sanctions, counter-sanctions and trade restrictions may
adversely affect the Group, its customers and the markets in which
the Group operates, by creating regulatory, reputational and market
risks.
Economic and financial risks also remain significant, and we continue
to monitor our risk profile closely in the context of uncertainty over
global macroeconomic policies.
A fall in global energy and food prices from the highs of 2022
facilitated a process of disinflation across key economies during 2023.
To date, the Israel-Hamas war has not materially disrupted energy
supply, and non-OPEC producers, including the US, increased output
in the fourth quarter of 2023. Similarly, geopolitical developments in
the Middle East have not to date led to a sustained increase in energy
prices, but disruption and further price volatility continue to be a risk.
The escalation or a broadening of either the Russia-Ukraine war or the
Israel-Hamas war could aggravate supply chain disruptions and drive
inflation higher and may pose challenges for our customers and our
business.
Following the reduction in global inflation rates, central banks in most
developed markets are expected to have concluded monetary policy
tightening in the second half of 2023. A further fall in inflation is
expected to enable reductions in interest rates throughout 2024,
although forecasts still assume that they remain materially higher than
in recent years. Higher financing costs will raise interest payment
burdens for many counterparties.
Fiscal deficits are also expected to remain large in both developed and
emerging markets, as public spending on items including social
welfare, defence and climate transition initiatives is expected to
remain high. In many countries, the fiscal response to the Covid-19
pandemic has also left a very high public debt burden. Against a
backdrop of slower economic growth and high interest rates, a rise in
borrowing costs could increase the financial strains on highly indebted
sovereigns.
Political changes may also have implications for policy. Many
countries are expected to hold elections in 2024. This may result in
continuity in some markets, but significant political and policy change
in others. Political change could bring uncertainty to the political and
legal frameworks in markets where the Group operates.
Sector-specific risks are also closely monitored. Mainland China
commercial real estate conditions remain distressed as offshore
financing conditions and buyer demand remain subdued. Signs of a
material or sustained recovery are yet to emerge, with market data
still reflecting reduced investment and weak sentiment. The Chinese
government is expected to expand fiscal and monetary support to the
economy to boost growth and lending in 2024, including specific
measures to support developers and stimulate housing demand.
However, the risk of a slow and protracted recovery remains
significant. The business and financial performance of corporates
operating in this market has been weak, and refinancing risks are
likely to continue in 2024. State-owned enterprises continue to
outperform privately-owned enterprises in general, with above market
average sales performance, market share gains and greater access to
funding. The challenges in this sector could create further pressure on
our customers. We continue to closely monitor and take actions to
proactively risk manage our portfolio.
Macroeconomic, financial and geopolitical risks have all impacted our
macroeconomic risk scenarios. Our Central scenario, which has the
highest probability weighting in our IFRS 9 ‘Financial Instruments’
calculations of ECL, assumes that GDP growth rates in our main
markets will slow down in 2024, followed by a moderate recovery in
2025. It is anticipated that inflation will converge towards central
banks’ target rates by early 2025. Similarly, interest rates are
expected to decline but remain materially higher than in recent years.
We also consider scenarios where commodity prices are materially
higher, inflation and interest rates rise and a global recession follows,
although we assign these scenarios a lower probability of occurring.
Forecasts remain uncertain, and changing economic conditions and
the materialisation of key risks could reduce the accuracy of the
Central scenario forecast. In particular, forecasts in recent years have
been sensitive to commodity price changes, changing supply chain
conditions, monetary policy adjustments and inflation expectations.
Uncertainty remains with respect to the relationship between the
economic factors and 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.
Despite these risks, forecast stability and reduced forecast dispersion
in our main markets ensured that the Central scenario for impairment
was assigned the same likelihood of occurrence across our key
markets.
For further details of our Central and other scenarios, see
‘Measurement uncertainty and sensitivity analysis of ECL estimates’
on page 156.
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.
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
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,
strategy and reputation, as well as on the Group’s customers.
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 actions to manage our portfolios
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 – including our commercial real
estate portfolio – 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 seek to manage sanctions and trade restrictions
through the use of reasonably designed policies, procedures and
controls, which are subject to ongoing testing, auditing and
enhancements.
– 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
Like other organisations, we operate in an extensive and complex
technology landscape. We need to remain resilient in order to support
customers, our colleagues and financial markets globally. Risks arise
where, for example, technology is not understood, maintained or
developed appropriately. We also continue to operate in an
increasingly complex cyber threat environment globally. These threats
include potential unauthorised access to customer accounts and
attacks on systems, whether ours or our third-party suppliers’. These
threats require ongoing investment in business and technical controls
to defend against them.
Mitigating actions
– We continue to upgrade many of our IT systems and are
transforming how software solutions are developed, delivered,
maintained and tested as part of our investment in the Group’s
operational resilience capabilities to seek to meet the expectations
of our customers and regulators and to help prevent disruptions to
our services.
– Our cyber intelligence and threat analysis team continually
evaluate threat levels for the most prevalent cyber-attack types
and their potential outcomes (see page 98), and we continue to
seek to strengthen our controls to help reduce the likelihood and
impact of advanced malware, data leakage, exposure through third
parties and security vulnerabilities.
– We continue to seek to enhance our cybersecurity capabilities,
including Cloud security, identity and access management, metrics
and data analytics, and third-party security reviews and to invest in
mitigating the potential threats of emerging technologies.
– We regularly report and review cyber risk and control
effectiveness at executive level across global businesses,
functions and regions, as well as at non-executive Board level 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 to seek to prevent, detect and defend against
cyber-attacks on financial organisations globally.
– We respond to attempts to compromise our cybersecurity in
accordance with our cybersecurity framework, which adheres to
applicable laws, rules and regulations. To date, none of these
attacks have had a material impact on our business or operations.
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 88.
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. These time periods are aligned to the Climate Action 100+
framework v1.2.
We may face credit losses if our customers’ business models fail to
align to a net zero economy or if our customers face disruption to
their operations or deterioration to their assets as a result of extreme
weather.
We may face trading losses if climate change results in changes to
macroeconomic and financial variables that negatively impact our
trading book exposures.
We may face impacts from physical risk on our own operations and
premises, 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.
HSBC Holdings plc Annual Report and Accounts 2023
141
Risk review Risk review
We may face increased reputational, legal, and regulatory compliance
risks if we fail to make sufficient progress towards our net zero
ambition, and ESG-related targets, commitments and ambitions, if we
fail to meet evolving regulatory expectations and requirements on the
management of climate risk and broader ESG risks, or if we
knowingly or unknowingly make inaccurate, unclear, misleading, or
unsubstantiated claims regarding sustainability to our stakeholders.
Requirements, policy objectives, expectations or views may vary by
jurisdiction and stakeholder in relation to ESG-related matters. We
may be subject to potentially conflicting approaches to ESG matters in
certain jurisdictions, which may impact our ability to conduct certain
business within those jurisdictions or result in additional regulatory
compliance, reputational, political or litigation risks. These risks may
also arise from divergence in the implementation of ESG, climate
policy and financial regulation in the many regions in which we
operate, including initiatives to apply and enforce policy and regulation
with extraterritorial effect.
We may face financial reporting risk in relation to our climate-related
and broader ESG disclosures, as any data, methodologies, scenarios
and reporting standards we have used may evolve over time in line
with market practice, regulation or developments in science. We may
also face the risk of making reporting errors due to issues relating to
the availability, accuracy and verifiability of data, and system, process
and control challenges. Any changes and reporting errors could result
in revisions to our internal frameworks and reported data and could
mean that 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 the future.
– In 2023, we conducted pilot exercises to assess nature risk
exposures, focusing on our continental Europe portfolios in line
with regulatory expectations.
– In 2023, we provided practical guidance and training, where
relevant, to our colleagues across the Group on how to identify
and manage human rights risk. For further details, see page 89.
– We have expanded the scope of financial reporting risk to explicitly
include oversight over accuracy and completeness of climate-
related and broader ESG disclosures. In 2023, we updated the risk
appetite statement to reference our ESG and climate-related
disclosures. We also updated our internal controls to incorporate
requirements for addressing the risk of misstatement in climate-
related and broader ESG disclosures. To support this, we have
developed a framework to guide control implementation over
climate-related and broader ESG disclosures, which includes areas
such as process and data governance, and risk assessment.
– We continue to engage with our customers, investors and
regulators proactively on the management of climate-related and
broader 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’ on page 231.
We may face model risk, as the uncertain and evolving impacts of
climate change and data and methodology limitations present
challenges to creating reliable and accurate model outputs.
Our ESG review can be found on page 42.
Financial crime risk
We may face climate and broader ESG-related litigation and regulatory
enforcement risks, either directly if stakeholders think that we are not
adequately managing climate and broader ESG-related risks, or
indirectly if our clients and customers are themselves the subject of
litigation, potentially resulting in the revaluation of client assets.
We may also be exposed to nature-related risks beyond climate
change. These risks arise when the provision of ecosystem services,
such as water availability, air quality and soil quality, is compromised
by human activity. Nature risk can manifest through macroeconomic,
market, credit, reputational, legal and regulatory risks, for both HSBC
and our customers.
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
– A dedicated Environmental Risk Oversight Forum is responsible
for shaping and overseeing our approach and providing support in
managing climate and sustainability risk. For further details of the
Group’s ESG governance structure, see page 88.
– 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 continue to enhance our
approach and mitigation of the risk of greenwashing.
– In January 2024, we updated our 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. We also updated our
thermal coal phase-out policy, which aims to drive thermal coal
phase-out aligned to science-based timeframes. We take a risk-
based approach in the way that we identify transactions and
clients to which our energy and thermal coal phase-out policies
apply, and report on relevant exposures, adopting approaches
proportionate to risk and materiality. For further details of our
sustainability risk policies, see page 67.
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Financial institutions remain under considerable regulatory scrutiny
regarding their ability to detect and prevent financial crime. In 2023,
these risks were exacerbated by rising geopolitical tensions and
ongoing macroeconomic factors. These challenging developments
require managing conflicting laws and approaches to legal and
regulatory regimes, and implementing increasingly complex and less
predictable sanctions and trade restrictions.
Amid high levels of inflation and increasing cost of living pressures,
we face increasing regulatory expectations with respect to managing
internal and external fraud and protecting vulnerable customers. In
addition, the accessibility and increasing sophistication of generative
AI brings financial crime risks. While there is potential for the
technology to support financial crime detection, there is also a risk
that criminals use generative AI to perpetrate fraud, particularly
scams.
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 continue to increase with respect to the intersection of
ESG issues and financial crime, as our organisation, customers and
suppliers transition to net zero. 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 seek to manage sanctions and trade restrictions
through the use of reasonably designed policies, procedures and
controls, which are subject to ongoing testing, auditing and
enhancements.
– We continue to develop our fraud controls and invest in
capabilities to fight financial crime through the application of
advanced analytics and AI, while monitoring technological
developments and engaging with third parties.
– 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 regularly review our existing policies and control framework so
that developments relating to ESG are considered and the financial
crime risks are mitigated to the extent possible.
– We engage with regulators, policymakers and relevant
international bodies, seeking to address data privacy challenges
through international standards, guidance and legislation.
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 to address evolving
customer requirements, 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 generative AI, large language models
blockchain and quantum computing offer both business opportunities
and potential risks for HSBC. As with the use of all 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 and advances in
technology, as well as changes in customer behaviours, to
understand how these may impact our business.
– We assess new technologies to help develop appropriate controls
and maintain resilience.
– We closely monitor and assess financial crime risk and the impact
on payment transparency and architecture.
Evolving regulatory environment risk
We aim to keep abreast of the emerging regulatory compliance and
conduct risk agenda. Current focus areas include but are not limited
to: ESG agenda developments, including in particular managing the
risk of ‘greenwashing’; ensuring good customer outcomes, including
addressing customer vulnerabilities due to cost of living pressures;
enhancements to regulatory reporting controls; and employee
compliance, including the use of e-communication channels.
The competitive landscape in which the Group operates may be
impacted by future regulatory changes and government intervention.
Mitigating actions
– We monitor regulatory developments to understand the evolving
regulatory landscape, and seek to respond with changes in a
timely manner.
– We engage with governments and regulators, and respond to
consultations with a view to help shape 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 purpose-led conduct approach aligns to our purpose and
values, in particular the value ‘we take responsibility’.
Internally driven
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.
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 continue to make improvements to our data policies and to our
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 AI.
– 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.
Risks arising from the receipt of services
from third parties
We use third parties to provide a range of goods and services. 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 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 have strengthened the way third-party risk is overseen and
managed across all non-financial risks, and have enhanced our
processes, framework and reporting capabilities to help improve
the visibility of risk and enable more robust management of our
material third parties by our global businesses, functions and
regions.
– 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.
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143
Risk review Risk review
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. Some models have been approved and a number are
pending approval decisions from the UK’s Prudential Regulation
Authority (‘PRA’) and other key regulators. 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. Focus is also on
AI and machine learning where the pace of technological advances is
driving significant changes in modelling techniques.
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 the PRA’s publication of supervisory statement 1/23
(SS1/23) which provided revised principles on how model risk should
be managed, as well as further developments in policy expected from
other regulators.
Mitigating actions
– We have continued to embed the enhanced monitoring, review
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.
– A programme of work is in progress to address the requirements
of the new PRA guidance for managing model risk.
– Model Risk Governance committees at the Group, business and
functional levels continue to provide oversight of model risk.
– A full review of the Group’s model landscape is being undertaken
across the organisation to ensure models are being deployed in
line with global business strategy.
– 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 AI or generative AI 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.
Change execution risk
The needs of our customers are evolving faster than ever, particularly
with regard to technological advancements and the global transition to
a low-carbon economy. The resulting scale, complexity and pace of
strategic and regulatory change have elevated the level of risk for
executing such changes safely and efficiently.
Mitigating actions
– Change execution risk is part of our risk taxonomy and control
library so that it is defined, assessed, managed, reported and
overseen in the same way as our other material risks.
– Our change framework provides colleagues across all levels of the
Group who deliver on strategic and organisational initiatives with a
common and consistent understanding of their role in achieving
value and outcomes.
– The Change Prioritisation and Oversight Committee oversees the
prioritisation, strategic alignment and management of execution
risk for all strategic change portfolios and initiatives.
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. Failure to manage these risks may have an impact on the
delivery of our strategic objectives. It could also result in poor
customer outcomes or a breach of employment laws and regulations,
which may lead to regulatory sanctions or legal claims.
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.
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Our material banking risks
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 147)
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; and
by setting limits and appetite across geographical markets, portfolios
or sectors.
Treasury risk (see page 203)
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.
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 net zero
economy.
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.
Market risk arises from both trading
portfolios and non-trading portfolios.
Market risk for non-trading portfolios is
discussed in the Treasury risk section
on page 215.
Market risk exposures arising from our
insurance operations are discussed on
page 235.
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.
Climate risk is:
– measured using risk metrics and stress testing;
– monitored against risk appetite statements; and
– managed through adherence to risk appetite thresholds, through
specific policies, and through enhancements to processes and
development of tools including the development of product market
controls to manage the risk of greenwashing and the development of
portfolio steering capabilities to manage our net zero targets.
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;
–
– net zero alignment risk, which arises
from failing to meet our net zero
commitments or to meet external
expectations related to net zero
because of inadequate ambition and/
or plans, poor execution, or inability
to adapt to changes in the external
environment; and
the risk of greenwashing, which
arises from the act of knowingly or
unknowingly making inaccurate,
unclear, misleading or
unsubstantiated claims regarding
sustainability to stakeholders.
–
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.
Resilience risk arises from failures or
inadequacies in processes, people,
systems or external events.
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.
HSBC Holdings plc Annual Report and Accounts 2023
145
Risk review Risk review
Description of risks – banking operations (continued)
Risks
Arising from
Measurement, monitoring and management of risk
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 (including
unauthorised trading) 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 arises from day-to-
day banking operations involving
customers, third parties and employees.
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 the
potential for adverse
consequences from model errors
or the inappropriate use of
modelled outputs to inform
business decisions.
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.
– monitored against model risk appetite statements, insight from the
independent validations completed by the model risk management
team, 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.
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.
Model risk arises in both financial and
non-financial contexts whenever
business decision making includes
reliance on models.
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;
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
Description of risks – insurance manufacturing operations
Risks
Arising from
Measurement, monitoring and management of risk
Financial risk (see page 235)
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.
Insurance risk (see page 237)
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.
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.
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.
146
HSBC Holdings plc Annual Report and Accounts 2023
Credit risk
Contents
147
147
149
149
153
154
Overview
Credit risk management
Credit risk in 2023
Summary of credit risk
Stage 2 decomposition
Assets held for sale
Credit exposure
155
156 Measurement uncertainty and sensitivity analysis of ECL
estimates
168
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
172
176 Wholesale lending
190
Personal lending
198
202
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 2023
There were no material changes to the policies and practices for the
management of credit risk in 2023. We continued to apply the
requirements of IFRS 9 ‘Financial Instruments’ within the Credit Risk
sub-function. For our wholesale portfolios, we introduced new
policies for the management of country risk, subordinated debt
assessments, and a revised risk appetite framework. Implementation
of these changes did not have a material impact on our wholesale
portfolios.
We actively managed the risks related to macroeconomic
uncertainties, including interest rates, inflation, fiscal and monetary
policy, broader geopolitical uncertainties and conflicts.
For further details, see ‘Top and emerging risks’ on page 140.
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 central team and
individually for each region. 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 and Compliance Officer for Wealth and
Personal Banking Risk, as well as the relevant global business’s 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
customers, and the external ratings attributed by external agencies to
debt securities.
HSBC Holdings plc Annual Report and Accounts 2023
147
Risk review Risk review
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. Our definition of forborne captures non-payment-related
concessions, such as covenant waivers.
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
148
HSBC Holdings plc Annual Report and Accounts 2023
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.
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)
Under IFRS 9, write-off should occur when there is no reasonable
expectation of recovering further cash flows from the financial asset.
This principle does not prohibit early write-off, which is defined in
local policies to ensure effectiveness in the management of
customers in the collections process.
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 avoid unfair customer outcomes, deliver customer
duty or meet regulatory expectations, the period 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. Where these assets are
maintained on the balance sheet beyond 60 months of consecutive
delinquency-driven default, the prospect of recovery is reassessed.
Recovery activity, on both secured and unsecured assets, may
continue after write-off.
Any unsecured exposures that are not written off at 180 days past
due, and any secured exposures that are in ‘default’ status for 60
months or greater but are not written off, are subject to additional
monitoring via the appropriate governance forums.
Credit risk in 2023
At 31 December 2023, gross loans and advances to customers and
banks of $1,063bn increased by $23.1bn, compared with
31 December 2022. This included favourable foreign exchange
movements of $17.7bn.
Excluding foreign exchange movements, the underlying increase of
$5.4bn was driven by a $21.1bn rise in personal loans and advances
to customers and a $8.9bn rise in loans and advances to banks. These
were partly offset by a $24.6bn decrease in wholesale loans and
advances to customers.
The underlying increase in personal loans and advances to customers
was mainly driven by an increase in France (up $7.8bn) due to the
retention of a portfolio of home loans and other loans previously
classified as assets held for sale. It also comprised increases in the
UK (up $6.6bn), in Hong Kong (up $5.8bn), in Mexico (up $2.3bn) and
in Australia (up $1.4bn) driven by mortgage growth. These were partly
offset by a decrease of $1.2bn due to the merger of our business in
Oman and a decrease of $1.0bn due to the disposal of our retail
mortgage loan portfolio in New Zealand.
The underlying increase in loans and advances to banks was driven by
central bank balances and money market lending growth in Singapore
(up $6.5bn), Hong Kong (up $5.1bn) and the UK (up $2.8bn). These
were partly offset by decreases in mainland China (down $2.6bn),
Malaysia (down $1.6bn) and Switzerland (down $1.4bn).
The underlying decrease in wholesale loans and advances to
customers was driven by a $31.5bn reduction in corporate and
commercial balances, of which $13.7bn in stage 1 and $16.8bn in
stage 2. The decrease was observed mainly in Hong Kong (down
$18.6bn), in the UK (down $5.4bn) and in mainland China (down
$2.2bn), driven by repayments and deleveraging, as well as de-risking
measures on mainland China commercial real estate exposures. It
also comprised a decrease in Oman (down $2.1bn) due to the merger
of our operations in the country. This was partly offset by an increase
in balances with non-bank financial institutions (up $6.8bn) mainly in
stage 1 in HSBC UK (up $5.2bn) due to the acquisition of SVB UK.
At 31 December 2023, the allowance for ECL of $12.0bn decreased
by $0.6bn compared with 31 December 2022, including adverse
foreign exchange movements of $0.2bn. The $12.0bn allowance
comprised $11.5bn 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 decreased by $0.6bn
from 31 December 2022. This was attributable to:
– a $0.5bn decrease in wholesale loans and advances to customers
driven by stages 1 and 2; and
– a $0.1bn decrease in personal loans and advances to customers
driven by stages 1 and 2.
Stage 3 balances and allowances for ECL at 31 December 2023
remained broadly stable compared with 31 December 2022, as write-
offs and repayments offset new and additional allowances.
In wholesale lending, mainland China’s commercial real estate sector
continued to deteriorate in 2023, resulting in new and additional stage
3 charges during the year.
The ECL charge for 2023 was $3.4bn, inclusive of recoveries. This
was driven by net stage 3 charges, including $1.0bn in the mainland
China commercial real estate sector, as well as the impact of
continued economic uncertainty in other markets, rising interest rates
and inflationary pressures.
The ECL charge comprised: $2.3bn in respect of wholesale lending, of
which the stage 3 charge was $2.2bn; $1.0bn in respect of personal
lending, of which $0.7bn were in stage 3; and $0.1bn in respect of
debt instruments measured at FVOCI.
Income statement movements are analysed further on page 103.
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 155;
– measurement uncertainty and sensitivity analysis of ECL
estimates, see page 156;
– 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 168;
– credit quality, see page 172;
– total wholesale lending for loans and advances to banks and
customers by stage distribution, see page 177;
– wholesale lending collateral, see page 187;
– total personal lending for loans and advances to customers at
amortised cost by stage distribution, see page 191; and
– personal lending collateral, see page 197.
Summary of credit risk
We have adopted the recommendations of the Taskforce on
Disclosures about Expected Credit Losses (’DECL’) to provide
disclosures that help investors and other stakeholders better
understand the risks we manage.
The DECL Taskforce, which was jointly established by the Financial
Conduct Authority, Financial Reporting Council and the Prudential
Regulation Authority, was created to help guide ECL disclosure
practice and to encourage consistency and comparability across
financial institutions.
The following sections of this report include new and redesigned
disclosures addressing the taskforce’s recommendations from its
third report, which was published in September 2022. For further
details of:
– stage 2 decomposition for loans and advances to banks and
personal lending products, see page 153;
– residual average life for personal and wholesale lending by
product, see page 153;
– alignment of management judgemental adjustments to the DECL
definition with additional qualitative and quantitative granularity,
see page 163;
– reconciliation of management judgemental adjustments to
reported ECL, see page 163;
– enhanced wholesale ECL sensitivity to future economic
conditions, see page 165;
– enhanced retail ECL sensitivity to future economic conditions, see
page 166;
– reconciliation from reported exposure and ECL to sensitised
exposure and weighted ECL, see page 168;
– reconciliation of changes in gross carrying amount and allowances
for loans and advances to banks and customers, see page 171;
– reconciliation of changes in nominal amount and allowances for
loan commitments and financial guarantees, see page 171;
HSBC Holdings plc Annual Report and Accounts 2023
149
Risk review Risk review
– wholesale lending – credit risk profile by obligor grade for loan and
other credit-related commitments and financial guarantees, see
page 182;
– Personal lending – credit risk profile by internal PD band for loan
and other credit-related commitments and financial guarantees,
see page 197.
– first lien residential mortgages – reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees,
see page 194;
– credit cards – reconciliation of changes in gross carrying/nominal
amount and allowances for loans and advances to customers
including loan commitments and financial guarantees, see
page 195;
– other personal lending – reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees,
see page 195;
– enhanced personal lending – credit risk profile by internal PD band
for loans and advances to customers at amortised cost, see
page 196; and
Comparative information for the prior period has not been presented
in the Annual Report and Accounts 2023 for the majority of the new
disclosures as we recognised and prioritised the importance of
increasing the comparability of our external disclosures within the
timeline recommended by the DECL Taskforce. While prior period
information can be valuable in certain contexts, at 31 December 2023
we believed the prospective expansion of the level of disclosures
outweighed the benefits of presenting data from prior years.
Comparative information is expected to be disclosed from the Annual
Report and Accounts 2024.
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 2023
At 31 Dec 2022
Loans and advances to customers at amortised cost
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
Financial guarantees
Total nominal amount off-balance sheet4
Gross carrying/
nominal amount
$m
949,609
112,917
960,271
285,868
6,342
42,024
252,217
148,346
103,186
122,288
2,022,797
661,015
17,009
678,024
2,700,821
Allowance for
ECL1
$m
(11,074)
(15)
(422)
—
—
—
—
(20)
(324)
(78)
(11,511)
(367)
(39)
(406)
(11,917)
Gross carrying/
nominal amount
Allowance for
ECL1
$m
(11,447)
(69)
(493)
(3)
—
—
—
(20)
(415)
(55)
(12,009)
(386)
(52)
(438)
(12,447)
$m
935,008
104,544
954,934
327,005
7,297
43,787
253,754
109,086
102,556
111,449
1,994,486
618,788
18,783
637,571
2,632,057
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
302,348
(97)
265,147
(126)
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 154. At
31 December 2023, the gross carrying amount comprised $84,074m of loans and advances to customers and banks (2022: $81,221m) and $19,112m
of other financial assets at amortised cost (2022: $21,334m). The corresponding allowance for ECL comprised $303m of loans and advances to
customers and banks (2022: $392m) and $21m of other financial assets at amortised cost (2022: $23m).
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 331 comprises both financial and non-financial assets, including cash collateral and
settlement accounts.
3
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.
150
HSBC Holdings plc Annual Report and Accounts 2023
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 December 2023
(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
$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
2023
809,384 120,871 19,273
81 949,609 (1,130) (2,964) (6,950)
(30) (11,074)
396,534 47,483
3,505 — 447,522
(579) (1,434)
(854) — (2,867)
0.1
0.1
2.5
3.0
36.1
24.4
37.0
—
1.2
0.6
342,878 69,738 14,958
81 427,655
(499) (1,500) (5,774)
(30) (7,803)
0.1
2.2
38.6
37.0
1.8
69,972
3,650
810 — 74,432
(52)
(30)
(322) —
(404)
0.1
0.8
39.8
—
0.5
111,479
1,436
2 — 112,917
(10)
(3)
(2) —
(15)
—
0.2
100.0
—
—
946,873 12,734
664 — 960,271
(109)
(132)
(181) —
(422)
—
1.0
27.3
—
—
630,949 28,922
1,140
4 661,015
(153)
(128)
(86) —
(367)
253,183
3,459
355 — 256,997
(23)
—
(2) —
(25)
246,210 20,928
736
4 267,878
(120)
(119)
(83) —
(322)
131,556
4,535
49 — 136,140
(10)
(9)
(1) —
(20)
14,746
1,879
384 — 17,009
1,106
13
— —
1,119
(7)
—
(7)
—
(25) —
(39)
— —
—
—
—
—
—
—
—
10,157
1,290
330 — 11,777
3,483
576
54 —
4,113
(6)
(1)
(6)
(1)
(24) —
(36)
(1) —
(3)
0.1
—
0.4
—
0.6
0.2
0.4
—
0.5
0.2
7.5
0.6
11.3
2.0
6.5
—
7.3
1.9
—
—
—
—
—
—
—
—
0.1
—
0.1
—
0.2
—
0.3
0.1
2,513,431 165,842 21,463
85 2,700,821 (1,409) (3,234) (7,244)
(30) (11,917)
0.1
2.0
33.8
35.3
0.4
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 DPD 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 2023
(Audited)
Gross carrying amount
Allowance for ECL
ECL coverage %
Stage 2
$m
Up-to-
date
$m
1 to 29
DPD1
$m
30 and
> DPD1 Stage 2
$m
$m
Up-to-
date
$m
1 to 29
DPD1
$m
30 and
> DPD1 Stage 2
%
$m
Up-to-
date
%
1 to 29
DPD1
%
30 and >
DPD1
%
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
120,871 116,320
2,571
1,980
(2,964)
(2,458)
47,483 44,634
1,785
1,064
(1,434)
(974)
(245)
(214)
(261)
(246)
69,738 68,446
697
595
(1,500)
(1,454)
(31)
(15)
3,650
3,240
89
321
(30)
(30)
—
1,436
1,424
—
12
(3)
(3)
—
—
—
2.5
3.0
2.2
0.8
0.2
2.1
2.2
2.1
0.9
0.2
9.5
12.0
4.4
—
—
13.2
23.1
2.5
—
—
12,734 12,417
171
146
(132)
(113)
(9)
(10)
1.0
0.9
5.3
6.8
1 The days past due amounts presented above are on a contractual basis.
HSBC Holdings plc Annual Report and Accounts 2023
151
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 2022
(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 2022
776,299 139,076 19,504
129
935,008 (1,092) (3,488) (6,829)
(38) (11,447)
362,677 48,866 3,339 —
414,882
(561) (1,504)
(805) — (2,870)
0.1
0.2
2.5
3.1
35.0
24.1
29.5
—
1.2
0.7
351,885 85,492 15,696
129
453,202
(488) (1,907) (5,887)
(38) (8,320)
0.1
2.2
37.5
29.5
1.8
61,737 4,718
469 —
66,924
(43)
(77)
(137) —
(257)
0.1
1.6
29.2
—
0.4
102,723 1,739
82 —
104,544
(18)
(29)
(22) —
(69)
—
1.7
26.8
—
0.1
938,798 15,339
797 —
954,934
(95)
(165)
(233) —
(493)
—
1.1
29.2
—
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
551 —
269,187
(111)
(166)
(63) —
(340)
102,549 3,024
22 —
105,595
(4)
(13)
(2) —
(19)
16,071 2,463
249 —
18,783
1,123
11
1 —
1,135
11,547 1,793
247 —
13,587
3,401
659
1 —
4,061
(6)
—
(5)
(1)
(13)
—
(33) —
(52)
— —
—
(12)
(33) —
(50)
(1)
— —
(2)
(38) (12,447)
2,417,274 192,650 22,004
129 2,632,057 (1,352) (3,875) (7,182)
—
—
—
—
—
—
—
—
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
—
—
—
—
—
—
—
—
29.5
0.1
—
0.1
—
0.3
—
0.4
—
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 2022
(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
$m
30 and >
DPD1
$m
Stage
2
$m
Up-to-
date
$m
1 to 29
DPD1
$m
30 and >
DPD1
$m
139,076 134,680
2,410
1,986 (3,488)
(3,017)
48,866 46,378
85,492 83,976
1,682
712
806 (1,504)
804 (1,907)
(1,080)
(1,860)
(234)
(214)
(20)
(237)
(210)
(27)
4,718
4,326
16
376
(77)
(77)
—
1,739
1,729
—
10
(29)
(29)
—
—
—
%
2.5
3.1
2.2
1.6
1.7
Stage
2
Up-to-
date
15,339 15,103
140
96
(165)
(141)
(8)
(16)
1.1
1 to 29
DPD1
%
30 and >
DPD1
%
9.7
12.7
2.8
—
—
11.9
26.1
3.4
—
—
5.7
16.7
%
2.2
2.3
2.2
1.8
1.7
0.9
1 The days past due amounts presented above are on a contractual basis.
152
HSBC Holdings plc Annual Report and Accounts 2023
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 and banks. 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 2023.
The quantitative classification shows gross carrying amount and
allowances for ECL for which the applicable reporting date probability
of default (‘PD’) measure exceeds defined quantitative thresholds for
Loans and advances to customers and banks1,2
retail and wholesale exposures, as set out in Note 1.2 ‘Summary of
material accounting policies’, on page 348.
The qualitative classification primarily accounts for customer risk
rating (‘CRR’) deterioration, watch-and-worry and retail management
judgemental adjustments.
A summary of our current policies and practices for the significant
increase in credit risk is set out in ‘Summary of material accounting
policies’ on page 348.
At 31 Dec 2023
Loans and advances to customers
of which:
other
personal
lending3
Corporate
and
commercial
Non-bank
financial
institutions
Quantitative
Qualitative
of which: forbearance
30 DPD backstop4
Total gross carrying amount
Quantitative
Qualitative
of which: forbearance
30 DPD backstop4
Total allowance for ECL
Personal
first lien
mortgage
$m
35,742
11,678
171
63
47,483
(1,103)
(324)
(4)
(7)
(1,434)
$m
31,178
7,077
69
32
38,287
(149)
(50)
—
(1)
(200)
credit
cards3
$m
1,940
2,477
34
2
4,419
(554)
(142)
(1)
(1)
(697)
$m
2,624
2,124
68
29
4,777
(400)
(132)
(3)
(5)
(537)
$m
53,034
16,241
982
463
69,738
(1,225)
(270)
(11)
(5)
(1,500)
ECL coverage %
3.0
0.5
15.8
11.2
2.2
Residual average life5 (in years)
16.0
19.3
<1.0
4.1
2.5
Loans and advances to customers1
Loans and
advances
to banks at
amortised
cost Total stage 2
$m
2,955
653
2
42
3,650
(24)
(6)
—
—
(30)
0.8
1.2
$m
781
642
—
13
1,436
(1)
(2)
—
—
(3)
0.2
<1.0
$m
92,512
29,214
1,155
581
122,307
(2,353)
(602)
(15)
(12)
(2,967)
2.4
At 31 Dec 2022
Gross carrying amount
Corporate
and
commercial
Non-bank
financial
institutions
Personal
Allowance for ECL
Corporate
and
commercial
Non-bank
financial
institutions
Total
Personal
$m
41,610
7,209
47
48,866
$m
66,421
18,555
516
85,492
$m
$m
3,679 111,710
26,642
724
4,718 139,076
878
161
$m
(1,302)
(200)
(2)
(1,504)
$m
(1,642)
(262)
(3)
(1,907)
$m
(66)
(11)
—
(77)
ECL
coverage
Total
$m
(3,010)
(473)
(5)
(3,488)
Total
%
2.7
1.8
0.7
2.5
Quantitative
Qualitative
30 DPD backstop4
Total stage 2
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 Stage 2 decomposition for loans and advances to banks and personal lending products have been reported for the first time at 31 December 2023
following the adoption of the recommendations of the DECL Taskforce’s third report.
3 The higher relative contribution of qualitative stage 2 for credit cards and other personal lending is due to management judgemental adjustments,
primarily affordability.
4 Days past due (‘DPD’).
5 Calculated as the difference between final contractual maturities and the reporting date, weighted based on the contribution of the instrument to the
stage 2 total gross carrying amount of the corresponding product or sector.
HSBC Holdings plc Annual Report and Accounts 2023
153
Risk review
Risk review
Assets held for sale
(Audited)
At 31 December 2023, the most material balances held for sale arose
from our banking business in Canada and 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:
– ‘Maximum exposure to credit risk’ (page 155); and
– ‘Distribution of financial instruments by credit quality at
31 December’ (page 172);
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’.
Loans and advances to customers and banks measured at amortised cost
(Audited)
As reported
Reported in ‘Assets held for sale’
At 31 December
2023
2022
Total gross loans and
advances
Allowance for ECL
Total gross loans and
advances
Allowance for ECL
$m
1,062,526
84,075
1,146,601
$m
(11,089)
(303)
(11,392)
$m
1,039,552
81,221
1,120,773
$m
(11,516)
(392)
(11,908)
At 31 December 2023, gross loans and advances of our banking
business in Canada were $56.5bn, and the related allowance for ECL
was $0.2bn. Gross loans of our retail banking operations in France
were $27.3bn, and the related allowance for ECL was $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 2023 of loans and advances to banks and customers
classified as held for sale, see Note 23 on the financial statements.
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
Gross
carrying
amount
$m
56,349
27,071
27,789
1,489
154
56,503
55,431
26,637
27,128
1,666
100
55,531
Allowance
for ECL
$m
(220)
(95)
(120)
(5)
—
(220)
(234)
(75)
(154)
(5)
—
(234)
Gross
carrying
amount
$m
16,984
13,920
3,012
52
10,333
27,317
25,121
22,691
2,379
51
—
25,121
Allowance
for ECL
$m
(82)
(79)
(3)
—
—
(82)
(92)
(88)
(4)
—
—
(92)
Other
Total
Gross
carrying
amount
$m
Allowance
for ECL
$m
Gross
carrying
amount
$m
255
140
—
115
—
255
412
305
107
—
157
569
(1)
(1)
—
—
—
(1)
(62)
(47)
(15)
—
(4)
(66)
73,588
41,131
30,801
1,656
10,487
84,075
80,964
49,633
29,614
1,717
257
81,221
Allowance
for ECL
$m
(303)
(175)
(123)
(5)
—
(303)
(388)
(210)
(173)
(5)
(4)
(392)
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 2023
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
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 business in Canada.
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
154
HSBC Holdings plc Annual Report and Accounts 2023
2023
$m
(49)
(3,398)
(3,447)
2022
$m
(5)
(3,579)
(3,584)
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 2023 is provided on page 108. The offset of derivatives remains in line with the movements
in maximum exposure amounts.
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
347 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 187.
‘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 trading assets, financial assets designated and
otherwise mandatorily measured at fair value through profit or loss, and
financial investments measured at fair value through other
comprehensive income as their carrying amount best represents the net
exposure to credit risk. Equity securities are also excluded 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.
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
938,535
444,655
419,852
74,028
112,902
973,316
285,868
6,342
42,024
252,217
148,326
114,134
124,405
229,714
2,254,467
1,007,885
111,102
896,783
3,262,352
2023
Offset
$m
(22,607)
(2,470)
(18,771)
(1,366)
—
(13,919)
—
—
—
(13,919)
—
—
—
(222,059)
(258,585)
—
—
—
(258,585)
Net
$m
915,928
442,185
401,081
72,662
112,902
959,397
285,868
6,342
42,024
238,298
148,326
114,134
124,405
7,655
1,995,882
1,007,885
111,102
896,783
3,003,767
Maximum
exposure
$m
923,561
412,012
444,882
66,667
104,475
970,119
327,002
7,297
43,787
253,754
109,066
115,919
113,294
284,159
2,282,314
934,329
106,861
827,468
3,216,643
2022
Offset
$m
(20,315)
(2,575)
(16,262)
(1,478)
—
(8,969)
—
—
—
(8,969)
—
—
—
(273,497)
(302,781)
—
—
—
(302,781)
Net
$m
903,246
409,437
428,620
65,189
104,475
961,150
327,002
7,297
43,787
244,785
109,066
115,919
113,294
10,662
1,979,533
934,329
106,861
827,468
2,913,862
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 190 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
176 for wholesale lending and page 190 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.
HSBC Holdings plc Annual Report and Accounts 2023
155
Risk review Risk review
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 assessed the current economic environment, reviewed
the latest economic forecasts and discussed key risks before
selecting the economic scenarios and their weightings.
Scenarios were constructed to reflect the latest geopolitical risks and
macroeconomic developments, including the Israel-Hamas war and
subsequent disruptions in the Red Sea, and current inflation and
monetary policy expectations.
Management judgemental adjustments are used where modelled
ECL does not fully reflect the identified risks and related uncertainty,
or to capture significant late-breaking events.
At 31 December 2023, there was an overall reduction in management
judgemental adjustments compared with 31 December 2022, as
modelled outcomes better reflected the key risks at 31 December
2023.
Methodology
At 31 December 2023, four scenarios were used to capture the latest
economic expectations and to articulate management’s view of the
range of risks and potential outcomes. Each scenario is updated with
the latest economic forecasts and estimates every quarter.
Three scenarios, the Upside, Central and Downside, are drawn from
external consensus forecasts, market data and distributional
estimates of the entire range of economic outcomes. The fourth
scenario, the Downside 2, represents management’s view of severe
downside risks.
The Central scenario is deemed the ‘most likely’ scenario, and usually
attracts the largest probability weighting. It is created using
consensus forecasts, which is the average of a panel of external
forecasts.
The outer scenarios represent the tails of the distribution and are less
likely to occur. The consensus Upside and Downside scenarios are
created with reference to distributions for select markets that capture
forecasters’ views of the entire range of economic outcomes. In the
later years of those scenarios, projections revert to long-term
consensus trend expectations. Reversion to trend is done with
reference to historically observed quarterly changes in the values of
macroeconomic variables.
The fourth scenario, the Downside 2, is designed to represent
management’s view of severe downside risks. It is a globally
consistent, narrative-driven scenario that explores a more extreme
economic outcome than those captured by the consensus scenarios.
In this scenario, variables do not, by design, revert to long-term trend
expectations and 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 calibrated to be consistent with a 10% probability. The
Downside 2 is calibrated to 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 and forecasts are determined to be particularly uncertain and
risks are elevated.
In the fourth quarter of 2023, the weights were consistent with the
calibrated scenario probabilities, as key risk metrics implied a decline
in the uncertainty attached to the Central scenario, compared with the
fourth quarter of 2022. Economic forecasts for the Central scenario
remained stable, and the dispersion within consensus forecast panels
remained low, even as the Israel-Hamas war escalated. Risks,
including the economic consequences of a broader war in the Middle
East, were reflected in the Downside scenarios.
156
HSBC Holdings plc Annual Report and Accounts 2023
Scenarios produced to calculate ECL are aligned to HSBC’s top and
emerging risks.
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.
Forecasts remain subject to uncertainty and variability. Outer
scenarios are constructed so that they capture risks that could alter
the trajectory of the economy and are designed to encompass the
potential crystallisation of key macro-financial risks.
In our key markets, Central scenario forecasts remained broadly
stable in the fourth quarter of 2023, compared with the third quarter
of 2023. The key exception was with regard to monetary policy,
where expectations for interest rate cuts were brought forward.
There continue to be expectations that 2024 will be a period of below
trend growth, with inflation remaining above central bank targets.
At the end of 2023, risks to the economic outlook included a number
of significant geopolitical issues. Within our Downside scenarios, the
economic consequences from the crystallisation of those risks were
captured by higher commodity and goods prices, the reacceleration of
inflation, a further rise in interest rates and a global recession.
The scenarios used to calculate ECL in the Annual Report and
Accounts 2023 are described below.
The consensus Central scenario
HSBC’s Central scenario reflects expectations for a low growth and
high interest rate environment across many of our key markets,
where GDP growth is expected to be lower in 2024 than in the
previous year.
Expectations of lower GDP growth in many markets in 2024 are
driven by the assumed lagged effects of higher interest rates and
inflation in North America and Europe. In the scenario, household
discretionary income remains under pressure and business margins
deteriorate amid higher refinancing costs. Growth only returns to its
long-term expected trend in later years, once inflation reverts back
towards central bank targets and interest rates stabilise at lower
levels.
In mainland China and Hong Kong, growth is also expected to be
moderately slower in 2024 relative to 2023. The economic boost from
post-pandemic reopening has faded, and slower global growth and
low trade volumes are expected to moderate activity. In mainland
China, the continued fall in investment in the property sector is
expected to act as a further brake on the economy, while in Hong
Kong, higher interest rates are expected to drive a further decline in
property valuations. Despite these headwinds, a steeper downturn is
expected to be avoided as the authorities in mainland China increase
fiscal and monetary support to the economy. Substantial fiscal
expansion is anticipated for 2024, alongside additional credit easing.
Global GDP is expected to grow by 2.2% in 2024 in the Central
scenario, and the average rate of global GDP growth is forecast to be
2.6% 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 of 2.9%.
The key features of our Central scenario are:
– GDP growth rates in our main markets are expected to slow down
in 2024, followed by a moderate recovery in 2025. The slowdown
in the UK is particularly notable in this scenario, with growth close
to zero through much of 2024. In the scenario, weaker growth is
caused by high interest rates, which act to deter consumption and
investment.
– In most markets, unemployment is expected to rise moderately as
economic activity slows, although it remains low by historical
standards.
– Inflation is expected to continue to fall as commodity prices
decline, supply disruptions abate, and wage growth moderates. It
is anticipated that inflation converges towards central banks’ target
rates by early 2025. In mainland China, weak consumption and
excess supply has caused inflation to drop sharply but, in the
scenario, deflation is not projected to persist.
– Weak conditions in housing markets are expected to persist
through 2024 and 2025 in many of our main markets, including the
UK, Hong Kong and mainland China, as higher interest rates and,
in many cases, declining prices, depress activity.
– Challenging conditions are also forecast to continue in the
commercial property sector in a number of our key markets.
Structural changes to demand in the office segment in particular
have driven lower valuations.
– Policy interest rates in key markets are forecast to have peaked
and are projected to decline in 2024. In the longer term, they are
expected to remain at a higher level than in recent years.
– The Brent crude oil price is forecast to average around $75 per
barrel over the projection period.
The Central scenario was created with forecasts available in late
November, and reviewed continually until the end of December 2023.
In accordance with HSBC’s scenario framework, a probability weight
of 75% has been assigned to the Central scenario across all major
markets.
The following tables describe key macroeconomic variables in the consensus Central scenario.
Consensus Central scenario 2024–2028 (as at 4Q23)
UK
US Hong Kong
Mainland
China
Canada
France
UAE
Mexico
GDP (annual average growth
rate, %)
2024
2025
2026
2027
2028
5-year average1
Unemployment rate (%)
2024
2025
2026
2027
2028
5-year average1
House prices (annual average
growth rate, %)
2024
2025
2026
2027
2028
5-year average1
Inflation (annual average growth
rate, %)
2024
2025
2026
2027
2028
5-year average
Central bank policy rate (annual
average, %)
2024
2025
2026
2027
2028
5-year average1
0.3
1.2
1.7
1.6
1.6
1.3
4.7
4.6
4.3
4.2
4.2
4.4
(5.5)
0.1
3.5
3.0
3.0
0.8
3.2
2.2
2.2
2.3
2.3
2.4
5.0
4.3
3.9
3.8
3.7
4.1
1.0
1.8
2.1
2.0
2.0
1.8
4.3
4.2
4.0
4.0
4.0
4.1
2.9
2.7
3.1
2.7
2.1
2.7
2.7
2.2
2.3
2.2
2.2
2.3
5.0
4.0
3.7
3.7
3.8
4.1
2.6
2.7
2.6
2.6
2.6
2.6
3.0
3.0
3.2
3.2
3.2
3.1
(6.6)
(0.7)
2.6
2.8
3.0
0.2
2.1
2.1
2.2
2.4
2.4
2.2
5.4
4.4
4.1
4.1
4.1
4.4
4.5
4.4
4.3
3.8
3.9
4.2
5.2
5.1
5.1
5.1
5.1
5.1
(0.6)
1.1
2.6
4.0
4.5
2.3
1.8
2.0
2.1
2.0
2.0
2.0
4.1
4.2
4.4
4.6
4.8
4.4
0.8
2.0
2.0
2.0
2.0
1.7
6.2
5.9
5.7
5.7
5.7
5.8
(4.8)
2.2
2.8
2.4
2.8
1.1
2.6
2.1
2.1
2.1
2.1
2.2
4.7
3.9
3.4
3.2
3.3
3.7
0.8
1.5
1.6
1.5
1.5
1.4
7.5
7.3
7.0
6.8
6.8
7.1
(1.0)
2.4
4.0
4.4
4.0
2.8
2.7
1.8
1.7
1.9
2.1
2.0
3.6
2.8
2.6
2.6
2.7
2.9
3.7
4.0
3.8
3.4
3.4
3.6
2.6
2.6
2.6
2.6
2.6
2.6
12.6
7.7
4.4
2.6
2.3
5.9
2.3
2.2
2.1
2.1
2.1
2.1
5.1
4.1
3.7
3.7
3.8
4.1
1.9
2.2
2.3
2.4
2.4
2.2
2.9
2.9
2.9
2.9
2.9
2.9
6.5
4.2
4.2
4.0
4.0
4.6
4.2
3.6
3.5
3.5
3.5
3.7
10.4
8.6
7.9
7.9
8.1
8.6
1 The five-year average is calculated over a projected period of 20 quarters from 1Q24 to 4Q28.
HSBC Holdings plc Annual Report and Accounts 2023
157
Risk review Risk review
Consensus Central scenario 2023–2027 (as at 4Q22)
GDP (annual average growth rate, %)
2023
2024
2025
2026
2027
5-year average1
Unemployment rate (%)
2023
2024
2025
2026
2027
5-year average1
House prices (annual average growth
rate, %)
2023
2024
2025
2026
2027
5-year average1
Inflation (annual average growth
rate,%)
2023
2024
2025
2026
2027
5-year average1
Central bank policy rate (annual
average, %)
2023
2024
2025
2026
2027
5-year average1
UK
(0.8)
1.3
1.7
1.7
1.7
1.1
4.4
4.6
4.3
4.1
4.1
4.3
0.2
(3.8)
0.7
2.1
2.7
0.4
6.9
2.5
2.1
2.0
2.0
3.1
4.4
4.2
3.7
3.4
3.1
3.8
US
Hong Kong
Mainland
China
Canada
France
UAE2
Mexico
0.2
1.5
2.0
2.0
2.0
1.5
4.3
4.5
4.2
3.9
4.0
4.2
(2.5)
(3.2)
(1.0)
0.7
2.5
(0.7)
4.1
2.5
2.2
2.3
2.3
2.7
4.7
3.8
3.0
2.9
2.9
3.5
2.7
3.0
2.7
2.6
2.6
2.7
3.7
3.5
3.4
3.3
3.3
3.4
(10.0)
(3.0)
1.7
2.8
3.4
(1.0)
2.1
2.1
2.0
2.1
2.1
2.1
5.2
4.3
3.5
3.3
3.3
3.9
4.6
4.8
4.7
4.4
4.4
4.6
5.2
5.1
5.0
4.9
4.8
5.0
(0.1)
2.9
3.5
4.1
4.3
2.9
2.4
2.2
2.2
2.1
2.1
2.2
4.6
4.9
5.1
5.3
5.5
5.1
0.6
1.9
2.0
1.8
1.8
1.6
6.1
5.9
6.0
5.9
5.9
5.9
(15.6)
(1.2)
4.0
4.1
3.0
(1.1)
3.5
2.2
2.1
2.0
2.0
2.4
4.3
3.9
3.4
3.1
3.2
3.6
0.2
1.6
1.5
1.4
1.4
1.2
7.6
7.5
7.3
7.2
7.2
7.3
1.8
2.0
3.1
3.5
3.6
2.8
4.6
2.0
1.8
1.7
1.7
2.4
2.7
2.7
2.4
2.3
2.3
2.5
3.7
3.7
3.1
2.8
2.9
3.2
2.9
2.8
2.8
2.8
2.8
2.8
5.9
5.2
4.5
3.3
2.9
4.4
3.2
2.2
2.1
2.1
2.1
2.3
6.1
5.2
4.4
4.3
4.3
4.9
1.2
2.0
2.3
2.0
2.0
1.9
3.7
3.7
3.5
3.5
3.5
3.6
7.9
5.2
4.2
4.1
3.9
5.1
5.7
4.1
3.7
3.7
3.7
4.2
10.3
8.1
7.2
7.3
7.8
8.1
1 The five-year average is calculated over a projected period of 20 quarters from 1Q23 to 4Q27.
The graphs compare the Central scenario at the year end 2022 with economic expectations at the end of 2023.
GDP growth: Comparison of Central scenarios
Hong Kong
Mainland China
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
100
8.0
90
80
70
60
50
40
30
20
10
0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
4Q22 Central 5Y Average: 2.7%
4Q23 Central 5Y Average: 2.6%
100
90
80
70
60
50
40
30
20
10
0
4Q22 Central 5Y Average: 4.6%
4Q23 Central 5Y Average: 4.2%
2023
2024
2025
2026
2027
2028
2023
2024
2025
2026
2027
2028
4Q22 Central
4Q23 Central
4Q22 Central
4Q23 Central
Note: Real GDP shown as year-on-year percentage change.
Note: Real GDP shown as year-on-year percentage change.
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HSBC Holdings plc Annual Report and Accounts 2023
UK
3.5
2.5
1.5
0.5
‐0.5
‐1.5
‐2.5
US
100
3.5
90
80
70
60
50
40
30
20
10
0
2.5
1.5
0.5
‐0.5
‐1.5
‐2.5
4Q22 Central 5Y Average: 1.1%
4Q23 Central 5Y Average: 1.3%
100
90
80
70
60
50
40
30
20
10
0
4Q22 Central 5Y Average: 1.5%
4Q23 Central 5Y Average: 1.8%
2023
2024
2025
2026
2027
2028
2023
2024
2025
2026
2027
2028
4Q22 Central
4Q23 Central
4Q22 Central
4Q23 Central
Note: Real GDP shown as year-on-year percentage change.
Note: Real GDP shown as year-on-year percentage change.
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 a faster fall in the rate of inflation that allows central
banks to reduce interest rates more quickly, an easing in financial
conditions, and a de-escalation in geopolitical tensions as the Israel-
Hamas and Russia-Ukraine wars move towards conclusions, and the
US-China relationship improves.
The following tables describe key macroeconomic variables in the consensus Upside scenario.
Consensus Upside scenario 2024–2028 (as at 4Q23)
GDP level (%, start-to-peak)1
Unemployment rate
(%, min)2
House price index
(%, start-to-peak)1
Inflation rate
(YoY % change, min)3
Central bank policy rate
(%, min)2
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
10.8
(4Q28)
14.3
(4Q28)
21.8
(4Q28)
30.4
(4Q28)
14.9
(4Q28)
10.4
(4Q28)
30.7
(4Q28)
17.8
(4Q28)
3.1
(4Q24)
3.1
(2Q25)
2.4
(3Q24)
4.8
(4Q25)
5.1
(4Q25)
6.2
(4Q25)
2.0
(4Q25)
2.4
(3Q24)
13.0
(4Q28)
21.9
(4Q28)
17.9
(4Q28)
19.7
(4Q28)
21.0
(4Q28)
19.6
(4Q28)
34.2
(4Q28)
30.6
(4Q28)
1.3
(2Q25)
1.4
(1Q25)
0.3
(4Q24)
0.6
(3Q24)
1.1
(1Q25)
1.5
(3Q24)
1.4
(1Q25)
2.7
(1Q25)
3.7
(3Q28)
3.7
(2Q27)
4.1
(1Q27)
4.0
(2Q24)
3.2
(2Q27)
2.6
(2Q26)
3.7
(1Q27)
7.8
(2Q25)
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment or policy interest rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
Consensus Upside scenario 2023–2027 (as at 4Q22)
GDP level (%, start-to-peak)1
Unemployment rate
(%, min)2
House price index
(%, start-to-peak)1
Inflation rate
(YoY % change, min)3
Central bank policy rate
(%, min)2
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
14.6
(4Q27)
13.6
(4Q27)
23.3
(4Q27)
31.5
(4Q27)
14.0
(4Q27)
10.2
(4Q27)
26.4
(4Q27)
16.4
(4Q27)
3.5
(4Q23)
3.1
(3Q23)
3.0
(4Q23)
4.7
(3Q24)
5.2
(3Q24)
6.5
(4Q24)
2.2
(3Q24)
3.1
(3Q23)
7.8
(4Q27)
3.9
(4Q27)
8.6
(4Q27)
26.3
(4Q27)
12.3
(4Q27)
17.0
(4Q27)
30.6
(4Q27)
33.0
(4Q27)
0.7
(1Q24)
1.6
(1Q24)
(0.1)
(4Q23)
0.8
(4Q23)
1.0
(1Q24)
0.8
(4Q23)
1.5
(3Q24)
3.2
(1Q24)
3.1
(4Q27)
2.9
(1Q27)
3.3
(1Q27)
4.4
(1Q23)
3.1
(3Q26)
2.3
(3Q26)
4.3
(1Q27)
7.1
(3Q25)
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment or policy interest rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
HSBC Holdings plc Annual Report and Accounts 2023
159
Risk review Risk review
Downside scenarios
Downside scenarios explore the intensification and crystallisation of a
number of key economic and financial risks. These include an
escalation of geopolitical tensions, which disrupt key commodity and
goods markets, causing inflation and interest rates to rise, and
creating a global recession.
As the geopolitical environment remains volatile and complex, risks
include:
– a broader and more prolonged conflict in the Middle East that
undermines confidence, drives an increase in global energy costs
and reduces trade and investment;
– a potential escalation in the Russia-Ukraine war, which expands
beyond Ukraine’s borders, and further disrupts energy, fertiliser
and food supplies; and
– continued differences between the US and China, which could
affect economic confidence, the global goods trade and supply
chains for critical technologies.
High inflation and higher interest rates also remain key risks. Should
geopolitical tensions escalate, energy and food prices could rise and
increase pressure on household budgets and firms’ costs.
A wage-price spiral, triggered by higher inflation and labour supply
shortages, could put sustained upward pressure on wages and
services prices, 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, significantly higher defaults and,
ultimately, a deep economic recession.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is weaker
compared with the Central scenario. In this scenario, GDP declines,
unemployment rates rise, and asset prices fall. The scenario features
an escalation of geopolitical tensions, which causes a rise in inflation,
as supply chain constraints intensify and energy prices rise. The
scenario also features a temporary increase in interest rates above
the Central scenario, before the effects of weaker consumption
demand begin to dominate and commodity prices and inflation fall
again.
The following tables describe key macroeconomic variables in the consensus Downside scenario.
Consensus Downside scenario 2024–2028 (as at 4Q23)
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
GDP level
(%, start-to-trough)1
Unemployment rate
(%, max)2
House price index
(%, start-to-trough)1
Inflation rate
(YoY % change, max)3
Central bank policy rate
(%, max)2
(1.0)
(2Q25)
(1.4)
(3Q24)
(1.6)
(3Q25)
(1.5)
(1Q24)
(1.7)
(3Q24)
(0.3)
(2Q24)
1.4
(1Q24)
(0.3)
(4Q24)
6.4
(1Q25)
5.6
(4Q24)
4.7
(4Q25)
6.9
(4Q25)
7.4
(3Q24)
8.5
(4Q24)
3.7
(4Q25)
3.5
(4Q25)
(12.0)
(2Q25)
(1.3)
(3Q24)
(9.6)
(4Q24)
(7.1)
(3Q25)
(12.0)
(3Q25)
(1.2)
(3Q24)
0.3
(1Q24)
1.2
(1Q24)
4.1
(1Q24)
3.5
(4Q24)
3.8
(3Q24)
3.5
(4Q24)
3.4
(2Q24)
3.8
(2Q24)
3.0
(1Q24)
6.5
(4Q24)
5.7
(1Q24)
5.6
(1Q24)
6.0
(1Q24)
4.1
(3Q24)
5.6
(1Q24)
4.2
(1Q24)
5.7
(1Q24)
12.0
(3Q24)
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Consensus Downside scenario 2023–2027 (as at 4Q22)
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
GDP level
(%, start-to-trough)1
Unemployment rate
(%, max)2
House price index
(%, start-to-trough)1
Inflation rate
(YoY % change, max)3
Central bank policy rate
(%, max)2
(3.0)
(1Q25)
(4.0)
(4Q24)
(2.3)
(3Q24)
(1.7)
(2Q23)
(3.9)
(4Q23)
(0.9)
(2Q23)
0.1
(1Q23)
(2.8)
(4Q24)
5.8
(2Q24)
5.9
(1Q24)
5.2
(3Q24)
5.9
(4Q23)
7.6
(3Q23)
8.8
(4Q23)
4.1
(3Q23)
4.4
(1Q23)
(15.0)
(4Q24)
(11.6)
(4Q25)
(11.9)
(1Q24)
(1.0)
(4Q23)
(20.1)
(4Q24)
(0.7)
(3Q23)
(4.0)
(3Q23)
1.2
(1Q23)
10.8
(1Q23)
6.2
(1Q23)
3.7
(4Q23)
4.0
(4Q23)
6.0
(1Q23)
7.2
(1Q23)
4.5
(1Q23)
7.9
(1Q23)
5.1
(3Q23)
5.2
(3Q23)
5.7
(3Q23)
5.2
(4Q23)
5.6
(3Q23)
3.4
(4Q23)
6.6
(3Q23)
12.1
(3Q23)
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
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 a further escalation of geopolitical crises globally, which
creates severe supply disruptions to goods and energy markets.
In the scenario, as inflation surges and central banks tighten monetary
policy further, confidence evaporates. However, this impulse is
assumed to prove short lived, as recession takes hold, causing
commodity prices to correct sharply and global price inflation to fall.
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HSBC Holdings plc Annual Report and Accounts 2023
The following tables describe key macroeconomic variables in the Downside 2 scenario.
Downside 2 scenario 2024–2028 (as at 4Q23)
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
GDP level
(%, start-to-trough)1
Unemployment rate
(%, max)2
House price index
(%, start-to-trough)1
Inflation rate
(YoY % change, max)3
Central bank policy rate
(%, max)2
(8.8)
(2Q25)
(4.6)
(1Q25)
(8.2)
(1Q25)
(6.4)
(1Q25)
(4.8)
(1Q25)
(6.6)
(1Q25)
(4.9)
(2Q25)
(8.1)
(2Q25)
8.4
(2Q25)
9.3
(2Q25)
6.4
(4Q24)
7.0
(4Q25)
11.9
(1Q25)
10.2
(4Q25)
4.3
(3Q24)
4.9
(2Q25)
(30.2)
(4Q25)
(14.7)
(4Q24)
(32.8)
(3Q26)
(25.5)
(4Q25)
(42.7)
(2Q25)
(14.5)
(2Q26)
(2.9)
(4Q25)
1.2
(1Q24)
10.1
(2Q24)
4.8
(2Q24)
4.1
(3Q24)
4.1
(4Q24)
5.4
(2Q24)
8.6
(2Q24)
3.5
(2Q24)
7.0
(4Q24)
6.0
(1Q24)
6.1
(1Q24)
6.4
(1Q24)
4.8
(3Q24)
5.8
(1Q24)
5.2
(1Q24)
6.1
(1Q24)
12.7
(3Q24)
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Downside 2 scenario 2023–2027 (as at 4Q22)
UK
US
Hong Kong
Mainland
China
Canada
France
UAE
Mexico
GDP level
(%, start-to-trough)1
Unemployment rate
(%, max)2
House price index
(%, start-to-trough)1
Inflation rate
(YoY % change, max)3
Central bank policy rate
(%, max)2
(7.5)
(2Q24)
(5.2)
(2Q24)
(10.1)
(2Q24)
(6.9)
(1Q24)
(7.1)
(4Q24)
(7.4)
(2Q24)
(4.3)
(2Q24)
(8.2)
(2Q24)
8.7
(2Q24)
9.5
(4Q24)
5.8
(1Q24)
6.8
(4Q24)
11.6
(2Q24)
10.3
(4Q24)
4.6
(2Q24)
5.6
(2Q24)
(32.9)
(1Q25)
(21.6)
(1Q24)
(26.6)
(2Q26)
(23.2)
(4Q24)
(41.2)
(3Q24)
(11.4)
(2Q25)
(4.8)
(2Q24)
1.1
(1Q23)
13.5
(2Q23)
6.3
(1Q23)
4.3
(4Q23)
4.6
(4Q23)
6.5
(1Q23)
10.4
(2Q23)
4.8
(1Q23)
7.9
(1Q23)
5.6
(4Q23)
5.5
(3Q23)
5.9
(3Q23)
5.1
(3Q23)
6.1
(3Q23)
4.1
(4Q23)
6.8
(3Q23)
12.3
(3Q23)
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
The following graphs show the historical and forecasted GDP growth rate for the various economic scenarios in our four largest markets.
Hong Kong
2023
2024
2025
2026
2027
2028
Central
Upside
Downside
Downside 2
12.0
10.0
8.0
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0
‐8.0
UK
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0
‐8.0
Mainland China
100
12.0
2023
2024
2025
2026
2027
2028
Central
Upside
Downside
Downside 2
90
80
70
60
50
40
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
10.0
8.0
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0
‐8.0
US
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
‐10.0
2023
2024
2025
2026
2027
2028
Central
Upside
Downside
Downside 2
2023
2024
2025
2026
2027
2028
Central
Upside
Downside
Downside 2
HSBC Holdings plc Annual Report and Accounts 2023
161
Risk review Risk review
Scenario weighting
In reviewing the economic environment, the level of risk and
uncertainty, management has considered both global and country-
specific factors.
increase significantly through 2024. This suggests that there will be
increased official support to current economic headwinds, which
would reduce the uncertainty attached to current forecasts.
In the fourth quarter of 2023, key considerations around uncertainty
attached to the Central scenario projections focused on:
– the risk that the Israel-Hamas war escalates and affects economic
expectations;
– the lagged impact of elevated interest rates on household finances
and businesses, and the implications of recent changes to
monetary policy expectations on growth and employment; and
– the outlook for real estate in our key markets, particularly in the
US, UK, Hong Kong and mainland China.
Although these risk factors remain significant, management assessed
that they were adequately reflected in the scenarios at their calibrated
probability. It was noted that despite the escalation of geopolitical risk
in the Middle East, economic forecasts had remained stable, and
dispersion of forecasts around the consensus were either stable, or
have moved lower. Financial market measures of volatility also
remained low through the fourth quarter of 2023.
This has led management to assign scenario probabilities that are
aligned to the standard scenario probability calibration framework.
This entailed assigning a 75% probability weighting to the Central
scenario in our major markets. The consensus Upside scenario was
awarded a 10% weighting, and the consensus Downside scenario
was given 10%. The Downside 2 was assigned a 5% weighting.
In support of the decision, it was noted that in mainland China recent
policy announcements suggest fiscal and monetary stimulus will
The following tables describe the probabilities assigned in each scenario.
Scenario weightings, %
In the UK, the Central scenario reflects a weak growth environment in
which recession risks remain high. Similarly, in the US, the Central
scenario reflects expectations for a weaker growth environment in
2024 as the economy adjusts to the higher rates environment.
For the UAE, it was agreed that there has been an increase in
geopolitical uncertainty since the outbreak of the Israel-Hamas war,
with the potential for regional escalation remaining a risk. However,
economic and market impacts have been limited and oil production
remains unaffected.
Management concluded that consensus expectations for Mexico,
France and Canada were also consistent with its view of the
economic outlook, while assessments of uncertainty were also
aligned to historical averages.
In the fourth quarter of 2022, management varied the applied scenario
weights to reflect greater uncertainty around the inflation and interest
rate outlook, amid supply disruption to energy and food commodity
markets due to the Ukraine-Russia war. In Hong Kong and mainland
China, uncertainty assessments focused on the upside and downside
risks of post-pandemic reopening.
Those factors were reflected in the measures of risk and uncertainty
used to inform judgements around the Central scenario. In particular,
large forecast changes were observed, alongside wide dispersion of
forecasts around consensus estimates and heightened financial
market volatility.
4Q23
Upside scenario
Central scenario
Downside scenario
Downside 2 scenario
4Q22
Upside scenario
Central scenario
Downside scenario
Downside 2 scenario
Standard
weights
UK
US
Hong
Kong
Mainland
China
Canada
France
UAE
Mexico
10
75
10
5
10
75
10
5
10
75
10
5
5
60
25
10
10
75
10
5
5
70
20
5
10
75
10
5
20
55
20
5
10
75
10
5
20
55
20
5
10
75
10
5
5
70
15
10
10
75
10
5
5
60
25
10
10
75
10
5
5
70
20
5
10
75
10
5
5
70
20
5
At 31 December 2023, the consensus Upside and Central scenarios for all markets had a combined weighting of 85%. At 31 December 2022,
mainland China, Hong Kong and the US each had a combined weighting of 75% for the consensus Upside and Central scenarios. The UK had a
combined weighting of 65%.
Critical estimates and judgements
The calculation of ECL under IFRS 9 involved significant judgements,
assumptions and estimates at 31 December 2023. These included:
– the selection of weights to apply to the economic scenarios given
the rapidly changing economic conditions and the inherent
uncertainty of the underlying forecast under each scenario;
– the selection of scenarios to consider given the changing nature of
macroeconomic and geopolitical risks that the Group and wider
economy faces; and
– estimating the economic effects of those scenarios on ECL,
particularly sector and portfolio-specific risks, and the uncertainty
of default and recovery experience under all scenarios.
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 2023, 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 2023.
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HSBC Holdings plc Annual Report and Accounts 2023
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, allowance for ECL estimates are derived based on
discounted cash flow (‘DCF’) calculations for internal forward-looking
scenarios specific to individual borrower circumstances (see page
348). Probability-weighted outcomes are applied, and depending on
materiality and status of the borrower, the number of scenarios
considered will change. Where relevant for the case being assessed,
forward economic guidance is incorporated as part of these scenarios.
LGD-driven proxy and modelled estimates are used for certain less
material cases.
For our retail portfolios, the models are predominantly based on
historical observations and correlations with default rates and
collateral values.
For PD, the impact of economic scenarios is modelled for each
portfolio, using historical relationships between default rates and
macroeconomic variables. These are included within IFRS 9 ECL
estimates using either economic response models or models that
contain internal, external and macroeconomic variables. The
macroeconomic impact on PD is modelled over the period equal to
the remaining maturity of the underlying assets.
For LGD, the impact is modelled for mortgage portfolios by
forecasting future loan-to-value profiles for the remaining maturity of
the asset, using national level house price index forecasts and
applying the corresponding LGD expectation relative to the updated
forecast collateral values.
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 modelled allowance
for ECL at either a customer, segment or portfolio level where
management believes allowances do not sufficiently reflect the credit
risk/expected credit losses at the reporting date. These can relate to
risks or uncertainties that are not reflected in the models and/or to
any late-breaking events with significant uncertainty, subject to
management review and challenge.
Management judgemental adjustments to ECL at 31 December 20231
Modelled ECL (A)3
Banks, sovereigns, government entities and low-risk counterparties
Corporate lending adjustments
Inflation related adjustments
Other credit judgements
Total management judgemental adjustments (B)4
Other adjustments (C)5
Final ECL (A + B + C)6
This includes refining model inputs and outputs and using
adjustments to ECL based on management judgement and
quantitative analysis for impacts that are difficult to model.
The effects of management judgemental adjustments are considered
for both balances and allowance for 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 147). 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.
In addition to management judgemental adjustments there are also
‘Other adjustments’, which are made to address process limitations
and data/model deficiencies.
‘Management judgemental adjustments’ and ‘Other adjustments’
constitute the total value of adjustments to modelled allowance for
ECL. For the wholesale portfolio, defaulted exposures are assessed
individually and management judgemental adjustments are made only
to the performing portfolio.
At 31 December 2023, there was a $0.2bn reduction in management
judgemental adjustments compared with 31 December 2022. For the
wholesale portfolio, this was due to modelled outcomes better
reflecting the key risks at 31 December 2023. For the retail portfolio,
there was an increase in other credit judgements due to the potential
delayed impact of economic scenarios on unsecured portfolio
defaults, primarily within the UK .
Management judgemental adjustments made in estimating the
scenario-weighted reported allowance for ECL at 31 December 2023
are set out in the following table.
Retail
$bn
2.6
0.1
0.5
0.6
0.0
3.2
Wholesale2
$bn
2.4
0.0
0.1
0.1
0.0
2.5
Total
$bn
5.0
0.0
0.1
0.1
0.5
0.7
0.0
5.7
HSBC Holdings plc Annual Report and Accounts 2023
163
Risk review
Risk review
Management judgemental adjustments to ECL at 31 December 20221 (continued)
Modelled ECL (A)3
Banks, sovereigns, government entities and low-risk counterparties
Corporate lending adjustments
Inflation-related adjustments
Other credit judgements
Total management judgemental adjustments (B)4
Other adjustments (C)5
Final ECL (A + B + C)6
Retail
$bn
3.0
0.1
0.2
0.3
0.0
3.3
Wholesale2
$bn
2.6
0.1
0.5
0.6
(0.1)
3.1
Total
$bn
5.6
0.1
0.5
0.1
0.2
0.9
(0.1)
6.4
1 Management judgemental adjustments presented in the table reflect increases or (decreases) to allowance for ECL, respectively.
2 The wholesale portfolio corresponds to adjustments to the performing portfolio (stage 1 and stage 2).
3 (A) refers to probability-weighted allowance for ECL before any adjustments are applied.
4
(B) refers to adjustments that are applied where management believes allowance for ECL does not sufficiently reflect the credit risk/expected credit
losses of any given portfolio at the reporting date. These can relate to risks or uncertainties that are not reflected in the model and/or to any late-
breaking events.
(C) refers to adjustments to allowance for ECL made to address process limitations and data/model deficiencies.
5
6 As presented within our internal credit risk governance (see page 147).
Management judgemental adjustments at 31 December 2023 were
an increase to allowance for ECL of $0.1bn for the wholesale portfolio
and an increase to ECL of $0.6bn for the retail portfolio.
At 31 December 2023, wholesale management judgemental
adjustments were an increase to allowance for ECL of $0.1bn
(31 December 2022: $0.6bn increase).
– Management judgemental adjustments to corporate exposures
increased allowance for ECL by $0.1bn at 31 December 2023
(31 December 2022: $0.5bn increase), mostly due to management
judgements to reflect heightened uncertainty in specific sectors
and geographies, including adjustments to exposures to the real
estate sectors in mainland China, the UK and the US. The
decrease in adjustments to allowances compared with
31 December 2022 is attributed to a crystallisation of existing risks
at that date through downgrades, and an improved reflection of
emerging risks in macroeconomic scenarios and modelled
outcomes.
At 31 December 2023, retail management judgemental adjustments
were an increase to allowance for ECL of $0.6bn (31 December 2022:
$0.3bn increase). The increase in adjustments to allowance for ECL
compared with 31 December 2022 was primarily due to the increase
in management judgemental adjustments in other credit judgements
(detailed below).
– Management judgemental adjustments in relation to inflation
increased allowance for ECL by $0.1bn (31 December 2022:
$0.1bn). These adjustments addressed where increasing inflation
and interest rates result in affordability risks that were not fully
captured by the modelled output.
– Management judgemental adjustments in relation to other credit
judgements increased allowance for ECL by $0.5bn (31 December
2022: $0.2bn). These adjustments were primarily to capture the
potential delayed impact of economic scenarios on unsecured
portfolio defaults in the UK.
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 allowance for 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 allowances.
The allowance for 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 allowances for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weighting.
For wholesale credit risk exposures, the sensitivity analysis excludes
allowance for ECL and financial instruments related to defaulted
(stage 3) obligors. The measurement of stage 3 ECL is relatively more
sensitive to credit factors specific to the obligor than future economic
scenarios, and therefore the effects of macroeconomic factors are not
necessarily the key consideration when performing individual
assessments of allowances for obligors in default. Loans to defaulted
obligors are a small portion of the overall wholesale lending exposure,
even if representing the majority of the allowance for ECL. 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 mortgage exposures the sensitivity analysis includes
allowance for ECL for defaulted obligors of loans and advances. 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.
For both retail and wholesale portfolios, the gross carrying amount of
financial instruments are the same under each scenario. For
exposures with similar risk profile and product characteristics, the
sensitivity impact is therefore largely the result of changes in
macroeconomic assumptions.
164
HSBC Holdings plc Annual Report and Accounts 2023
Wholesale analysis
IFRS 9 ECL sensitivity to future economic conditions1,2,3
By geography at 31 Dec 2023
UK
US
Hong Kong
Mainland China
Canada5
Mexico
UAE
France
Other geographies6
Total
of which:
Stage 1
Stage 2
By geography at 31 Dec 2022
UK
US
Hong Kong
Mainland China
Canada5
Mexico
UAE
France
Other geographies6
Total
Reported
Gross carrying
amount4
$m
426,427
191,104
447,480
129,945
84,092
30,159
52,074
178,827
450,271
1,990,378
1,820,843
169,535
421,685
190,858
415,875
125,466
83,274
26,096
45,064
173,146
445,758
1,927,222
Reported
allowance for
ECL
Consensus
Central
scenario
allowance for
ECL
Consensus
Upside
scenario
allowance for
ECL
Consensus
Downside
scenario
allowance for
ECL
Downside 2
scenario
allowance for
ECL
$m
820
215
609
258
89
60
32
98
325
2,507
754
1,753
769
277
925
295
126
88
45
110
447
3,083
$m
754
199
566
217
75
56
32
102
298
2,301
702
1,599
624
241
819
242
80
80
41
102
384
2,612
$m
599
189
433
142
56
46
30
90
245
1,829
553
1,276
484
227
592
144
60
67
30
90
304
2,000
$m
1,041
268
807
414
107
73
34
124
410
3,278
860
2,418
833
337
1,315
415
148
116
55
121
527
3,866
$m
2,487
441
1,393
945
487
226
40
141
882
7,043
854
6,189
2,240
801
2,161
1,227
579
313
93
145
1,054
8,612
1 Allowance for 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 176.
4 Staging refers only to probability-weighted/reported gross carrying amount. Stage allocation of gross exposures varies by scenario, with higher
allocation to stage 2 under the Downside 2 scenario.
5 Classified as held for sale at 31 December 2023 and 31 December 2022.
6 Includes small portfolios that use less complex modelling approaches and are not sensitive to macroeconomic changes.
At 31 December 2023, the highest level of 100% scenario-weighted
allowance for ECL was observed in the UK and Hong Kong. This
higher ECL impact was largely driven by significant exposure in these
regions.
Compared with 31 December 2022, the Downside 2 allowance for
ECL was lower in Hong Kong and mainland China, mostly due to the
crystallisation of defaults for certain high-risk exposures and a
decrease of the associated downside uncertainty.
In the wholesale portfolio, off-balance sheet financial instruments
have a lower likelihood to be fully converted to a funded exposure at
the point of default, and consequently the sensitivity of the allowance
for ECL is lower in relation to its nominal amount, when compared
with an on-balance sheet exposure with a similar risk profile.
HSBC Holdings plc Annual Report and Accounts 2023
165
Risk review
Risk review
Retail analysis
IFRS 9 ECL sensitivity to future economic conditions1
Reported gross
carrying
amount
Reported
allowance for
ECL
Consensus
Central
scenario
allowance for
ECL
Consensus
Upside
scenario
allowance for
ECL
Consensus
Downside
scenario
allowance for
ECL
Downside 2
scenario
allowance for
ECL
$m
161,127
7,582
8,183
8,666
2,445
4,529
106,136
9,128
6,269
2,001
471
721
20,589
1,328
14,385
204
25,464
338
1,368
55,368
3,655
2,416
442,373
347,874
43,451
2,412
18,557
4,953
312
19,551
4,542
722
$m
189
344
341
188
295
513
2
287
109
25
24
20
50
44
8
15
67
13
13
152
173
91
2,962
101
264
316
249
707
193
218
540
373
$m
180
340
333
180
286
503
2
239
100
25
24
20
50
44
4
15
65
13
13
149
166
86
2,835
92
249
314
232
657
193
151
423
370
$m
172
302
273
150
206
426
1
214
88
25
22
19
50
43
3
10
64
12
12
144
151
83
2,471
77
225
307
180
546
192
205
519
373
$m
201
353
383
235
376
600
3
395
124
25
25
21
51
45
4
15
70
16
14
158
202
95
3,411
145
280
322
329
859
194
272
636
375
$m
334
486
515
363
489
731
5
887
256
25
32
28
51
48
10
16
99
15
33
198
291
137
5,049
303
429
352
604
1,415
197
501
868
379
By geography at 31 December 2023
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
Other geographies
Mortgages
Credit cards
Other
Total
of which: mortgages
Stage 1
Stage 2
Stage 3
of which: credit cards
Stage 1
Stage 2
Stage 3
of which: others
Stage 1
Stage 2
Stage 3
166
HSBC Holdings plc Annual Report and Accounts 2023
IFRS 9 ECL sensitivity to future economic conditions1 (continued)
Reported gross
carrying amount
Reported
allowance for
ECL
Consensus
Central scenario
allowance for ECL
Consensus
Upside scenario
allowance for ECL
Consensus
Downside scenario
allowance for ECL
Downside 2
scenario
allowance for ECL
By geography at 31 December 2022
$m
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
Other geographies
Mortgages
Credit cards
Other
Total
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
56,383
3,871
3,630
417,356
$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
$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
199
192
115
2,972
190
176
111
2,722
183
150
107
2,331
205
219
119
3,334
253
324
159
4,821
1 Allowance for ECL sensitivities exclude portfolios utilising less complex modelling approaches.
2 Classified as ‘assets held for sale’ at 31 December 2023.
3 Includes balances and allowance for ECL, which have been reclassified from ‘loans and advances to customers’ to ‘assets held for sale’ in the balance
sheet at 31 December 2023. This also includes any balances and allowance for 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.
At 31 December 2023, the most significant level of allowance for ECL
sensitivity was observed in the UK, Mexico and Hong Kong.
Mortgages reflected the lowest level of allowance for ECL sensitivity
across most markets given the significant levels of collateral relative
to the exposure values. Credit cards and other unsecured lending
across stage 1 and 2 are more sensitive to economic forecasts and
therefore reflected the highest level of allowance for ECL sensitivity
during 2023.
There is limited sensitivity in credit cards and other unsecured lending
in stage 3 as levels of loss on defaulted exposures remain consistent
through various economic conditions. The alternative downside is
from the tail of the economic distribution where allowance for ECL is
more sensitive based on historical experience.
The reported gross carrying amount by stage is representative of the
weighted scenario allowance for ECL. The allowance for ECL
sensitivity to the other scenarios includes changes in allowance for
ECL due to the levels of loss and the migration of additional lending
balances in or out of stage 2.
Group ECL sensitivity results
The allowance for ECL of the scenarios and management
judgemental adjustments is highly sensitive to movements in
economic forecasts. Based upon the sensitivity tables presented
above, if the Group allowance for ECL balance was estimated solely
on the basis of the Central scenario, Downside scenario or the
Downside 2 scenario at 31 December 2023, it would increase/
(decrease) as presented in the below table.
Total Group ECL at 31 December 2023
Reported allowance for ECL
Scenarios
100% Consensus Central scenario
100% Consensus Upside scenario
100% Consensus Downside scenario
100% Downside 2 scenario
Total Group ECL at 31 December 2022
Reported allowance for ECL
Scenarios
100% Consensus Central scenario
100% Consensus Upside scenario
100% Consensus Downside scenario
100% Downside 2 scenario
Retail1 Wholesale1
$bn
2.5
$bn
3.0
(0.1)
(0.5)
0.4
2.1
3.0
(0.2)
(0.6)
0.4
1.8
(0.2)
(0.7)
0.8
4.5
3.1
(0.5)
(1.1)
0.8
5.5
1 On the same basis as retail and wholesale sensitivity analysis.
HSBC Holdings plc Annual Report and Accounts 2023
167
Risk review
Risk review
At 31 December 2023, the Group allowance for ECL remained
unchanged in the retail portfolio and decreased by $0.6bn in the
wholesale portfolio, compared with 31 December 2022.
The decrease in the Downside 2 scenario sensitivity within the
wholesale portfolio since 31 December 2022 has been mostly driven
by the crystallisation of defaults of higher risk exposures to the
mainland China real estate sector and a reduction of related
uncertainty. Within the retail portfolio, the increase in the Downside 2
scenario sensitivity was due to portfolio growth in Mexico and
scenario forecast deterioration in Hong Kong.
At 31 December 2023, the sensitivity of the allowance for ECL to the
consensus Central and consensus Upside scenarios decreased for
both retail and wholesale portfolios due to lower macroeconomic
forecast uncertainty, and the return to standardised weighting for the
probability-weighted reported allowance.
Reconciliation from reported exposure and ECL to sensitised exposure and weighted ECL
Included in sensitivity analysis
– Exclusions from sensitivity as described in the
section above1
– Debt instruments measured at fair value through
other comprehensive income2
– Performance guarantees2
– Other financial assets at amortised cost not
presented as wholesale or personal lending, including
held for sale2
– Other3
As reported in the Summary of credit risk
(excluding debt instruments measured at FVOCI) by
stage distribution and ECL coverage by industry
sector at 31 December 2023
Other financial assets at amortised cost
Total reported in the Summary of credit risk
(excluding debt instruments measured at FVOCI) by
stage distribution and ECL coverage by industry
sector at 31 December 2023
Wholesale
Gross carrying/
nominal amount
Allowance
for ECL
Retail
Gross carrying/
nominal amount
Allowance
for ECL
Total
Gross carrying/
nominal amount
Allowance
for ECL
$m
1,990,378
$m
(2,507)
$m
442,373
$m
(2,962)
$m
2,432,751
$m
(5,469)
17,024
(6,237)
308,569
(93)
325,593
(6,330)
(302,348)
(93,312)
(579,534)
2,704
97
35
93
(84)
—
—
(41,129)
(4,175)
—
—
174
(11)
(302,348)
(93,312)
(620,663)
(1,471)
97
35
267
(95)
1,034,912
(8,603)
705,638
(2,892)
1,740,550
(11,495)
960,271
(422)
2,700,821
(11,917)
1 Comprises wholesale defaulted obligors, retail portfolios utilising less complex modelling approaches, private banking and insurance.
2 The sensitivity analysis includes certain items reported in Other assets at amortised cost, which are not allocated to an industry in the credit tables. It
also includes FVOCI and performance guarantees, which are presented separately in the credit tables.
3 Includes FX and other operational variances.
Reconciliations 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.
The net remeasurement of ECL arising from transfer of stage
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
to risk parameters – credit quality’ line item.
Changes in ‘Net new and further lending/repayments’ represents the
impact from volume movements within the Group’s lending portfolio
and includes ‘New financial assets originated or purchased’, ‘assets
derecognised (including final repayments)’ and ‘changes to risk
parameters – further lending/repayment’.
In addition, a reconciliation by stage of the Group’s gross carrying
amount and allowances for loans and advances to banks and
customers and a reconciliation by stage of the Group’s nominal
amount and allowances for loan commitments and financial
guarantees were included in this section following the adoption of the
recommendations of the DECL Taskforce‘s third report.
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.
168
HSBC Holdings plc Annual Report and Accounts 2023
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
1,433,643
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
(1,257)
$m
177,223
$m
(3,710)
$m
21,207
$m
(6,949)
$m
129
$m
(38) 1,632,202
$m
$m
(11,954)
(18,948)
(1,048)
10,286
2,228
8,662
(1,180)
(150,728)
442
150,728
(442)
133,079
(1,467)
(133,079)
(1,986)
687
23
(46)
(8,600)
1,237
1,467
1,379
(176)
—
—
—
—
10,586
(1,924)
(1,402)
222
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
917
—
(973)
—
(124)
—
—
—
(180)
77,693
(185)
(36,795)
661
(4,956)
1,117
(36)
3
35,906
1,596
—
307
—
(1,262)
—
(3,896)
—
—
(22)
—
—
—
46
—
—
7
(3,922)
3,922
—
—
—
21
—
(4,830)
—
—
—
31
(3,922)
3,922
—
—
—
—
(119)
95
—
—
(119)
95
4,417
(12)
2,370
(92)
(73)
(55)
1,496,805
(1,300)
153,084
(3,102)
20,799
(7,063)
(8)
85
(16)
6,706
(175)
(30) 1,670,773
(11,495)
1,017
(1,528)
(2,896)
24
(3,383)
268
(195)
(3,310)
At 1 Jan 2023
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
Net new and 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 and
others1
At 31 Dec 2023
ECL income statement
change for the period
Recoveries
Others
Total ECL income
statement change for the
period
1 Total includes $7.7bn 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 $70m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups held for sale’
on page 401.
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 2023
$m
Gross carrying/
nominal amount Allowance for ECL
$m
(11,495)
(422)
—
—
1,670,773
960,271
69,777
—
2,700,821
302,348
n/a
(11,917)
(97)
(12,014)
12 months ended
31 Dec 2023
ECL charge
$m
(3,310)
(35)
—
(44)
(3,389)
(58)
(3,447)
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 decreased $459m during the period from
$11,954m at 31 December 2022 to $11,495m at 31 December 2023.
This decrease was driven by:
– $3,922m of assets written off;
– $1,596m relating to volume movements, which included the
allowance for ECL associated with new originations, assets
derecognised and further lending/repayment;
– $95m relating to credit-related modifications, which resulted in
derecognition; and
– $31m of changes to models used for ECL calculation.
These were partly offset by:
– $4,830m relating to underlying credit quality changes, including the
credit quality impact of financial instruments transferring between
stages;
– $180m relating to the net remeasurement impact of stage
transfers; and
– foreign exchange and other movements of $175m.
HSBC Holdings plc Annual Report and Accounts 2023
169
Risk review
Risk review
The ECL charge for the period of $3,383m presented in the previous
table consisted of $4,830m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages and $180m relating to the net
remeasurement impact of stage transfers.
This was partly offset by $1,596m relating to underlying net book
volume movement and $31m in changes to models used for ECL
calculation.
Summary views of the movement in wholesale and personal lending
are presented on pages 179 and 192.
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
$m
$m
$m
$m
$m
1,575,808
(98,940)
(1,552) 155,654
88,974
(794)
(3,323)
1,616
19,796
9,966
$m
(6,928)
(822)
$m
275
—
$m
$m
$m
(64) 1,751,533
—
—
(11,867)
—
(225,458)
469 225,458
(469)
—
—
—
128,170
(1,211) (128,170)
(2,392)
740
9
(61)
(10,083)
1,769
1,211
1,132
(258)
—
12,475
(2,509)
—
(1,141)
319
—
735
—
(948)
—
(148)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(361)
99,253
(175)
(44,877)
435
(3,399)
674
(133)
3
50,844
937
—
400
—
(1,671)
—
(3,019)
—
32
—
(4,258)
—
—
—
4
—
—
—
—
—
(151)
—
13
—
(2,791)
2,791
—
(32)
(142,478)
1,433,643
125
(22,528)
(1,257) 177,223
332
(3,710)
(2,333)
21,207
—
—
—
—
964
—
—
—
—
—
—
—
(2,335)
—
—
—
0
—
—
—
—
(10)
—
(3)
129
—
—
—
—
—
10
—
(134)
(2,801)
2,801
—
(32)
9
(19)
(167,342)
(38) 1,632,202
919
(11,954)
35
—
—
—
—
—
—
(3,816)
316
(28)
—
(3,528)
9
481
(6,949)
(2,480)
—
—
—
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
Net new and 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 and 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 401.
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
Gross carrying/
nominal amount
Allowance for
ECL
12 months ended
31 Dec 2022
ECL charge
$m
1,632,202
954,934
44,921
—
2,632,057
265,147
n/a
$m
(11,954)
(493)
—
—
(12,447)
(126)
(12,573)
$m
(3,528)
(38)
—
39
(3,527)
(57)
(3,584)
170
HSBC Holdings plc Annual Report and Accounts 2023
Reconciliation of changes in gross carrying amount and allowances for loans and advances to banks and customers
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying
amount
Allowance
for ECL
Gross
carrying
amount
Allowance
for ECL
Gross
carrying
amount
Allowance
for ECL
Gross
carrying
amount
Allowance
for ECL
Gross
carrying
amount
Allowance
for ECL
$m
$m
$m
$m
$m
879,023
(19,276)
(108,758)
90,655
(1,692)
519
(1,109) 140,816
(980) 11,250
423 108,758
(1,382) (90,655)
(3,518) 19,586
8,026
2,154
—
(423)
—
1,382
22
(43)
(7,975)
1,122
1,367
(172)
9,667
(1,641)
$m
(6,851)
(1,174)
—
—
(1,389)
215
$m
129
—
—
—
—
—
$m
$m
(38) 1,039,554
—
—
—
—
—
—
—
—
—
—
$m
(11,516)
—
—
—
—
—
—
859
—
(934)
—
(118)
—
—
—
(193)
55,024
(210) (32,069)
685
(4,233)
1,026
(40)
3 18,682
1,504
—
311
—
(1,292)
—
(3,804)
—
21
—
(4,764)
—
—
—
(17)
—
—
—
28
—
7
—
(3,922)
3,922
—
—
—
(119)
95
6,092
920,863
6
2,310
(1,140) 122,307
(90)
(63)
(2,967) 19,275
(55)
(6,952)
—
—
—
(8)
81
—
—
18
—
(3,922)
3,922
—
(119)
95
8,331
(16)
(30) 1,062,526
(155)
(11,089)
943
(1,513)
(2,889)
24
(3,435)
268
(203)
(3,370)
At 1 Jan 2023
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
Net new and 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 and others1
At 31 Dec 2023
ECL income statement change for
the period
Recoveries
Others
Total ECL income statement
change for the period
1 Total includes $7.7bn 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 $70m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups held for sale’
on page 401.
Reconciliation of changes in nominal amount and allowances for loan commitments and financial guarantees
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Nominal
amount
Allowance
for ECL
Nominal
amount
Allowance
for ECL
Nominal
amount
Allowance
for ECL
Nominal
amount
Allowance
for ECL
Nominal
amount
Allowance
for ECL
At 1 Jan 2023
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
Net new and further lending/
repayments
Changes to risk parameters –
credit quality
Changes to models used for ECL
calculation
Foreign exchange and others
At 31 Dec 2023
ECL income statement change
for the period
Recoveries
Others
Total ECL income statement
change for the period
$m
554,620
328
$m
$m
(148) 36,407
(964)
(68)
$m
(192)
74
$m
1,621
636
$m
(98)
(6)
(41,970)
19 41,970
(19)
—
—
42,424
(85) (42,424)
(294)
168
1
(3)
(625)
115
85
12
(4)
—
919
(283)
—
(13)
7
—
58
—
(39)
—
(6)
$m
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$m
592,648
—
$m
(438)
—
22,669
25
(4,726)
(24)
(723)
91
4
—
17,224
—
—
(1,675)
575,942
(4)
—
30
—
(92)
—
(5)
—
(18)
60
(160) 30,777
74
—
(10)
1,524
18
(2)
(135)
(15)
—
—
(111)
(7)
—
—
4
—
—
(1,625)
608,247
—
—
—
—
—
—
—
—
—
13
92
(66)
13
(20)
(406)
52
—
8
60
HSBC Holdings plc Annual Report and Accounts 2023
171
Risk review
Risk review
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 148.
Distribution of financial instruments by credit quality at 31 December 2023
(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
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 ECL
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
497,665
206,476
197,582
346,562
118,123
32,980
62,656
123,713
20,107
32,314
145,249
20,019
28,532
2,485
25,531
516
19,354
3,505
15,039
810
949,609
(11,074)
447,522
427,655
74,432
(2,867)
(7,803)
(404)
938,535
444,655
419,852
74,028
101,057
4,640
6,363
855
2
112,917
(15)
112,902
284,723
1,068
6,327
42,024
170,494
143,333
68,501
99,857
2,405
97,452
15
—
46,884
3,814
16,403
11,967
2,666
9,301
77
—
—
34,206
1,137
14,812
9,965
2,707
7,258
—
—
—
633
62
2,939
366
161
205
—
285,868
—
285,868
—
6,342
—
6,342
—
42,024
—
42,024
—
—
531
133
18
115
252,217
148,346
103,186
122,288
7,957
114,331
—
(20)
(324)
(78)
(18)
(60)
252,217
148,326
102,862
122,210
7,939
114,271
288,959
12,037
7,897
805
5
309,703
(97)
309,606
122,695
20,595
20,746
1,326
135
165,497
—
165,497
52,649
196,098
12,495
11,517
27,377
—
4,733
6,041
—
84
187
—
6
11
—
68,989
229,714
12,495
—
—
—
68,989
229,714
12,495
2,086,877
362,793
303,559
35,789
20,177
2,809,195
(11,608)
2,797,587
74.3
12.9
10.8
1.3
0.7
100
436,359
142,500
7,700
4,146
73,230
4,080
7,782
699
1,144
661,015
384
17,009
(367)
(39)
660,648
16,970
444,059
146,646
77,310
8,481
1,528
678,024
(406)
677,618
92,509
77,891
61,462
3,896
377
236,135
—
236,135
39,784
32,231
19,445
1,853
964
94,277
(145)
94,132
132,293
110,122
80,907
5,749
1,341
330,412
(145)
330,267
1 For the purposes of this disclosure, gross carrying amount is defined as the amortised cost of a financial asset before adjusting for any loss allowance.
As such, the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value
gains and losses.
172
HSBC Holdings plc Annual Report and Accounts 2023
Distribution of financial instruments by credit quality at 31 December 2022 (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
492,711
196,735
196,486
333,839
126,521
32,351
45,590
132,128
19,017
28,918
153,841
13,727
29,443
3,196
24,887
1,360
19,633
3,339
15,825
469
935,008
414,882
453,202
66,924
(11,447)
(2,870)
(8,320)
(257)
923,561
412,012
444,882
66,667
92,675
4,833
5,643
1,311
82
104,544
(69)
104,475
325,119
1,296
590
7,280
43,787
170,386
103,379
67,616
91,006
2,350
88,656
12
—
41,659
3,212
17,993
11,126
3,059
8,067
5
—
41,686
2,334
13,972
8,875
2,815
6,060
—
—
—
20
161
2,333
290
175
115
—
327,005
(3)
327,002
—
7,297
—
7,297
—
43,787
—
43,787
3
253,754
—
642
152
25
127
109,086
102,556
111,449
8,424
103,025
—
(20)
(415)
(55)
(17)
(38)
253,754
109,066
102,141
111,394
8,407
102,987
260,654
9,957
5,730
1,910
7
278,258
(126)
278,132
91,330
14,371
23,414
820
133
130,068
—
130,068
49,602
241,918
15,254
11,116
34,181
—
3,145
7,843
—
187
181
—
—
36
—
64,050
284,159
15,254
—
—
—
64,050
284,159
15,254
2,052,717
346,491
309,723
36,656
20,688
2,766,275
(12,135)
2,754,140
74.2
12.6
11.2
1.3
0.7
100
—
—
402,972
132,402
74,410
8,281
4,669
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
76,098
69,667
59,452
3,360
489
209,066
—
209,066
37,943
30,029
17,732
2,137
399
88,240
(110)
88,130
114,041
99,696
77,184
5,497
888
297,306
(110)
297,196
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 ECL
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 amount is defined as the amortised cost of a financial asset before adjusting for any loss allowance.
As such, the gross carrying amount 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 2023
173
Risk review
Risk review
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(Audited)
Gross carrying/notional amount
Strong
Good Satisfactory
Sub-
standard
Credit
impaired
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 2023
Debt instruments at FVOCI1
– stage 1
– stage 2
– stage 3
– POCI
At 31 Dec 2023
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
$m
$m
19,243
—
—
101,057
101,011
46
—
—
815,259
814,776
483
—
—
497,665 206,476
478,422 177,410
29,066
—
—
4,640
4,631
9
—
—
80,151
78,486
1,665
—
—
436,359 142,500
432,017 135,192
7,308
—
—
4,146
3,943
203
—
—
1,858,040 437,913
4,342
—
—
7,700
7,497
203
—
—
288,909
50
—
—
288,959
12,037
—
—
—
12,037
34,005
—
—
92,675
92,377
298
—
—
808,573
807,893
680
—
—
492,711 196,735
458,706 170,055
26,680
—
—
4,833
4,465
368
—
—
75,298
70,794
4,504
—
—
402,972 132,402
398,120 121,581
10,821
—
—
4,669
4,245
424
—
—
1,805,212 413,937
4,852
—
—
8,281
8,189
92
—
—
260,411
243
—
—
260,654
9,852
105
—
—
9,957
$m
197,582
147,940
49,642
—
—
6,363
5,550
813
—
—
60,197
53,095
7,102
—
—
73,230
61,213
12,017
—
—
4,080
3,204
876
—
—
341,452
7,579
318
—
—
7,897
196,486
142,408
54,078
—
—
5,643
5,466
177
—
—
67,462
59,887
7,575
—
—
74,410
60,990
13,420
—
—
4,571
3,488
1,083
—
—
348,572
5,446
284
—
—
5,730
$m
28,532
5,612
22,920
—
—
855
287
568
—
—
4,000
516
3,484
—
—
7,782
2,527
5,255
—
—
699
102
597
—
—
41,868
—
805
—
—
805
29,443
5,130
24,313
—
—
1,311
415
896
—
—
2,804
224
2,580
—
—
7,632
2,692
4,940
—
—
1,013
149
864
—
—
42,203
—
1,910
—
—
1,910
Total
$m
$m
19,273
81
19,354 949,609
— 809,384
— 120,871
19,273
81
2 112,917
— 111,479
1,436
—
2
2
—
—
664 960,271
— 946,873
12,734
—
664
664
—
—
1,144 661,015
— 630,949
28,922
—
1,140
1,140
4
4
17,009
384
14,746
—
1,879
—
384
384
—
—
21,548 2,700,821
Allowance
for ECL
Net
$m
(11,074)
(1,130)
(2,964)
(6,950)
(30)
(15)
(10)
(3)
(2)
—
(422)
(109)
(132)
(181)
—
(367)
(153)
(128)
(86)
—
(39)
(7)
(7)
(25)
—
$m
938,535
808,254
117,907
12,323
51
112,902
111,469
1,433
—
—
959,849
946,764
12,602
483
—
660,648
630,796
28,794
1,054
4
16,970
14,739
1,872
359
—
(11,917) 2,688,904
— 308,525
1,173
—
5
5
—
—
5 309,703
(37)
(59)
(1)
—
(97)
308,488
1,114
4
—
309,606
19,504
129
19,633 935,008
— 776,299
— 139,076
19,504
129
82 104,544
— 102,723
1,739
—
82
82
—
—
797 954,934
— 938,798
15,339
—
797
797
—
—
1,372 618,788
— 583,383
34,033
—
1,372
1,372
—
—
18,783
249
16,071
—
2,463
—
249
249
—
—
22,133 2,632,057
(11,447)
(1,092)
(3,488)
(6,829)
(38)
(69)
(18)
(29)
(22)
—
(493)
(95)
(165)
(233)
—
(386)
(141)
(180)
(65)
—
(52)
(6)
(13)
(33)
—
923,561
775,207
135,588
12,675
91
104,475
102,705
1,710
60
—
954,441
938,703
15,174
564
—
618,402
583,242
33,853
1,307
—
18,731
16,065
2,450
216
—
(12,447) 2,619,610
— 275,709
2,542
—
5
5
2
2
7 278,258
(67)
(58)
(1)
—
(126)
275,642
2,484
4
2
278,132
1 For the purposes of this disclosure, gross carrying amount is defined as the amortised cost of a financial asset before adjusting for any loss allowance.
As such, the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value
gains and losses.
174
HSBC Holdings plc Annual Report and Accounts 2023
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. 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.
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 147.
Forborne loans and advances to customers at amortised cost by stage allocation
Performing forborne
Non-performing forborne
Total forborne
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 2023
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 2023
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
Stage 2
$m
Stage 3
$m
POCI
$m
816
530
1
24
1
96
155
9
5,848
5,778
70
6,664
(113)
(50)
—
—
—
(17)
(43)
(3)
(259)
(257)
(2)
(372)
651
369
—
—
5
93
179
5
4,873
4,859
14
5,524
(124)
(49)
—
—
—
(19)
(54)
(2)
(152)
(151)
(1)
(276)
1,282
815
8
20
6
83
349
1
5,505
5,459
46
6,787
(307)
(113)
(3)
(2)
(1)
(46)
(142)
—
(1,932)
(1,920)
(12)
(2,239)
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)
—
—
—
—
—
—
—
—
68
68
—
68
—
—
—
—
—
—
—
—
(28)
(28)
—
(28)
—
—
—
—
—
—
—
—
107
107
—
107
—
—
—
—
—
—
—
—
(25)
(25)
—
(25)
Total
$m
2,098
1,345
9
44
7
179
504
10
11,421
11,305
116
13,519
(420)
(163)
(3)
(2)
(1)
(63)
(185)
(3)
(2,219)
(2,205)
(14)
(2,639)
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)
HSBC Holdings plc Annual Report and Accounts 2023
175
Risk review
Risk review
Forborne loans and advances to customers by legal entities
The
Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC UK
Bank plc
HSBC Bank
plc
$m
$m
$m
HSBC
Bank
Middle
East
Limited
$m
HSBC
North
America
Holdings
Inc.
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
$m
$m
$m
1,478
1,936
3,414
(75)
(289)
(364)
899
1,723
2,622
(63)
(257)
(320)
2,081
1,199
3,280
(25)
(400)
(425)
2,222
913
3,135
(31)
(310)
(341)
1,574
2,250
3,824
(142)
(986)
(1,128)
276
1,562
1,838
(21)
(525)
(546)
31
471
502
(1)
(225)
(226)
435
554
989
(7)
(356)
(363)
954
430
1,384
(43)
(74)
(117)
997
209
1,206
(50)
(21)
(71)
503
233
736
(84)
(126)
(210)
530
195
725
(79)
(111)
(190)
43
336
379
(2)
(167)
(169)
165
698
863
(25)
(244)
(269)
Total
$m
6,664
6,855
13,519
(372)
(2,267)
(2,639)
5,524
5,854
11,378
(276)
(1,824)
(2,100)
Gross carrying amount
Performing forborne
Non-performing forborne
At 31 Dec 2023
Allowance for ECL
Performing forborne
Non-performing forborne
At 31 Dec 2023
Gross carrying amount
Performing forborne
Non-performing forborne
At 31 Dec 2022
Allowance for ECL
Performing forborne
Non-performing forborne
At 31 Dec 2022
Wholesale lending
This section provides further details on the major legal entities,
countries, territories and products comprising wholesale loans and
advances to customers and banks. Product granularity is also provided
by stage with legal entity 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 2023 to 31 December 2023
closing gross carrying/nominal amounts and the associated allowance
for ECL.
At 31 December 2023, wholesale lending for loans and advances to
banks and customers of $615bn decreased by $9.6bn compared with
31 December 2022. This included favourable foreign exchange
movements of $6.1bn. Excluding foreign exchange movements, the
total loans and advances to customers decrease of $24.6bn was
driven by a $31.5bn decrease in corporate and commercial balances,
partly offset by a $6.9bn increase in balances from non-bank financial
institutions. In addition, there was a $8.9bn increase in loans and
advances to banks.
The underlying reduction in corporate and commercial lending was
mainly driven by decreases in Hong Kong (down $18.6bn), in the UK
(down $5.4bn), in mainland China (down $2.2bn), in France (down
$1.6bn), in the US (down $1.3bn). These were partly offset by
increased lending in India (up $1.8bn). There was a $2.1bn decrease
from the merger of our business in Oman.
The underlying decrease in loans advances to corporate and
commercial customers within stage 2 included repayments within our
commercial real estate portfolio in Hong Kong, together with de-
risking measures in our mainland China commercial real estate
portfolio. In addition, there was a further decrease in the wholesale
and retail trade portfolio in the UK largely from repayments and
improvements in the economic outlook that led to upgrades to
stage 1.
The underlying growth in loans and advances to non-bank financial
institutions was mainly driven by the formation of HSBC Innovation
Banking, following the acquisition of SVB UK, in the UK (up $6.4bn). In
addition, increases in France (up $1.4bn) were partly offset by
decreases in mainland China (down $0.9bn).
The underlying growth in loans and advances to banks was mainly
driven by central bank balances and money market lending growth in
Singapore (up $6.5bn), Hong Kong (up $5.1bn), the UK (up $2.8bn)
and Egypt (up $1.5bn). These were partly offset by reductions in
mainland China (down $2.6bn), Malaysia (down $1.6bn), Switzerland
(down $1.4bn) and the UAE (down $1.2bn). There was also a $0.6bn
decrease from the merger of our business in Oman.
Loan commitments and financial guarantees increased by $27.5bn
since 31 December 2022 to $419.9bn at 31 December 2023.
Excluding favourable foreign exchange movements of $8.7bn, loan
commitments and financial guarantees grew by $18.8bn. This can be
mainly attributed to a $23.2bn increase in unsettled reverse
repurchase agreements, partly offset by a decrease of $6.3bn in loan
commitments with corporate and commercial customers.
The allowance for ECL attributable to loans and advances to banks
and customers of $8.2bn at 31 December 2023 decreased from
$8.6bn at 31 December 2022. This included adverse foreign exchange
movements of $0.1bn.
Excluding foreign exchange movements, the total decrease in the
wholesale allowance for ECL attributable to loans and advances to
customers and banks was mostly driven by a $0.6bn decrease in
corporate and commercial balances, partly offset by a $0.1bn increase
in loans to non-bank financial institutions and banks.
The allowance for ECL attributable to loan commitments and financial
guarantees at 31 December 2023 remained stable at $0.4bn
compared with 31 December 2022.
The table below provides a breakdown by industry sector and stage of
the Group’s gross carrying amount and allowances for ECL for
wholesale loans and advances to banks and customers.
Counterparties or exposures are classified when presenting
comparable economic characteristics, or engaged in similar activities
so that their collective ability to meet contractual obligations is
uniformly affected by changes in economic, political or other
conditions. Therefore, the industry classification does not adhere to
Nomenclature des Activités Économiques dans la Communauté
Européenne (‘NACE’), which is applicable to other financial regulatory
reporting.
176
HSBC Holdings plc Annual Report and Accounts 2023
Total wholesale lending for loans and advances to banks and customers by stage distribution
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
– real estate and construction
– of which: commercial real estate
– wholesale and retail trade, repair of
motor vehicles and motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and
broadcasting
– 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 2023
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Holding companies, shared service
centres and intra-Group eliminations
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
$m
342,878
5,207
6,260
69,690
$m
69,738
1,662
638
13,744
$m
14,958
312
325
1,877
$m
$m
81 427,655
7,181
—
7,223
—
85,333
22
$m
(499)
(13)
(7)
(89)
$m
(1,500)
(53)
(11)
(194)
$m
(5,774)
(64)
(83)
(839)
$m
(30)
—
—
(21)
Total
$m
(7,803)
(130)
(101)
(1,143)
12,817
1,283
255
—
14,355
(14)
(17)
(88)
—
(119)
2,753
407
102
—
3,262
73,701
59,883
21,871
19,107
5,835
4,552
48 101,455
83,589
47
66,083
10,676
2,358
4
79,121
17,117
9,681
3,894
5,135
445
1,058
—
—
21,456
15,874
(5)
(96)
(73)
(80)
(18)
(27)
(7)
(51)
(629)
(603)
(2,554)
(2,091)
(127)
(1,132)
(52)
(118)
(160)
(112)
—
(7)
(7)
(2)
—
—
(63)
(3,286)
(2,774)
(1,341)
(230)
(257)
17,455
2,066
210
—
19,731
(42)
(81)
(50)
—
(173)
22,686
3,327
19,055
2,551
1,037
1,137
3,245
1,666
7,065
684
5
277
808
196
972
10
733
597
—
46
183
99
318
—
7
26,753
—
22,203
—
—
—
—
—
—
1,042
1,460
4,236
1,961
8,355
694
100
1
—
—
101
5,420
19
69,972
111,479
524,329
202
13
3,650
1,436
74,824
205
—
810
2
15,770
5,827
—
32
—
—
74,432
— 112,917
81 615,004
76,793
82,025
18,735
8,452
3,769
2,673
—
40
99,297
93,190
(32)
(31)
—
(3)
(9)
(5)
(26)
—
—
(2)
—
(52)
(10)
(561)
(213)
(69)
(63)
(63)
—
(8)
(21)
(6)
(37)
—
(306)
(174)
—
(4)
(26)
(31)
(90)
—
—
—
—
(13)
(30)
(3)
(1,533)
(10)
—
(322)
(2)
(6,098)
—
—
—
—
—
—
—
—
—
—
—
—
—
(30)
(401)
(268)
—
(15)
(56)
(42)
(153)
—
—
(12)
(13)
(404)
(15)
(8,222)
(474)
(138)
(593)
(1,035)
—
(7)
(1,280)
(1,249)
287,876
37,402
7,077
38 332,393
(185)
(696)
(3,349)
(21)
(4,251)
21,927
30,797
13,714
11,164
1,598
5,712
1,186
1,739
894
583
382
392
33
—
—
3
—
—
—
—
24,422
37,092
15,282
13,295
(17)
(24)
(39)
(14)
(11)
(145)
(56)
(13)
(571)
(127)
(231)
(192)
33
—
—
—
(2)
—
—
—
—
(601)
(296)
(326)
(219)
—
At 31 Dec 2023
524,329
74,824
15,770
81 615,004
(561)
(1,533)
(6,098)
(30)
(8,222)
Total wholesale lending for loans and other credit-related commitments and financial guarantees to banks and customers by stage distribution1
Nominal amount
Allowance for ECL
Corporate and commercial
Financial
At 31 Dec 2023
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2023
Total
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
$m
256,367
135,039
391,406
$m
22,218
5,111
27,329
$m
1,066
103
1,169
POCI
$m
$m
4 279,655
— 140,253
4 419,908
31,982
148,980
5,760
9,466
350
310
—
38,092
4 158,760
70,436
3,975
79
—
74,490
6,944
101,067
28,156
2,092
1,749
391,406
323
5,103
2,461
34
207
27,329
56
248
66
—
60
1,169
—
7,323
— 106,418
30,683
—
2,126
—
—
2,016
4 419,908
$m
(126)
(11)
(137)
(31)
(20)
(59)
(4)
(14)
(8)
(1)
—
(137)
$m
(125)
(10)
(135)
(32)
(27)
(39)
(1)
(27)
(8)
—
(1)
(135)
$m
(107)
(2)
(109)
(56)
(27)
(16)
(3)
(1)
(3)
—
(3)
(109)
POCI
$m
—
—
—
—
—
—
—
—
—
—
—
—
Total
$m
(358)
(23)
(381)
(119)
(74)
(114)
(8)
(42)
(19)
(1)
(4)
(381)
1
Included in loans and other credit-related commitments and financial guarantees is $70bn relating to unsettled reverse repurchase agreements, which
once drawn are classified as ‘Reverse repurchase agreements – non-trading’.
HSBC Holdings plc Annual Report and Accounts 2023
177
Risk review
Risk review
Total wholesale lending for loans and advances to banks and customers by stage distribution (continued)
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
– real estate and construction
– of which: commercial real estate
– wholesale and retail trade, repair of
motor vehicles and motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and
broadcasting
– 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 legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Holding companies, shared service
centres and intra-Group eliminations
At 31 Dec 2022
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
$m
$m
$m
POCI
$m
Total
$m
351,885
4,805
6,424
70,144
85,492
1,505
1,463
15,251
15,696
261
232
2,016
129 453,202
6,571
8,120
87,460
—
1
49
Stage 1
Stage 2
Stage 3
$m
(488)
(10)
(5)
(93)
$m
$m
(1,907)
(44)
(21)
(164)
(5,887)
(68)
(145)
(867)
POCI
$m
(38)
—
(1)
(29)
Total
$m
(8,320)
(122)
(172)
(1,153)
14,402
1,799
277
—
16,478
(10)
(31)
(67)
—
(108)
2,690
277
26
—
2,993
81,830
68,120
27,104
23,608
5,625
4,648
26 114,585
96,395
19
63,752
15,867
2,805
5
82,429
19,068
9,862
5,062
6,523
556
787
—
2
24,686
17,174
(3)
(107)
(82)
(97)
(30)
(23)
(5)
(954)
(865)
(13)
(2,229)
(1,799)
(225)
(1,341)
(65)
(139)
(153)
(81)
—
(3)
—
(3)
—
(1)
(21)
(3,293)
(2,746)
(1,666)
(248)
(244)
16,574
1,537
249
28
18,388
(22)
(36)
(58)
(1)
(117)
15,164
2,229
20,592
3,505
1,166
1,325
2,993
1,264
10,335
730
14
181
643
452
1,547
14
542
962
—
87
266
146
589
—
47
—
—
8,699
19
61,737
102,723
516,345
506
13
4,718
1,739
91,949
270
—
469
82
16,247
—
17,935
18
25,077
—
—
—
—
—
—
—
1,180
1,593
3,902
1,862
12,471
744
47
9,475
—
32
—
—
66,924
— 104,544
129 624,670
64,930
83,174
18,856
9,175
4,439
2,631
28
3
88,253
94,983
(21)
(25)
—
(4)
(6)
(4)
(25)
—
—
(3)
—
(43)
(18)
(549)
(165)
(56)
(51)
(90)
(1)
(5)
(17)
(16)
(30)
—
(200)
(293)
—
(22)
(67)
(57)
(219)
—
—
—
—
(13)
(77)
(29)
(2,013)
(7)
—
(137)
(22)
(6,046)
—
—
—
—
—
—
—
—
—
—
—
—
—
(38)
(272)
(408)
(1)
(31)
(90)
(77)
(274)
—
—
(10)
(13)
(257)
(69)
(8,646)
(445)
(181)
(643)
(1,075)
(1)
—
(1,254)
(1,312)
292,022
50,708
6,934
80 349,744
(216)
(1,074)
(3,125)
21,922
30,816
9,969
13,512
1,777
6,861
1,979
2,593
946
211
399
687
—
—
—
4
—
—
14
—
24,649
37,888
12,347
16,806
(11)
(24)
(48)
(29)
(21)
(194)
(62)
(36)
(684)
(22)
(225)
(272)
(24)
(3)
—
—
(10)
(4,439)
(719)
(240)
(335)
(347)
—
—
—
—
—
—
516,345
91,949
16,247
129 624,670
(549)
(2,013)
(6,046)
(38)
(8,646)
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1 (continued)
Corporate and commercial
Financial
At 31 Dec 2022
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2022
Nominal amount
Stage 1
Stage 2
Stage 3
$m
$m
252,860
105,950
358,810
29,116
3,683
32,799
26,036
142,100
5,527
11,710
67,473
6,081
6,683
88,039
24,395
2,468
1,616
358,810
231
3,959
4,671
240
380
32,799
$m
798
23
821
208
291
114
14
87
84
3
20
821
POCI
$m
Total
$m
— 282,774
— 109,656
— 392,430
—
31,771
— 154,101
—
73,668
6,928
—
92,085
—
29,150
—
2,711
—
—
2,016
— 392,430
Allowance for ECL
Stage 1
Stage 2
Stage 3
$m
(116)
(5)
(121)
(24)
(16)
(54)
(2)
(13)
(8)
(1)
(3)
(121)
$m
(178)
(14)
(192)
(45)
(41)
(53)
(2)
(32)
(15)
—
(4)
(192)
$m
(96)
(2)
(98)
(38)
(47)
(9)
—
(2)
—
—
(2)
(98)
POCI
$m
—
—
—
—
—
—
—
—
—
—
—
—
Total
$m
(390)
(21)
(411)
(107)
(104)
(116)
(4)
(47)
(23)
(1)
(9)
(411)
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’.
178
HSBC Holdings plc Annual Report and Accounts 2023
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
$m
830,322
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
(670) 124,660
$m
$m
(2,205)
$m
17,068
$m
(6,144)
$m
129
$m
(38)
$m
972,179
$m
(9,057)
(16,804)
(429)
10,247
1,141
6,557
(712)
(93,511)
172
93,511
(172)
77,772
(1,444)
379
(605)
(77,772)
20
(16)
(6,255)
763
605
765
(57)
—
—
7,699
(1,142)
—
—
(785)
73
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
354
—
(294)
—
(45)
—
—
—
15
43,282
(138)
(32,082)
311
(3,787)
973
(36)
3
7,377
1,149
—
—
—
203
—
(621)
—
(2,941)
(9)
—
—
—
25
—
—
—
(2,596)
2,596
—
—
—
21
—
(3,338)
—
—
—
16
(2,596)
2,596
—
—
—
—
(119)
95
—
—
(119)
95
(10,818)
(9)
(696)
(25)
(184)
(29)
845,982
(698) 102,129
(1,668)
16,939
(6,207)
(8)
85
(16)
(11,706)
(79)
(30)
965,135
(8,603)
410
(579)
(2,013)
24
(2,158)
42
(203)
(2,319)
At 1 Jan 2023
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
Net new and further
lending/repayments
Change to risk parameters
– credit quality
Changes to models used
for ECL calculation
Assets written off
Credit-related
modifications that resulted
in derecognition
Foreign exchange and
others1
At 31 Dec 2023
ECL income statement
change for the period
Recoveries
Others
Total ECL income
statement change for the
period
1 Total includes $13.5bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale during the year, and
a corresponding allowance for ECL of $61m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal
groups held for sale’ on page 401.
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 decreased by $454m during the period from
$9,057m at 31 December 2022 to $8,603m at 31 December 2023.
These were partly offset by:
– $3,338m of changes to models used for ECL calculation; and
– foreign exchange and other movements of $79m.
This decrease was driven by:
– $2,596m of assets written off;
– $1,149m relating to volume movements, which included the
allowance for ECL associated with new originations, assets
derecognised and further lending/repayments;
– $95m relating to credit-related modification, which resulted in
derecognition;
– $16m relating to changes to models used for ECL calculation; and
– $15m relating to the net remeasurement impact of stage
transfers.
The ECL charge for the period of $2,158m presented in the previous
table consisted of $3,338m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages. This was partly offset by $1,149m
relating to underlying net book volume movement, $16m in changes
to models used for ECL calculation and $15m relating to the net
remeasurement impact of stage transfers.
During the period, there was a net transfer to stage 2 of $15,739m
gross carrying/nominal amounts. It was primarily driven by $8,792m in
Hong Kong, mainly due to deterioration in the real estate and
construction sectors, and $6,273m in the UK, mainly driven by
increased interest rates affecting the corporate and commercial
portfolio.
HSBC Holdings plc Annual Report and Accounts 2023
179
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
$m
$m
$m
$m
$m
880,181
(58,104)
(860) 137,493
(298) 49,485
(2,103) 14,685
8,619
942
$m
(5,702)
(644)
(157,443)
202 157,443
(202)
—
—
100,810
(484) (100,810)
(1,829)
358
8
(24)
(8,101)
953
484
770
(110)
—
9,930
(1,311)
—
(778)
134
—
240
—
(369)
—
(63)
$m
275
—
—
—
—
—
—
$m
$m
(64) 1,032,634
—
—
$m
(8,729)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(192)
68,616
(158)
(45,336)
201
(3,253)
583
(133)
3
19,894
629
—
318
—
(995)
—
(2,196)
—
—
—
—
6
—
—
—
—
—
(56)
—
—
—
(1,579)
1,579
—
(32)
9
(60,371)
830,322
82
(16,982)
(670) 124,660
175
(1,372)
(2,205) 17,068
290
(6,144)
—
(10)
—
(3)
129
406
(1,219)
(1,676)
32
—
10
—
(19)
(38)
35
—
(2,841)
—
(50)
(1,589)
1,589
(32)
9
(78,728)
972,179
—
—
—
—
—
—
—
—
—
528
(9,057)
(2,454)
33
(25)
(2,446)
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
Net new and 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 and 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 $33.1bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale during the year, 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 401.
Wholesale lending – distribution of financial instruments to which the impairment requirements of IFRS 9 are applied by credit quality
Gross carrying amount
Strong
Good Satisfactory
Sub-
standard
Credit
impaired
$m
$m
$m
$m
$m
Allowance
for ECL
$m
Total
$m
Net
$m
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
Holding companies, shared service centres and
intra-Group eliminations
At 31 Dec 2023
Percentage of total credit quality (%)
20,777
41,149
30,245
20,962
165,255
72,683
13,660
6,244
1,853
3,189
3,082
13,668
6,543
1,277
36,206
24,164
78,566
6,270
13,094
5,882
7,449
8,300
4,202
8,774
513
3,503
622
988
3,769
2,713
99,297
93,190
(1,280)
(1,249)
98,017
91,941
7,115
332,393
(4,251)
328,142
897
583
382
392
24,422
37,092
15,282
13,295
(601)
(296)
(326)
(219)
23,821
36,796
14,956
13,076
33 — — — —
33
—
33
252,160
41.0
148,460 171,631
27.9
24.1
26,902
4.4
15,851
2.6
615,004
100.0
(8,222) 606,782
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2022
Percentage of total credit quality (%)
17,533
41,687
28,685
21,058
32,388
24,560
5,180
5,044
4,467
2,634
88,253
94,983
(1,254)
(1,312)
86,999
93,671
167,209
81,128
84,661
9,732
7,014
349,744
(4,439)
345,305
13,023
7,226
1,024
3,845
251,547
40.3
4,119
13,220
5,540
2,228
155,978
25.0
5,879
12,673
4,612
8,438
173,211
27.7
678
4,558
772
1,594
27,558
4.4
950
211
399
701
16,376
2.6
24,649
37,888
12,347
16,806
624,670
100.0
(719)
(240)
(335)
(347)
(8,646)
23,930
37,648
12,012
16,459
616,024
180
HSBC Holdings plc Annual Report and Accounts 2023
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 148.
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 POCI
Total Stage 1 Stage 2 Stage 3 POCI
Total
ECL
coverage
Mapped
external
rating
%
$m
$m
$m $m
$m
$m
$m
$m $m
$m
%
Corporate
and
commercial
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 81
– 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
2023
342,878 69,738 14,958
81 427,655
(499)
(1,500)
(5,774)
(30)
(7,803)
1.8
715
0.000 to 0.053 34,097
0.054 to 0.169 81,131
2,180
0.170 to 0.740 112,322 11,391
0.741 to 1.927 72,654 16,904
1.928 to 4.914 37,631 18,060
7,341
4.915 to 8.860
6,319
8.861 to 15.000
15.001 to 99.999
6,828
100.000
2,675
1,031
1,337
—
— — 34,812
— — 83,311
— — 123,713
— — 89,558
— — 55,691
— — 10,016
7,350
— —
8,165
— —
81 15,039
(4)
(23)
(106)
(156)
(169)
(24)
(10)
(7)
—
(3)
(14)
(87)
(130)
(240)
(176)
(246)
(604)
—
— —
— —
— —
— —
— —
— —
— —
— —
(30)
(5,774)
(7)
(37)
(193)
(286)
(409)
(200)
(256)
(611)
(5,804)
— AA- and above
—
A+ to A-
0.2 BBB+ to BBB-
BB+ to BB-
0.3
BB- to B
0.7
B-
2.0
CCC+
3.5
CCC to C
7.5
D
38.6
— 14,958
69,972
3,650
810 — 74,432
0.000 to 0.053 15,475
0.054 to 0.169 16,920
0.170 to 0.740 19,195
0.741 to 1.927 11,480
6,635
1.928 to 4.914
232
4.915 to 8.860
25
8.861 to 15.000
10
15.001 to 99.999
—
100.000
111,479
0.000 to 0.053 89,112
0.054 to 0.169 11,899
4,631
0.170 to 0.740
2,488
0.741 to 1.927
3,062
1.928 to 4.914
22
4.915 to 8.860
1
8.861 to 15.000
264
15.001 to 99.999
—
100.000
211
374
912
1,032
872
116
93
40
—
1,436
10
36
9
58
755
20
—
548
—
— — 15,686
— — 17,294
— — 20,107
— — 12,512
7,507
— —
348
— —
118
— —
50
— —
810
810 —
2 — 112,917
— — 89,122
— — 11,935
4,640
— —
2,546
— —
3,817
— —
42
— —
— —
1
812
— —
2
2 —
(52)
(2)
(6)
(10)
(19)
(9)
(6)
—
—
—
(10)
(4)
(2)
(1)
(1)
(2)
—
—
—
—
(30)
—
(2)
(4)
(5)
(15)
(1)
(2)
(1)
—
(3)
—
—
—
—
(1)
—
—
(2)
—
(322) —
(404)
0.5
— —
— —
— —
— —
— —
— —
— —
— —
(322) —
(2) —
— —
— —
— —
— —
— —
— —
— —
— —
(2) —
(2)
(8)
(14)
(24)
(24)
(7)
(2)
(1)
(322)
(15)
(4)
(2)
(1)
(1)
(3)
—
—
(2)
(2)
— AA- and above
A+ to A-
—
0.1 BBB+ to BBB-
BB+ to BB-
0.2
BB- to B
0.3
B-
2.0
CCC+
1.7
CCC to C
2.0
39.8
D
—
— AA- and above
—
A+ to A-
— BBB+ to BBB-
BB+ to BB-
—
BB- to B
0.1
B-
—
CCC+
—
CCC to C
0.2
D
100.0
524,329 74,824 15,770
81 615,004
(561)
(1,533)
(6,098)
(30)
(8,222)
1.3
1 Corporate and commercial lending reported in CRR 8 for stage 1 includes $782m related to the UK Bounce Back Loan Scheme with immaterial
allowances for ECL.
HSBC Holdings plc Annual Report and Accounts 2023
181
Risk review
Risk review
Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost (continued)
Basel one-year
PD range
Gross carrying amount
Allowance for ECL
Stage 1 Stage 2 Stage 3 POCI
Total Stage 1 Stage 2 Stage 3 POCI
Total
ECL
coverage
Mapped
external rating
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
%
$m
$m
$m
$m
$m
$m
$m
$m $m
$m
351,885 85,492 15,696 129 453,202
(488)
(1,907)
(5,887)
(38) (8,320)
0.000 to 0.053 35,574
330
0.054 to 0.169 87,383 3,234
0.170 to 0.740 114,403 17,725
0.741 to 1.927 74,100 21,550
1.928 to 4.914 36,563 21,628
4.915 to 8.860 2,512 9,171
8.861 to 15.000 1,164 5,477
186 6,377
— — 35,904
— — 90,617
— — 132,128
— — 95,650
— — 58,191
— — 11,683
— — 6,641
— — 6,563
— 15,696 129 15,825
15.001 to 99.999
100.000
—
(6)
(28)
(128)
(155)
(145)
(16)
(8)
(2)
—
(1)
(15)
(122)
(210)
(361)
(236)
(336)
(626)
—
— —
— —
— —
— —
— —
— —
— —
— —
(7)
(43)
(250)
(365)
(506)
(252)
(344)
(628)
(38) (5,925)
(5,887)
61,737 4,718
469 — 66,924
(43)
(77)
(137) —
(257)
421
0.000 to 0.053 15,082
0.054 to 0.169 16,351
497
0.170 to 0.740 17,253 1,764
717
0.741 to 1.927 7,059
736
1.928 to 4.914 5,215
90
716
4.915 to 8.860
32
46
8.861 to 15.000
461
15
15.001 to 99.999
—
—
100.000
102,723 1,739
120
178
368
5
172
5
861
30
—
— — 15,503
— — 16,848
— — 19,017
— — 7,776
— — 5,951
806
— —
— —
78
476
— —
469
469 —
82 — 104,544
— — 79,337
— — 13,338
— — 4,833
— — 2,159
— — 3,484
— —
5
862
— —
444
— —
82
82 —
516,345 91,949 16,247 129 624,670
0.000 to 0.053 79,217
0.054 to 0.169 13,160
0.170 to 0.740 4,465
0.741 to 1.927 2,154
1.928 to 4.914 3,312
—
4.915 to 8.860
1
8.861 to 15.000
414
15.001 to 99.999
—
100.000
(2)
(3)
(9)
(19)
(10)
—
—
—
—
(18)
(8)
(2)
(3)
(1)
(4)
—
—
—
—
(549)
(1)
(1)
(13)
(4)
(10)
(4)
(3)
(41)
—
(29)
—
—
—
—
(1)
—
(27)
(1)
—
(2,013)
— —
— —
— —
— —
— —
— —
— —
— —
(137) —
(22) —
— —
— —
— —
— —
— —
— —
— —
— —
(22) —
(3)
(4)
(22)
(23)
(20)
(4)
(3)
(41)
(137)
(69)
(8)
(2)
(3)
(1)
(5)
—
(27)
(1)
(22)
(38) (8,646)
(6,046)
%
1.8
—
0.1
0.2
0.4
0.9
2.2
5.2
9.6
37.4
0.4
—
—
0.1
0.3
0.3
0.5
3.9
8.6
29.2
0.1
—
—
0.1
0.1
0.1
—
3.1
0.2
26.8
1.4
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
Wholesale lending – credit risk profile by obligor grade for loan and other credit-related commitments and financial guarantees
Nominal amount
Allowance for ECL
Basel one-year
PD range Stage 1 Stage 2 Stage 3 POCI
Total Stage 1 Stage 2 Stage 3 POCI
Total
ECL
coverage
Mapped
external
rating
%
$m
$m
$m $m
$m
$m
$m
$m $m
$m
%
Loan and
other credit-
related
commitments
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
Financial
guarantees
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
377,766 25,463
785
4 404,018
(130)
(128)
(84) —
(342)
0.1
0.000 to 0.053 65,730
0.054 to 0.169 152,224
0.170 to 0.740 105,569
0.741 to 1.927 38,102
1.928 to 4.914 14,054
1,170
4.915 to 8.860
780
8.861 to 15.000
137
15.001 to 99.999
—
100.000
1,676
2,490
6,044
4,751
5,367
2,453
848
1,834
—
— — 67,406
— — 154,714
— — 111,613
— — 42,853
— — 19,421
— — 3,623
— — 1,628
— — 1,971
789
4
785
13,640
1,866
384 — 15,890
0.000 to 0.053
0.054 to 0.169
0.170 to 0.740
0.741 to 1.927
1.928 to 4.914
4.915 to 8.860
8.861 to 15.000
15.001 to 99.999
100.000
2,553
4,212
3,584
1,932
1,266
91
1
1
—
1
202
202
407
455
387
76
136
—
— — 2,554
— — 4,414
— — 3,786
— — 2,339
— — 1,721
478
— —
77
— —
137
— —
384
384 —
(5)
(13)
(46)
(33)
(28)
(4)
(1)
—
—
(7)
—
(1)
(2)
(2)
(2)
—
—
—
—
(1)
(6)
(24)
(20)
(31)
(15)
(10)
(21)
—
(7)
—
—
—
(1)
(2)
(1)
—
(3)
—
— —
— —
— —
— —
— —
— —
— —
— —
(84) —
(25) —
— —
— —
— —
— —
— —
— —
— —
— —
(25) —
(6)
(19)
(70)
(53)
(59)
(19)
(11)
(21)
(84)
(39)
—
(1)
(2)
(3)
(4)
(1)
—
(3)
(25)
— AA- and above
A+ to A-
—
0.1 BBB+ to BBB-
BB+ to BB-
0.1
BB- to B
0.3
B-
0.5
CCC+
0.7
CCC to C
1.1
D
10.6
0.2
— AA- and above
—
A+ to A-
0.1 BBB+ to BBB-
BB+ to BB-
0.1
BB- to B
0.2
B-
0.2
CCC+
—
CCC to C
2.2
D
6.5
At 31 Dec 2023
391,406 27,329
1,169
4 419,908
(137)
(135)
(109) —
(381)
0.1
182
HSBC Holdings plc Annual Report and Accounts 2023
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 has 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 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 favourable foreign exchange movements of $1.1bn,
commercial real estate lending decreased by $13.8bn, mainly from
$7.4bn in Hong Kong due to loan repayments. The decrease included
loan sales of $0.5bn in the US as part of an initiative to reduce the
portfolio exposure.
Despite the lower exposure, allowance for ECL remained at $2.8bn,
reflecting the challenging conditions in the commercial property
sector, including the impact of lower valuations in the office segment.
Commercial real estate lending to customers
of which:
HSBC UK
Bank plc
HSBC
Bank plc
The Hongkong and
Shanghai Banking
Corporation
Limited
HSBC Bank
Middle
East
Limited
$m
$m
$m
$m
HSBC
North
America
Holdings
Inc.1
$m
Grupo
Financiero
HSBC, S.A.
de C.V.
$m
Other
trading
entities
$m
Total
$m
UK
$m
10,304
3,262
444
—
14,010
4,218
400
184
32
4,834
41,307
13,229
3,570
15
58,121
1,126
189
145
—
1,460
1,803
1,956
166
—
3,925
685
70
25
—
780
440 59,883 10,790
1 19,107 3,294
470
4,552
32
47
459 83,589 14,586
18
—
Hong
Kong
$m
28,846
10,375
3,226
15
42,462
461
69
2,454
126
433
52
—
3,595
519
2,227
(148)
(49)
(2,399)
(55)
(98)
(15)
(10)
(2,774)
(172)
(2,149)
11,409
2,763
702
—
14,874
5,083
828
277
—
6,188
46,700
16,311
3,320
19
66,350
1,094
323
264
—
1,681
2,096
3,249
—
—
5,345
832
43
28
—
903
906 68,120 12,209
3,008
827
—
1,054 96,395 16,044
91 23,608
4,648
57
19
—
35,905
11,068
3,029
19
50,021
215
143
763
449
428
47
23
2,068
336
654
(216)
(153)
(2,094)
(153)
(93)
(24)
(13)
(2,746)
(323)
(1,878)
Gross loans
and advances
Stage 1
Stage 2
Stage 3
POCI
At 31 Dec 2023
– of which:
forborne loans
Allowance for
ECL
Gross loans and
advances
Stage 1
Stage 2
Stage 3
POCI
At 31 Dec 2022
– of which:
forborne loans
Allowance for
ECL
1 During 1Q23, we aligned the classification of commercial real estate across the Group and re-presented commercial real estate exposure in HSBC
North America Holdings Inc. at 31 December 2022 as $5.3bn, which had a corresponding ECL charge of $0.1bn.
Commercial real estate lending to customers by global business
HSBC UK
Bank plc
HSBC
Bank plc
The Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC Bank
Middle
East
Limited
HSBC North
America
Holdings Inc.
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
$m
$m
$m
$m
$m
$m
$m
Total
$m
UK
$m
Hong
Kong
$m
of which:
Wealth and
Personal
Banking
Commercial
Banking
Global Banking
and Markets
Corporate
Centre
409
377
66
—
2
—
423
1,277
409
66
13,601
3,322
37,826
733
3,923
780
36 60,221 13,686
27,811
—
1,135
20,066
727
—
—
163
—
—
—
At 31 Dec 2023
14,010
4,834
58,121
1,460
3,925
—
— 21,928
491
14,444
—
780
—
163
—
141
459 83,589 14,586
42,462
HSBC Holdings plc Annual Report and Accounts 2023
183
Risk review
Risk review
Commercial real estate lending to customers by global business (continued)
HSBC UK
Bank plc
HSBC
Bank plc
The Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC Bank
Middle East
Limited
HSBC North
America
Holdings Inc.
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
$m
$m
$m
$m
$m
$m
$m
of which:
Total
$m
UK
$m
Hong
Kong
$m
Wealth and
Personal
Banking
Commercial
Banking
Global Banking
and Markets
Corporate
Centre
At 31 Dec 2022
532
2
70
—
4
—
826
1,434
534
70
14,342
4,390
42,803
951
5,341
903
205 68,935 14,638
33,123
—
1,796
23,333
730
—
—
144
—
—
—
14,874
6,188
66,350
1,681
5,345
—
23 25,882
872
16,684
—
903
—
144
—
144
1,054 96,395 16,044
50,021
Commercial real estate lending to customers by credit quality
of which:
HSBC UK
Bank plc
HSBC
Bank plc
$m
3,940
2,555
6,370
701
444
14,010
3,951
3,094
6,819
308
702
14,874
$m
740
2,054
1,642
182
216
4,834
1,444
1,448
2,647
372
277
6,188
Strong
Good
Satisfactory
Sub-standard
Credit impaired
At 31 Dec 2023
Strong
Good
Satisfactory
Sub-standard
Credit impaired
At 31 Dec 2022
The Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC Bank
Middle
East
Limited
HSBC North
America
Holdings Inc.
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
Total
UK
$m
12,394
17,777
19,509
4,856
3,585
58,121
16,063
20,692
20,930
5,326
3,339
66,350
$m
255
246
634
180
145
1,460
303
359
539
216
264
1,681
$m
25
781
1,691
1,262
166
3,925
352
864
2,397
1,732
—
5,345
$m
65
130
500
60
25
780
29
190
616
40
28
903
$m
$m
$m
16 17,435 4,191
18 23,561 2,592
407 30,753 6,575
726
7,241
502
4,599
459 83,589 14,586
—
18
72 22,214 4,681
4 26,651 3,244
881 34,829 6,959
8,034
333
4,667
827
1,054 96,395 16,044
40
57
Hong
Kong
$m
6,527
12,004
16,290
4,400
3,241
42,462
10,061
15,209
16,775
4,928
3,048
50,021
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
of which:
HSBC UK
Bank plc
HSBC
Bank plc
The Hongkong
and Shanghai
Banking
Corporation
Limited
HSBC Bank
Middle East
Limited
$m
3,553
4,514
5,411
532
14,010
8,315
3,518
2,385
656
14,874
$m
1,496
474
2,149
715
4,834
2,059
1,503
1,644
982
6,188
$m
25,427
14,144
16,052
2,498
58,121
23,468
18,007
21,804
3,071
66,350
$m
396
175
441
448
1,460
423
218
664
376
1,681
< 1 year
1–2 years
2–5 years
> 5 years
At 31 Dec 2023
< 1 year
1–2 years
2–5 years
> 5 years
At 31 Dec 2022
HSBC North
America
Holdings Inc.1
$m
1,472
623
1,814
16
3,925
1,883
810
2,624
28
5,345
Grupo
Financiero
HSBC, S.A.
de C.V.
Other
trading
entities
Total
UK
$m
619
60
71
30
780
241
115
449
98
903
$m
$m
437 33,400
2 19,992
3 25,941
4,256
459 83,589
17
703
228
60
63
1,054
37,092
24,399
29,630
5,274
96,395
$m
3,950
4,571
5,520
545
14,586
9,211
3,678
2,472
683
16,044
Hong
Kong
$m
19,887
10,923
9,885
1,767
42,462
18,675
13,873
14,963
2,510
50,021
1 During 1Q23, we aligned the classification of commercial real estate across the Group and re-presented commercial real estate exposure in HSBC
North America Holdings Inc. at 31 December 2022 as $5.3bn, which had a corresponding ECL charge of $0.1bn.
184
HSBC Holdings plc Annual Report and Accounts 2023
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 2023 are split by country/territory and credit quality including allowances for ECL by stage.
Mainland China commercial real estate
(Audited)
Loans and advances to customers1
Guarantees issued and others2
Total mainland China commercial real estate exposure at 31 Dec 2023
Distribution of mainland China commercial real estate exposure by
credit quality
Strong
Good
Satisfactory
Sub-standard
Credit impaired
At 31 Dec 2023
Allowance for ECL by credit quality
Strong
Good
Satisfactory
Sub-standard
Credit impaired
At 31 Dec 2023
Allowance for ECL by stage distribution
Stage 1
Stage 2
Stage 3
At 31 Dec 2023
ECL coverage %
Hong Kong Mainland China Rest of the Group
$m
6,033
255
6,288
781
604
679
1,298
2,926
6,288
—
—
(3)
(66)
(1,726)
(1,795)
—
(69)
(1,726)
(1,795)
28.5
$m
4,917
66
4,983
1,723
953
1,704
327
276
4,983
(3)
(5)
(27)
(87)
(125)
(247)
(10)
(112)
(125)
(247)
5.0
$m
839
37
876
6
421
261
188
—
876
—
(1)
—
(16)
—
(17)
—
(17)
—
(17)
1.9
Total
$m
11,789
358
12,147
2,510
1,978
2,644
1,813
3,202
12,147
(3)
(6)
(30)
(169)
(1,851)
(2,059)
(10)
(198)
(1,851)
(2,059)
17.0
1 Amounts represent gross carrying amount.
2 Amounts represent nominal amount for guarantees and other contingent liabilities.
HSBC Holdings plc Annual Report and Accounts 2023
185
Risk review
Risk review
Mainland China commercial real estate (continued)
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
At 31 Dec 2022
ECL coverage %
Hong Kong Mainland China
(audited)2
$m
(audited)1
$m
Rest of the Group
(unaudited)1
$m
Total
(unaudited)2
$m
9,129
249
9,378
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
5,752
755
6,507
2,118
1,087
2,248
779
275
6,507
(5)
(8)
(81)
(42)
(105)
(241)
(9)
(127)
(105)
(241)
3.7
860
18
878
220
370
77
193
18
878
—
(1)
—
(3)
—
(4)
(1)
(3)
—
(4)
0.5
15,741
1,022
16,763
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)
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.
(Unaudited)
Commercial real estate financing refers to lending that focuses on
commercial development and investment in real estate and covers
commercial, residential and industrial assets. The exposures in the
table are related to companies whose primary activities are focused
on these activities. Lending is generally focused on tier 1 and 2 cities.
The table also includes financing provided to a corporate or financial
entity for the purchase or financing of a property that supports the
overall operations of the business. Such exposures are outside of our
normal definition of commercial real estate, as applied elsewhere in
this report, but are provided here for a more comprehensive view of
our mainland China property exposure.
The table above shows 59% ($7.1bn) of total exposure with a credit
quality of ’satisfactory’ or above, which was slightly higher in
proportion compared with 31 December 2022 (57%, $9.5bn). Total
‘credit impaired’ exposures increased to 26% ($3.2bn) (31 December
2022: 20%, $3.4bn), reflecting sustained stress in the China
commercial real estate market, including weakness in both property
market fundamentals and financing conditions for borrowers
operating in this sector.
Allowances for ECL are substantially against unsecured exposures.
For secured exposures, allowances for ECL are minimal, reflecting the
nature and value of the security held.
Facilities booked in Hong Kong continued to represent the largest
proportion of mainland China commercial real estate exposures,
although total exposures reduced to $6.3bn, down $3.1bn since
31 December 2022, as a result of de-risking measures, repayments
and write-offs. This portfolio remains relatively higher risk, with 33%
(31 December 2022: 36%) of exposure booked with a credit quality of
‘satisfactory’ or above and 47% ‘credit impaired’ (31 December 2022:
33%).
At 31 December 2023, the Group had allowances for ECL of $1.8bn
(31 December 2022: $1.7bn) held against mainland China commercial
real estate exposures booked in Hong Kong. ECL coverage increased
to 28.5% (31 December 2022: 18.6%), reflecting a further credit
deterioration during the year.
Approximately half of the unimpaired exposure in the Hong Kong
portfolio is lending to state-owned enterprises and relatively strong
private-owned enterprises. This is reflected in the relatively low
allowance for ECL in this part of the portfolio.
Market conditions are likely to remain subdued with a protracted
recovery as sentiment and domestic residential demand remain weak,
with ongoing refinancing and liquidity risk for corporates operating in
this market. The divergence between privately-owned enterprises and
state-owned enterprises is likely to continue, with state-owned
enterprises achieving above-market sales performance, and benefiting
from market share gains and better access to funding.
The Group has additional exposures to mainland China commercial
real estate as a result of lending to multinational corporates booked
outside of mainland China, which is not incorporated in the table
above.
186
HSBC Holdings plc Annual Report and Accounts 2023
Collateral and other credit enhancements
(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.
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 348.
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.
HSBC Holdings plc Annual Report and Accounts 2023
187
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)
(Audited)
Gross carrying/nominal amount
ECL coverage
Stage 1 Stage 2 Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 2023
of which: UK
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2023
of which: Hong Kong
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2023
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 20221
of which: UK
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2022
of which: Hong Kong
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2022
$m
$m
36,754
5,128
46,212 15,177
7,413
24,391
5,240
16,086
1,437
3,140
1,087
2,595
1,487
7,075
1,061
4,004
90,041 21,792
4,644
9,762
3,514
4,826
749
673
1,580
524
15,986
1,288
2,512
507
1,418
292
295
239
171
4,039
16,889
20,783
15,425
4,102
657
599
1,770
1,569
2,323
8,447
5,604
2,140
619
84
616
535
39,442 11,386
43,987
9,779
54,003 17,619
6,523
29,635
8,312
18,664
911
3,220
1,873
2,484
1,924
4,965
1,192
2,804
102,955 29,322
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
20,263
27,892
21,185
5,365
995
347
804
584
4,648
7,457
3,539
3,536
134
248
390
249
48,959 12,495
$m
2,543
1,963
574
657
454
278
156
115
4,662
97
295
51
103
80
61
82
62
474
2,215
989
294
312
315
68
52
39
3,256
2,612
1,617
544
594
315
164
513
293
4,742
295
372
53
291
11
17
176
72
843
2,123
864
318
205
264
77
73
39
3,060
$m
$m
— 44,425
— 63,352
— 32,378
— 21,983
5,031
—
3,960
—
8,768
50
26
5,206
50 116,545
—
6,029
— 12,569
4,072
—
6,347
—
1,121
—
1,029
—
1,936
35
17
774
35 20,534
— 21,427
— 30,219
— 21,323
6,554
—
1,591
—
751
—
2,453
15
2,151
8
15 54,099
— 56,378
— 73,239
— 36,702
— 27,570
4,446
—
4,521
—
7,421
19
4,297
8
19 137,038
—
8,766
— 12,690
3,617
—
7,849
—
707
—
517
—
2,275
—
—
1,329
— 23,731
— 27,034
— 36,213
— 25,042
9,106
—
1,393
—
672
—
1,286
19
880
8
19 64,533
%
0.1
0.1
0.1
0.1
0.1
0.2
0.1
0.1
0.4
0.1
0.1
0.1
0.1
0.1
0.1
0.2
—
—
—
0.1
0.1
—
—
—
0.1
0.1
0.1
0.1
0.1
0.2
0.1
0.1
0.3
0.1
0.2
0.1
0.2
0.2
0.2
0.2
—
—
—
0.1
—
—
—
—
%
3.9
2.5
1.9
3.1
3.5
2.3
1.8
2.8
2.0
1.3
1.9
1.1
1.3
1.6
1.1
1.5
6.5
2.1
1.5
3.8
1.8
0.1
0.8
2.9
5.7
1.8
1.9
1.3
2.1
3.5
2.2
3.1
1.5
0.9
0.9
0.9
1.4
0.4
1.1
1.3
10.6
1.1
1.4
1.0
0.1
0.2
2.8
%
72.4
12.0
13.1
9.3
11.8
16.6
30.2
%
—
—
—
—
—
—
14.5
45.6
14.5
12.4
13.9
21.6
16.4
14.9
1.9
34.2
—
—
—
—
—
—
20.7
17.1
20.7
78.7
5.0
1.4
2.1
8.0
20.5
24.5
55.5
53.7
10.9
16.5
4.4
4.1
28.7
54.2
39.1
35.3
6.5
3.8
2.1
18.2
76.5
68.8
29.5
56.9
5.2
2.2
3.4
1.9
32.5
61.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1 During 1Q23, we aligned the classification of commercial real estate across the Group and re-presented commercial real estate exposure in HSBC
North America Holdings Inc. at 31 December 2022 as $5.3bn, which had a corresponding ECL charge of $0.1bn.
188
HSBC Holdings plc Annual Report and Accounts 2023
4.7
42.5
%
4.7
1.0
0.7
1.1
2.1
1.9
1.0
2.4
0.9
0.7
0.6
0.6
1.5
0.6
2.0
0.9
8.8
0.8
0.5
1.4
2.3
1.9
0.7
4.0
3.6
0.7
0.7
0.5
0.8
2.6
4.4
2.1
1.8
0.4
0.4
0.3
0.7
2.8
5.5
1.5
6.3
0.4
0.3
0.5
0.4
3.9
4.4
2.9
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.
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)
Gross carrying/nominal amount
ECL coverage
Stage 1
Stage 2
Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 2023
of which: UK
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2023
of which: Hong Kong
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2023
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 2022
of which: UK
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2022
of which: Hong Kong
Not collateralised
Fully collateralised by LTV ratio
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2022
$m
$m
76,261
19,747
7,069
8,222
2,531
1,925
9,019
4,266
839,167 105,027
672,142
113,339
42,953
24,011
10,194
36,181
53,686
24,505
117,824
22,217
7,385
6,966
2,256
5,610
6,335
3,508
146,376
114,025
32,857
16,175
9,461
4,245
2,976
16,152
6,619
163,034
20,401
5,912
2,340
2,292
809
471
1,732
1,080
28,045
7,523
8,918
2,898
4,515
863
642
2,887
1,306
19,328
632,889
94,789
36,747
29,108
9,643
19,291
54,794
27,775
79,009
27,422
10,643
10,457
2,987
3,335
12,830
6,289
782,472 119,261
105,126
21,192
6,928
7,611
1,889
4,764
6,480
3,470
132,798
109,919
38,083
15,695
13,893
4,964
3,531
17,704
7,737
165,706
16,886
6,511
2,872
2,656
578
405
2,288
1,197
25,685
9,901
12,693
4,577
5,413
1,479
1,224
3,379
1,524
25,973
$m
7,702
2,629
1,168
887
421
153
2,233
993
12,564
3,423
1,162
601
434
106
21
299
175
4,884
906
877
230
336
253
58
704
318
2,487
8,278
1,948
678
503
402
365
2,120
1,133
12,346
3,783
699
175
336
102
86
308
158
4,790
939
665
175
115
268
107
777
397
2,381
$m
$m
8 756,113
23 135,738
51,190
—
33,120
—
13,169
23
38,259
—
64,941
3
29,765
1
34 956,792
— 141,648
29,291
—
10,326
—
9,692
—
3,171
—
6,102
—
8,366
—
—
4,763
— 179,305
—
— 122,454
42,674
22
19,303
—
14,312
—
5,383
22
3,676
—
19,743
—
—
8,243
22 184,871
64 720,240
24 124,183
48,068
—
40,069
1
13,055
23
22,991
—
69,766
22
35,213
16
110 914,189
28 125,823
28,402
—
9,975
—
10,603
—
2,569
—
5,255
—
9,076
—
—
4,825
28 163,301
— 120,759
51,465
24
20,447
—
19,422
1
6,734
23
4,862
—
21,874
14
13
9,671
38 194,098
%
0.1
0.1
0.1
0.1
0.1
—
0.1
0.1
0.2
0.1
0.1
0.1
0.2
0.1
0.2
0.2
—
0.1
0.1
0.1
0.1
—
—
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
—
0.1
0.1
0.1
0.1
0.1
0.1
—
0.1
—
0.1
—
0.1
0.1
0.1
0.1
0.1
0.1
—
0.1
%
0.9
1.4
1.5
1.3
1.6
1.1
0.7
%
40.0
10.7
11.8
6.4
10.3
27.6
32.2
%
6.8
89.8
—
—
90.6
—
38.4
1.0
32.5
67.1
1.9
1.7
1.2
1.7
2.5
2.1
1.8
23.2
3.7
1.3
3.6
15.8
14.5
18.4
1.8
18.3
0.4
1.3
1.4
1.2
1.8
0.4
0.6
0.8
1.1
1.1
1.1
1.2
1.0
0.8
0.9
—
1.0
2.2
1.3
1.0
1.5
1.9
1.2
1.2
—
1.9
0.7
1.0
0.9
1.2
0.7
0.3
0.6
—
0.8
57.5
6.6
11.8
3.1
2.0
27.0
30.2
31.8
38.4
13.7
18.6
11.3
4.7
17.5
37.3
—
34.3
17.8
4.6
3.4
6.5
1.0
3.5
25.6
—
16.4
56.0
3.8
1.7
7.8
0.4
10.3
30.9
—
33.2
—
—
—
—
—
—
—
—
—
94.7
—
—
94.7
—
—
94.7
18.8
91.7
—
—
95.7
—
18.2
—
34.6
3.6
—
—
—
—
—
—
—
3.6
—
91.7
—
—
95.7
—
—
—
57.9
%
0.6
0.5
0.5
0.6
0.9
0.2
1.3
0.6
1.0
0.6
0.5
0.7
1.3
0.3
1.2
0.9
0.5
0.5
0.4
0.5
0.9
0.5
1.2
0.6
0.6
0.5
0.6
0.5
0.6
0.4
1.4
—
0.7
0.9
0.5
0.5
0.6
0.5
0.2
1.2
0.9
0.5
0.4
0.3
0.5
0.6
0.3
1.2
0.6
HSBC Holdings plc Annual Report and Accounts 2023
189
Risk review
Risk review
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.
– Trading loans and advances mainly pledged against cash collateral
are posted to satisfy margin requirements. There is limited credit
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 390 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.
For further information on these arrangements, see Note 33 on the
financial statements.
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.
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.
Notional contract amounts and fair values of derivatives
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
24,551,539
11,130,785
13,420,754
1,111,247
25,662,786
2023
20221
Fair value
Assets
Liabilities
Notional
amount
Fair value
Assets
Liabilities
$m
337,066
116,520
220,546
9,134
346,200
(116,486)
229,714
$m
$m
$m
$m
343,098 23,649,591
118,796 11,360,730
224,302 12,288,861
8,159 1,146,426
351,258 24,796,017
(116,486)
234,772
421,324
149,193
272,131
3,822
425,146
(140,987)
284,159
423,909
154,167
269,742
2,840
426,749
(140,987)
285,762
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
The purposes for which HSBC uses derivatives are described
in Note 15 on the financial statements.
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.
190
HSBC Holdings plc Annual Report and Accounts 2023
Personal lending
This section presents further disclosures related to personal lending.
It provides details of the major legal entities, 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 reconciliations of the opening
1 January 2023 to 31 December 2023 closing gross carrying/nominal
amounts and associated allowance for ECL by product. Further
product granularity is also provided by stage, with data for major legal
entities presented for loans and advances to customers, loan and
other credit-related commitments and financial guarantees.
At 31 December 2023, total personal lending for loans and advances
to customers of $447.5bn increased by $32.6bn compared with
31 December 2022. This increase included favourable foreign
exchange movements of $11.5bn. Excluding foreign exchange
movements, the increase of $21.1bn was mainly driven by growth in
the UK (up $6.6bn), in Hong Kong (up $5.8bn), in Mexico (up $2.3bn)
and in Australia (up $1.4bn). Additionally, France increased by $7.8bn
due to the retention of the home loan portfolio, which is no longer
classified as assets held for sale.
The increase was partly offset by a $1.2bn decrease from the merger
of our business in Oman and a $1.0bn decrease from the sale of our
retail mortgage loan portfolio in New Zealand.
The allowance for ECL attributable to personal lending, excluding off-
balance sheet loan commitments and guarantees, remained broadly
stable at $2.9bn at 31 December 2023, as net releases were offset by
adverse foreign exchange movements of $0.1bn.
Excluding foreign exchange movements and reclassifications to held
for sale, mortgage lending balances increased by $15.5bn to $360.9bn
at 31 December 2023, mainly in Hong Kong (up $5.9bn), in the UK (up
$4.9bn), in Mexico (up $1.7bn), in the US (up $1.5bn) and in Australia
(up $1.4bn). The allowance for ECL attributable to mortgages
remained broadly stable at $0.6bn when compared with 31 December
2022.
Total personal lending gross carrying amounts in stage 2 decreased
by $1.4bn compared with 31 December 2022. Excluding favourable
foreign exchange movements of $2.3bn, the decrease of $3.7bn was
driven by favourable economic conditions and the model updates for
interest-only and offset mortgages at a portfolio level in the UK.
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 64%, compared
with an estimated 60% for the overall mortgage portfolio. The
average LTV ratio on new lending in the UK was 65%, compared with
an estimated 53% for the overall mortgage portfolio.
Excluding foreign exchange movements and reclassifications to held
for sale, other personal lending balances at 31 December 2023
increased by $7.8bn compared with 31 December 2022. This was
mainly from the retained home loan portfolio in France (up $7.4bn),
which is no longer classified as assets held for sale. In addition, our
credit card portfolio in Mexico increased by $0.6bn.
The allowance for ECL, excluding foreign exchange movements,
attributable to other personal lending of $2.3bn remained unchanged
from 31 December 2022. The allowance for ECL attributable to credit
cards decreased by $0.1bn, offset by adverse foreign exchange
movements of $0.1bn in other personal lending.
Total personal lending for loans and advances to customers at amortised cost by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
$m
$m
$m
$m
$m
$m
$m
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 2023
By legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation
Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2023
320,410
21,895
38,287
2,923
2,212
139
360,909
24,957
14,380
76,124
317
8,001
28,900
19,909
17,010
1,987
381
9,196
58
502
424
4,419
3,582
211
291
15,052
1,293
21
90
157
352
659
14
86,613
396
8,593
29,481
24,680
21,251
2,212
396,534
47,483
3,505
447,522
146,354
14,598
35,190
1,747
1,218
273
182,762
16,618
191,382
7,741
948
200,071
3,335
18,096
12,717
10,052
396,534
397
553
1,740
115
47,483
47
364
536
119
3,505
3,779
19,013
14,993
10,286
447,522
(102)
(4)
(3)
(477)
—
(1)
(13)
(236)
(212)
(15)
(579)
(152)
(24)
(165)
(19)
(5)
(197)
(17)
(579)
(200)
(27)
(1)
(1,234)
(3)
(5)
(5)
(697)
(505)
(19)
(1,434)
(490)
(22)
(402)
(33)
(14)
(463)
(10)
(1,434)
(269)
(31)
(10)
(585)
(5)
(14)
(24)
(203)
(331)
(8)
(854)
(255)
(91)
(162)
(36)
(16)
(273)
(21)
(854)
Total
$m
(571)
(62)
(14)
(2,296)
(8)
(20)
(42)
(1,136)
(1,048)
(42)
(2,867)
(897)
(137)
(729)
(88)
(35)
(933)
(48)
(2,867)
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation
Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2023
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
52,093
1,630
181,967
1,978
3,695
6,610
4,308
2,008
254,289
$m
734
36
2,479
7
72
113
—
31
3,472
$m
88
4
$m
52,915
1,670
223
184,669
1
8
30
—
1
355
1,986
3,775
6,753
4,308
2,040
258,116
$m
(11)
—
(3)
—
—
—
(8)
(1)
(23)
$m
$m
—
—
—
—
—
—
—
—
—
(2)
—
—
—
—
—
—
—
(2)
$m
(13)
—
(3)
—
—
—
(8)
(1)
(25)
HSBC Holdings plc Annual Report and Accounts 2023
191
Risk review
Risk review
Total personal lending for loans and advances to customers at amortised cost by stage distribution (continued)
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
$m
$m
$m
Total
$m
Stage 1
Stage 2
Stage 3
$m
$m
$m
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 legal entity
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation
Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2022
294,919
19,636
39,860
4,485
2,042
169
336,821
24,290
14,773
67,758
353
1,121
31,306
16,705
16,512
1,761
362,677
369
240
15,382
9,006
20
121
594
4,423
3,681
167
48,866
1,297
6
125
206
260
687
13
3,339
78,061
379
1,367
32,106
21,388
20,880
1,941
414,882
128,590
6,377
37,394
740
1,012
127
166,996
7,244
185,723
8,698
1,117
195,538
3,657
16,906
9,542
11,882
362,677
184
375
1,099
376
48,866
86
270
377
350
3,339
3,927
17,551
11,018
12,608
414,882
(74)
(3)
(5)
(487)
(1)
(1)
(15)
(225)
(234)
(11)
(561)
(135)
(10)
(138)
(26)
(12)
(213)
(27)
(561)
(231)
(46)
(3)
(1,273)
(2)
(3)
(10)
(776)
(469)
(13)
(1,504)
(688)
(18)
(362)
(37)
(23)
(331)
(45)
(1,504)
(270)
(41)
(4)
(535)
(3)
(30)
(30)
(160)
(305)
(7)
(805)
(227)
(38)
(187)
(52)
(6)
(194)
(101)
(805)
Total
$m
(575)
(90)
(12)
(2,295)
(6)
(34)
(55)
(1,161)
(1,008)
(31)
(2,870)
(1,050)
(66)
(687)
(115)
(41)
(738)
(173)
(2,870)
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation
Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities
At 31 Dec 2022
$m
50,535
2,440
170,104
1,717
3,914
6,346
3,198
2,390
240,644
$m
439
131
2,916
8
24
115
—
64
3,697
Exposure to UK interest-only mortgage loans
Total
$m
51,078
2,578
$m
104
7
634
173,654
1
17
30
—
7
800
1,726
3,955
6,491
3,198
2,461
245,141
Stage 1
Stage 2
Stage 3
Total
$m
(11)
—
(2)
(1)
(1)
—
(9)
(2)
(26)
$m
$m
(1)
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
$m
(12)
—
(2)
(1)
(1)
—
(9)
(2)
(27)
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 2023, the average LTV ratio of the interest-only
mortgage loans was 44% (2022: 41%), and 97% (2022: 99%) had an
LTV ratio of 75% or less.
Of the interest-only mortgage loans that expired in 2021, 82% were
repaid within 12 months of expiry with a total of 96% being repaid
within 24 months of expiry. For those expiring during 2022, 92%
were repaid within 12 months of expiry.
At 31 December 2023, interest-only mortgage loan exposures were
$15.2bn (2022: $14.4bn) and the maturity profile was as follows:
UK interest-only mortgage loans
Expired interest-only mortgage loans
Interest-only mortgage loans by maturity
– 2024
– 2025
– 2026
– 2027
– 2028–2032
– post-2032
At 31 Dec 2023
192
HSBC Holdings plc Annual Report and Accounts 2023
$m
141
141
242
315
436
2,919
11,010
15,204
UK interest-only mortgage loans (continued)
Expired interest-only mortgage loans
Interest-only mortgage loans by maturity
– 2023
– 2024
– 2025
– 2026
– 2027–2031
– post-2031
At 31 Dec 2022
$m
134
219
215
300
383
2,951
10,248
14,450
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
2023, exposures were worth a total $5.0bn with an average LTV ratio of 29% (2022: $5.5bn exposure and 32% LTV ratio).
Reconciliations of changes in personal lending gross carrying/nominal amount and
allowances for loans and advances to customers including loan commitments and financial
guarantees
The following disclosure provides a reconciliation by stage of the Group’s personal lending gross carrying/nominal amount and allowances for
loans and advances to customers, including loan commitments and financial guarantees.
In addition, three reconciliations by stage of the Group’s gross carrying/nominal amount and allowances for first lien mortgages, credit cards and
other personal lending, including loan commitments and financial guarantees were added at 31 December 2023 following the adoption of the
recommendations of the DECL Taskforce’s third report.
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 2023
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
Net new and further lending/repayments
Change to risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and others1,2
At 31 Dec 2023
ECL income statement change for the period
Recoveries
Others
Total ECL income statement change for the
period
$m
603,321
(2,144)
(57,217)
55,307
(542)
308
—
34,411
—
—
—
15,235
650,823
$m
(587)
(619)
270
(862)
3
(30)
563
(47)
104
(13)
—
(3)
(602)
607
$m
52,563
39
57,217
(55,307)
(2,345)
474
—
(4,713)
—
—
—
3,066
50,955
$m
(1,505)
1,087
(270)
862
614
(119)
(679)
350
(641)
21
—
(67)
(1,434)
(949)
$m
4,139
2,105
—
—
2,887
(782)
—
(1,169)
—
—
(1,326)
111
3,860
$m
(805)
(468)
—
—
(617)
149
(79)
144
(955)
7
1,326
(26)
(856)
(883)
$m
660,023
—
—
—
—
—
—
28,529
—
—
(1,326)
18,412
705,638
$m
(2,897)
—
—
—
—
—
(195)
447
(1,492)
15
1,326
(96)
(2,892)
(1,225)
226
8
(991)
1 Total includes $7.8bn of gross carrying loans and advances and a corresponding allowance for ECL of $11m, due to the retention of certain balances
previously classified as assets held for sale of our retail banking operations in France. For further details, see Note 23 ‘Assets held for sale and
liabilities of disposal groups held for sale’ on page 401.
2 Total includes $2.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance
for ECL of $20m, reflecting business disposals, as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups held for sale’ on
page 401.
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 $5m during the period from $2,897m at
31 December 2022 to $2,892m at 31 December 2023.
This decrease was driven by:
– $1,326m of assets written off;
– $447m relating to volume movements, which included the
allowance for ECL associated with new originations, assets
derecognised and further lending/repayment; and
– $15m of changes to models used for ECL calculation.
HSBC Holdings plc Annual Report and Accounts 2023
193
Risk review
Risk review
These were partly offset by:
– $1,492m relating to underlying credit quality changes, including the
credit quality impact of financial instruments transferring between
stages;
– $195m relating to the net remeasurement impact of stage
transfers; and
– foreign exchange and other movements of $96m.
The ECL charge for the period of $1,225m presented in the above
table consisted of $1,492m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages, and $195m relating to the net
remeasurement impact of stage transfers. This was partly offset by
$447m relating to underlying net book volume movements and $15m
in changes to models used for the calculation of ECL.
During the period, there was a net transfer to stage 2 of $1,910m
gross carrying/nominal amounts. This increase was mainly driven by
$1,550m in Mexico, due to slight deterioration in the unsecured
portfolio.
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)
Credit impaired
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Non-credit impaired
Stage 1
Stage 2
Gross
carrying/
nominal
amount
$m
695,627
(40,836)
(68,016)
27,359
(561)
382
—
30,637
—
—
—
(82,107)
603,321
Allowance
for ECL
$m
(692)
(496)
268
(730)
2
(36)
495
(17)
82
(2)
—
43
(587)
558
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
Net new and further lending/repayments
Change to risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and others1
At 31 Dec 2022
ECL income statement change for the period
Recoveries
Others
Total ECL income statement change for the period
Gross
carrying/
nominal
amount
$m
18,161
39,489
68,016
(27,359)
(1,983)
815
Allowance
for ECL
$m
(1,220)
674
(268)
730
361
(149)
$m
5,111
1,347
—
—
2,544
(1,197)
—
(579)
—
459
—
—
—
(5,546)
52,563
234
(676)
(95)
—
157
(1,505)
(1,116)
(146)
—
—
(1,212)
(961)
4,139
Total
Gross
carrying/
nominal
amount
$m
718,899
—
—
—
—
—
—
30,950
—
—
(1,212)
(88,614)
660,023
Allowance
for ECL
$m
(3,138)
—
—
—
—
—
(169)
308
(1,417)
(84)
1,212
391
(2,897)
(1,362)
283
(3)
(1,082)
$m
(1,226)
(178)
—
—
(363)
185
(85)
91
(823)
13
1,212
191
(805)
(804)
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 401.
First lien residential mortgages – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees
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
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
At 1 Jan 2023
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
Net new and further lending/repayments
Change to risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and others
At 31 Dec 2023
ECL income statement change for the period
Recoveries
Others
Total ECL income statement change for the
period
$m
317,666
(1,182)
(41,207)
40,164
(354)
215
—
15,447
—
—
—
8,833
340,764
$m
(74)
(109)
28
(117)
1
(21)
72
(3)
16
(2)
—
(9)
(109)
83
$m
40,048
421
41,207
(40,164)
(958)
336
—
(3,939)
—
—
—
1,983
38,513
$m
(231)
138
(28)
117
100
(51)
(79)
22
(67)
28
—
(13)
(202)
(96)
$m
2,230
761
—
—
1,312
(551)
—
(751)
—
—
(53)
71
2,258
$m
(270)
(29)
—
—
(101)
72
(67)
322
(269)
—
53
(4)
(264)
(14)
$m
359,944
—
—
—
—
—
—
10,757
—
—
(53)
10,887
381,535
$m
(575)
—
—
—
—
—
(74)
341
(320)
26
53
(26)
(575)
(27)
10
13
(4)
194
HSBC Holdings plc Annual Report and Accounts 2023
Credit cards – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers including loan
commitments and financial guarantees
Non-credit impaired
Stage 1
Stage 2
Credit impaired
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
At 1 Jan 2023
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
Net new and further lending/repayments
Change to risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and others
At 31 Dec 2023
ECL income statement change for the period
Recoveries
Others
Total ECL income statement change for the
period
$m
140,519
199
(7,855)
8,124
(82)
12
—
13,206
—
—
—
(632)
153,292
$m
(244)
(292)
102
(391)
1
(4)
185
27
82
(9)
—
(2)
(253)
285
$m
6,747
(848)
7,855
(8,124)
(621)
42
—
621
—
—
—
27
6,547
$m
(777)
496
(102)
391
227
(20)
(301)
169
(281)
15
—
(19)
(698)
(398)
$m
353
649
—
—
703
(54)
—
12
—
—
(571)
7
450
$m
(160)
(204)
—
—
(228)
24
(5)
(41)
(301)
1
571
(5)
(144)
(346)
$m
147,619
—
—
—
—
—
—
13,839
—
—
(571)
(598)
160,289
$m
(1,181)
—
—
—
—
—
(121)
155
(500)
7
571
(26)
(1,095)
(459)
108
(200)
(551)
Other personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees
Non-credit impaired
Stage 1
Stage 2
Credit impaired
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
145,136
(1,161)
(8,155)
7,019
(106)
81
—
5,758
—
—
—
7,034
156,767
$m
(269)
(218)
140
(354)
1
(5)
306
(71)
6
(2)
—
8
(240)
239
$m
5,768
466
8,155
(7,019)
(766)
96
—
(1,395)
—
—
—
1,056
5,895
$m
(497)
453
(140)
354
287
(48)
(299)
159
(293)
(22)
—
(35)
(534)
(455)
$m
1,556
695
—
—
872
(177)
—
(430)
—
—
(702)
33
1,152
$m
(375)
(235)
—
—
(288)
53
(7)
(137)
(385)
6
702
(17)
(448)
(523)
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
152,460
—
—
—
—
—
$m
(1,141)
—
—
—
—
—
—
—
3,933
—
—
(702)
8,123
163,814
(49)
(672)
(18)
702
(44)
(1,222)
(739)
108
195
(436)
At 1 Jan 2023
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
Net new and further lending/repayments
Change to risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and others1
At 31 Dec 2023
ECL income statement change for the period
Recoveries
Others
Total ECL income statement change for the
period
1 Total includes $7.2bn of gross carrying loans and advances and a corresponding allowance for ECL of $10m, due to the retention of certain balances
previously classified as assets held for sale of our retail banking operations in France. For further details, see Note 23 ‘Assets held for sale and
liabilities of disposal groups held for sale’ on page 401.
HSBC Holdings plc Annual Report and Accounts 2023
195
Risk review
Risk review
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
First lien residential
mortgages2
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
Credit cards
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
Other personal lending
(excluding credit cards)
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
At 31 Dec 2023
First lien residential
mortgages2
– 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
320,410
38,287
2,212 360,909
0.000 to 0.250 229,188
54,891
0.251 to 0.500
28,159
0.501 to 1.500
7,451
1.501 to 5.000
599
5.001 to 20.000
122
20.001 to 99.999
—
100.000
19,909
9,490
2,481
4,799
2,787
352
—
—
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
3,174
12,266
16,140
4,559
1,097
1,051
—
4,419
1
6
294
2,291
1,374
453
—
— 232,362
67,157
—
44,299
—
12,010
—
1,696
—
1,173
—
2,212
2,212
24,680
352
9,491
—
2,487
—
5,093
—
5,078
—
1,726
—
453
—
352
352
56,215
4,777
941
61,933
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
28,115
6,634
12,935
7,215
1,137
179
—
396,534
30
286
329
1,447
2,005
680
—
47,483
—
—
—
—
—
—
941
28,145
6,920
13,264
8,662
3,142
859
941
3,505 447,522
294,919
39,860
2,042 336,821
0.000 to 0.250 247,330
19,615
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
67,758
30,150
7,219
17,077
10,344
2,501
467
—
362,677
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
—
9,006
153
251
1,499
2,036
3,692
1,375
—
48,866
— 268,550
27,515
—
27,014
—
9,288
—
1,058
—
1,354
—
2,042
2,042
78,061
1,297
30,303
—
7,470
—
18,576
—
12,380
—
6,193
—
1,842
—
1,297
1,297
3,339 414,882
(102)
(16)
(11)
(22)
(52)
—
(1)
—
(236)
(32)
(21)
(56)
(93)
(34)
—
—
(241)
(34)
(11)
(61)
(79)
(55)
(1)
—
(579)
(74)
(13)
(4)
(18)
(39)
—
—
—
(487)
(54)
(26)
(82)
(170)
(154)
(1)
—
(561)
Total
$m
(571)
(30)
(28)
(71)
(82)
(11)
(80)
(269)
(1,136)
(32)
(22)
(73)
(251)
(292)
(263)
(203)
(200)
(14)
(17)
(49)
(30)
(11)
(79)
—
(697)
—
(1)
(17)
(158)
(258)
(263)
—
(269)
—
—
—
—
—
—
(269)
(203)
—
—
—
—
—
—
(203)
(537)
(382)
(1,160)
(1)
(1)
(9)
(46)
(199)
(281)
—
(1,434)
(231)
(4)
(3)
(7)
(24)
(40)
(153)
—
(1,273)
(13)
(1)
(44)
(103)
(520)
(592)
—
(1,504)
—
—
—
—
—
—
(382)
(854)
(270)
—
—
—
—
—
—
(270)
(535)
—
—
—
—
—
—
(535)
(805)
(35)
(12)
(70)
(125)
(254)
(282)
(382)
(2,867)
(575)
(17)
(7)
(25)
(63)
(40)
(153)
(270)
(2,295)
(67)
(27)
(126)
(273)
(674)
(593)
(535)
(2,870)
ECL
coverage
%
0.2
—
—
0.2
0.7
0.6
6.8
12.2
4.6
0.3
0.9
1.4
4.9
16.9
58.1
57.7
1.9
0.1
0.2
0.5
1.4
8.1
32.8
40.6
0.6
0.2
—
—
0.1
0.7
3.8
11.3
13.2
2.9
0.2
0.4
0.7
2.2
10.9
32.2
41.2
0.7
1 12-month point in time adjusted for multiple economic scenarios.
2 PD bands do not consider the impact of any management judgemental adjustments on stage or allowances for ECL including the impact of new
models not yet formally implemented. For a list of management judgemental adjustments see page 163.
196
HSBC Holdings plc Annual Report and Accounts 2023
Personal lending – credit risk profile by internal PD band for loan and other credit-related commitments and financial guarantees
Nominal 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
Total
$m
253,183
3,459
355 256,997
0.000 to 0.250 196,201
17,861
0.251 to 0.500
29,623
0.501 to 1.500
8,550
1.501 to 5.000
508
5.001 to 20.000
440
20.001 to 99.999
—
100.000
1,106
348
386
359
3
2
8
—
254,289
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
114
63
1,262
1,334
564
122
—
13
—
—
1
—
12
—
—
3,472
— 196,315
17,924
—
30,885
—
9,884
—
1,072
—
562
—
355
355
1,119
—
348
—
386
—
360
—
3
—
14
—
8
—
—
—
355 258,116
(23)
(15)
(1)
(1)
(4)
(2)
—
—
—
—
—
—
—
—
—
—
(23)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2)
—
—
—
—
—
—
(2)
—
—
—
—
—
—
—
—
(2)
(25)
(15)
(1)
(1)
(4)
(2)
—
(2)
—
—
—
—
—
—
—
—
(25)
ECL
coverage
%
—
—
—
—
—
0.2
—
0.6
—
—
—
—
—
—
—
—
—
Loan and other credit-
related commitments
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
Financial guarantees
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
At 31 Dec 2023
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.
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(Audited)
Gross carrying/nominal amount
ECL coverage
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Fully collateralised by LTV ratio
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 2023
of which: UK
Fully collateralised by LTV ratio
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2023
of which: Hong Kong
Fully collateralised
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2023
$m
331,279
140,992
113,043
37,866
23,278
16,100
9,529
8,968
340,808
146,739
60,403
49,945
20,293
12,946
3,152
317
244
147,056
97,414
41,903
29,762
5,260
8,161
12,328
8,973
8,535
106,387
$m
38,378
19,715
12,636
4,111
1,499
417
136
123
38,514
33,597
17,629
11,248
3,275
1,161
284
19
15
33,616
1,354
831
330
48
61
84
86
81
1,440
$m
2,129
1,165
568
229
109
58
129
104
2,258
759
458
207
61
18
15
27
22
786
93
66
15
2
4
6
4
4
97
$m
371,786
161,872
126,247
42,206
24,886
16,575
9,794
9,195
381,580
181,095
78,490
61,400
23,629
14,125
3,451
363
281
181,458
98,861
42,800
30,107
5,310
8,226
12,418
9,063
8,620
107,924
%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
%
0.5
0.3
0.6
0.9
1.2
1.6
3.4
0.5
0.3
0.2
0.4
0.6
0.8
1.0
1.7
0.3
—
—
—
0.1
0.1
0.3
0.9
0.1
%
10.1
7.1
10.9
15.2
17.3
28.9
42.0
11.9
9.7
7.9
9.4
13.4
17.5
41.6
17.5
9.9
0.3
0.1
0.5
0.4
1.9
1.8
7.8
0.7
%
0.1
0.1
0.1
0.2
0.2
0.2
0.6
0.1
0.1
0.1
0.1
0.1
0.1
0.3
1.4
0.1
—
—
—
—
—
—
—
—
HSBC Holdings plc Annual Report and Accounts 2023
197
Risk review
Risk review
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(continued)
(Audited)
Gross carrying/nominal amount
ECL coverage
Fully collateralised by LTV ratio
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (A): LTV > 100%
– collateral value on A
Total at 31 Dec 2022
of which: UK
Fully collateralised by LTV ratio
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (B): LTV > 100%
– collateral value on B
Total UK at 31 Dec 2022
of which: Hong Kong
Fully collateralised by LTV ratio
– less than 50%
– 51% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (C): LTV > 100%
– collateral value on C
Total Hong Kong at 31 Dec 2022
Stage 1
$m
310,705
154,337
102,191
25,458
17,106
11,613
6,964
6,521
317,669
134,044
70,936
43,617
12,849
5,922
720
329
237
134,373
94,949
44,740
28,123
4,167
7,883
10,036
6,441
6,146
101,390
Stage 2
$m
39,906
12,250
16,989
6,770
3,388
509
143
123
40,049
34,541
10,387
14,943
5,922
2,918
371
49
38
34,590
981
577
256
37
51
60
47
44
1,028
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
2,097
1,077
537
212
147
124
133
79
2,230
676
448
158
33
10
27
12
4
688
237
105
37
25
27
43
1
1
238
$m
352,708
167,664
119,717
32,440
20,641
12,246
7,240
6,723
359,948
169,261
81,771
58,718
18,804
8,850
1,118
390
279
169,651
96,167
45,422
28,416
4,229
7,961
10,139
6,489
6,191
102,656
%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
%
0.6
0.7
0.5
0.5
0.5
1.1
6.9
0.6
0.4
0.6
0.4
0.3
0.2
0.2
0.3
0.4
—
—
—
—
0.1
0.2
0.2
—
%
9.9
7.2
9.5
14.7
17.8
18.1
46.9
12.1
11.1
9.4
11.6
19.7
24.5
22.5
9.8
11.1
0.1
—
0.3
0.1
—
—
0.3
0.1
%
0.1
0.1
0.1
0.2
0.2
0.3
1.0
0.2
0.1
0.1
0.1
0.1
0.1
0.6
0.3
0.1
—
—
—
—
—
—
—
—
Supplementary information
Wholesale lending – loans and advances to customers at amortised cost by country/territory
Gross carrying amount
Corporate
and
commercial
$m
105,536
of which: real
estate and
construction1
$m
17,852
Non-bank
financial
institutions
Corporate
and
commercial
Total
$m
18,343
$m
123,879
$m
(1,451)
Allowance for ECL
of which: real
estate and
construction1
$m
(246)
Non-bank
financial
institutions
$m
(231)
Total
$m
(1,682)
80,248
17,060
9,372
89,620
(1,212)
(212)
(66)
(1,278)
24,791
792
8,971
33,762
(240)
(34)
(165)
(405)
497
27,017
6,667
1,168
125,340
12,685
10,856
3,100
28,655
5,797
15,845
4,512
899
13,740
26,993
11,326
27,519
427,655
—
—
497
4,796
240
423
48,594
4,443
2,083
162
6,709
1,137
3,458
30
45
1,979
5,143
865
3,496
101,455
5,701
632
378
19,319
1,564
5,315
411
7,775
258
948
81
86
823
9,155
1,349
2,294
74,432
32,718
7,299
1,546
144,659
14,249
16,171
3,511
36,430
6,055
16,793
4,593
985
14,563
36,148
12,675
29,813
502,087
1
(636)
(74)
(12)
(3,099)
(49)
(47)
(136)
(313)
(69)
(321)
—
(128)
(543)
(239)
(320)
(366)
(7,803)
—
(53)
—
(1)
(2,147)
(1)
(7)
(58)
(212)
(15)
(40)
—
(10)
(296)
(101)
(19)
(80)
(3,286)
—
(18)
—
—
(57)
—
(4)
—
(11)
—
(1)
—
(1)
—
(58)
(5)
(18)
(404)
1
(654)
(74)
(12)
(3,156)
(49)
(51)
(136)
(324)
(69)
(322)
—
(129)
(543)
(297)
(325)
(384)
(8,207)
UK
– of which: HSBC UK Bank
plc (ring-fenced bank)
– of which: HSBC Bank plc
(non-ring-fenced bank)
– of which: Other trading
entities
France
Germany
Switzerland
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
US
Mexico
Other
At 31 Dec 2023
198
HSBC Holdings plc Annual Report and Accounts 2023
Wholesale lending – loans and advances to customers at amortised cost by country/territory (continued)
Corporate
and
commercial
$m
Gross carrying amount
of which: real
estate and
construction
Non-bank
financial
institutions
$m
$m
Corporate
and
commercial
$m
Total
$m
104,775
18,747
12,662
117,437
(1,522)
78,249
17,121
2,980
81,229
(1,247)
26,526
27,571
6,603
988
144,256
11,641
9,052
3,214
31,790
5,986
15,905
4,701
1,262
13,503
28,249
9,784
33,922
453,202
1,625
9,682
36,208
4,607
252
635
58,531
3,339
1,901
206
7,499
1,351
4,031
36
111
2,091
6,491
1,081
3,676
114,585
4,152
713
298
20,798
1,157
4,267
226
8,908
180
1,192
65
101
149
8,640
717
2,699
66,924
31,723
7,316
1,286
165,054
12,798
13,319
3,440
40,698
6,166
17,097
4,766
1,363
13,652
36,889
10,501
36,621
520,126
(275)
(621)
(154)
(8)
(2,997)
(97)
(80)
(187)
(327)
(133)
(387)
(1)
(117)
(674)
(214)
(334)
(467)
(8,320)
UK
– of which: HSBC UK Bank
plc (ring-fenced bank)
– of which: HSBC Bank plc
(non-ring-fenced bank)
France
Germany
Switzerland
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
US
Mexico
Other
At 31 Dec 2022
Allowance for ECL
of which: real
estate and
construction
Non-bank
financial
institutions
$m
(420)
(279)
(141)
(49)
—
—
(1,980)
(1)
(26)
(5)
(174)
(38)
(44)
—
(6)
(342)
(95)
(34)
(79)
(3,293)
Total
$m
$m
(131)
(1,653)
(6)
(1,253)
(125)
(4)
(3)
—
(35)
—
(10)
—
(30)
—
(1)
—
(1)
—
(26)
(1)
(15)
(257)
(400)
(625)
(157)
(8)
(3,032)
(97)
(90)
(187)
(357)
(133)
(388)
(1)
(118)
(674)
(240)
(335)
(482)
(8,577)
1 Real estate lending within this disclosure corresponds solely to the industry of the borrower. Commercial real estate on page 183 includes borrowers
in multiple industries investing in income-producing assets and, to a lesser extent, their construction and development.
Personal lending – loans and advances to customers at amortised cost by country/territory
UK
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring-fenced
bank)
– of which: Other trading entities
France1
Germany
Switzerland
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
US
Mexico
Other
At 31 Dec 2023
Gross carrying amount
Allowance for ECL
First lien
residential
mortgages
Other
personal
of which:
credit
cards
First lien
residential
mortgages
Other
personal
of which:
credit
cards
Total
$m
168,469
164,878
$m
19,503
17,884
$m
8,056
7,975
$m
187,972
182,762
3,226
141
81
3,367
365
436
—
1,770
107,182
23,001
1,537
58
7,503
2,313
8,151
5,607
—
1,957
18,340
8,778
5,807
360,909
1,478
7,476
165
5,466
31,248
446
680
288
754
2,115
5,589
1,370
341
1,325
673
6,215
2,959
86,613
—
1
—
—
9,663
396
185
137
287
882
521
309
89
440
199
2,465
1,050
24,680
1,843
7,912
165
7,236
138,430
23,447
2,217
346
8,257
4,428
13,740
6,977
341
3,282
19,013
14,993
8,766
447,522
$m
(209)
(205)
(3)
(1)
(13)
—
(1)
(2)
(5)
(4)
(2)
(3)
(23)
—
—
—
(10)
(15)
(176)
(108)
(571)
$m
(697)
(692)
$m
(339)
(336)
(5)
(2)
—
(8)
—
(20)
(417)
(19)
(16)
(11)
(49)
(87)
(38)
(17)
(1)
(62)
(19)
(757)
(78)
(2,296)
(1)
—
—
—
(286)
(18)
(12)
(7)
(39)
(36)
(17)
(4)
(1)
(24)
(14)
(297)
(42)
(1,136)
Total
$m
(906)
(897)
(8)
(1)
(21)
—
(21)
(419)
(24)
(20)
(13)
(52)
(110)
(38)
(17)
(1)
(72)
(34)
(933)
(186)
(2,867)
HSBC Holdings plc Annual Report and Accounts 2023
199
Risk review
Risk review
Personal lending – loans and advances to customers at amortised costs by country/territory (continued)
UK
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring-fenced
bank)
France1
Germany
Switzerland
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Egypt
UAE
US
Mexico
Other
At 31 Dec 2022
Gross carrying amount
First lien
residential
mortgages
Other
personal
$m
$m
of which:
credit
cards
$m
Total
$m
154,519
151,188
16,793
15,808
6,622
6,556
171,312
166,996
3,331
985
66
4,316
30
—
1,378
101,478
21,372
1,078
70
9,305
2,292
7,501
5,428
—
2,104
16,847
6,124
7,295
336,821
76
234
5,096
31,409
456
590
278
921
2,437
6,264
1,189
310
1,339
704
4,894
5,071
78,061
9
—
—
8,644
396
162
141
378
843
422
284
83
426
213
1,615
1,150
21,388
106
234
6,474
132,887
21,828
1,668
348
10,226
4,729
13,765
6,617
310
3,443
17,551
11,018
12,366
414,882
Allowance for ECL
First lien
residential
mortgages
Other
personal
$m
(227)
(222)
(5)
(14)
—
—
(1)
(11)
(4)
(1)
(3)
(27)
—
—
—
(14)
(10)
(145)
(118)
(575)
$m
(838)
(828)
(10)
(8)
—
(20)
(352)
(18)
(18)
(17)
(61)
(92)
(35)
(18)
(2)
(84)
(31)
(593)
(108)
(2,295)
of which:
credit
cards
$m
(449)
(447)
(2)
—
—
—
(258)
(18)
(13)
(12)
(49)
(31)
(14)
(5)
(1)
(41)
(23)
(196)
(51)
(1,161)
Total
$m
(1,065)
(1,050)
(15)
(22)
—
(20)
(353)
(29)
(22)
(18)
(64)
(119)
(35)
(18)
(2)
(98)
(41)
(738)
(226)
(2,870)
1
Included in other personal lending at 31 December 2023 is $7,424m (31 December 2022: nil) guaranteed by Crédit Logement.
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business
Gross carrying/nominal amount
Allowance for ECL
Stage 1 Stage 2 Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total
– WPB
– CMB
– GBM
– Corporate Centre
Total gross carrying amount on-balance sheet at
31 Dec 2023
– WPB
– CMB
– GBM
– Corporate Centre
Total nominal amount off-balance sheet at
31 Dec 2023
– WPB
– CMB
– GBM
– Corporate Centre
Debt instruments measured at FVOCI at
31 Dec 2023
– WPB
– CMB
– GBM
– Corporate Centre
Total gross carrying amount on-balance sheet at
31 Dec 2022
– WPB
– CMB
– GBM
– Corporate Centre
Total nominal amount off-balance sheet at
31 Dec 2022
– WPB
– CMB
– GBM
– Corporate Centre
Debt instruments measured at FVOCI at
31 Dec 2022
$m
$m
$m
4,233
630,661 54,069
464,893 66,688 12,698
3,002
696,377 14,247
6
37
75,805
$m
$m
— 688,963
49 544,328
32 713,658
75,848
—
$m
(621)
(508)
(119)
(1)
$m
(1,551)
(1,336)
(199)
(13)
$m
(977)
(4,995)
(1,161)
—
$m
—
(23)
(7)
—
$m
(3,149)
(6,862)
(1,486)
(14)
1,867,736 135,041 19,939
81 2,022,797
(1,249)
(3,099)
(7,133)
(30) (11,511)
253,333
3,811
142,206 16,238
250,007 10,752
—
149
333
877
314
—
— 257,477
— 159,321
4 261,077
149
—
(22)
(100)
(38)
—
—
(101)
(34)
—
(2)
(102)
(7)
—
—
—
—
—
(24)
(303)
(79)
—
645,695 30,801
1,524
4 678,024
(160)
(135)
(111)
—
(406)
124,747
86,021
88,229
2,201
406
405
173
165
—
—
1
—
— 125,153
86,426
—
88,403
—
2,366
—
(14)
(9)
(13)
(1)
(17)
(18)
(6)
(18)
—
—
(1)
—
—
—
—
—
(31)
(27)
(20)
(19)
301,198
1,149
1
— 302,348
(37)
(59)
(1)
—
(97)
593,424
440,638
700,267
83,491
53,302 3,959
82,087 13,072
20,577 3,344
8
188
— 650,685
112 535,909
17 724,205
— 83,687
(602)
(484)
(116)
(3)
(1,586)
(1,620)
(463)
(13)
(980)
(4,988)
(1,116)
—
—
(38)
—
—
(3,168)
(7,130)
(1,695)
(16)
1,817,820 156,154 20,383
129 1,994,486
(1,205)
(3,682)
(7,084)
(38) (12,009)
239,357
130,342
229,507
248
4,388
20,048
12,059
1
770
642
209
—
— 244,515
— 151,032
— 241,775
249
—
(25)
(83)
(39)
—
(1)
(136)
(56)
—
—
(81)
(17)
—
599,454
36,496 1,621
— 637,571
(147)
(193)
(98)
112,591
71,445
75,228
3,347
1,066
735
434
299
—
—
—
—
1 113,658
— 72,180
1 75,663
3,646
—
(17)
(9)
(10)
(31)
(17)
(14)
(8)
(19)
—
—
—
(1)
—
—
—
—
—
—
—
—
—
(26)
(300)
(112)
—
(438)
(34)
(23)
(18)
(51)
262,611
2,534
—
2 265,147
(67)
(58)
(1)
—
(126)
200
HSBC Holdings plc Annual Report and Accounts 2023
Loans and advances to customers and banks – other supplementary information
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
– real estate and construction
– wholesale and retail trade, repair of motor vehicles and
motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and broadcasting
– 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 2023
$m
360,909
396
8,593
29,481
24,680
21,251
2,212
86,613
447,522
7,181
7,223
85,333
14,355
$m
2,212
21
90
157
352
659
14
1,293
3,505
312
325
1,899
255
$m
(571)
(8)
(20)
(42)
(1,136)
(1,048)
(42)
(2,296)
(2,867)
(130)
(101)
(1,143)
(119)
$m
(269)
(5)
(14)
(24)
(203)
(331)
(8)
(585)
(854)
(64)
(83)
(860)
(88)
$m
(10)
(1)
2
8
(577)
(380)
(61)
(1,009)
(1,019)
(21)
27
(355)
(26)
$m
(53)
(1)
(8)
(2)
(571)
(663)
(28)
(1,273)
(1,326)
(9)
(49)
(273)
(10)
3,262
102
(63)
(51)
(44)
(2)
101,455
5,883
(3,286)
(2,561)
(1,358)
(1,191)
(1,341)
(1,134)
79,121
21,456
15,874
19,731
26,753
22,203
2,362
445
1,058
210
740
597
(230)
(257)
(173)
(401)
(268)
(160)
(112)
(50)
(306)
(174)
—
(4)
(26)
(31)
(90)
—
—
(10)
—
(5,804)
(322)
(6,126)
(6,980)
(2)
(6,982)
(124)
(87)
(33)
(106)
(262)
39
—
(1)
40
15
22
—
—
(15)
—
(2,289)
(168)
(2,457)
(3,476)
53
(3,423)
(447)
(42)
(26)
(73)
(110)
(137)
—
(22)
(7)
(8)
(181)
—
—
—
—
(2,587)
(9)
(2,596)
(3,922)
—
(3,922)
1,042
—
—
1,460
4,236
1,961
8,355
694
101
5,827
32
427,655
74,432
502,087
949,609
112,917
1,062,526
46
183
99
318
—
—
205
—
15,039
810
15,849
19,354
2
19,356
(15)
(56)
(42)
(153)
—
—
(12)
(13)
(7,803)
(404)
(8,207)
(11,074)
(15)
(11,089)
$m
10
2
2
2
108
99
3
216
226
—
—
11
—
—
6
12
—
—
—
1
—
—
—
—
—
12
—
—
—
—
42
—
42
268
—
268
HSBC Holdings plc Annual Report and Accounts 2023
201
Risk review
Risk review
Loans and advances to customers and banks – other supplementary information (continued)
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
– real estate and construction
– wholesale and retail trade, repair of motor vehicles and
motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and broadcasting
– 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
HSBC Holdings
(Audited)
$m
336,821
379
1,367
32,106
21,388
20,880
1,941
78,061
414,882
6,571
8,120
87,460
16,478
$m
2,042
6
125
206
260
687
13
1,297
3,339
261
233
2,065
277
$m
(575)
(6)
(34)
(55)
(1,161)
(1,008)
(31)
(2,295)
(2,870)
(122)
(172)
(1,153)
(108)
$m
(270)
(3)
(30)
(30)
(160)
(305)
(7)
(535)
(805)
(68)
(146)
(896)
(67)
$m
180
9
(11)
(16)
(638)
(655)
39
(1,272)
(1,092)
(32)
(24)
(191)
(75)
2,993
26
(21)
(13)
3
114,585
5,651
(3,293)
(2,232)
(1,630)
$m
(48)
(1)
(9)
(5)
(471)
(660)
(18)
(1,164)
(1,212)
(42)
(46)
(171)
(16)
(1)
(310)
2,810
(1,666)
(1,344)
(344)
(667)
82,429
24,686
17,174
18,388
17,935
25,077
556
789
277
542
980
(248)
(244)
(117)
(272)
(408)
1,180
—
(1)
1,593
3,902
1,862
12,471
744
47
9,475
32
453,202
66,924
520,126
935,008
104,544
1,039,552
87
266
146
589
—
—
270
—
15,825
469
16,294
19,633
82
19,715
(31)
(90)
(77)
(274)
—
—
(10)
(13)
(8,320)
(257)
(8,577)
(11,447)
(69)
(11,516)
(153)
(82)
(59)
(200)
(293)
—
(22)
(67)
(57)
(219)
—
—
(7)
—
(5,925)
(137)
(6,062)
(6,867)
(22)
(6,889)
(13)
103
9
(81)
(27)
5
1
(30)
1
120
—
1
(5)
(4)
(2,213)
(165)
(2,378)
(3,470)
(53)
(3,523)
(82)
(29)
(47)
(31)
(27)
—
(3)
(7)
(17)
(92)
—
—
—
—
(1,588)
(1)
(1,589)
(2,801)
—
(2,801)
$m
26
4
2
1
126
119
5
257
283
—
—
3
—
—
8
8
1
—
1
1
1
—
—
1
—
7
—
1
—
—
32
1
33
316
—
316
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.
In HSBC Holdings, the maximum exposure to credit risk arises from
two components:
– financial assets on the balance sheet, where maximum exposure
equals the carrying amount (see page 338); and
– financial guarantees and other guarantees, where the maximum
exposure is the maximum that we would have to pay if the
guarantees were called upon (see Note 34).
In the case of our derivative asset balances (see page 338), 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. These offsets also include
collateral received in cash and other financial assets.
The total offset relating to our derivative asset balances was $3.0bn at
31 December 2023 (2022: $3.1bn).
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 (2022: 100%). For further details of
credit quality classification, see page 148.
202
HSBC Holdings plc Annual Report and Accounts 2023
Treasury risk
Contents
203
203
205
206
210
213
214
Overview
Treasury risk management
Other Group risks
Capital risk in 2023
Liquidity and funding risk in 2023
Structural foreign exchange risk in 2023
Interest rate risk in the banking book in 2023
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 and transactional foreign exchange
exposures, as well as 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
2023.
Treasury risk management
Key developments in 2023
– Following high-profile banking failures in the first quarter of 2023,
we reviewed our liquidity monitoring and metric assumptions as
part of our internal liquidity adequacy assessment process cycle to
ensure they continued to cover observed and emerging risks.
– In 2023, we reverted to a policy of paying quarterly dividends, with
the Board approving three interim dividends of $0.10 per share.
We announced $7bn of share buy-backs during 2023.
– Effective July 2023, the Bank of England’s Financial Policy
Committee doubled the UK countercyclical capital buffer rate from
1% to 2%, in line with the usual 12-month implementation lag.
This change increased our CET1 requirement by 0.2 percentage
points.
– We further stabilised our net interest income against a backdrop of
fluctuating interest rate expectations as the trajectory of inflation
for major economies was reassessed.
– Following the acquisition of SVB UK in the first quarter of 2023,
we launched HSBC Innovation Banking in June, which combined
the expertise of SVB UK with the reach of our international
network. We are in the process of integrating HSBC Innovation
Banking into the Group. The acquisition was funded from existing
resources, and the impacts on our Group LCR and CET1 ratio were
minimal.
– In the fourth quarter of 2023, we reclassified our retail banking
operations in France as held for sale, recognising a $2.0bn loss. In
the first quarter, we had recognised a $2.1bn partial reversal of
impairment for this business. The net result for the year was a
favourable $0.1bn impact. On 1 January 2024, we completed the
sale of this business with no material incremental impact on CET1.
– Having entered into an agreement to sell our banking business in
Canada in 2022, the transaction is expected to complete at the
end of the first quarter of 2024. The associated gain on sale is
expected to add approximately 1.2 percentage points to the CET1
ratio as it stood at 31 December 2023.
For quantitative disclosures on capital ratios, own funds and risk-
weighted assets (‘RWAs’), see pages 206 to 207. For quantitative
disclosures on liquidity and funding metrics, see pages 210 to 211.
For quantitative disclosures on interest rate risk in the banking book,
see pages 214 to 216.
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 and Compliance 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 plc Annual Report and Accounts 2023
203
Risk review
Risk review
HSBC Holdings is the provider of MREL to its subsidiaries, including
equity and non-equity capital. 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 group
retains a substantial holdings capital buffer comprising cash and other
high-quality liquid assets, which at 31 December 2023 was in excess
of $27bn, within risk appetite.
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 and a related
economic profit 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 developments and
continue to evaluate the impact of these upon our capital and liquidity
requirements, particularly those related to the UK’s implementation of
204
HSBC Holdings plc Annual Report and Accounts 2023
the outstanding measures to be implemented from the Basel III
reforms (‘Basel 3.1‘).
Regulatory developments
Future changes to our ratios will occur with the implementation of
Basel 3.1. The Prudential Regulation Authority (‘PRA‘) has published
its consultation paper on the UK’s implementation, with a proposed
implementation date of 1 July 2025. The PRA has also published a set
of near-final rules in relation to some Basel 3.1 elements. We are
currently assessing the impact of implementation.
The RWA output floor under Basel 3.1 is proposed to be subject to a
four-and-a-half year transitional provision. Any impact from the output
floor is expected 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 global processes,
improve consistency and enhance controls across regulatory reports.
The ongoing programme of work focuses on our material regulatory
reports and is being phased over a number of years. This programme
includes data enhancement, transformation of the reporting systems
and an uplift to the control environment over the report production
process.
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, input
into global business performance measures through tangible equity
allocation, 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 (‘BoE’), 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 and the
BoE publicly disclosed the status of HSBC’s progress against the
BoE’s Resolvability Assessment Framework in June 2022, following
the submission of HSBC’s inaugural resolvability self-assessment in
October 2021. HSBC has continued to enhance its resolvability
capabilities since this time and submitted its second self-assessment
in October 2023. A subsequent update was provided to the BoE in
January 2024. Further public disclosure by the Group and the BoE as
to HSBC’s progress against the Resolvability Assessment Framework
will be made in June 2024.
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 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;
– banking net interest income sensitivity; and
– economic value of equity sensitivity.
Net interest income and banking 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 and Group level, where a range of interest
rate scenarios are monitored on a one-year basis.
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.
During 2023, we introduced an additional metric to measure and
manage the sensitivity of our NII to interest rate shocks. In addition to
NII sensitivity, we now also monitor banking NII sensitivity. HSBC has
a significant quantity of trading book assets that are funded by
banking book liabilities, and the NII sensitivity measure does not
include the sensitivity of the internal transfer income from this
funding. Banking NII sensitivity includes an adjustment on top of NII
sensitivity to reflect this. Going forwards, this will be our primary
metric for monitoring and management of interest rate risk in the
banking book.
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. 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 2023.
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 213.
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 approved
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 plc Annual Report and Accounts 2023
205
Risk review Risk review
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 214 to 216.
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. Our most material defined benefit plans have
been closed to new entrants for many years, and the majority
(including the largest plan in the UK) are also closed to future accrual.
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 the level 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 50% of the plan’s pensioner
liabilities.
Capital risk in 2023
Capital overview
Capital adequacy metrics
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’)
Total high-quality liquid assets ($bn)
Total net cash outflow ($bn)
LCR (%)
Net stable funding ratio (‘NSFR’)
Total available stable funding ($bn)
Total required stable funding ($bn)
NSFR (%)
206
HSBC Holdings plc Annual Report and Accounts 2023
At
31 Dec
2023
31 Dec
2022
683.9
35.5
37.5
97.2
854.1
126.5
144.2
171.2
14.8
16.9
20.0
126.5
144.2
167.1
14.8
16.9
19.6
647.5
477.1
136
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
132
1,601.9
1,202.4
133
1,552.0
1,138.4
136
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 regulatory requirements of the Capital
Requirements Regulation and Directive, the CRR II regulation and the
PRA Rulebook (‘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 liquidity coverage ratio is based on the average month-end value
over the preceding 12 months. The net stable funding ratio is the
average of the preceding four quarters.
Regulatory numbers and ratios are as presented at the date of
reporting. Small changes may exist between these numbers and
ratios and those submitted in regulatory filings. Where differences are
significant, we may restate in subsequent periods.
Own funds disclosure
(Audited)
Ref*
1
2,3
5
5a
6
28
29
36
43
44
45
51
57
58
59
Common equity tier 1 (‘CET1’) capital: instruments and reserves
Capital instruments and the related share premium accounts
– ordinary shares
Retained earnings, 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 adjustments1
Total regulatory adjustments to common equity tier1
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
At
31 Dec
31 Dec
2023
$m
22,964
22,964
128,419
3,917
10,568
165,868
(39,367)
126,501
17,732
(70)
17,662
144,163
28,148
(1,107)
27,041
171,204
2022
$m
23,406
23,406
121,609
4,444
8,633
158,092
(38,801)
119,291
19,836
(60)
19,776
139,067
24,779
(1,423)
23,356
162,423
* The references identify lines prescribed in the PRA template, which are applicable and where there is a value.
1 On adoption of IFRS 17 ‘Insurance Contracts’, comparative data previously published under IFRS 4 ‘Insurance Contracts’ have been restated for 2022,
with no impact on CET1 and total capital.
At 31 December 2023, our CET1 capital ratio increased to 14.8% from
14.2% at 31 December 2022, reflecting an increase in CET1 capital of
$7.2bn, partly offset by an increase in RWAs of $14.4bn. The key
drivers of the overall rise in our CET1 ratio during the year were:
– a 1.0 percentage point increase from capital generation, mainly
through profits less dividends and share buy-backs;
– a 0.3 percentage point reduction due to an increase in regulatory
deductions, primarily for expected excess loss and intangible
assets; and
– a 0.1 percentage point decrease from the adverse impact of
foreign exchange fluctuations and the increase in the underlying
RWAs.
Risk-weighted assets
RWAs by global business
The impairment of BoCom had an insignificant impact on our capital
and CET1 ratio. This is because the impairment charge had a partially
offsetting reduction in threshold deductions from regulatory capital.
For regulatory capital purposes, our share of BoCom’s profits is not
capital accretive, although the dividends we receive from BoCom are
capital accretive.
Our Pillar 2A requirement at 31 December 2023, as per the PRA’s
Individual Capital Requirement based on a point-in-time assessment,
was equivalent to 2.6% of RWAs, of which 1.5% was required to be
met by CET1. Throughout 2023, we complied with the PRA’s
regulatory capital adequacy requirements.
Credit risk
Counterparty credit risk
Market risk
Operational risk
At 31 Dec 2023
At 31 Dec 2022
WPB
$bn
155.3
1.9
1.3
34.4
192.9
182.9
CMB1
$bn
319.1
1.5
1.0
32.9
354.5
342.4
GBM1
$bn
131.5
32.0
22.2
32.8
218.5
225.9
Corporate
Centre
$bn
78.0
0.1
13.0
(2.9)
88.2
88.5
Total
RWAs
$bn
683.9
35.5
37.5
97.2
854.1
839.7
1 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective needs,
a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data have
been re-presented accordingly.
HSBC Holdings plc Annual Report and Accounts 2023
207
Risk review
Risk review
RWAs by legal entities1
Credit risk
Counterparty credit risk
Market risk2
Operational risk
At 31 Dec 2023
At 31 Dec 2022
The
Hongkong
and
Shanghai
Banking
Corporation
Limited
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc
HSBC
Bank
Canada
Grupo
Financiero
HSBC,
S.A.
de C.V.
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
Total
RWAs
$bn
314.0
8.7
27.4
46.6
396.7
407.0
$bn
17.1
0.7
2.8
3.7
24.3
22.5
$bn
59.3
3.1
2.6
7.2
72.2
72.5
$bn
27.1
0.5
0.8
3.5
31.9
31.9
$bn
25.9
0.7
0.7
5.3
32.6
26.7
$bn
48.0
3.7
1.6
6.3
59.6
60.3
$bn
$bn
8.4 683.9
35.5
—
37.5
9.3
97.2
(11.0)
6.7 854.1
8.1 839.7
HSBC
UK
Bank
plc
HSBC
Bank
plc
$bn
110.7
0.3
0.2
18.0
$bn
73.4
17.8
22.7
17.6
129.2 131.5
110.9 127.0
1 Balances are on a third-party Group consolidated basis.
2 Market risk RWAs are non-additive across the legal entities due to diversification effects within the Group.
RWA movement by global business by key driver
RWAs at 1 Jan 2023
Asset size2
Asset quality
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements3
Total RWA movement
RWAs at 31 Dec 2023
Credit risk, counterparty credit risk and operational
risk
WPB
$bn
181.2
15.6
2.8
(1.3)
(6.2)
(1.3)
0.8
10.4
191.6
CMB1
$bn
341.3
3.2
1.5
(0.1)
(1.8)
8.0
1.4
12.2
353.5
GBM1
$bn
202.3
3.2
(0.6)
(0.3)
(7.5)
(0.7)
(0.1)
(6.0)
196.3
Corporate
Centre
Market
risk
Total
RWAs
$bn
77.3
2.6
(1.2)
—
(3.5)
0.1
(0.1)
(2.1)
75.2
$bn
37.6
1.6
—
(0.9)
(0.9)
0.1
—
(0.1)
37.5
$bn
839.7
26.2
2.5
(2.6)
(19.9)
6.2
2.0
14.4
854.1
1 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective needs,
a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data have
been re-presented accordingly.
2 The movements in asset size include the increase in operational risk RWAs, which was driven by revenue.
3 Credit risk foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars based on the underlying
transactional currencies.
RWA movement by legal entities by key driver1
Credit risk, counterparty credit risk and operational risk
The
Hongkong
and
Shanghai
Banking
Corporation
Limited
HSBC
Bank
Middle
East
Limited
HSBC
North
America
Holdings
Inc
Grupo
Financiero
HSBC,
S.A.
de C.V.
HSBC
Bank
Canada
Other
trading
entities
Holding
companies,
shared
service
centres and
intra-Group
eliminations
Market
risk
Total
RWAs
$bn
378.4
5.8
(1.9)
(0.4)
(11.2)
$bn
20.8
1.8
(1.0)
0.1
(0.3)
$bn
69.5
0.4
0.8
—
(1.1)
$bn
31.1
(0.2)
0.3
—
(0.7)
$bn
26.2
2.9
(0.5)
—
0.2
$bn
58.0
12.1
3.3
(0.1)
(2.5)
$bn
0.8
(3.5)
0.1
—
(0.2)
$bn
37.6
1.6
—
(0.9)
(0.9)
$bn
839.7
26.2
2.5
(2.6)
(19.9)
HSBC
UK Bank
plc
HSBC
Bank plc
$bn
110.8
5.1
2.3
(1.0)
(4.0)
$bn
106.5
0.2
(0.9)
(0.3)
0.8
9.5
(0.2)
(0.1)
—
—
—
—
(3.2)
0.1
0.1
6.2
6.3
2.7
18.2
129.0
2.3
108.8
(1.3)
(9.1)
369.3
0.1
0.7
21.5
—
0.6
0.1
69.6
—
31.1
3.1
5.7
31.9
(9.6)
—
58.0
0.1
(3.4)
(2.6)
—
2.0
(0.1)
37.5
14.4
854.1
RWAs at 1 Jan 2023
Asset size2
Asset quality
Model updates
Methodology and policy
Acquisitions and
disposals
Foreign exchange
movements3
Total RWA movement
RWAs at 31 Dec 2023
1 Balances are on a third-party Group consolidated basis.
2 The movements in asset size include the increase in operational risk RWAs, which was driven by revenue.
3 Credit risk foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars based on the underlying
transactional currencies.
208
HSBC Holdings plc Annual Report and Accounts 2023
Risk-weighted assets (‘RWAs’) rose by $14.4bn during the year,
driven by an increase of $34.4bn from increased lending, higher
operational risk RWAs, business acquisitions and foreign exchange
movements. These were partly offset by a reduction of $19.9bn due
to methodology and policy changes.
Asset size
Asset size RWAs increased by $26.2bn, including a $10.4bn rise in
operational risk RWAs driven by growth in NII.
WPB RWAs increased by $15.6bn, notably due to an expansion of
retail lending in Asia, the UK and Mexico, additional sovereign
exposures in Asia and other trading entities, including a $2.9bn rise in
operational risk RWAs.
CMB RWAs increased by $3.2bn, reflecting an increase in operational
risk RWAs of $5.2bn and additional sovereign exposures across
various entities. This was partly offset by a net decrease in corporate
lending in Asia, the US and Europe.
GBM RWAs increased by $3.2bn, mainly from the $4.0bn rise in
operational risk RWAs and additional sovereign exposures across
various entities. This was partly offset by a fall in lending in Asia and
Europe.
Corporate Centre RWAs rose by $2.6bn, primarily due to an increase
in corporate exposures in Saudi Awwal Bank (‘SAB’).
Asset quality
Asset quality contributed to an RWA increase of $2.5bn due to credit
risk rating migrations and portfolio mix changes, notably in Asia, the
US and Europe.
Model updates
Model updates decreased RWAs by $2.6bn, mainly due to a change
in our risk approach to multilateral development banks’ exposures,
following approval for change from the PRA, the implementation of
the exposure at default mortgage model in the UK, and changes to
the incremental risk charge model.
Methodology and policy
The decrease of RWAs from methodology and policy of $19.9bn was
mainly driven by a decline of $7.7bn from regulatory changes related
to the risk-weighting of residential mortgages in Hong Kong, and
credit risk parameter refinements mainly in Asia and Europe.
Acquisitions and disposals
The increase in RWAs from acquisitions and disposals of $6.2bn was
primarily due to a rise of $9.6bn from the acquisition of SVB UK. This
was partly offset by a decline of $3.2bn from the disposal of our
business in Oman.
Foreign currency movements increased total RWAs by $2.0bn.
Leverage ratio1
Tier 1 capital (leverage)
Total leverage ratio exposure
Leverage ratio
At
31 Dec
2023
$bn
144.2
2,574.8
%
5.6
31 Dec
2022
$bn
139.1
2,417.2
%
5.8
1 Leverage ratio calculation is in line with the PRA’s UK leverage rules. This includes IFRS 9 transitional arrangement and excludes central bank claims.
Our leverage ratio was 5.6% at 31 December 2023, down from 5.8%
at 31 December 2022. The increase in the leverage exposure was
primarily due to growth in the balance sheet, which led to a fall of
0.4 percentage points in the leverage ratio. This was partly offset by a
rise of 0.2 percentage points due to an increase in tier 1 capital.
At 31 December 2023, our UK minimum leverage ratio requirement of
3.25% was supplemented by a leverage ratio buffer of 0.9%, which
consists of an additional leverage ratio buffer of 0.7% and a
countercyclical leverage ratio buffer of 0.2%. These buffers translated
into capital values of $18.0bn and $5.1bn respectively.
Regulatory transitional arrangements for
IFRS 9 ‘Financial Instruments’
We have adopted the regulatory transitional arrangements of the
Capital Requirements Regulation for IFRS 9, including paragraph four
of article 473a. These allow banks to add back to their capital base a
proportion of the impact that IFRS 9 has upon their loan loss
allowances. Our capital and ratios are presented under these
arrangements throughout the tables in this section, including the end
point figures.
Regulatory and other developments
In September 2023, the PRA announced changes to the UK
implementation of Basel 3.1 with a new proposed implementation
date of 1 July 2025. For further details related to the November 2022
consultation, see page 6 of our Pillar 3 Disclosures at 31 December
2022. We are currently assessing the impact of the consultation paper
and the associated implementation challenges (including data
provision) on our RWAs upon initial implementation. The RWA output
floor under Basel 3.1 is now proposed to be subject to a four-and-a-
half year transitional provision. Any impact from the output floor is
expected to be towards the end of the transition period.
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.
For further details, see our Pillar 3 Disclosures at 31 December 2023,
which is expected to be published on or around 21 February 2024 at
www.hsbc.com/investors.
HSBC Holdings plc Annual Report and Accounts 2023
209
Risk review
Risk review
Liquidity and funding risk in 2023
Liquidity metrics
At 31 December 2023, all of the Group’s material operating entities
were above the required regulatory minimum liquidity and funding
levels.
Each entity maintains sufficient unencumbered liquid assets to
comply with local and regulatory requirements.
Each entity maintains a sufficient stable funding profile and is
assessed using the NSFR or other appropriate metrics.
Operating entities’ liquidity1
HSBC UK Bank plc (ring-fenced bank)2
HSBC Bank plc (non-ring-fenced bank)3
The Hongkong and Shanghai Banking Corporation – Hong Kong branch4
HSBC Singapore5
Hang Seng Bank
HSBC Bank China
HSBC Bank USA
HSBC Continental Europe 6,7
HSBC Bank Middle East Ltd – UAE branch
HSBC Canada
HSBC Mexico
HSBC UK Bank plc (ring-fenced bank)2
HSBC Bank plc (non-ring-fenced bank)3
The Hongkong and Shanghai Banking Corporation – Hong Kong branch4
HSBC Singapore5
Hang Seng Bank
HSBC Bank China
HSBC Bank USA
HSBC Continental Europe6
HSBC Bank Middle East Ltd – UAE branch
HSBC Canada
HSBC Mexico
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 2023
LCR
HQLA
Net
outflows
$bn
$bn
118
132
147
26
52
24
82
83
13
21
8
At 31 December 2022
136
128
147
21
50
23
85
55
12
22
8
NSFR
%
158
116
127
174
163
139
131
137
163
129
124
164
115
130
173
156
132
131
132
158
122
129
59
89
77
9
21
14
48
52
5
13
5
60
90
82
9
22
13
52
37
5
15
5
%
201
148
192
292
254
170
172
158
281
164
149
226
143
179
247
228
183
164
151
239
149
155
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.
2 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises five legal entities: HSBC UK Bank plc, Marks and Spencer Financial
Services plc, HSBC Private Bank (UK) Ltd, HSBC Innovation Bank Limited 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 The Hongkong and Shanghai Banking Corporation – Hong Kong branch represents the material activities of The Hongkong and Shanghai Banking
Corporation Limited. It is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.
5 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.
6 In response to the requirement for an intermediate parent undertaking in line with the 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 include the impact of the
inclusion of the two entities from November 2022.
7 HSBC Continental Europe NSFR includes the impact of the sale of our retail banking operations in France.
Consolidated liquidity metrics
Net stable funding ratio
We manage funding risk based on the PRA’s NSFR rules. The Group’s NSFR at 31 December 2023, calculated from the average of the four
preceding quarters average, was 133%.
Total available stable funding ($bn)
Total required stable funding ($bn)
NSFR ratio (%)
31 Dec
2023
$bn
1,602
1,202
133
At1
30 Jun
31 Dec
2023
$bn
1,575
1,172
134
2022
$bn
1,552
1,138
136
1 Group NSFR numbers above are based on average values. The NSFR number is the average of the preceding four quarters.
210
HSBC Holdings plc Annual Report and Accounts 2023
Liquidity coverage ratio
Sources of funding
At 31 December 2023, the average high-quality liquid assets (‘HQLA‘)
held at entity level amounted to $795bn (31 December 2022:
$812bn). The Group consolidation methodology includes a deduction
to reflect the impact of limitations in the transferability of entity
liquidity around the Group. That resulted in an adjustment of $147bn
to LCR HQLA and $7bn to LCR inflows on an average basis.
Furthermore, this methodology was enhanced in 2023 to consider
more accurately non-convertible currencies.
High-quality liquid assets (in entities)
EC Delegated Act adjustment for transfer
restrictions2
Group LCR HQLA
Net outflows
Liquidity coverage ratio (%)
At1
30 Jun
31 Dec
2023
2022
$bn
796
$bn
812
31 Dec
2023
$bn
795
(154)
(172)
(174)
648
477
136
631
478
132
647
491
132
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 $147bn deduction, the average Group LCR HQLA of $648bn
(31 December 2022: $647bn) was held in a range of asset classes and
currencies. Of these, 97% were eligible as level 1 (31 December
2022: 97%).
The following tables reflect the composition of the average liquidity
pool by asset type and currency at 31 December 2023.
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 2023
Total at 31 Dec 2022
Liquidity
pool
$bn
Cash Level 12 Level 22
$bn
$bn
$bn
310
310
—
319
—
303
2
—
2
10
6
1
648
647
—
—
—
310
344
10
2
—
317
284
—
16
—
—
4
1
21
19
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’.
Liquidity pool by currency1
$
£
€
HK$ Other Total
$bn
$bn
$bn
$bn
$bn
$bn
Liquidity pool at 31 Dec
2023
Liquidity pool at 31 Dec
2022
184 173 112
51
128 648
167 191
98
54
137 647
1 Group liquid assets numbers are based on average values.
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 sale2
Subordinated liabilities
Financial liabilities designated at fair value
Insurance contract liabilities
Trading liabilities
– repos
– stock lending
– other trading liabilities
Total equity
Other balance sheet liabilities
At 31 Dec
Funding uses
(Audited)
Loans and advances to customers
Loans and advances to banks
Reverse repurchase agreements – non-trading
Cash collateral, margin and settlement accounts
Assets held for sale2
Trading assets
– reverse repos
– stock borrowing
– other trading assets
Financial investments
Cash and balances with central banks
Other balance sheet assets
At 31 Dec
2023
$m
20221
$m
1,611,647 1,570,303
66,722
127,747
78,149
88,476
114,597
22,290
127,321
108,816
72,353
16,254
3,541
52,558
185,197
387,315
3,038,677 2,949,286
73,163
172,100
93,917
85,255
108,406
24,954
141,426
120,851
73,150
12,198
3,322
57,630
192,610
341,198
2023
20221
$m
$m
938,535
112,902
252,217
89,911
114,134
289,159
16,575
14,609
257,975
442,763
285,868
513,188
923,561
104,475
253,754
82,984
115,919
218,093
14,798
10,706
192,589
364,726
327,002
558,772
3,038,677 2,949,286
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which
replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022
comparative data.
2 ‘Liabilities of disposal groups held for sale’ includes $82bn and ‘Assets
held for sale’ includes $88bn in respect of the planned sale of our
banking business in Canada. ‘Liabilities of disposal groups held for sale’
includes $26bn and ‘Assets of disposal groups held for sale’ includes
$28bn in respect of the sale of our retail banking operations in France.
.
HSBC Holdings plc Annual Report and Accounts 2023
211
Risk review
Risk review
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
$m
$m
1,073
$m
64,010 50,045 202,091
925 36,897
54,984 41,007 129,503
5,910 21,533
2,793
1,275
1,275
426
—
1,829
861
3,024
1,664 10,628
4,282 27,234 36,887
4,282 25,441 35,081
1,806
1,793
68,292 77,279 238,978
—
—
539
—
707
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
—
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 2023
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
$m
17,620
6,400
8,190
2,307
—
426
22
275
—
—
—
17,620
11,959
3,821
5,973
1,264
—
690
15
196
—
—
—
11,959
$m
9,798
6,777
1,160
1,491
—
—
44
326
2,013
2,000
13
11,811
11,266
6,017
2,351
1,421
—
—
28
1,449
—
—
—
11,266
$m
14,284
7,601
4,365
1,617
—
—
62
639
—
—
—
14,284
12,532
7,088
3,534
1,247
—
—
40
623
11
11
—
12,543
$m
13,226
6,429
3,627
2,513
—
—
58
599
—
—
—
13,226
8,225
4,137
1,363
1,850
—
—
38
837
160
160
—
8,385
$m
12,226
6,513
3,267
1,978
—
—
55
413
—
—
—
12,226
8,212
3,123
3,238
1,627
—
—
36
188
—
—
—
8,212
$m
20,882
1,179
12,903
2,924
—
—
188
3,688
3,358
3,358
—
24,240
26,669
1,264
19,229
4,463
—
—
123
1,590
2,000
2,000
—
28,669
1 Excludes financial liabilities of disposal groups.
212
HSBC Holdings plc Annual Report and Accounts 2023
Structural foreign exchange risk in 2023
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)
$m
39,014
46,661
33,809
15,673
5,418
6,286
4,883
4,312
4,995
2,754
2,345
2,362
2,212
1,535
1,191
1,354
1,022
959
834
794
872
4,386
183,671
39,191
39,298
35,712
14,436
4,402
4,967
3,932
4,182
4,534
2,715
2,517
2,264
2,058
1,453
1,233
1,283
908
746
785
1,010
665
4,470
172,761
2023
Structural
foreign
exchange
exposures
(pre-
economic
hedges)
Net
investment
hedges
$m
(5,792)
(16,415)
(3,299)
(515)
(1,076)
(2,110)
—
—
(613)
—
(224)
—
(1,127)
(512)
(526)
(864)
—
—
(215)
—
—
(487)
(33,775)
(4,597)
(14,000)
(3,532)
(777)
(811)
(1,380)
—
(109)
(731)
—
(358)
—
(1,140)
(469)
(727)
(817)
—
—
(200)
—
—
(495)
(30,143)
$m
33,222
30,246
30,510
15,158
4,342
4,176
4,883
4,312
4,382
2,754
2,121
2,362
1,085
1,023
665
490
1,022
959
619
794
872
3,899
149,896
20223
34,594
25,298
32,180
13,659
3,591
3,587
3,932
4,073
3,803
2,715
2,159
2,264
918
984
506
466
908
746
585
1,010
665
3,975
142,618
Economic
hedges –
structural
FX hedges1
$m
Economic
hedges –
equity
securities
(AT1)2
$m
(7,979)
—
(1,066)
—
—
—
—
—
(2,761)
—
—
—
—
—
—
—
—
—
(299)
—
—
—
(12,105)
(8,363)
—
(994)
—
—
—
—
—
(2,285)
—
—
—
—
—
—
—
—
—
(277)
—
—
(36)
(11,955)
—
(1,275)
—
(1,384)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,659)
—
(1,205)
—
(2,402)
—
—
—
—
—
—
(559)
—
—
—
—
—
—
—
—
—
—
—
(4,166)
Net
structural
foreign
exchange
exposures
$m
25,243
28,971
29,444
13,774
4,342
4,176
4,883
4,312
1,621
2,754
2,121
2,362
1,085
1,023
665
490
1,022
959
320
794
872
3,899
135,132
26,231
24,093
31,186
11,257
3,591
3,587
3,932
4,073
1,518
2,715
1,600
2,264
918
984
506
466
908
746
308
1,010
665
3,939
126,497
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
Vietnamese dong
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
Vietnamese dong
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 IFRS Accounting
Standards 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.
3 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly.
For a definition of structural foreign exchange exposures, see page 205.
HSBC Holdings plc Annual Report and Accounts 2023
213
Risk review
Risk review
Interest rate risk in the banking book in 2023
Net interest income and banking net interest income sensitivity
We have introduced a new metric to analyse sensitivity of our income
to interest rate shocks. In addition to NII sensitivity, we are also
disclosing banking NII sensitivity. HSBC has trading book assets that
are funded by banking book liabilities and the NII sensitivity measure
does not include the sensitivity of the internal transfer income from
this funding. Banking NII sensitivity includes an adjustment on top of
NII sensitivity to reflect this. The currency split of banking NII
sensitivities includes the impact of vanilla foreign exchange swaps to
optimise cash management across the Group.
In this disclosure we present the banking NII sensitivity alongside the
NII sensitivity. Over time we expect to phase out NII sensitivity once
the appropriate prior period comparables are available for banking NII
sensitivity.
The following tables set out the assessed impact to a hypothetical
base case projection of our NII and banking NII under an immediate
shock of 100bps to the current market-implied path of interest rates
across all currencies on 1 January 2024 (effects in the first, second
and third years). For example, Year 3 shows the impact of an
immediate rate shock on the NII and banking NII projected for the
third year.
The sensitivities shown represent a hypothetical simulation of the
base case income, assuming a static balance sheet (specifically no
assumed migration from current account to term deposits), and no
management actions from Global Treasury. 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
interests in associates.
The 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.
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,
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.
An immediate interest rate rise of 100bps would increase projected
NII for the 12 months to 31 December 2024 by $1.1bn and banking
NII by $2.8bn. An immediate interest rate fall of 100bps would
decrease projected NII for the 12 months to 31 December 2024 by
$1.6bn and banking NII by $3.4bn.
The sensitivity of NII for 12 months as at 31 December 2023
decreased by $2.5bn in the plus 100bps parallel shock and by $2.4bn
in the minus 100bps parallel shock, when compared with
31 December 2022. The key drivers of the reduction in NII sensitivity
are the increase in stabilisation activities in line with our strategy, as
well as deposit migration.
For further details of measurement of interest rate risk in the banking
book, see page 205.
NII sensitivity to an instantaneous change in yield curves (12 months) – Year 1 sensitivity by currency
Change in Jan 2024 to Dec 2024 (based on balance sheet at 31 December 2023)
+100bps parallel
-100bps parallel
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)
+100bps parallel
-100bps parallel
Currency
$
$m
HK$
$m
£
$m
€
$m
Other
$m
Total
$m
(1,155)
1,004
148
(230)
325
(432)
503
(522)
1,232
(1,391)
1,053
(1,571)
(267)
236
413
(476)
1,026
(1,177)
674
(765)
1,689
(1,787)
3,535
(3,969)
NII sensitivity to an instantaneous down 100bps parallel change in yield curves – Year 2 and Year 3 sensitivity by currency
Change in NII (based on balance sheet at 31 December 2023)
Year 2 (Jan 2025 to Dec 2025)
Year 3 (Jan 2026 to Dec 2026)
Change in NII (based on balance sheet at 31 December 2022)
Year 2 (Jan 2024 to Dec 2024)
Year 3 (Jan 2025 to Dec 2025)
Currency
$
$m
HK$
$m
£
$m
€
$m
Other
$m
Total
$m
488
213
(431)
(499)
(768)
(1,269)
(552)
(624)
(1,733)
(1,861)
(2,996)
(4,040)
(43)
(404)
(532)
(636)
(1,580)
(1,954)
(810)
(839)
(1,979)
(2,092)
(4,944)
(5,925)
Banking NII sensitivity to an instantaneous change in yield curves (12 months) – Year 1 sensitivity by currency
Change in Jan 2024 to Dec 2024 (based on balance sheet at 31 December 2023)
+100bps parallel
$
$m
HK$
$m
343
411
Currency
£
$m
496
€
$m
Other
$m
Total
$m
285
1,297
2,832
-100bps parallel
(494)
(493)
(602)
(304)
(1,460)
(3,353)
214
HSBC Holdings plc Annual Report and Accounts 2023
Banking NII sensitivity to an instantaneous down 100bps parallel change in yield curves – Year 2 and Year 3 sensitivity by currency
Change in banking NII (based on balance sheet at 31 December 2023)
Year 2 (Jan 2025 to Dec 2025)
Year 3 (Jan 2026 to Dec 2026)
Non-trading value at risk
Non-trading portfolios comprise positions that primarily arise from the
interest rate management of our retail and commercial banking
assets and liabilities, financial investments measured at fair value
through other comprehensive income, debt instruments measured at
amortised cost, and exposures arising from our insurance operations.
Value at risk of non-trading portfolios
Value at risk (‘VaR’) is a technique for estimating potential losses on
risk positions as a result of movements in market rates and prices
over a specified time horizon and to a given level of confidence. The
use of VaR is integrated into the market risk management of non-
trading portfolios to have a complete picture of risk, complementing
risk sensitivity analysis.
Our models are predominantly based on historical simulation that
incorporates the following features:
– historical market rates and prices, which are calculated with
reference to interest rates, credit spreads and the associated
volatilities;
– potential market movements that are calculated with reference to
data from the past two years; and
– calculations to a 99% confidence level and using a one-day
holding period.
Daily VaR (non-trading portfolios), 99% 1 day ($m)
Currency
$
$m
HK$
$m
£
$m
€
$m
Other
$m
Total
$m
(1,015)
(1,289)
(693)
(761)
(938)
(1,439)
(333)
(405)
(1,798)
(1,926)
(4,777)
(5,820)
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 daily levels of total non-trading VaR in 2023 are set out in the
graph below.
The Group non-trading VaR for 2023 is shown in the table below.
Non-trading VaR, 99% 1 day
(Audited)
Balance at 31 Dec 2023
Average
Maximum
Minimum
Interest
rate
Credit
spread
$m
173.8
156.2
201.9
108.8
$m
112.8
84.2
116.4
55.2
Portfolio
diversification1
$m
(104.2)
(63.7)
Total2
$m
182.4
176.6
224.3
127.0
HSBC Holdings plc Annual Report and Accounts 2023
215
Non-trading total Interest rate Credit spread DiversificationDec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23-140-120-100-80-60-40-20020406080100120140160180200220240260Risk review
Risk review
Non-trading VaR, 99% 1 day (continued)
(Audited)
Balance at 31 Dec 2022
Average
Maximum
Minimum
Interest
rate
Credit
spread
$m
159.8
134.6
225.5
98.3
$m
56.6
56.9
84.7
43.4
Portfolio
diversification1
$m
(45.3)
(35.9)
Total2
$m
171.1
155.6
265.3
106.3
1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types – 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 VaR for non-trading activity increased by $11m from $171m at
31 December 2022 to $182m at 31 December 2023 due to relatively
small changes in risk profile over the year. The average portfolio
diversification effect between interest rate and credit spread
exposure increased during the year, with the offset increasing to
$104m from $45m.
hold-to-collect-and-sell portfolio, together with any associated
derivatives in designated hedge accounting relationships, is
accounted for at fair value through other comprehensive income and
has an impact on CET1. The portfolio represents the vast majority of
our hold-to-collect-and-sell capital risk and is risk managed with a
variety of tools, including risk sensitivities and value at risk measures.
Sensitivity of capital and reserves
Global Treasury maintains a portfolio of high-quality liquid assets for
contingent liquidity and NII stabilisation purposes, which is in part
accounted for under a hold-to-collect-and-sell business model. This
Sensitivity of hold-to-collect-and-sell reserves to interest rate movements
The table below measures the sensitivity of the value of this portfolio
to an instantaneous 100 basis point increase in interest rates, based
on the risk sensitivity of a shift in value for a 1 basis point (‘bps‘)
parallel movement in interest rates.
At 31 Dec 2023
+100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
At 31 Dec 2022
+100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
$m
(2,264)
(1.22)%
(1,199)
(0.64)%
The increase in the sensitivity of the portfolio during 2023 was mainly
driven by an increase in NII stabilisation in line with our strategy. The
figures in the table above do not take into account the effects of
interest rate convexity. The portfolio mostly comprises vanilla
sovereign bonds in a variety of currencies, and the primary risk is
interest rate duration risk, although the portfolio also generates asset
swap, credit spread and asset spread risks that are managed within
appetite as part of our risk management framework. A minus 100bps
shock would lead to an approximately symmetrical gain.
Alongside our monitoring of the hold-to-collect-and-sell reserve
sensitivity, 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 hedging
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. Due to increases in
interest rates in most markets, the effect of this flooring is immaterial
at the end of 2023.
Comparing 31 December 2023 with 31 December 2022, the
sensitivity of the cash flow hedging reserve increased by $1,537m in
the plus 100bps scenario and increased by $1,562m in the minus
100bps scenario. The increase in the sensitivity of this reserve was
mainly driven by an increase in our NII stabilisation. Our exposure to
fixed rate pound sterling hedges continued to be the largest in size
and in terms of year-on-year increase. Hong Kong dollar and euro
hedges contributed to the majority of the rest of the increase in
exposure, partly offset by a reduction in the size of US dollar hedges.
Sensitivity of cash flow hedging reported reserves to interest rate movements
At 31 Dec 2023
+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 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
216
HSBC Holdings plc Annual Report and Accounts 2023
$m
(3,436)
(1.85)%
3,474
1.87%
(1,899)
(1.01)%
1,912
1.02%
Third-party assets in Markets Treasury
Third-party assets in Markets Treasury increased by 5% compared
with 31 December 2022. The net increase of $38bn is partly
reflective of higher commercial surpluses during the year, with the
increase of $76bn in ‘Financial Investments’ and the decrease of
$39bn in ‘Cash and balances at central banks’ largely driven by NII
stabilisation activity.
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
Defined benefit pension plans
2023
$m
278,289
238
78,667
1,083
45,419
396,259
34,651
834,606
2022
$m
317,479
498
67,612
2,102
53,016
319,852
36,192
796,751
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 206.
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.
Foreign exchange risk
HSBC Holdings’ foreign exchange exposures derive almost entirely
from the execution of structural foreign exchange hedges on behalf
of the Group. At 31 December 2023, HSBC Holdings had forward
foreign exchange contracts of $33.8bn (2022: $30.1bn) to manage
the Group’s structural foreign exchange exposures.
For further details of our structural foreign exchange exposures, see
page 213.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity in the first, second and third
years, 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 redeem at a future call date is called at this date.
The tables below set out the effect on HSBC Holdings’ future NII of
an immediate shock of +/-100bps to the current market-implied path
of interest rates across all currencies on 1 January 2024.
The NII sensitivities shown are indicative and based on simplified
scenarios. An immediate interest rate rise of 100bps would decrease
projected NII for the 12 months to 31 December 2024 by $233m.
Conversely, an immediate fall of 100bps would increase projected NII
for the 12 months to 31 December 2024 $233m.
Overall the NII sensitivity is mainly driven by floating liabilities funding
equity (non-interest bearing) investments in subsidiaries.
During 2023, HSBC Holdings hedged $3.6bn of previously unhedged
issuances, which increased the negative NII sensitivity to positive
parallel shifts in interest rates. In year 1, that impact is offset by a
shorter repricing profile of assets.
As of the Annual Report and Accounts 2023, HSBC Holdings is no
longer disclosing the interest rate repricing gap table, as the
sensitivity of net interest income table captures HSBC Holdings‘
exposure to interest rate risk and is aligned to the way we disclose
interest rate risk internally to key management.
NII sensitivity to an instantaneous change in yield curves (12 months) – Year 1 sensitivity by currency
Change in Jan 2024 to Dec 2024 (based on balance sheet at 31 December 2023)
+100bps parallel
-100bps parallel
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)
+100bps parallel
-100bps parallel
$
$m
HK$
$m
(258)
258
(265)
265
—
—
—
—
£
$m
12
(12)
16
(16)
€
$m
Other
$m
Total
$m
5
(5)
9
(9)
8
(8)
—
—
(233)
233
(240)
240
NII sensitivity to an instantaneous down 100bps parallel change in yield curves – Year 2 and Year 3 sensitivity by currency
Change in NII (based on balance sheet at 31 December 2023)
Year 2 (Jan 2025 to Dec 2025)
Year 3 (Jan 2026 to Dec 2026)
Change in NII (based on balance sheet at 31 December 2022)
Year 2 (Jan 2024 to Dec 2024)
Year 3 (Jan 2025 to Dec 2025)
$
$m
219
218
182
160
HK$
$m
—
—
—
—
£
$m
(12)
(12)
(12)
(10)
€
$m
Other
$m
Total
$m
1
—
(8)
(7)
(9)
(10)
—
—
—
199
196
162
143
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 three
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.
HSBC Holdings plc Annual Report and Accounts 2023
217
Risk review
Risk review
Market risk
Contents
Overview
218
218 Market risk management
219 Market risk in 2023
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. Market risk arises from both trading portfolios and
non-trading portfolios.
For further details of market risk in non-trading portfolios, see page
215 of the Annual Report and Accounts 2023.
Market risk management
Key developments in 2023
There were no material changes to our policies and practices for the
management of market risk in 2023.
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.
Risk types
Trading risk
– Foreign exchange and commodities
– Interest rates
– Credit spreads
– Equities
Global business
Risk measure
GBM
Value at risk | Sensitivity | Stress testing
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 only those offices with appropriate levels of
product expertise and 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 2023
Sensitivity analysis
Sensitivity analysis measures the impact of movements in individual
market factors 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:
– 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 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.
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 and reverse stress testing provide senior management with
insights regarding the ‘tail risk’ beyond VaR.
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. Market risk stress testing incorporates both
historical and hypothetical events. 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 local or idiosyncratic in nature and
complement the systematic top-down stress testing.
The risk appetite around potential stress losses for the Group is set
and monitored against limits.
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 2023
During 2023, global financial markets were mainly driven by the
inflation outlook, interest rate expectations and recession risks,
coupled with banking failures in March, and rising geopolitical
tensions in the Middle East from October. Major central banks
maintained restrictive monetary policies, and bond markets
experienced a volatile year. After rising significantly in the second and
third quarters of 2023, US treasury bond yields fell during the fourth
quarter, as lower inflation pressures led markets to expect that key
rates would be cut in 2024. The interest rate outlook was also a major
driver of performance in global equity markets, alongside resilient
corporate earnings and positive sentiment in the technology sector.
Equities in developed markets advanced significantly amid low
volatility, while performance in emerging markets was more
subdued. In foreign exchange markets, the US dollar fluctuated
against other major currencies, mostly in line with US Federal
Reserve policy and bond yields expectations. Investor sentiment
remained resilient in credit markets. High-yield and investment-grade
credit spreads narrowed, in general, as fears of contagion in the
banking sector in the first quarter of 2023 abated, and economic
growth remained resilient throughout the year.
We continued to manage market risk prudently during 2023.
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 2023 increased by $3.3m compared
with 31 December 2022. Interest rate risk factors were the major
contributors to VaR at the end of December 2023. The VaR increase
during 2023 peaked in September, and was mainly driven by:
– interest rate risk exposures in currencies held across the Fixed
Income and Foreign Exchange business lines to facilitate client-
driven activity; and
– the effects of relatively large short-term interest rate shocks for
key currencies, which are captured in the VaR scenario window.
These factors were partly offset by lower losses from equity risks
and interest rate risks that were captured within the RNIV framework.
The daily levels of total trading VaR during 2023 are set out in the graph below.
Daily VaR (trading portfolios), 99% 1 day ($m)
HSBC Holdings plc Annual Report and Accounts 2023
219
Trading totalInterest rate (‘IR’) trading Equity (‘EQ’) tradingCredit spread (‘CS’) trading intentForeign exchange (‘FX’) trading DiversificationDec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23-80-60-40-20020406080100120Risk 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 2023
Average
Maximum
Minimum
Balance at 31 Dec 2022
Average
Maximum
Minimum
Foreign
exchange and
commodity
Interest
rate
Equity
Credit
spread
$m
13.4
16.2
24.6
9.3
15.4
13.6
29.2
5.7
$m
55.9
53.9
86.0
25.5
40.0
29.6
73.3
20.2
$m
15.2
19.0
27.8
13.4
18.6
16.1
24.8
11.5
$m
7.2
11.6
16.5
6.6
11.9
16.8
27.9
9.1
Portfolio
diversification2
$m
(38.9)
(40.8)
(36.4)
(34.0)
Total3
$m
52.8
59.8
98.2
34.4
49.5
42.1
78.3
29.1
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 2023.
This comparison facilitates the benchmarking of the trading VaR, which can be stated at different confidence levels, with financial institution
peers. The 95% VaR is unaudited.
Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day
Balance at 31 Dec 2023
Average
Maximum
Minimum
Balance at 31 Dec 2022
Average
Maximum
Minimum
Back-testing
Trading VaR,
99% 1 day
Trading VaR,
95% 1 day
$m
52.8
59.8
98.2
34.4
49.5
42.1
78.3
29.1
$m
35.3
36.8
53.3
21.0
31.7
24.6
49.0
17.5
During 2023, the Group experienced no back-testing exceptions on losses against actual or hypothetical profit and losses.
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
Derivative assets and liabilities
The Group’s trading assets and liabilities are in almost all cases
originated by GBM. Other than a limited number of exceptions, these
assets and liabilities are treated as traded risk for the purposes of
market risk management. The exceptions primarily arise in Global
Banking where the short-term acquisition and disposal of assets are
linked to other non-trading-related activities such as loan origination.
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.
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HSBC Holdings plc Annual Report and Accounts 2023
Climate risk TCFD
Contents
221
222
223
225
Overview
Climate risk management
Embedding our climate risk approach
Insights from climate scenario analysis
Overview
Our climate risk approach is aligned to the framework outlined by the
Taskforce on Climate-related Financial Disclosures (‘TCFD’), which
identifies two primary drivers of climate risk:
– physical risk, which arises from the increased frequency and
severity of extreme weather events, such as hurricanes and
floods, or chronic gradual shifts in weather patterns or rises in the
sea level; and
– transition risk, which arises from the process of moving to a net
zero economy, including changes in government policy and
legislation, technology, market demand, and reputational
implications triggered by a change in stakeholder expectations,
action or inaction.
In addition to these primary drivers of climate risk, we have also
identified the following thematic issues related to climate risk, which
are most likely to materialise in the form of reputational, regulatory
compliance and litigation risks:
– net zero alignment risk, which arises from the risk of HSBC failing
to meet its net zero commitments or failing to meet external
expectations related to net zero, because of inadequate ambition
and/or plans, poor execution, or inability to adapt to changes in the
external environment; and
– the risk of greenwashing, which arises from the act of knowingly
or unknowingly making inaccurate, unclear, misleading or
unsubstantiated claims regarding sustainability to our
stakeholders.
Approach
We recognise that the physical impacts of climate change and the
transition to a net zero economy can create significant financial risks
for companies, investors and the financial system. HSBC may be
affected by climate risks either directly or indirectly through our
relationships with our customers, which could result in both financial
and non-financial impacts.
Our climate risk approach aims to effectively manage the material
climate risks that could impact our operations, financial performance
and stability, and reputation. It is informed by the evolving
expectations of our regulators.
We are developing our climate risk capabilities across our businesses,
by prioritising sectors, portfolios and counterparties with the highest
impacts.
We continue to make progress in enhancing our climate risk
capabilities, and recognise it is a long-term iterative process.
We aim to regularly review our approach to increase coverage and
incorporate maturing data, climate analytics capabilities, frameworks
and tools, as well as respond to emerging industry best practice and
climate risk regulations.
This includes updating our approach to reflect how the risks
associated with climate change continue to evolve in the real world,
and maturing how we embed climate risk factors into strategic
planning, transactions and decision making across our businesses.
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
details of the three lines of defence framework, see page 138.
The tables below provide an overview of the climate risk drivers and thematic issues considered within HSBC’s climate risk approach.
Climate risk – risk drivers
Details
Potential impacts
Time horizons
Physical
Acute
Chronic
Transition
Policy and
legal
Increased frequency and severity of weather events causing
disruption to business operations
Longer-term shifts in climate patterns (e.g. sustained higher
temperatures, sea level rise, shifting monsoons or chronic
heat waves)
Mandates on, and regulation of products and services and/or
policy support for low-carbon alternatives. Litigation from
parties who have suffered loss and damage from climate
impacts
Technology
Replacement of existing products with lower emissions
options
End-demand
(market)
Reputational
Changing consumer demand from individuals and corporates
Increased scrutiny following a change in stakeholder
perceptions of climate-related action or inaction
– Decreased real estate values or
stranded assets
– Decreased household income and
wealth
– Increased costs of legal and
compliance
– Increased public scrutiny
– Decreased profitability
– Lower asset performance
Short term
Medium term
Long term
HSBC Holdings plc Annual Report and Accounts 2023
221
Risk review Risk review
Climate risk – thematic issues
Net zero
alignment risk
Net zero
ambition risk
Risk of
greenwashing
Net zero
execution risk
Net zero
reporting risk
Firm
Product
Client
Failing to set or adapt our net zero ambition and broader business strategy in alignment with key stakeholder
expectations, latest scientific understanding and commercial objectives.
Failing to meet our net zero targets due to taking insufficient or ineffective actions, or due to the actions of
clients, suppliers and other stakeholders.
Failing to report emissions baselines and targets, and performance against these accurately due to data,
methodology and model limitations.
Making inaccurate, unclear, misleading, or unsubstantiated claims in relation to our sustainability commitments
and targets, as well as the reporting of our performance towards them.
Making inaccurate, unclear, misleading or unsubstantiated claims in relation to products or services offered to
clients that have stated sustainability objectives, characteristics, impacts or features.
Making inaccurate, unclear, misleading or unsubstantiated claims as a consequence of our relationships with
clients or transactions we undertake with them, where their sustainability commitments or related performance
are misrepresented or are not aligned to our own commitments.
In 2023, we updated our climate risk materiality assessment, to
understand how climate risk may impact across HSBC’s risk
taxonomy. The assessment focused on a 12-month time horizon, as
well as time horizons for the short-term, medium-term and long-term
periods. We define short term as time periods up to 2025; medium
term as between 2026 and 2035; and long term as between 2036
and 2050. These time periods align to the Climate Action 100+
disclosure framework v1.2. The table below provides a summary of
how climate risk may impact a subset of HSBC’s principal risks.
The assessment is refreshed annually, and the results may change as
our understanding of climate risk and how it impacts HSBC evolve
(for further details, see ‘Impact on reporting and financial statements’
on page 44).
In addition to this assessment, we also consider climate risk in our
emerging risk reporting and scenario analysis (for further details, see
‘Top and emerging risks’ on page 38).
Climate risk drivers
Physical risk
Transition risk
Credit risk
Traded risk
Reputational risk1
Regulatory
compliance risk1
Resilience risk
Other financial
and non-financial
risk types
●
●
●
●
●
●
●
●
●
●
●
1 Our climate risk approach identifies thematic issues such as HSBC net zero alignment risk and the risk of greenwashing, which are most likely to
materialise in the form of reputational, regulatory compliance and litigation risks.
Climate risk management
Key developments in 2023
Our climate risk programme continues to support the development of
our climate risk management capabilities. The following outlines key
developments in 2023:
– We updated our climate risk management approach to incorporate
net zero alignment risk and developed guidance on how climate
risk should be managed for non-financial risk types.
– We enhanced our climate risk materiality assessment to consider
longer time horizons.
– We enhanced our approach to assessing the impact of climate
change on capital, focusing on credit and market risks.
– We further developed our risk metrics to monitor our performance
against our net zero targets for both financed emissions and own
operations.
– We enhanced our internal climate scenario analysis, including
through improvements to our use of customer transition plan data.
For further details of scenario analysis, see page 65.
– We have updated our merger and acquisition process to consider
potential climate and sustainability-related targets, net zero
transition plans and climate strategy, and how this relates to
HSBC.
While we have made progress in enhancing our climate risk
framework, further work remains. This includes the need to develop
additional metrics and tools to measure our exposure to climate-
related risks, and to incorporate these tools within decision making.
222
HSBC Holdings plc Annual Report and Accounts 2023
Governance and structure
The Board takes overall supervisory responsibility for our ESG
strategy, overseeing executive management in developing the
approach, execution and associated reporting.
The 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 Chief Sustainability Officer
and the Group Chief Financial Officer.
The Sustainability Execution Committee has oversight of the
environmental strategy, including the commercial execution and
operationalisation through the sustainability execution programme,
which is a Group-wide programme established to enable the delivery
of our sustainability agenda.
The Group Reputational Risk Committee considers climate-related
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 approach to
reputational risk management 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.
The Group Chief Risk and Compliance Officer is the senior manager
responsible for the management of climate risk under the UK Senior
Managers Regime, which involves holding overall accountability for
the Group’s climate risk programme.
The Environmental Risk Oversight Forum (formerly the Climate Risk
Oversight Forum) oversees risk activities relating to climate and
sustainability risk management, including the transition and physical
risks from climate change. Equivalent forums have been established
at a regional level.
For further details of the Group’s ESG governance structure, see
page 88.
Risk appetite
Policies, processes and controls
Our climate risk appetite forms part of the Group’s risk appetite
statement and supports the business in delivering our net zero
ambition effectively and sustainably.
Our climate risk appetite statement is approved and overseen by the
Board. It is supported by risk appetite metrics and tolerance
thresholds. We have also defined additional key management
information metrics. Both the risk appetite statement and key
management information metrics are reported on a quarterly basis for
oversight by the Group Risk Management Meeting and the Group
Risk Committee.
Embedding our climate risk approach
We continue to integrate climate risk into 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. For further details of how we manage climate risk across
our global businesses, see page 65.
The table below provides further details of how we have embedded the management of climate risk across key risk types. For further details of
our internal scenario analysis, see ‘Insights from climate scenario analysis’ on page 225.
Risk type
Our approach
Wholesale
credit risk
We have metrics in place to monitor the exposure of our wholesale corporate lending portfolio to six high transition risk sectors, as
shown in the below table. As at 31 December 2023, the overall exposure to six high transition risk sectors was $112bn. The sector
classifications are based on internal HSBC definitions and can be judgemental in nature. The sector classifications are subject to the
remediation of ongoing data quality challenges. This data will be enhanced and refined in future years.
Our relationship managers engage with our key wholesale customers through a transition engagement questionnaire (formerly the
transition and physical risk questionnaire) to gather information and assess the alignment of our wholesale customers’ business
models to net zero and their exposure to physical and transition risks. We use the responses to the questionnaire to create a climate
risk score for our key wholesale customers.
Our credit policies require that relationship managers comment on climate risk factors in credit applications for new money requests
and annual credit reviews. Our credit policies also require manual credit risk rating overrides if climate is deemed to have a material
impact on credit risk under 12 months if not already captured under the original credit risk rating.
Key developments to our framework in 2023 include expanding the scope of our transition engagement questionnaire to capture new
countries, territories and sectors.
Key challenges for further embedding climate risk into credit risk management relate to the availability of adequate physical risk data to
assess impacts to our wholesale customers.
Wholesale loan exposure to high transition risk sectors at 31 December 20231
Units Automotive Chemicals
Exposure to sector1, 2, 3, 4
Sector weight as a proportion of
high transition risk sectors
$bn
%
21
18
17
16
Construction
and building
materials
20
Metals
and
mining
14
18
13
Oil and
gas
Power
and
utilities
18
16
22
19
Total 2023
112
100
1 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.
2 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.
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.
3 These disclosures cover the whole of the value chain of the sector. For details of financed emissions coverage, please refer to page
53.
4 The six high transition risk sectors make up 17.4% of total wholesale loans and advances to customer and banks of $644bn.
Amounts include assets held for sale.
HSBC Holdings plc Annual Report and Accounts 2023
223
Risk review Risk review
Risk type
Our approach
Retail credit
risk
We have implemented policies and tools to manage climate risk across our retail mortgage markets.
Our retail credit risk management policy requires each mortgage market to conduct an annual review of their climate risk management
procedures, including perils and data sources, to ensure they remain fit for purpose. In 2023 we introduced a global ‘soft trigger’
monitoring and review process for physical risk exposure where a market reaches or exceeds a set threshold, as this ensures markets
are actively considering their balance sheet risk exposure to peril events.
Within our mortgage portfolios, properties or areas with potentially heightened physical risk are identified and assessed locally and
potential exposure is monitored through quarterly metrics. We have also set risk appetite metrics for physical risk in our largest
mortgage markets, the UK and Hong Kong, as well as those with local regulatory requirements, including Singapore.
The UK is our largest mortgage market, which as at September 2023 made up 40.0% of our global mortgage portfolio. We estimate
that 0.2% of our UK retail mortgage portfolio is at very high risk of flooding and 3.5% is at high risk. This is based on approximately
94.2% climate risk data coverage by value of our UK portfolio as at September 2023.
In the UK we also monitor the energy performance certificate (‘EPC’) ratings of individual properties in our mortgage portfolio. As at
September 2023, approximately 64.5% of properties within the portfolio by value had a valid EPC dated within the last 10 years. Of
these, 40.0% of properties had a current rating of A to C, and 97.0% had the potential to reach these rating bands, if appropriate
energy efficiency improvement measures are taken.
For both flood risk and EPC data, we disclose the end of September 2023 position. This is due to the time required for the data to be
processed and our reliance on the government’s public EPC data, which usually lags one month behind.
The table below outlines the UK retail mortgage portfolio tenor as at the end of December 2023 (by balance split by remaining term).
This table shows that the majority of our portfolio tenor is greater than five years, and that the average remaining loan term in the UK
is 21.5 years.
Residential mortgages tenor (remaining mortgage term by balance $m)1
Tenor
<1 years
1 to 5 years
>5 years
Weighted average of remaining
mortgage term (years)
Remaining mortgage balance ($m)
382
3,469
157,643
21.50
The average term for new mortgages in the UK is 25 years, although the average life of a loan is approximately five years due to
refinancing. Despite this, our strategic approach to climate risk considers present day and long-term risk given customers may remain
over the whole loan term.
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.
1 The table includes instances where individual properties have multiple associated accounts and balances. These are aggregated to a
property level and the longest term remaining is taken as the tenor.
Treasury risk As part of our ICAAP in 2023, we enhanced our approach for assessing the impact of climate change on capital, focusing on credit and
market risks. As part of our ILAAP, we conducted an initial analysis to identify the potential climate risk exposures across key liquidity
risk drivers.
We updated our treasury risk policies to ensure that the impact of climate risk is considered when assessing applicable treasury risks.
We regularly discuss climate-related topics that may impact Global Treasury through climate-relevant governance forums, including the
Treasury Risk Management Climate Risk Oversight Forum and the Group Treasury Sustainability Committee.
Treasury portfolios are also included within the scope of the internal climate scenario analysis and the Hong Kong Monetary Authority’s
climate risk stress test, with potential quantitative impacts on relevant hold-to-collect-and-sell positions estimated.
Pensions risk
We conduct an annual exercise to monitor the exposure of our largest pension plans to climate risk.
Our pension policies have also been updated to explicitly reflect climate considerations.
Insurance risk
We have an evolving programme to support the identification and management of climate risk. In 2023, we updated our sustainability
procedures to align with the Group’s updated energy and thermal coal-phase out policy.
Traded risk We have implemented metrics and thresholds to monitor exposure to high physical and transition risk sectors for the different asset
Reputational
risk
classes in the Markets and Securities Services (‘MSS‘) business. The metrics use a risk taxonomy that categorises countries/territories
and sectors into high, medium and low risk, for which we have set corresponding thresholds. We have implemented these metrics for
key entities. In addition, we have identified key regions and business lines that contribute the most to the total MSS high-climate
sensitive exposures and developed reports to monitor trends and pockets of risks.
We have developed tools to provide a better understanding of key profit and loss drivers under different climate scenarios along
different dimensions such as risk factors and business lines. These reports are available to traded risk managers to help monitor and
understand how climate-sensitive exposures are impacted under different scenarios. Stress testing results have been presented to
senior management for visibility during dedicated review and challenge sessions to provide awareness on the impact to the MSS
portfolio and underlying business lines.
We manage the reputational impact of climate risk through our broader reputational risk framework, supported by our sustainability risk
policies and metrics.
Our sustainability risk policies set out our appetite for financing activities in certain sectors. Our thermal coal phase-out and energy
policies aim to drive down greenhouse gas emissions while supporting a just transition.
Our global network of sustainability risk managers provides local policy guidance to relationship managers for the oversight of policy
compliance and in support of implementation across our wholesale banking activities. For further details of our sustainability risk
policies, see the ESG review on page 42.
We have developed risk appetite metrics to monitor our performance against our financed emissions targets. For further details of our
targets, see page 57.
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HSBC Holdings plc Annual Report and Accounts 2023
Risk type
Our approach
Regulatory
compliance
risk
Our policies 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. To make sure our responsibilities are met in this
regard, our policies are subject to continuous review and enhancement. We are also focused on the ongoing development and
improvement of our monitoring capabilities, ensuring appropriate alignment to the broader focus on regulatory compliance risks.
Regulatory Compliance is particularly focused on mitigating climate risks inherent to the product lifecycle. To support this, we have
enhanced a number of processes including:
– ensuring Regulatory Compliance provides risk oversight and review of new product marketing materials with any reference to
climate, sustainability and ESG;
Resilience
risk
Model risk
Financial
reporting
risk
– developing our product marketing controls to ensure climate claims are robustly evidenced and substantiated within product
–
marketing materials; and
clarifying and improving product marketing framework, procedures and associated guidance, to ensure product-related marketing
materials comply with both internal and external standards, and are subject to robust governance.
Regulatory Compliance operates an ESG and Climate Risk Working Group to track and monitor the integration and embedding of
climate risk management into the functions’ activities, while monitoring regulatory and legislative changes across the ESG and climate
risk agenda. Regulatory Compliance also continues to be an active member of the Group’s Environmental Risk Oversight Forums.
Our Enterprise Risk Management 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 have developed metrics to assess how physical risk may impact our critical properties. In 2023, we also developed an energy and
travel risk appetite metric for our own operations to establish and monitor progress against our net zero ambitions.
Our resilience risk policies are subject to continuous improvement to remain relevant to evolving climate risks. New developments
relevant to our own operations are reviewed to ensure climate risk considerations are effectively captured.
The impact of climate risk on model risk is driven by the increasing number of climate risk models and the expanding model use cases.
Review and challenge of models mitigates some risk but given the nascent nature of climate modelling and the lack of benchmarks,
the validation of model assumptions and results remains a key challenge.
Model Risk has published a new climate risk and ESG model category standard, which sets out minimum control requirements for
identifying, measuring and managing model risk for climate-related models.
We completed independent model validation for a number of models used for financed emissions calculations and climate scenario
analysis using both qualitative and quantitative assessments of modelling decisions and outputs.
We have expanded the scope of financial reporting risk to explicitly include oversight over accuracy and completeness of ESG and
climate reporting. In 2023, we updated the risk appetite statement to reference our ESG and climate-related disclosures. We also
updated our internal controls to incorporate requirements for addressing the risk of misstatement in ESG and climate reporting. To
support this, we have developed a framework to guide control implementation over ESG and climate reporting disclosures, which
includes areas such as process and data governance, and risk assessment.
As the landscape for ESG and climate-related disclosures develops, we continue to focus on horizon scanning and interpretation of
relevant external reporting requirements, to ensure a timely response for producing the required disclosures. As the volume and
nature of these requirements continue to evolve, the level of risk is heightened. Part of our response to this heightened risk includes
undertaking a range of assurance procedures over these disclosures.
Challenges
While we have continued to develop our climate risk framework, our
remaining challenges include:
We continue to enhance our climate scenario analysis exercises so
that we can have a more comprehensive understanding of climate
headwinds, risks and opportunities to support our strategic planning
and actions.
– the diverse range of internal and external data sources and data
structures needed for climate-related reporting, which introduces
data accuracy and reliability risks;
In climate scenario analysis, we consider, jointly, both physical risks
and transition risks. For further details about these risks, see ‘Climate
risk’ on page 221.
– data limitations on customer assets and supply chains, and
methodology gaps, which hinder our ability to assess physical
risks accurately;
We also analyse how these climate risks impact principal risk types
within our organisation, including credit and traded market risks, non-
financial risks, and pension risk.
– industry-wide data gaps on customer emissions and transition
plan and methodology gaps, which limit our ability to assess
transition risks accurately; and
– limitations in our management of net zero alignment risk is due to
known and unknown factors, including the limited accuracy and
reliability of data, merging methodologies, and the need to
develop new tools to better inform decision making.
Insights from climate scenario
analysis
Scenario analysis supports our strategy by assessing our potential
exposures to risks and vulnerabilities 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 2023, we enhanced our internal climate scenario analysis exercise
by focusing our efforts on generating more granular insights for key
sectors and regions to support core decision-making processes, and
to respond to our regulatory requirements. We also produced several
climate stress tests for regulators around the world, including the
Hong Kong Monetary Authority (‘HKMA’) and the Central Bank of the
United Arab Emirates.
Our climate scenarios
In our 2023 climate scenario analysis exercises, we explored five
scenarios that were created to examine the potential impacts from
climate change for the Group and its entities.
The analysis considered the key regions in which we operate, and
assessed the impact on our balance sheet across three distinct
timeframes: short term up to 2025; medium term from 2026 to 2035;
and long term from 2036 to 2050. The time horizons are aligned to
the Climate Action 100+ framework v1.2.
We created our internal scenarios using external publicly available
climate scenarios as a reference, including those produced by the
Network for Greening the Financial System (‘NGFS’), the
Intergovernmental Panel on Climate Change (‘IPCC’) and the
International Energy Agency. Using these external scenarios as a
template, we adapted them by incorporating the 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 vary by severity to analyse how climate
risks will impact our portfolios.
HSBC Holdings plc Annual Report and Accounts 2023
225
Risk review Risk review
Our scenarios were:
– the Net Zero scenario, which is consistent with the Paris
Agreement. This assumes that there will be orderly but
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 current governmental committed policies,
including already implemented actions, leading to global
temperature rises of 2.4°C by 2100. This slow transition scenario
helps us to determine the actions we need to take to reach our
net zero ambition while operating in a world that is not net zero;
– the Delayed Transition Risk scenario, which assumes that climate
action is delayed until 2030 with a late disorderly transition to net
zero but stringent and rapid enough to limit global warming to
under 2°C by 2100. This scenario allows us to stress test severe
but plausible transition risk impacts;
– the Downside Physical Risk scenario, which assumes climate
action is limited to currently implemented governmental policies,
leading to extreme global warming with global temperatures
increasing by greater than 4°C by 2100. This scenario allows us to
assess physical risks associated with climate change; and
Characteristics of our scenarios
– the Near Term scenario, which assumes both a sharp increase in
policies that drive a disorderly transition towards net zero and a
sharp increase in extreme climate events over a five-year period
until 2027. This scenario focused on our business in Asia.
We have chosen these scenarios to provide a holistic view that will
supplement the Group’s current and future strategic thinking. They
reflect inputs from our key stakeholders and experts across the
Group, and have been reviewed through internal governance.
Our scenarios reflect different levels of physical and transition risks
over a variety of time periods. 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.
Rise in global temperatures by
2100 (vs pre-industrial levels) 1.5˚c
Focus horizon
Medium term
Net zero
Scenarios
Current
Commitments
... ... ... ... l
1.6˚c
Medium/long term Medium/long term
1.4˚c
Short/medium term
2.4˚c
Short/medium term
Delayed
Transition Risk
Downside
Physical Risk
T
Near Term
4.2˚c
Scenario
outcomes
Underlying
assumptions
based on
global
averages
Assumed variation in global
climate policies
Assumed pace of technology
change and adoption
Assumed socioeconomic
impact
Low
Fast
High
Medium
Gradual
High
Accelerates from
2030
Low
None
Moderate
Very high
Very high
(in long term)
2030
2050
2030
2050
2030
2050
2030
2050
Assumed carbon price
($/tCO2)
Assumed change in energy
consumption (% change after
2022)
Assumed change in CO2
emissions (% change after 2022)
161
623
34
91
34
558
6
6
(10)% (16)%
12%
17%
12% (11)%
5%
24%
(37)% (100)%
(7)%
(33)%
(7)% (89)%
3%
11%
Scenario risk
characteristics
Climate
risk
Our methodology
Physical
q Lower
u Moderate
q Lower
p Higher
Transition
p Higher
u Moderate
p Higher
q Lower
High
Based on existing
technology
Very high
2027
193
(14)%
(34)%
p Higher
p Higher
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, costs and capital expenditure.
We 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
our customers’ individual climate transition plans where available,
while we refine and deepen our assessment of these plans. These
results feed into the calculation of our risk-weighted assets and
expected credit loss (‘ECL’) projections. For our 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 are reviewed by our
sector specialists who, subject to our governance procedures, make
226
HSBC Holdings plc Annual Report and Accounts 2023
bespoke adjustments to our results based on their expert judgement
where relevant.
Our models support the calculation of outputs that inform us about
the level of climate-related ECL provisions required under IFRS 9, and
also support the shaping of our climate-related capital approach under
ICAAP. In 2023, in addition to incorporating our customers’ transition
plans, we enhanced our credit risk models for the wholesale portfolio
by updating our assumptions regarding how we expect state-
supported companies to be impacted, and improved how we model
the impact of emissions on company financial forecasts.
Modelling limitations
We continue to look for ways of enhancing our methodology to
improve the effectiveness of our climate scenario analyses. There are
industry-wide limitations, particularly on data availability, although our
models are designed to produce outputs that can support our
assessment of the level of our climate resilience.
Climate scenario analysis requires considerable amounts of data,
although data is only available for a subset of our counterparties. As a
result, we have to extrapolate the results observed in the subset to
the wider population or dataset. We do not capture the second order
impacts of climate risk exposures within our modelling approach,
such as impacts on our counterparties from their supply chains.
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 climate scenario
analysis
Climate scenario analysis allows us to model how different potential
climate pathways may affect and impact the resilience of our
customers and our portfolios, particularly in respect of credit losses.
As the following chart shows, losses are influenced by their exposure
to a variety of climate risks under different climate scenarios.
How credit losses from climate risks have been modelled
under different transition scenarios
3
s
t
n
e
m
r
i
a
p
m
i
l
e
v
i
t
a
u
m
u
C
<1.5x
>1.5x
2023
2028
2030
2035
2040
2045
2050
Net Zero
Counterfactual1
Current Commitments
Net Zero2
Delayed Transition Risk
1 The counterfactual scenario is modelled on a scenario where there
would be no losses due to climate change.
2 The dotted line in the chart shows the impact of modelled expected
credit losses following our strategic responses to reduce the effect of
climate risks under the Net Zero scenario.
3 The projections shown in this chart were modelled during 2023 and are
not intended to reflect the final 31 December 2023 position that is
disclosed elsewhere in the Annual Report and Accounts 2023.
While climate-related losses are expected to remain minimal in the
short term, they are likely to increase compared with the
counterfactual scenario in the medium and longer term, driven by the
transition to a net zero economy.
These losses are lower in the Net Zero orderly transition scenario,
than in the Delayed Transition Risk scenario where climate action
begins later and is more rapid and disruptive as our customers will
have less time to restructure their business models and reduce their
carbon emissions. As the dotted line in the graph shows, losses in
these scenarios can be mitigated through active management
approaches, which include identifying new climate-related business
opportunities and adapting our portfolios to reduce exposure to
climate risks and losses.
By building a more climate-resilient balance sheet, we can reduce
impairment risks and improve longer-term stability.
Under the Current Commitments scenario, we expect lower levels of
losses relating to transition risks, although we would expect an
increase in the effects of climate-related physical risks over the
longer term. If the world does not align with a net zero path, physical
risks in the medium to long term are expected to continue to rise due
to the increasing frequency of extreme weather events.
The Near Term scenario
Our Near Term scenario allowed us to explore the combined impacts
of a disorderly transition towards net zero and extreme acute physical
events occurring simultaneously. The scenario was designed to meet
HKMA regulatory requirements and will help us to improve how we
assess short-term impacts across the Group. As part of the HKMA
exercise, our initial analysis was focused on our portfolio in Asia.
The exercise allowed us to understand the extent to which a stressed
scenario exhibiting both high physical and transition risks in the near
term could immediately impact our customers across all our sectors.
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 internal climate 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 ECL.
The climate scenario analysis exercise for the wholesale lending
portfolio was designed to examine our climate risks and
vulnerabilities, primarily in the short and medium term. We focused
on the Current Commitment scenario, believing it to be the scenario
most likely to unfold in this timeframe, and the Net Zero scenario,
which allows us to assess the resilience of our strategy and to
identify specific climate-related opportunities.
Within our wholesale lending portfolio, customers in higher emitting
sectors continue to be most exposed to larger climate-related losses.
For each sector in both scenarios, we calculated the projected ECL
increase as at 2035, where we compared the increase in ECL under
the scenario against a counterfactual scenario that incorporates no
climate change.
We use the sector’s exposure at default (‘EAD’), which represents
the size of our exposure to potential losses from customer defaults.
This helps to identify which sectors are the most material to us in
terms of the impact of climate change.
The table below shows the relative size of exposures at default in
2023 and the increase in cumulative ECL under each scenario
compared with a counterfactual scenario by 2035 (expressed as a
multiple).
Impact on wholesale lending portfolios
Wholesale sectors
Conglomerates and
industrials
Construction and
building materials
Chemicals
Power and utilities
Oil and gas
Automotive
Land transport and
logistics
Agriculture & soft
commodities
Metals and mining
Aviation
Marine
Exposure
at default
(2023)
ECL increase1
Current
Commitments
Net Zero
<1.25x
n <1.1x
n
n
n
n
n
<1.1x
<1.1x
<1.1x
<1.25x
n
n
n
n
n
<1.1x
<1.1x
<1.1x
<1.1x
<1.1x
<2.75x
<2.25x
<1.75x
<1.75x
<1.25x
<1.75x
<2.75x
<2.5x
>3x
<1.5x
<1.5x
1 Increase in cumulative ECL compared with counterfactual by 2035
expressed as a multiple.
HSBC Holdings plc Annual Report and Accounts 2023
227
Risk review
Risk review
We have continued to incorporate information from our customers’
transition plans to consider more detailed information on how they
and their sector will be impacted under different climate scenarios.
In 2023, we widened the scope of our climate modelling to include
new markets, such as mainland China, and increased the peril
coverage within markets already covered.
The levels of ECL observed across our wholesale lending portfolio are
driven by: our customers’ carbon emissions; the presence of realistic
transition plans; the amount of capital investment required to support
their transition; and the degree to which their competitive
environment impacts their ability to pass on carbon costs.
In 2022, we used scenario analysis to assess the impacts on our
corporate counterparties across the sectors that are most affected by
climate-related risks.
In 2023, we enhanced our approach in some key high-emitting
sectors, which includes the construction and building materials,
power and utilities, and oil and gas sectors. The analysis below
provides a more detailed view of the anticipated impacts on these
portfolios and our customers, improving our understanding of climate
risks and potential opportunities.
The construction and building materials sector faces an increase in
losses because it includes companies with high emissions from
manufacturing processes, such as steel or cement, or from their
supply chains, which will increase cost pressures due to carbon
taxes. The sector also has a high proportion of customers without
transition plans.
Although our scenario analysis showed that companies with
transition plans performed better on average, their plans typically fall
short of requirements needed to meet net zero targets. Overall, we
believe there are significant lending opportunities for us to help
support our customers as they transition to a lower carbon economy
while meeting their growing business demands.
These opportunities include the exploration of less carbon-intensive
fuel sources, electrification, the integration of carbon capture and
storage, and the adoption of new technologies in the search to
reduce emissions.
In the power and utilities sector, our analysis showed that rising costs
from increased carbon prices and the capital expenditure required to
support transition requirements, infrastructure improvements and
decommissioning costs, alongside greater downstream energy
demands, will potentially lead to higher debt levels and worsening
counterparty risk ratings for customers.
As technologies mature, the capital cost of some renewables
infrastructure is expected to fall, becoming cheaper than non-
renewable sources due to improved efficiencies. This will reduce the
required expenditure for companies.
In the oil and gas sector, customers that commit to renewable energy
should benefit from the additional greener revenue streams, which
will help mitigate the impact of reduced profitability from fossil fuels
and heightened carbon prices, enabling them to sustain their gross
margins. This sector has relatively lower projected losses as a large
proportion of customers provided transition plans with granular
information about their climate-related impacts.
We have the opportunity to ease potential negative impacts as
transition risks increase by supporting our customers to diversify into
more renewable and greener revenue streams, and invest in
emission-reducing technologies.
How climate change is impacting our retail
mortgage portfolio
As part of our 2023 internal climate scenario analysis, we completed
a detailed climate risk assessment for the UK, Hong Kong, mainland
China and Australia, which together represent 75% of the balances in
our global retail mortgage portfolio.
Our analysis shows that over the longer term, we expect minimal
losses to materialise when considering the Current Commitments
scenario. Although the severity of climate perils is expected to
worsen over time, our overall losses also remain low under a
Downside Physical Risk scenario.
228
HSBC Holdings plc Annual Report and Accounts 2023
In our analysis of the retail mortgage portfolio, we reassessed the
physical perils that could impact the value of properties, which
include flooding, wildfire and windstorms. The underlying peril data
we use has been enhanced to include updated and higher resolution
flood maps where available. We have also worked with external
vendors to improve outputs from peril projections and to increase the
granularity of data to provide more detailed insights into the impact of
climate risks across our portfolio of properties, in particular the impact
of wildfires.
Our scenario analysis methodology was enriched further in 2023 by
combining the impacts of physical risk with transition risks, including
rising energy costs and impacts from direct government legislation
such as homeowner energy efficiency upgrades in the UK. We have
enhanced our modelling by considering customers’ affordability
incorporating increased debt servicing costs and the impacts on
property valuations. As insurance remains a key mitigator against
climate losses, we further refined our assumptions including the
assessment of insurance availability for properties that experience
frequent climate events.
Projected peril risk
Flooding has the potential to drive significant impacts at an aggregate
level but this is localised to specific areas that are close to water
sources such as rivers or the coast, or areas that are located in
valleys where surface water can ‘pool’.
The ’Exposure to flooding’ table below shows that the majority of
properties located in four of our largest 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.
Flood depths outlined here do not consider building type and property
floor level, which would potentially further mitigate the impacts.
However, they are considered within our climate risk modelling and
loss projections.
The table below sets out the proportion of properties with projected
flood depths in a 1-in-100-year severity flood event, under the Current
Commitments and Downside Physical Risk scenarios.
Exposure to flooding (%)1
Scenarios
Baseline
flood risk
Current
Commitments
2050
(%)
Number of
properties2
Flood depth
(metres)
UK
0-0.5
n 0.5-1.5
>1.5
Hong Kong
n
Australia
n
Mainland
China
n
0-0.5
0.5-1.5
>1.5
0-0.5
0.5-1.5
>1.5
0-0.5
0.5-1.5
>1.5
20233
(%)
97.4
2.4
0.2
85.3
14.6
0.1
95.7
2.9
1.5
88.0
11.1
0.9
Downside
Physical
Risk 2050
(%)
96.9
2.8
0.3
79.5
20.4
0.1
95.3
3.1
1.5
84.7
12.7
2.7
97.4
2.5
0.2
81.4
18.4
0.1
95.4
3.0
1.5
86.5
12.5
1.0
1 Severe flood events include river and surface flooding and coastal
inundation. The table compares 2050 snapshots under the Current
Commitments and Downside Physical Risk scenarios with a baseline
view in 2023. We do expect to see changes to our flood depth
distributions as climate risk data is refreshed.
2 The size of the bubbles represents the size of the portfolios, in terms
of number of properties where exposure to flooding data is available,
relative to one another.
3 Baseline flood risk is the flood risk for a 1 in 100 year event, based on
current peril data.
How climate change is impacting our
commercial real estate portfolios
We assessed our commercial real estate customers’ vulnerability to
various perils, including flooding and windstorms. Our commercial
real estate portfolio is globally diversified with larger concentrations in
Hong Kong, the UK and the US.
Geographical location is a key determinant in our exposure to
potential physical risk events, which can lead to higher ECL due to
the cost of repairing damage as well as impact property valuations in
areas where physical risk events are increasing in frequency.
The ‘Exposure to peril’ table below shows the proportion of our
commercial real estate portfolio exposed to specific physical perils in
our key markets.
Exposure to peril (%)1
Exposure
at
default2
Coastal
inundation
(%)
Cyclone
wind
(%)
Surface
water
flooding
(%)
Riverine
flooding
(%)
Hong Kong n 2.0
94.8
19.0
10.0
UK
US
n
n
15.8
10.1
0.0
81.5
16.5
11.4
7.1
28.6
1 Proportion of our commercial real estate portfolio exposed to specific
physical perils in the Downside Physical scenario.
2 The size of the bubbles represents the size of the portfolios, in terms
of EAD, relative to one another.
Overall, and in line with our 2022 disclosure, our commercial real
estate portfolio remains resilient to climate risk, with the more severe
impacts mitigated by insurance coverage.
Our most significant credit exposure is in Hong Kong, a region with
material physical risk exposures to wind and flooding due to strong
tropical cyclones. The impact on prospective credit losses remains
low, due to stringent building standards and existing measures in
place against flooding and storm surges.
Our largest exposure to transition risk is within our UK portfolio.
Under the Net Zero scenario, we assessed the impacts of the UK
government consultation on non-domestic rental properties being
required to hold an energy performance certificate rating of at least
’B’ by 2030. To meet these proposed minimum standards, more than
80% of the properties in our portfolio would potentially need to be
retrofitted, which would increase impairments and lead to a small
uplift in ECL for this portfolio.
In 2023, as part of the scenario analysis exercise for the Central Bank
of the United Arab Emirates, we also assessed in more detail the
climate risk impacts on our UAE portfolio. Our findings showed that
many properties could become chronically exposed to permanent
inundation over time due to their relatively low elevation above sea
level.
How we assess climate risk impacts on
other risk types
We use climate scenario analysis to assess the impacts on other
risks beyond credit risk. These include traded market risks, non-
financial risks and pension risk.
Traded market risk
In 2023, we explored the potential impacts of climate risks on our
trading and banking portfolio under the Delayed Transition Risk and
Downside Physical Risk scenarios.
The analysis considered all relevant asset classes including interest
rates, exchange rates, corporate and sovereign bonds and equities.
The analysis applied shocks reflecting the impact of abrupt increases
in carbon prices or physical risk perils resulting in structural economic
impacts that affect the productivity of high-risk sectors at a country
level.
We have developed tools to provide us with a more granular
understanding of the key profit and loss drivers under different
climate scenarios. These can be viewed by risk factor, business line
or at trading desk level to help traded risk managers to monitor and
understand how climate sensitive exposures are impacted.
Sovereign credit risk
We assessed the impacts of climate risks on sovereign debt under
the different climate scenarios. In particular, our models considered
the impacts of climate change on a country’s GDP, the amount of
headroom sovereign nations have in terms of their fiscal and external
reserves, and their dependency and exposure to particular corporate
sectors.
Pension risk
We modelled balance sheet and income statement projections for
the main pension plans. Our modelling capability has been enhanced
to incorporate climate-specific modelling over a longer timeframe,
with the initial exercise being focused on assessing the impacts of a
disruptive transition to net zero using the Delayed Transition scenario.
Non-financial risk
We assessed the potential impacts of errors in sustainable lending
volumes contained within our ESG disclosures as part of our financial
reporting risks. To understand our regulatory compliance risks we
assessed any misrepresentations within the marketing of our ESG
funds.
Use of climate scenario analysis outputs
Climate scenario analysis plays a crucial role helping us to identify and
understand the impact of climate-related risks and potential
opportunities as we navigate the transition to net zero.
Scenario analysis results have been used to support the Group’s
ICAAP. This is an internal assessment of the capital the Group needs
to hold to meet the risks identified on a current and projected basis,
including climate risk.
In addition, scenario analysis informs our risk appetite statement
metrics. As an example, it supports the calibration of physical risk
metrics for our retail mortgage portfolios and it is used to consider
climate impact in our IFRS 9 assessment.
From a financial planning perspective, internal climate scenario
analysis results are used to assess whether additional short-term
climate-specific ECL are required within our financial plan.
Next steps
We plan to continue to enhance our capabilities for climate scenario
analysis including addressing model limitations and data gaps and
developing our assessment of liquidity, resilience and insurance risks.
We also plan to use the results for decision making, particularly in:
– client engagement, by identifying climate opportunities and
vulnerabilities in specific regions and sectors such as renewables,
carbon capture technologies and electric vehicles, and using this
information to engage and support clients in their transition to net
zero;
– portfolio steering, by using scenario analysis outputs to inform
how to reallocate our portfolio to maximise returns and mitigate
risk while achieving our net zero targets; and
– looking beyond climate change by building capabilities to assess
our resilience to wider environmental 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 2023, there were 27 major storms that had
a minor impact on five premises with no impact on the availability of
our buildings.
HSBC Holdings plc Annual Report and Accounts 2023
229
Risk review Risk review
We use stress testing to evaluate the potential for impact on our
owned or leased premises. Our scenario stress test, conducted in
2023, analysed how eight climate change-related hazards could
impact 1,000 of our critical and important buildings. These hazards
were coastal inundation, extreme heat, extreme winds, wildfires,
riverine flooding, pluvial flooding, soil movement due to drought, and
surface water flooding.
The 2023 stress test modelled climate change with IPCC’s Taking the
Highway scenario (SSP5-8.5), which projects that the rise in global
temperatures will likely exceed 4°C by 2100. It also modelled a less
severe IPCC Middle of the Road scenario (SSP2-4.5), which projects
that global warming will likely be limited to 2°C.
Key findings from the Taking the Highway scenario included that by
2050, 20 of our 1,000 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 the
buildings.
These include 16 retail properties primarily impacted by extreme
temperatures and four data centres, where three face the risk of
water stress and one faces extreme temperatures and water stress.
This could lead to failure of mechanical cooling equipment or soil
movement resulting from drought.
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 2023
During the year, we carried out several initiatives to keep pace with
geopolitical, regulatory and technology changes, and strengthened
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 continued to recognise that our customers are impacted by
service disruptions, and responded to these urgently and aimed to
recover with minimum delay. We continued to initiate post-
incident review processes to prevent recurrence. Where we
identify that investment is required to further enhance the Group’s
operational resilience capabilities, findings are fed into the Group’s
financial planning, helping to ensure we continue to meet the
expectations of our customers and our regulators.
– We continued to monitor markets affected by the Russia-Ukraine
and Israel-Hamas wars, as well as other geopolitical events, for
any potential impact they may have on our colleagues and
operations.
– We strengthened the way third-party risk is overseen and
managed across all non-financial risks, and enhanced the
processes, framework and reporting capabilities used by our
global businesses, functions and regions.
– We provided analysis and easy-to-access risk and control
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 risk and change execution.
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HSBC Holdings plc Annual Report and Accounts 2023
A further 248 properties 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 temperature extremes and water
stress.
A key finding from the Middle of the Road scenario showed that the
total number of buildings at risk reduced from 20 to 13. The
highlighted facilities are still at risk from the same perils of extreme
temperature and water stress by 2050.
This forward-looking data along with historical data helps inform real
estate planning. We will continue to enhance our understanding of
how extreme weather events impact our building portfolio as climate
risk assessment tools improve and evolve. 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 address the potential impacts of climate change.
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 Enterprise Risk Management target operating model provides a
globally consistent view across resilience risks, strengthening our risk
management oversight while operating effectively as part of a
simplified non-financial risk structure.
We view resilience risk across seven sub-risk types related to: third-
party risk; technology and cybersecurity risk; transaction processing
risk; business interruption and incident risk; data risk; change
execution risk; and facilities availability, safety and security risk.
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 can continue to provide our important
business services, within an agreed impact tolerance. 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 risk steward
opinion papers to formal governance. We accept we will not be able
to prevent all disruption but we must prioritise investment to
continually improve the response and recovery strategies for our
important business services and important group business services
to meet regulatory expectations.
Business operations continuity
We continue to monitor the Russia-Ukraine and Israel-Hamas wars,
and remain ready to take measures to ensure business continuity in
affected markets should the situations require. There have been no
significant disruptions to our services, although businesses and
functions in nearby markets continually review their plans and
responses to minimise any potential impacts.
Regulatory compliance risk
Overview
Regulatory compliance risk is the risk associated with breaching our
duty to clients and other counterparties, inappropriate market conduct
(including unauthorised trading) 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 2023
The dedicated programme to embed our updated purpose-led
conduct approach has concluded. Work to map applicable regulations
to our risks and controls continued in 2023, alongside the adoption of
new tooling to support enterprise-wide horizon scanning for new
regulatory obligations and supporting wider work on regulatory
reporting enhancements. Climate risk has been integrated into
regulatory compliance policies and processes, with enhancements
made to the product governance framework and controls to ensure
the effective consideration of climate – and in particular the risk of
greenwashing – risks.
Governance and structure
The Compliance function has now been restructured and integrated
into a combined Risk and Compliance function with the appointment
of a Group Head of Regulatory Compliance reporting directly into the
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 2023
We regularly review the effectiveness of our financial crime risk
management framework, which includes continued consideration of
the complex and dynamic nature of sanctions compliance and export
control risk. We continued to respond to the financial sanctions and
trade restrictions that have been imposed on Russia, including
methods used to limit sanctions evasion.
We continued to make progress with several key financial crime risk
management initiatives, including:
– We deployed our intelligence-led, dynamic risk assessment
capability for customer account monitoring in additional entities
and global businesses, including in the UK, the Channel Islands
and the Isle of Man, Hong Kong and the UAE.
– We deployed a next generation capability to increase our
monitoring coverage on correspondent banking activity.
– We successfully introduced the required changes to our
transaction screening capability to accommodate the global
change to payment systems formatting under ISO 20022
requirements.
– We made enhancements in response to the rapidly evolving and
complex global payments landscape and refined our digital assets
and currencies strategy.
Group Chief Risk and Compliance Officer. Regulatory Compliance and
Financial Crime teams work together and with relevant stakeholders
to achieve good conduct outcomes, and provide enterprise-wide
support on the compliance risk agenda in close collaboration with
colleagues from the Group Risk and Compliance function.
Key risk management processes
The Global Regulatory Compliance 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 of the global market, regional and line
of business 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 events and issues are
escalated to the Group’s Non-Financial Risk Management Board, the
Group Risk Management Meeting and the Group Risk Committee, as
appropriate. The Group Head of Regulatory 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 2023, 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 financial crime.
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 and
consolidated previously separate financial crime policies into a single
policy to drive consistency and provide a more holistic assessment of
financial crime risk. We further strengthened our financial crime risk
HSBC Holdings plc Annual Report and Accounts 2023
231
Risk review Risk review
taxonomy and control libraries and our monitoring capabilities through
technology deployments. We developed more targeted metrics, and
continued to seek to enhance our governance and reporting. We are
committed to working in partnership with the wider industry and the
public sector in managing financial crime risk and we participate in
numerous public-private partnerships and information sharing
initiatives around the world. In 2023, 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.
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 enhancing public-private
partnerships, payment transparency, asset recovery, tackling forestry
crimes, wildlife trafficking and human trafficking.
Model risk
Overview
Model risk is the risk of the potential for adverse consequences from
model errors or the inappropriate use of modelled outputs to inform
business decisions.
Model risk arises in both financial and non-financial contexts
whenever business decision making includes reliance on models.
Key developments in 2023
In 2023, we continued to make improvements in our model risk
management processes amid regulatory changes in model
requirements.
Initiatives during the year included:
– Following regulatory feedback on a number of our model
submissions for our internal ratings-based (‘IRB’) approach for
credit risk, internal model method (‘IMM’) for counterparty credit
risk and internal model approach (‘IMA’) for market risk, we
implemented approved models for IMM and IMA alongside an
approved IRB model for UK mortgages. We began a programme
of work to address feedback from the PRA and other regulators
on the IRB models for wholesale credit.
– We made changes to our VaR model in response to multiple
breaches that had been observed from market volatility resulting
from changes in monetary policy in major markets.
– We introduced a new procedure to ensure any new tool
developed using generative AI would require validation by Model
Risk Management before its use.
– We enhanced our frameworks and controls as climate risk and AI
and machine learning models become more embedded in
business processes.
– Following the publication of Supervisory Statement 1/23 – the
PRA’s guiding principles for how model risks should be managed
across the industry – we began a programme of work to seek to
meet the enhanced model risk management requirements, with
representation from all global businesses and key functions,
including Internal Audit.
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 risk committee structure, to help ensure appropriate
understanding and ownership of model risk is embedded in the
businesses and functions.
232
HSBC Holdings plc Annual Report and Accounts 2023
Insurance manufacturing operations risk
Contents
233
233
Overview
Insurance manufacturing operations risk management
Insurance manufacturing operations risk in 2023
234
234 Measurement
Key risk types
235
235
236
236
237
– 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 less material for our
insurance operations.
HSBC’s insurance business
We sell insurance products through a range of channels including our
branches, insurance sales forces, 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 platforms 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, UK, Malta,
Mexico and Argentina. In addition, we have: an interest in a life
insurance manufacturing associate in India; a captive insurance entity
in Bermuda that insures the non-financial risks of the wider Group;
and a reinsurance entity in Bermuda.
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 2023
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 did not change materially over 2023. During the year, there
was continued market volatility observed across interest rates, equity
and credit markets and foreign exchange rates. This was
predominantly driven by geopolitical factors and wider inflationary
concerns. One key area of risk management focus during 2023 was
the implementation of the new accounting standard, IFRS 17
‘Insurance Contracts’, which became effective on 1 January 2023.
Given the fundamental change the new accounting standard
represented in insurance accounting, and the complexity of the new
standard, this presented additional financial reporting and model risks
for the Group, which were managed via the IFRS 17 implementation
project. Other areas of focus were the ongoing integration of the
insurance business that was acquired through AXA Singapore in 2022
into the Group’s risk management framework, the establishment of a
reinsurance entity in Bermuda and controls supporting IFRS 17
implementation.
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 137. 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, 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 participating features. 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 and other financial instruments 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 2023
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.
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 by financial reporting committees in each of our entities
of the methodology and assumptions that underpin IFRS 17
reporting.
Liquidity risk is less material for the insurance business. It is managed
by cash flow matching and maintaining sufficient cash resources,
Insurance manufacturing operations risk in 2023
Measurement
The following tables show the composition of the fair value of underlying items of the Group’s participating contracts at the reporting date.
Balance sheet of insurance manufacturing subsidiaries by type of contract
(Audited)
Life direct
participating
and
investment
DPF
contracts1
$m
113,605
—
Life
other
contracts2
$m
3,753
—
Other
contracts3
$m
5,812
—
Shareholder
assets
and liabilities
$m
7,696
—
Total
$m
130,866
—
100,427
258
1,351
8,859
2,710
13
—
2,782
116,400
—
116,389
—
—
—
116,389
—
116,389
3,593
10
67
—
83
213
4,871
164
9,001
—
3,961
819
1
—
4,781
—
4,781
4,177
—
1,157
5
473
—
—
35
5,847
5,103
—
—
—
—
5,103
—
5,103
1,166
109,363
6
4,772
693
1,059
—
—
1,636
9,332
—
—
—
3
6,573
6,576
7,731
14,307
274
7,347
9,557
4,325
226
4,871
4,617
140,580
5,103
120,350
819
4
6,573
132,849
7,731
140,580
At 31 Dec 2023
Financial assets
– trading assets
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
– derivatives
– financial investments – at amortised cost
– financial assets at fair value through other comprehensive income
– other financial assets
Insurance contract assets
Reinsurance contract assets
Other assets and investment properties
Total assets at 31 Dec 2023
Liabilities under investment contracts designated at fair value
Insurance contract liabilities
Reinsurance contract liabilities
Deferred tax
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2023
234
HSBC Holdings plc Annual Report and Accounts 2023
Balance sheet of insurance manufacturing subsidiaries by type of contract (continued)
(Audited)
At 31 Dec 20224
Financial assets
– trading assets
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
– derivatives
– financial investments – at amortised cost
– financial assets at fair value through other comprehensive income
– other financial assets
Insurance contract assets
Reinsurance contract assets
Other assets and investment properties
Total assets at 31 Dec 20224
Liabilities under investment contracts designated at fair value
Insurance contract liabilities
Reinsurance contract liabilities
Deferred tax
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 20224
Life direct
participating
and
investment
DPF
contracts1
$m
Life
other
contracts2
$m
Other
contracts3
$m
102,539
—
89,671
432
981
9,030
2,425
4
—
2,443
104,986
—
104,662
—
23
—
104,685
—
104,685
4,398
—
3,749
9
165
—
475
130
4,413
60
9,001
—
3,766
748
—
—
4,514
—
4,514
6,543
—
4,916
21
1,221
—
385
—
—
30
6,573
5,374
—
—
—
—
5,374
—
5,374
Shareholder
assets
and liabilities
$m
7,109
—
Total
$m
120,589
—
1,088
99,424
15
4,660
569
777
—
—
1,666
8,775
—
—
—
2
7,524
7,526
7,236
14,762
477
7,027
9,599
4,062
134
4,413
4,199
129,335
5,374
108,428
748
25
7,524
122,099
7,236
129,335
1
2
‘Life direct participating and investment DPF contracts’ are substantially measured under the variable fee approach measurement model.
‘Life other contracts’ are measured under the general measurement model and mainly includes protection insurance contracts as well as reinsurance
contracts. The reinsurance contracts primarily provide diversification benefits over the life direct participating and investment discretionary
participation feature (’DPF’) contracts.
‘Other contracts’ includes investment contracts for which HSBC does not bear significant insurance risk.
3
4 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
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, credit spreads and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are contracts with
participating features. These products typically include some form of
capital guarantee or guaranteed return on the sums invested by the
policyholders, to which 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.
Participating products expose HSBC to the risk of variation in asset
returns, which will impact our participation in the investment
performance.
In addition, in some scenarios the asset returns can become
insufficient to cover the policyholders’ financial guarantees, in which
case the shortfall has to be met by HSBC. Amounts are held against
the cost of such guarantees, calculated by stochastic modelling in the
larger entities.
The cost of such guarantees are generally not material and are
absorbed by the insurance fulfilment cash flows.
For unit-linked contracts, market risk is substantially borne by the
policyholder, but some market risk exposure typically remains, as
fees earned are related to the market value of the linked assets.
Sensitivities
(Audited)
The following table provides the impacts on the CSM, profit after tax
and equity of our insurance manufacturing subsidiaries from
reasonably possible effects of changes in selected interest rate,
credit spread, equity price, growth assets and foreign exchange rate
scenarios for the year. These sensitivities are prepared in accordance
with current IFRS Accounting Standards and are based on changing
one assumption at a time with other variables being held constant,
which in practice could be correlated.
Due in part to the impact of the cost of guarantees and hedging
strategies, which may be in place, the relationship between the CSM,
profit after tax and total equity and the risk factors is non-linear.
Therefore, the results disclosed should not be extrapolated to
measure sensitivities to different levels of stress. For the same
reason, the impact of the stress is not necessarily symmetrical on the
upside and downside. The sensitivities are stated before allowance
for management actions, which may mitigate the effect of changes in
the market environment.
The method used for deriving sensitivity information and significant
market risk factors remain consistent between 2022 and 2023. In
2022, due to a lower CSM level, some portfolios generated onerous
contracts in the 100bps up scenarios for interest rate and credit
spread sensitivities, generating income statement losses and equity
reductions in those scenarios. This was less prevalent in 2023 as the
base CSMs were higher from changing market conditions and
changes in lapse rate assumptions.
HSBC Holdings plc Annual Report and Accounts 2023
235
Risk review
Risk review
Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors1
(Audited)
+100 basis point parallel shift in yield curves
– Insurance and reinsurance contracts
– Financial instruments
-100 basis point parallel shift in yield curves
– Insurance and reinsurance contracts
– Financial instruments
+100 basis point shift in credit spreads
– Insurance and reinsurance contracts
– Financial Instruments
-100 basis point shift in credit spreads
– Insurance and reinsurance contracts
– Financial instruments
10% increase in growth assets3
– Insurance and reinsurance contracts
– Financial instruments
10% decrease in growth assets3
– Insurance and reinsurance contracts
– Financial instruments
10% appreciation in US dollar exchange rate against local
functional currency
– Insurance and reinsurance contracts
– Financial instruments
10% depreciation in US dollar exchange rate against local
functional currency
– Insurance and reinsurance contracts
– Financial instruments
2023
20222
Effect on
profit after tax
Effect on
CSM
Effect on
total equity
Effect on profit
after tax
Effect on
CSM
Effect on
total equity
$m
66
69
(3)
(137)
(133)
(4)
(11)
(9)
(2)
104
102
2
78
43
35
(85)
(49)
(36)
117
27
90
(117)
(27)
(90)
$m
(92)
(92)
—
(390)
(390)
—
(884)
(884)
—
806
806
—
436
436
—
(507)
(507)
—
390
390
—
(390)
(390)
—
$m
32
69
(37)
(103)
(133)
30
(45)
(9)
(36)
138
102
36
78
43
35
(86)
(49)
(36)
117
27
90
(117)
(27)
(90)
$m
(210)
(214)
4
(49)
(41)
(8)
(324)
(322)
(2)
119
117
2
68
38
30
(81)
(49)
(32)
95
20
75
(95)
(20)
(75)
$m
(82)
(82)
—
(57)
(57)
—
(843)
(843)
—
1,133
1,133
—
400
400
—
(560)
(560)
—
272
272
—
(272)
(272)
—
$m
(240)
(214)
(26)
(19)
(41)
22
(354)
(322)
(32)
149
117
32
68
38
30
(81)
(49)
(32)
95
20
75
(95)
(20)
(75)
1 Sensitivities presented for ‘Insurance and reinsurance Contracts’ includes the impact of the sensitivity stress on underlying assets held to support
insurance and reinsurance contracts. Sensitivities presented for ‘Financial instruments’ includes the impact of the sensitivity stress on other financial
instruments, primarily shareholder assets.
2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
3
accordingly.
‘Growth assets’ primarily comprise equity securities and investment properties. Variability in growth asset fair value constitutes a market risk to
HSBC insurance manufacturing subsidiaries.
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 234.
The credit quality of the reinsurers’ share of liabilities under insurance
contracts is assessed as ‘satisfactory’ or higher (as defined on
page 148), with 100% of the exposure being neither past due nor
impaired (2022: 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
contracts and shareholders’ funds. The credit quality of insurance
financial assets is included in the table on page 172.
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 participating features.
The remaining maturity of insurance contract liabilities is included in
Note 4 on page 362.
236
HSBC Holdings plc Annual Report and Accounts 2023
The amounts of insurance contract liabilities that are payable on demand are set out by the product grouping below:
Amounts payable on demand
(Audited)
Life direct participating and investment DPF contracts
Life other contracts
At 31 Dec
2023
20221
Amounts payable
on demand
Carrying amount
for these
contracts
Amounts payable
on demand
Carrying amount
for these contracts
$m
107,287
2,765
110,052
$m
116,389
3,961
120,350
$m
100,273
2,813
103,086
$m
104,669
3,759
108,428
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
Insurance underwriting risk
Description and exposure
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 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.
The tables on pages 234 analyse our life insurance underwriting risk
exposures by composition of the fair value of the underlying items.
The insurance underwriting risk profile and related exposures remain
largely consistent with those observed at 31 December 2022.
Sensitivities
(Audited)
The following table shows the sensitivity of the CSM, profit and total
equity to reasonably foreseeable changes in non-economic
assumptions across all our insurance manufacturing subsidiaries.
These sensitivities are prepared in accordance with current IFRS
Accounting Standards, which have changed 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 342.
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.
Sensitivity to lapse rates depends on the type of contracts
being written. An increase in lapse rates typically has a negative
effect on CSM (and therefore expected future profits) 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.
The impact of changing insurance underwriting risk factors is
primarily absorbed within the CSM, unless contracts are onerous in
which case the impact is directly to profits. The impact of changes to
the CSM is released to profits over the expected coverage periods of
the related insurance contracts.
Sensitivity of HSBC’s insurance manufacturing subsidiaries to insurance underwriting risk factors
(Audited)
At 31 Dec 2023
10% increase in mortality and/or morbidity rates
10% decrease in mortality and/or morbidity rates
10% increase in lapse rates
10% decrease in lapse rates
10% increase in expense rates
10% decrease in expense rates
At 31 Dec 20223
10% increase in mortality and/or morbidity rates
10% decrease in mortality and/or morbidity rates
10% increase in lapse rates
10% decrease in lapse rates
10% increase in expense rates
10% decrease in expense rates
Effect on CSM
(gross)1
$m
(392)
440
(316)
348
(68)
69
Effect on profit
after tax (gross)1
$m
(49)
22
(33)
22
(9)
8
Effect on profit
after tax (net)2
$m
(24)
30
(24)
29
(6)
11
Effect on total
equity (gross)1
$m
(49)
22
(33)
22
(9)
8
Effect on total
equity (net)2
$m
(24)
30
(24)
29
(6)
11
(354)
374
(225)
232
(59)
60
(23)
16
(23)
22
(7)
4
(21)
18
(23)
22
(7)
5
(23)
16
(23)
22
(7)
4
(21)
18
(23)
22
(7)
5
1 The ‘gross’ sensitivities impacts are provided before considering the impacts of reinsurance contracts held as risk mitigation.
2 The ‘net’ sensitivities impacts are provided after considering the impacts of reinsurance contracts held as risk mitigation.
3 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
HSBC Holdings plc Annual Report and Accounts 2023
237
Risk review
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 contains
the Report of the Directors and 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.
239 The Board
244 Senior management
248 How we are governed
254
Board matters considered and shareholder
engagement
260 Board and committee effectiveness,
performance and accountability
262 Board committees
279 Directors’ remuneration report
306
Share capital and other related governance
disclosures
311
Internal control
313 Employees
315 Statement of compliance
316 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.
238
HSBC Holdings plc Annual Report and Accounts 2023
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 (66)
N
Group Chairman
Appointed to the Board: September 2017
Group Chairman since: October 2017
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.
External 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
to the International Chamber of Commerce
– Member of the Trade Advisory Group on Financial
Services to the UK Government’s Department for
International Trade
– Member of the Asia Business Council
– Member of Hong Kong’s Chief Executive’s
Advisory Council on Economic Development
– Member of the Investment Advisory Council of the
Supreme National Investment Committee of the
Kingdom of Saudi Arabia
– Chairman of the Multinational Chairman’s Group
– Director, Peterson Institute for
International Economics
– Director, Institute of International Finance
– Asia Society Global Board of Trustees
– International Advisory Council of the China
National Financial Regulatory Administration
– Hong Kong Academy of Finance International
Council of Advisors
– Member of the Asia Global Institute
– International Business Leaders’ Advisory Council
to the Mayor of Beijing – Adviser to the Mayor
– International Business Leaders’ Advisory Council
to the Mayor of Shanghai – Adviser to the Mayor
Georges Elhedery (49)
Group Chief Financial Officer
Appointed to the Board: January 2023
Skills and experience: Georges has over 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 initiatives,
strategy 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.
Noel Quinn (62)
Group Chief Executive
Appointed to the Board: August 2019
Group Chief Executive since: March 2020
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.
External appointments:
– Independent non-executive Director of Sustainable
Markets Initiative Limited and Chair of the Financial
Services Task Force
– Principal member of the Glasgow Financial
Alliance for Net Zero
– Member of the World Economic Forum’s
International Business Council
– Member of the World Bank Private Sector
Investment Lab
– Member of the Advisory Board of the China
Children Development Fund
– Founding member of CNBC ESG Council
– Member of the British Infrastructure Council
Board committee membership key
Committee Chair
A Group Audit Committee
Ri Group Risk Committee
R Group Remuneration Committee
N Nomination & Corporate Governance Committee
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 2023
239
Corporate governance Report of the Directors | Corporate governance report
Independent non-executive Directors
Geraldine Buckingham (46)
Ri R N
Rachel Duan (53)
A R N
Dame Carolyn Fairbairn (63)
Ri R N
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.
External appointments:
– Independent non-executive Director
of Brunswick Group Partnership Ltd
– Independent non-executive Director
of H.R.L. Morrison & Co Limited
– Member of the Advisory Board of
ClimateWorks Centre Australia
– Member of the Advisory Board of
the McKinsey Health Institute
Independent non-executive Director
Appointed to the Board:
September 2021
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.
External appointments:
– Independent non-executive Director
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, a member of
the UK prime minister John Major’s
Number 10 Policy Unit, and as
Director-General of the Confederation
of British Industry, and held senior
executive positions at the 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.
of Sanofi S.A.
– Independent non-executive Director
External appointments:
– Independent non-executive Director
of AXA S.A.
of Tesco plc
– Independent non-executive Director
of the Adecco Group AG
– Chair of Royal Mencap Society
– Honorary Fellow of Gonville and
Caius College, Cambridge
240
HSBC Holdings plc Annual Report and Accounts 2023
Steven Guggenheimer (58)
Ri N
Independent non-executive Director
Appointed to the Board: May 2020
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: Steven has more than
25 years of experience at Microsoft,
including more than a decade as
Corporate Vice President, where
he led teams focused on original
equipment manufacturers, developers
and independent software vendors
and artificial intelligence solutions.
External appointments:
– Independent non-executive Director
of BT Group plc
– Independent non-executive Director
of Leupold & Stevens, Inc
– Independent non-executive Director
of Forrit Holdings Limited
James Forese (60)
A Ri N
Ann Godbehere (68)
R N
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: Jamie has
over 30 years of international business
and management experience in the
finance industry working in areas
including global markets, investment
and private banking.
Career: Jamie 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.
External appointments:
– Non-executive Chair of HSBC North
America Holdings Inc
– Non-executive Chairman of Global
Bamboo Technologies
Independent non-executive Director
Appointed to the Board:
September 2023
Skills and experience: Ann brings
deep financial acumen and extensive
financial services experience over a
30-year career spanning insurance,
retail and private banking, and wealth
management. She also provides
global perspectives, drawing upon
experiences and insights gained from
a long career in international business.
Career: After joining Swiss Re in
1996, Ann served as the company’s
Chief Financial Officer from 2003
to 2007. She was also Interim Chief
Financial Officer of Northern Rock
Bank from 2008 to 2009 in the period
immediately after its nationalisation.
Ann also has extensive board
experience, including with FTSE 100
companies, having previously served
as non-executive Director of Prudential
plc, British American Tobacco plc,
UBS AG, UBS Group AG and as Senior
Independent non-executive Director of
Rio Tinto plc and Rio Tinto Limited.
External appointments:
– Non-executive Director and
Chair of the Audit Committee of
Stellantis N.V.
– Non-executive Director and Chair of
the Audit Committee of Shell plc
HSBC Holdings plc Annual Report and Accounts 2023
241
Corporate governance Report of the Directors | Corporate governance report
Dr José Antonio Meade
Kuribreña (54)
R N
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.
Kalpana Morparia (74)
Ri N
Eileen Murray (65)
A R N
Independent non-executive Director
Appointed to the Board: March 2023
Independent non-executive Director
Appointed to the Board: July 2020
Skills and experience: Kalpana is a
skilled business leader with significant
experience gained through a 45-
year career in banking across Asia,
primarily in India.
Skills and experience: Eileen has
extensive knowledge in financial
services, technology and corporate
strategy from a career spanning more
than 40 years.
Career: Kalpana’s most recent
executive role was as Chair of J.P.
Morgan, South and Southeast Asia
and a member of J.P. Morgan’s Asia
executive committee, which she held
until her retirement in 2021. Before J.P.
Morgan, she was the Joint Managing
Director of ICICI Bank, India’s second-
largest bank, from 2001 to 2007.
External appointments:
– Independent non-executive Director
of Hindustan Unilever Limited
– Independent non-executive Director
of Dr. Reddy’s Laboratories Ltd.
– Independent non-executive Director
of Philip Morris International Inc
– Governing board member of the
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.
External appointments:
– Independent non-executive Director
of Guardian Life Insurance Company
of America
– Independent non-executive Director
of Broadridge Financial Solutions, Inc
– Member of the Advisory Board of
Mobilize Capital Partners
External 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.
Bharti Foundation
– Governing board member of
Foundation for Audit Quality
– Governing board member of the
Generation India Foundation
– Governing council member of
– Board member of the Global Center
Krea University
on Adaptation
– Member of the Advisory Board of
the University of California, Centre
for US Mexican Studies
– Member of the UNICEF Mexico
Advisory Board
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HSBC Holdings plc Annual Report and Accounts 2023
Aileen Taylor (51)
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.
Brendan Nelson (74)
A Ri N
David Nish (63)
A Ri N
Swee Lian Teo (64)
Ri N
Independent non-executive Director
Appointed to the Board:
September 2023
Skills and experience: Brendan
brings UK and international financial
and auditing expertise, and significant
experience in auditing and as
audit committee chair of
UK-listed companies.
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.
External appointments:
– Senior Independent non-executive
Director of Vodafone Group plc and
Chairman of the Audit and
Risk Committee
– Honorary Professor of University of
Dundee Business School
Career: Brendan spent over 25 years
as a partner at KPMG LLP, served
on the board from 2000 and as
Vice Chairman from 2006, until his
retirement in 2010. Internationally, he
held various senior positions including
Global Chairman of the financial
services practice. Subsequently,
Brendan joined the boards of bp
plc and NatWest Group plc where
he also served as Chairman of both
companies’ audit committees.
During his career, Brendan was
President of the Institute of Chartered
Accountants of Scotland, a member
of the Financial Reporting Review
Panel and a member of the Financial
Services Authority’s Practitioner
Panel. As current Chairman of the
Board of BP Pension Fund Trustees
Ltd, Brendan has received training in
ESG considerations for investment
decisions and helped set an ambition
to be net zero in terms of greenhouse
gas emissions from investments
by 2050.
External appointments:
– Chairman of BP Pension Trustees Ltd
Independent non-executive Director
Appointed to the Board: October 2023
Skills and experience: Swee Lian
brings extensive experience within
the international financial services
industry, having previously spent over
27 years with the Monetary Authority
of Singapore (‘MAS‘).
Career: During Swee Lian’s time
at the MAS, she worked in foreign
reserves management, financial sector
development, strategic planning
and financial supervision, before
she became the Deputy Managing
Director for Financial Supervision. She
retired from the MAS in 2015 after
serving as Special Advisor, focused
on MAS’s role in the international
regulatory framework, in the
Managing Director’s office. Swee Lian
previously served as a non-executive
Director on the boards of AIA Group
Limited and the Dubai Financial
Services Authority.
External appointments:
– Non-executive Director of Singapore
Telecommunications Limited and
Chair of the Risk Committee
– Non-executive Director of Avanda
Investment Management Pte Ltd
– Director of Clifford Capital Pte Ltd
– Director of Clifford Capital Holdings
Pte Ltd
– Chair of CapitaLand
Integrated Commercial Trust
Management Limited.
Former Directors who served during the year
Jackson Tai
Jackson Tai retired from the Board on 5 May 2023
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 2023
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.
Elaine Arden (55)
Group Chief Human
Resources Officer
Colin Bell (56)
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
the Royal Bank of Scotland Group for
six years in the aftermath of the global
financial crisis. She has held a number
of human resources roles throughout
her career in financial services,
including Head of Human Resources
for 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, having previously held
the role of Group Chief Compliance
Officer. He is also a Director of HSBC
Bank (Singapore) Limited. 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 operational tours of Iraq
and Northern Ireland, and roles in the
Ministry of Defence and NATO.
Jonathan Calvert-Davies (55)
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 over 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 (60)
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.
244
HSBC Holdings plc Annual Report and Accounts 2023
Dr Celine Herweijer (46)
Group Chief Sustainability Officer
John Hinshaw (53)
Group Chief Operating Officer
Bob Hoyt (59)
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 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
is Chairman of HSBC Global Services
Limited and a Director of HSBC
Innovation Bank Limited. 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 (50)
Group Chief Communications and
Brand Officer
Pam Kaur (60)
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 been Group Chief Risk Officer
since 2020. She is a Director of the
Hongkong and Shanghai Banking
Corporation Limited. Since joining
HSBC in 2013, her roles included
Group Head of Internal Audit and
Head of Wholesale Market and
Credit Risk. Since qualifying as a
chartered accountant with Ernst &
Young, Pam held various senior audit,
compliance, finance and operations
roles with Deutsche Bank, the Royal
Bank of Scotland Group, Lloyds TSB
and Citigroup. She serves as a non-
executive Director of abrdn plc.
David Liao (51)
Co-Chief Executive,
The Hongkong and Shanghai
Banking Corporation Limited
David was appointed Co-Chief
Executive of the Asia-Pacific region in
2021. He is also a Director of the 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 2023
245
Corporate governance Additional members of the
Group Executive Committee
Noel Quinn
Georges Elhedery
Aileen Taylor
Biographies are provided on
pages 239 and 243.
Report of the Directors | Corporate governance report
Nuno Matos (56)
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 the Chairman of MP
Payments Group Limited.
Stephen Moss (57)
Regional Chief Executive Officer,
Middle East, North Africa
and Türkiye
Barry O’Byrne (48)
Chief Executive Officer,
Global Commercial Banking
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 Saudi Awwal Bank.
Barry was appointed Chief Executive
Officer 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.
Michael Roberts (63)
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 (55)
Co-Chief Executive,
The Hongkong
and Shanghai Banking
Corporation Limited
Surendra was appointed Co-Chief
Executive 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.
John David Stuart
(known as Ian Stuart) (60)
Chief Executive Officer,
HSBC UK Bank plc
Ian has been Chief Executive Officer of
HSBC UK Bank plc since 2017, having
joined HSBC as Head of Commercial
Banking in the UK and Europe in 2014.
He has worked in financial services for
over 40 years, previously holding roles
at the Royal Bank of Scotland Group
and Barclays. Ian holds an Honorary
Masters and Honorary Doctorate
degree for his services to the banking
sector. He is a member of the UK
Finance Board, the UK Investment
Council and a business ambassador
for Meningitis Now.
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HSBC Holdings plc Annual Report and Accounts 2023
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 2023. This includes
tenure, age, skills and experience, as well as gender and ethnic representation.
Gender and ethnic diversity
The Financial Conduct Authority requires all listed companies to publish in their Annual Report
and Accounts information on female and ethnic heritage representation on the Board and in
senior management. The tables below outline the current gender and ethnic diversity of the HSBC
Holdings Board and executive management reflecting data gathered through self-identification.
Board composition,
tenure and age
13
2
Executive
Directors
Non-executive
Directors
Gender
Board
Board
Executive management Executive management
Male
Female
Male
Female
Non executive
Directors 10
Executive
Directors 2
Executive management Executive management
%
Number
Board members
Number of
senior positions1
Executive management2
Male
Female
Other
Not specified/prefer not to say
8
7
–
–
53
47
–
–
4
0
–
–
Number
0–2 years
15
3–5 years
4
6+ years
–
–
%
79
21
–
–
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 groups, including Arab
Not specified/prefer not to say
Executive management Executive management
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic groups,
including Arab
Not specified/prefer not to say
Board members
Number
10
–
3
–
2
–
%
67
–
20
–
13
–
Executive management2
Number of
senior positions1
Number
13
1
3
–
1
1
%
69
5
16
–
5
5
4
–
–
–
–
–
1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial
Officer and Senior Independent non-executive Director.
2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company
Secretary and Chief Governance Officer.
Tenure1
Age
0–2 years
3–5 years
6+ years
45–49
50–54
55–59
60–64
65+
1 Tenure of a non-executive Director is calculated
by reference to the date of their election by
shareholders following their appointment.
Skills and experience
The summary below provides an overview
of the skills and experiences held by the
non-executive Directors on the Board. This
is based on the current skills matrix, which
is reviewed annually by the Nomination &
Corporate Governance Committee to ensure
that the Board has the skills and experience
required to effectively discharge its duties
and to support succession planning
discussions. The skills and experiences of the
newly appointed non-executive Directors are
also included in the below extract.
Banking
Finance
Risk
Customer
Digital technology
Corporate social responsibility/ESG
Direct Asia market experience
Male
Global business experience
12
10
10
7
4
5
6
10
HSBC Holdings plc Annual Report and Accounts 2023
247
Corporate governance Report of the Directors | Corporate governance report
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.
Board and executive governance
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 and standards;
– 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;
– ensuring effective engagement with, and encouraging participation
from, shareholders and other key stakeholders;
– approving the appointment and remuneration of Directors,
including Board roles;
– reviewing the Group’s overall corporate governance arrangements;
and
– providing entrepreneurial leadership of the Group within a
framework of prudent and effective controls.
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 262. 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 2023, the Board comprised the Group
Chairman, 12 non-executive Directors, and two executive Directors
who are the Group Chief Executive and the Group Chief Financial
Officer. As previously announced, David Nish will not stand for
re-election at the Annual General Meeting (’AGM’) on 3 May 2024.
For further details of Board members' career backgrounds, skills,
experience and external appointments, see their biographies on
page 239, and for a breakdown of the diversity and skills of the Board
and senior management, see page 247.
Operation of the Board
The Board is ordinarily scheduled to meet nine times a year. In 2023,
the Board held 11 meetings. For further details on attendance at
those meetings, see page 249. 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 matters considered and shareholder
engagement’ on page 254.
The Group Company Secretary and Chief Governance Officer, the
Group Chief Risk and Compliance Officer and the Group Chief Legal
Officer are regular attendees at Board meetings. The non-executive
Chairman of The Hongkong and Shanghai Banking Corporation
Limited is also a regular attendee at most Board meetings. The chief
executive officers of the three global businesses attend Board
strategy discussions, and other senior executives attend Board
meetings for specific items as required.
In addition, as agreed by the Board, the Board Oversight Sub-Group is
called on an ad hoc basis where necessary. Such meetings are an
informal mechanism for a smaller group of Board members and
management to discuss emerging issues and upcoming Board
matters. The Board Oversight Sub-Group was not convened in 2023.
248
HSBC Holdings plc Annual Report and Accounts 2023
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 2023. 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 Tucker2,3
Board
attendance
in 20231
12/12
Responsibilities
– 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.
Executive Director
Group Chief Executive
Noel Quinn3
Executive Director
Group Chief Financial
Officer
Georges Elhedery3,4
Non-executive Director
Senior Independent
Director
David Nish3,5,6
Non-executive Directors
Geraldine Buckingham3,5
Rachel Duan3,5
Dame Carolyn Fairbairn3,5,6
James Forese3,5
Ann Godbehere4,5
Steven Guggenheimer3,5,6
Dr José Antonio Meade
Kuribreña3,5,7
Kalpana Morparia3,4,5
Eileen Murray3,5,6
Brendan Nelson4,5
Jackson Tai3,5,6,8
Swee Lian Teo4,5
Group Company
Secretary and Chief
Governance Officer
Aileen Taylor
12/12
– 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.
12/12
– 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 and regulatory 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.
10/12
– 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 in achieving agreed corporate goals and objectives.
– 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.
-
12/12
12/12
10/12
12/12
3/3
11/12
12/12
10/10
11/12
3/3
6/7
2/2
– 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 total number of meetings comprised nine scheduled meetings, two ad hoc meetings and the AGM.
2 The non-executive Group Chairman was considered to be independent on appointment.
3 Attended the AGM on 5 May 2023.
4 Georges Elhedery joined the Board effective 1 January 2023. Kalpana Morparia joined the Board effective 1 March 2023. Ann Godbehere and Brendan
5
Nelson joined the Board effective 1 September 2023. Swee Lian Teo joined the Board effective 1 October 2023.
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.
6 Meetings held on 9 March 2023, 16 March 2023 and 8 November 2023 were called at short notice. Due to prior commitments Dame Carolyn Fairbairn
was unable to attend on 9 March 2023, David Nish, Jackson Tai and Dame Carolyn Fairbairn were unable to attend on 16 March 2023, and David Nish
and Steven Guggenheimer were unable to attend on 8 November 2023. Due to prior commitments Eileen Murray was unable to attend the Board
meeting in September 2023.
7 Dr José Antonio Meade Kuribreña was appointed as the independent non-executive Director with responsibility for workforce engagement on 1 June
2022. Further information can be found on page 257.
8 Jackson Tai retired from the Board on 5 May 2023.
HSBC Holdings plc Annual Report and Accounts 2023
249
Corporate governance Report of the Directors | Corporate governance report
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 and regions, as well as functional heads. For further
details of the senior management team, see page 244.
All Directors are encouraged to have contact with management at all
levels, and have full access to all relevant information. Visits to local
business operations and meetings with local management are
arranged for the non-executive Directors when they attend Board
meetings in different locations, and when travelling for other reasons.
Senior management often attend alongside Directors’ stakeholder
engagements (see ’Board decision making and engagement with
stakeholders’ on page 20). The workforce engagement non-executive
Director attends the GEC on occasion to provide senior management
with updates on workforce engagements carried out by the Board,
including relevant Board observations. For further details, see ’Board
stakeholder and workforce engagement’ on page 257.
Executive governance
The GEC promotes the tone from the top, set by the Board, across
the organisation. This helps to ensure that our colleagues follow our
values, and foster a culture that delivers against our purpose of
opening up a world of opportunity. At its meetings, the GEC dedicates
time to reflect on our purpose and values and how they are
demonstrated in the day-to-day course of business.
During 2023, the GEC undertook an extensive review of the Group’s
strategy with a view to building upon its unique strengths. For further
details of our strategy, see page 11.
The GEC has led and overseen the delivery of a number of strategic
projects to simplify how we get things done, by identifying operating
efficiencies, reducing complexity and optimising costs. The GEC will
continue to focus on simplification throughout 2024.
The GEC’s operating rhythm helps to facilitate end-to-end governance
between senior leadership and the Board.
The operating rhythm has the following three pillars:
– regular check-in meetings to review and discuss current and
emerging trends and issues;
– a monthly meeting to review the performance of each of the
global businesses in principal geographical areas and legal entities,
supported by the development and introduction of a new key
performance indicators architecture in 2023; and
– a strategy- and governance-focused meeting, which is generally
held two weeks in advance of each Board meeting.
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 252.
To further support our senior management, we have dedicated
corporate governance officers who support and advise legal entities,
global businesses and global functions on our corporate governance
practices. These corporate governance officers serve to strengthen
the consistency and effectiveness of our end-to-end governance
arrangements, and support connectivity and information sharing.
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,
location and the sectors in which they operate.
The subsidiary accountability framework
The subsidiary accountability framework aims to balance appropriate
governance oversight by the Group with each subsidiary’s local legal
and regulatory duties. The framework supports the Group in
promoting effective governance arrangements across its subsidiaries
by:
– setting out high level principles to enhance communications and
connectivity; and
– ensuring a shared and consistent understanding of the Group’s
strategic objectives, culture and values.
The subsidiary accountability framework 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 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 the
Nomination & Corporate Governance Committee and updated as
required to ensure it is aligned to best practice.
The role of principal subsidiaries
Certain subsidiaries are designated formally by the Board as principal
subsidiaries. In addition to their obligations under their respective local
laws and regulations, principal subsidiaries, supported by regional
company secretaries, perform a critical role in ensuring effective and
high standards of governance across the Group and in overseeing the
implementation of the subsidiary accountability framework in the
regions for which they are responsible.
Representatives from principal subsidiaries attend the Board and its
committee meetings for relevant topics, including when the Board
holds meetings outside of the UK. Chairs of the principal subsidiary
risk and audit committees also regularly attend respective Group Risk
Committee and Group Audit Committee meetings. Attendance and
participation at these committees enhance the subsidiary directors'
understanding of the challenges facing the Group and help to identify
common challenges and share lessons learned. Such committee
participation supplements the regular reports, certifications and
escalations from principal subsidiaries' boards and their committees
to the Board and relevant committee(s) of the Board.
The Group Chairman also interacts regularly with the chairs of the
principal subsidiaries, including through the Chairman’s Forum. The
Chairman’s Forum comprises the chairs of the principal subsidiaries
and the chairs of the Group’s audit, risk and remuneration
committees, and where relevant, the Group Chief Executive, other
non-executive Directors and relevant executive management,
advisers and/or external experts. In 2023, the Chairman’s Forum
covered topics such as strategic business considerations, geopolitical
issues, resolvability assessment requirements and separability,
shareholder engagements, Group-wide connectivity of non-executive
Directors, key regulatory themes, ESG insights, employee
engagement and financial performance.
The Group Remuneration Committee Chair also hosted dedicated
forums with chairs of principal subsidiaries to share key priorities for
2023 and the future. These sessions also provide an opportunity for
review and input on proposed pay outcomes and allocation, before
approval by the Group Remuneration Committee.
250
HSBC Holdings plc Annual Report and Accounts 2023
The 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 the sale of HSBC Bank
Canada to Royal Bank of Canada, subject to regulatory and
governmental approvals. On 21 December 2023, the Canadian Federal
Government’s Minister of Finance approved the sale, and the
transaction is expected to close in the first quarter of 2024.
Subsidiary director development
The Group is dedicated to supporting the continuing professional
development of its subsidiary directors. In May 2023, a two-day non-
executive director summit was held in Hong Kong, which brought
together over 100 non-executive directors from across the Group.
Connectivity was a key theme and attendees were reminded of the
importance of the subsidiary accountability framework in driving
consistent governance standards and ensuring connectivity and
engagement across our non-executive director community. The
agenda included sessions on strategy and financial performance; Asia-
Pacific; subsidiary governance; the macroeconomic environment;
diversity and inclusion; sustainability; technology; finance; and risk.
The Bank Director Programme, launched in 2022, continues to
support subsidiaries with succession planning by developing and
equipping internal talent to undertake internal non-executive director
roles on subsidiary boards.
Following the success of the Bank Director Programme, a Bank Chair
Programme is being developed to ensure existing and prospective
chairs of subsidiary boards and board committees have the requisite
knowledge, skills and behaviours to be effective chairs.
HSBC Holdings plc Annual Report and Accounts 2023
251
Corporate governance Report of the Directors | Corporate governance report
Board and Group Executive 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 Director 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 262.
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.
As part of its ongoing review of the effectiveness of the Group’s
governance arrangements, and in response to the findings from the
Board evaluation in 2023, the Board has decided to establish a new
Group Technology Committee to oversee the Group’s technology
strategy and alignment with the overall Group strategy. The
committee, which will be in place from 1 March 2024, will have
responsibility for areas where technology is fundamental to strategic
delivery, including innovation, data and cyber risk frameworks. As a
result, the Technology Governance Working Group, which was
established to support oversight of technology strategy, governance
Board Chair: Mark Tucker
and emerging risks, will be demised from the same date. The terms
of reference and membership of the Board committees are available
at www.hsbc.com/who-we-are/leadership-and-governance/board-
committees.
The GEC has established a number of committees to support the
Group Chief Executive and senior management in their running of the
business, and provide specialist oversight for matters delegated to
them, including capital and liquidity, risk management, disclosure and
financial reporting, restructuring and investment considerations,
transformation oversight, ESG matters and talent and development.
These committees also help fulfil their responsibilities under the
Senior Managers and Certification Regime.
During 2023, new committees were established including the
Sustainability Execution Committee to provide greater oversight of
ESG matters. In addition, the Transformation Oversight Executive
Committee was demised and in its place the Change Prioritisation
Oversight Committee was formed. The committee provides oversight
of the Group's change portfolio, focusing on investment oversight and
prioritisation, as well as delivery and execution of ongoing initiatives
across the Group.
Chairman’s
Committee
Nomination &
Corporate
Governance
Committee
Group Audit
Committee
Group Risk
Committee
Group
Remuneration
Committee
Informal governance
Board Oversight Sub-
Group
Chair: Mark Tucker
Chair: Mark Tucker
Chair: David Nish1
Chair: James Forese
Chair: Dame Carolyn
Fairbairn
Chair: Mark Tucker
See page 262
See page 266
See page 274
See page 279
1 Brendan Nelson will be appointed as chair from 21 February 2024.
2 The Technology Governance Working Group will be demised on 1 March 2024. The Group Technology Committee will
be established on the same date.
Technology
Governance Working
Group2
Co-Chairs:
Eileen Murray and
Steven Guggenheimer
Chairman’s Forum
Chair: Mark Tucker
Group Executive Committee Chair: Noel Quinn
Acquisitions and
Disposals
Committee
Group Disclosure
and Controls
Committee
Group People
Committee
Group Risk
Management
Meeting
Holdings Asset
and Liabilities
Committee
Change
Prioritisation and
Oversight
Committee
Environmental,
Social and
Governance
Committee
Chair: Noel Quinn
Chair: Georges
Elhedery
Chair: Elaine
Arden
Chair: Pam Kaur
Chair: Georges
Elhedery
Chair: Georges
Elhedery
Co-Chairs:
Celine Herweijer and
Georges Elhedery
Sustainability
Execution
Committee
Co-Chairs:
Celine Herweijer and
Barry O’Byrne
252
HSBC Holdings plc Annual Report and Accounts 2023
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 2023, Kalpana Morparia, Ann Godbehere, Brendan Nelson and
Swee Lian Teo were welcomed to the Board as non-executive
Directors. Biographies for each can be found from page 239.
The Group Company Secretary and Chief Governance Officer also
helps to arrange and deliver the induction programme 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.
The induction process is often initiated before appointment to allow
each new Board member to contribute meaningfully from
appointment, such as in February 2023 when Kalpana Morparia joined
the Board meeting as an observer before she was appointed to the
Board the following month. 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.
In January 2023, the Nomination & Corporate Governance Committee
agreed the proposed approach to Board training for the year. It was
Directors’ induction and ongoing development in 2023
agreed that the training programme would include key topics relevant
to the Directors' respective roles and recent developments, in areas
such as corporate governance, recovery and resolution, and
technology. Where appropriate, the training sessions were facilitated
by external presenters who were able to provide insights into
geopolitical matters, macroeconomic issues and investor sentiment.
The training sessions were held as part of scheduled Board meetings
to allow for in-person interactions as much as possible.
Directors were also issued routine training modules that all colleagues
must complete annually. During 2023, this training covered topics
including risk management, cybersecurity, sustainability, health,
safety and well-being, financial crime, and data.
Non-executive Directors also discussed individual development areas
with the Group Chairman as part of their ongoing performance
discussions with regard to their contributions on the Board. 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. Further details on any specific training commissioned by
Board committees can be found in the respective committee reports.
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 of specific areas with
the Board Directors as part of the Chairman’s Forum. For further
details, see ’The role of principal subsidiaries’ on page 250.
Director
Geraldine Buckingham
Rachel Duan
Georges Elhedery
Dame Carolyn Fairbairn
James Forese
Ann Godbehere6
Steven Guggenheimer
José Antonio Meade Kuribreña
Kalpana Morparia
Eileen Murray
Brendan Nelson6
David Nish
Swee Lian Teo6
Noel Quinn
Mark Tucker
Induction1
ô
ô
l
ô
ô
l
ô
ô
l
ô
l
ô
l
ô
ô
Strategy and
business briefings2
l
l
l
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
l
l
l
Corporate
governance, ESG
and other
reporting matters4
l
l
l
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
l
l
l
l Matter considered
ô Matter not considered
1 The induction programme was delivered through formal briefings and introductory sessions including topic-specific deep dives, 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 planning; 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 2023 included: ’Technology and the future of artificial intelligence’, ’WPB customer-centricity improvement plan’, and
’Investor sentiments’.
3 Directors received risk and control training and briefings. Examples of specific sessions held in 2023 included: ’Recovery and resolution’ and ’Capital
management’.
4 Directors received training in Board meetings on: ’Board stakeholder engagement and management’ and various ESG development updates. Directors
received additional training through their attendance at forums such as the Chairman's Forum, Remuneration Committee Chairs' Forum and the Non-
Executive Director Summit.
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 transparency, sanctions, fraud and bribery and corruption risks; our values, including
workplace harassment; and data privacy and data literacy.
6 Ann Godbehere and Brendan Nelson, who joined the Board effective 1 September 2023, and Swee Lian Teo, who joined the Board effective
1 October 2023, only participated in training modules that were available to them since their respective joining dates.
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report
Board matters considered and shareholder engagement
During 2023, 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.
Key areas of focus
The Board’s key areas of focus in 2023 are set out by theme below.
Strategy and business performance
The Group remains focused on building a sustainable platform for
growth by increasing returns for investors, enhancing customer
service, and creating capacity for future investment. The Board
reviewed progress within the Group’s global businesses and regions
against its four strategic pillars: Focus, Digitise, Energise and
Transition. At each Board meeting in 2023, the Board discussed the
Group’s strategic performance and opportunities to track strategic
execution and delivery.
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 GEC further enhanced its governance model of ESG
matters with the introduction of a new Sustainability Execution
Committee and supporting forums. These support senior
management in the operationalisation of the Group’s sustainability
strategy, through the oversight of the sustainability execution
programme. For further details of the Sustainability Execution
Committee and the sustainability execution programme, see page 88.
In 2023, the Board oversaw the implementation of ESG strategy
through regular dashboard reports and detailed updates including:
review and approval of the net zero transition plan, deep dives on the
sustainability execution programme, reviews of net zero-aligned
policies 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 2022, the Interim Report 2023 and the first quarter and the
third quarter Earnings Releases.
At the end of 2022, the Board approved the 2023 financial resource
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 various debt issuance
programmes. In January 2024, the Board approved the financial
resource plan for 2024.
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 2023, the Group
reverted to paying quarterly dividends, and achieved a dividend payout
ratio of 50% of reported earnings per ordinary share (’EPS’), in line
with our published target for 2023 and 2024. EPS for this purpose
excludes material notable items and related impacts, including the
sale of our retail banking operations in France, the planned sale of the
banking business in Canada and the acquisition of SVB UK. In addition
to dividend payments, HSBC announced share buy-backs of up to
$2bn each on 2 May 2023 and 1 August 2023, and a further share
buy-back of up to $3bn on 30 October 2023, bringing the total
announced for 2023 to $7bn.
On 21 February 2023, an interim dividend of $0.23 per share for the
2022 full-year was announced, followed by interim dividends of $0.10
each on 2 May 2023, 1 August 2023 and 30 October 2023. For further
details of dividend payments, see page 435.
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;
– review and approval of the self-assessment to address the BoE's
Resolvability Assessment Framework;
– review and approval of the Group’s risk data aggregation and risk
reporting framework aligned to the Basel Committee on Banking
Supervision 239 Principles;
– review of the latest PRA Operational Resilience self-assessment
regulatory submission;
– annual review and approval of the internal controls framework; and
– the revised terms of reference for the Board and Board
committees.
The Board also reviewed and monitored the implications of
geopolitical and macroeconomic developments during the year, both
directly and by way of updates from the Group Risk Committee, and
received regular updates on the Group's risk profile, including in
relation to financial crime risk.
Technology
Throughout the year, the Board received detailed updates on
technology and innovation from the Group Chief Operating Officer,
including on the implementation of the technology strategy and key
strategic business initiatives.
Following a detailed update at the Board meeting in May 2023, at the
Board’s request, management engaged a third party professional
services firm to review the technology strategy and provide industry
and peer insights. The Board received a number of updates on the
review during the second half of 2023, and recommendations were
presented at the December 2023 Board meeting.
Members of the Board were also closely involved in the hiring
process for the new Group Chief Information Officer, who will join the
Group at the end of February 2024.
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HSBC Holdings plc Annual Report and Accounts 2023
In addition, the Technology Governance Working Group continued to
oversee the Group's governance of technology, and supported
connectivity with the principal subsidiaries on key technology
initiatives. From 1 March 2024, the Technology Governance Working
Group will be demised and the Group Technology Committee will be
established on the same date.
People and culture
The Board continued to dedicate time in its meetings to discuss
people-related and culture-related issues, with these topics remaining
an important part of its focus. Each scheduled Board meeting begins
with a ’culture moment’, which helps to ensure that the right cultural
tone is set from the top, and sets the right cultural tone for Board
discussion. To help raise its awareness of employee and other
stakeholder perspectives, Board meetings and dedicated reports
feature insights into behaviours within the Group, which demonstrate
alignment to its purpose and values. Board papers highlight relevant
stakeholder considerations, including in connection with employees.
The Board also gains valuable cultural insights through its many
personal interactions with the workforce and other stakeholders. For
further details see ’Board decision making and engagement with
stakeholders’ on page 20.
The Board also learns of people and culture matters by way of
presentations at the Chairman’s Forum. The principal subsidiary chairs
report on their respective approaches to workforce engagement as
well as what they have learned from such engagements and other
cultural insights. The Board also receives cultural insights from the all-
employee Snapshot survey and broader reporting, which provide key
data indicators, including on people's behaviours, sentiment and
business outcomes. Through the work of the committees, the Board
is also able to monitor how the Group’s culture is working in practice
by receiving people-related reports covering whistleblowing, conduct
and investigations.
Board engagement with management and the wider workforce
continued to remain a strong area of attention, particularly with the
ongoing activities carried out by the dedicated workforce engagement
non-executive Director. For further details of the work carried out by
the workforce engagement non-executive Director, see page 257.
Governance
The Board continued to oversee the governance, smooth operation
and oversight of the Group and its principal and material subsidiaries,
including monitoring compliance with the UK Corporate Governance
Code, the Hong Kong Corporate Governance Code and the
Companies Act 2006. Governance featured prominently in the Board
agendas for the year and helped to shape strategic direction and
decision taking on key issues. To see how the Board considered
principal decisions in relation to our strategy, see ’Principal strategic
decisions’ on pages 22 and 23.
The Board and senior management continued to support further
improvements to various governance initiatives to encourage
simplification and promote effective decision making in the business.
Guidance and training for Board and committee paper templates took
place across global businesses and functions throughout the course
of the year to ensure a consistent approach for writing papers. In
addition, to drive our simplification agenda, the Group-wide
delegations of authority framework was reviewed and standardised,
allowing for more efficient signing and execution of contracts and
other documentation by directors and senior management across all
entities.
In 2023, Jackson Tai retired as an independent non-executive
Director. On 1 January 2023, Georges Elhedery joined the Board as
Group Chief Financial Officer, and the following were appointed as
independent non-executive Directors: Kalpana Morparia on 1 March
2023; Ann Godbehere and Brendan Nelson on 1 September 2023; and
Swee Lian Teo on 1 October 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 262. For
further details of diversity of the Board, see page 247.
HSBC Holdings plc Annual Report and Accounts 2023
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Board engagements with shareholders
In 2023, the Group Chairman and Group Chief Executive held a Q&A
session with retail shareholders as part of the Informal Shareholders’
Meeting in Hong Kong, and the Board held a Q&A session with
shareholders as part of the 2023 AGM in the UK. Board members
remained responsive to shareholder requests, and were particularly
active following the 2023 AGM poll vote result. They continued to
engage in constructive dialogue with top 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 16 meetings, including a large group
gathering held with the members of The Investor Forum. The Group
Chief Executive and the Group Chief Financial Officer, together and
separately, attended over 100 meetings with investors. Key topics
Board matters considered in 2023
Main topic
Sub-topic
included our financial performance, updates on strategy and market
presence, geopolitical risks and the macroeconomic outlook in key
geographies.
For further details of the Group Remuneration Committee Chair’s
engagements with key investors and proxy advisory firms, and how
they were taken into account by the Group Remuneration Committee
in its decision making, see the Directors’ remuneration report on
page 279.
For further details of how the Board engaged with shareholders
during 2023, see ’Board decision making and engagement with
stakeholders’ on page 20.
Strategy
Business and financial
performance
Financial
Risk
Regulatory
External
Technology
People and culture
Governance
Group strategy
Regional strategy/global business strategy
Environmental, social, governance
Region/global business
Financial performance
Results and accounts
Dividends
Group financial resource planning
Risk function
Risk appetite
Capital and liquidity adequacy
Regulatory and legal matters2
Regulatory matters with regulators in attendance3
External insights
Strategic and operational
Purpose, values and engagement
Policies and terms of reference
Board/committee effectiveness
Appointment and succession
Conflicts of interest
Stakeholder/workforce engagement
Delegation of authority
AGM and resolutions
Jan
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1 No Board meetings were held during April, August and October 2023.
2
3 Meetings attended by members of the Prudential Regulation Authority and the Financial Conduct Authority.
Includes recovery and resolution planning, modern slavery and human trafficking, UK regulatory activities, and listing authority renewals.
256
HSBC Holdings plc Annual Report and Accounts 2023
Board stakeholder and workforce engagement
The Board is committed to engaging with colleagues, which takes
place in a two-way dialogue in a variety of forums. This helps build the
Board’s understanding of key themes and topics that are important to
the workforce.
Since his appointment as dedicated workforce engagement non-
executive Director in 2022, and in line with the Board's expectation of
the role, José Meade has helped deliver a progressive programme of
engagements throughout 2023. Outcomes from these engagements
have helped inform discussions and decision making in the
Boardroom, by taking into account the employee voice on related key
themes and topics.
His dedicated role does not preclude other Board members from
engaging with the workforce. It remains the responsibility of all
Directors to consider diverse stakeholder views, including employees,
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 programme
A structured workforce engagement programme has been in place
throughout 2023 with a focus on topics aligned to the Group’s four
strategic pillars. The programme was structured around the Board’s
priorities and agenda in 2023. These included in-person engagements
when the Board travelled to different regions for Board meetings,
which were highly valued by colleagues and Board members alike.
The engagements formed the bases of José Meade’s reports to the
Directors, aligned to key Board agenda items including those in the
geographies in which the Board met. Further engagement events,
town halls and meetings with the workforce were scheduled with
Board members based on their locality or coincidental travel
throughout the year.
The engagement events were held both at scale and through more
targeted dialogue in smaller groups, to accommodate the breadth of
experience, geographical spread and range of seniority of our
colleagues. These engagements were designed to promote open
dialogue and two-way discussions between the Board and
employees, allowing the Board to gain valuable insight on employee
perspectives, and in turn inform its deliberations in decision making.
February
March
May
June
July
September
November
December
Cost of living
crisis support
International
Women’s Day
Pay, reward and
performance
Strategy and
performance
Branch visit
HSBC graduate
insights
Mexico town
hall
Hyderabad
office event
↓
↓
↓
↓
↓
↓
↓
↓
Audience
London-based
colleagues
Group-wide
colleagues
Group-wide
colleagues
Managing
Directors
Local branch
colleagues
US-based
graduates
Mexico and
Latin America-
based
colleagues
Location
London, UK
Various global
and local
events
Birmingham,
UK,
videoconference
Videoconference
Hong Kong
New York, US,
and
videoconference
Mexico City,
Mexico, and
videoconference
Hyderabad and
India-based
colleagues
In person visit to
Hyderabad,
India office and
videoconference
José Meade’s connectivity with the employee resource groups
formed part of the workforce engagement programme. He took part
in the annual employee resource group summit in September to
discuss his observations since taking on the workforce engagement
role, and to hear feedback on how the Board could enhance support
for employee resource groups. José also participated in meetings
with the employee resource group to which he is aligned, UK Nurture.
This helped him better understand their successes, the value of the
network and agree how often and through which means he would
connect with his employee resource group in 2024.
During the year, the Board acknowledged that relevant aspects of
Board discussions on workforce engagement activities and matters,
informed by the employee voice, needed to make their way back to
management. In this way, relevant views could be taken into
consideration when progressing workforce-related matters at the
executive level. To facilitate this, José Meade committed to attending
the GEC and the Chairman’s Forum to discuss the key themes and
outcomes from the 2023 workforce engagements. Feedback gained
from the GEC session attended in November 2023 re-emphasised the
value colleagues put on the two-way dialogue with Board members.
This feedback helped shape the 2024 workforce engagement
programme.
The Board also regularly considers other forms of employee
engagement to help be informed of initiatives and sentiment, and to
plan for future engagement activities. The Chairman’s Forum, held in
December 2023, also discussed employee feedback gained through
the Group’s principal subsidiaries. José Meade presented to the
Chairman’s Forum an overview of workforce engagement over the
course of 2023 and key themes arising. He will continue to discuss
workforce engagement with the GEC and the Chairman’s Forum
during 2024.
HSBC Holdings plc Annual Report and Accounts 2023
257
Corporate governance Report of the Directors | Corporate governance report
Workforce engagement non-executive Director
"The value of Board-employee engagement is rooted in the Board’s openness to challenge and ability to adopt
new approaches in response."
Q&A with José Meade
Workforce engagement non-executive Director
The value of Board-employee engagement is rooted in the
Board’s openness to challenge and ability to adopt new
approaches in response. The key outcomes we get from all our
engagement events are discussed not only in the Boardroom,
but with executive management and between our principal
subsidiaries as well. It is this circular communication that is so
important to make sure not only is the employee voice heard,
but it forms a backdrop for Board and executive discussions and
decisions. For instance, it was interesting to hear from
graduates the importance of our hybrid working strategy to
them, which was seen as a differentiator compared with
competitors. Our Chairman’s Forum discussed each of our
regions’ respective workforce engagement programmes in
December, which was an invaluable session to understand
regional differences in sentiment and where subsidiary
Directors were focusing their time for 2024 activities.
Q: Where do you see opportunities for 2024?
A: We plan to build on the successes of 2023 and engage with
more colleagues over the course of 2024. Our workforce
engagement plan will continue to be guided by our Board
priorities for the year and tightly aligned to our four strategic
pillars. The plan incorporates, where possible, participation at
colleague events already scheduled, which we will supplement
with targeted engagement events. We also plan to enhance the
visibility of management colleagues in critical roles or on
executive committee succession plans to boards across the
Group. Lastly, we will align Board member scheduled travel
plans to workforce engagement activities in various regions, as
well as work to identify how to engage with the workforce in
geographies where Board travel is not envisaged.
Q: Since being appointed as the workforce engagement
non-executive Director in 2022, what insights have you
gained?
A: When I reflect on the Board’s engagement with the
workforce over the year, I am proud of the evolution of our
approach since I took on the role. Having a dedicated
programme aligned to Board priorities over the course of the
year has enabled me to report to the Board on the most
pertinent matters depending on our location and agenda. The
year 2023 was a very productive year with respect to engaging
with our workforce. I met with a large number of our colleagues
on a regular basis during the year, and each event has provided
me with different and equally valuable insights. I have learnt the
value colleagues place on having two-way dialogue with the
Board. Linked to this is our non-executive Director engagement
with our employee resource groups. Each non-executive
Director is aligned to one of our employee resource groups, and
we listened to feedback that a more structured approach to non-
executive Director engagement would be valuable during 2024.
As a result, we held dedicated meetings for non-executive
Directors to meet with their employee resource groups to agree
the cadence for engagement and priorities in 2024.
Q: What are your reflections on the value of Board-
employee engagement at HSBC?
A: Firstly, at every employee engagement event I attended
during the year, I was able to hear directly from our colleagues –
that is an irreplaceable and extremely valuable insight to gain as
a non-executive Director. Having the employee voice in the
Boardroom is crucial in equipping Directors with important
context to better understand successes and challenges felt
throughout the Group. It then helps empower the Board to
make better recommendations and feedback to executive
management with employee sentiment front-of-mind. At one of
our branch visits, I was able to experience first-hand the level of
care put into every single one of our clients, which was
extraordinary. Following the visit, we got great feedback from
the branch team that they were grateful for our time in
recognising how our colleagues put customers at the centre of
their work, and they said that our front-line staff were highly
motivated by our kind words and encouragement.
Mexico Town Hall, Mexico City, November 2023
"The insight and reflections provided by the speakers was extremely
useful as we had a mixture of local and global level input."
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HSBC Holdings plc Annual Report and Accounts 2023
Engagement highlights
Workforce engagement non-executive
Director activities during 2023
In 2023, José Meade undertook a variety of engagements in his role
including:
Mexico
– Attended the annual Leones event in Quintana Roo, Mexico.
– Approximately 400 employees participated across
businesses and functions.
– This event recognised our top performers in HSBC Mexico.
Hong Kong
– Visited employees at the HSBC Hong Kong flagship branch
and the K11 Atelier Wealth Centre (which opened in October
2021 to provide high net worth wealth management
services) to understand their perspective on working life.
UK
Global Service Centre office visit, Hyderabad, December 2023
68
Virtual/physical sessions
attended by non-executive
Directors
9,571
Number of employees engaged
virtually/physically
41
8,282
Virtual/physical sessions
attended by workforce
engagement non-executive
Director
Number of employees engaged
virtually/physically by workforce
engagement non-executive
Director
8
69%
Countries of engagement
Highest employee engagement
survey response
– Participated in an in-person meeting with a small group of
local managers in London to discuss the cost of living crisis
in the UK.
– The group discussed the support that HSBC had provided to
its employees in response, and considered ideas for further
support.
US
– Met with US-based graduates both in-person and virtually to
hear the perceptions of the next generation of talent at
HSBC.
– Views were sought on topics such as expectation versus the
reality of what it is like to work at HSBC, personal
development opportunities and hybrid working successes
and challenges.
Türkiye
– Participated in an in-person meeting with a diverse group of
colleagues to share experiences and views on socio-
economic challenges, career development, and pay and
performance.
Global employee resource group summit
– Attended the virtual annual employee resource group
summit and heard about the groups' leaders‘ successes,
challenges and their respective look ahead for 2024.
– Connected with employee resource group representatives
across multiple regions in the Group.
India
– Spent a day at our Hyderabad office learning about the
history of our presence in India and the impact of our global
service centres, as well as discussing the future of the
workforce and how to create a supportive environment for
professional growth.
– Also participated alongside nearly 5,000 colleagues in a
‘Digitise’ town hall, which discussed HSBC’s digital strategy
and the role played by colleagues in India.
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report
Board and committee effectiveness, performance and
accountability
Board effectiveness review format
A comprehensive brief was provided to IBE by the Group Chairman
and Company Secretary and Chief Governance Officer. The review
took the form of detailed interviews with every Board member,
regular attendees of the relevant meetings and key advisers. IBE also
observed the Board and its committees at the September 2023
meetings and reviewed the meeting materials.
A report was compiled by IBE based on the information and views
supplied by those interviewed and IBE’s observations from the
September 2023 Board and committee meetings.
The Board and its committees are committed to regular, independent
evaluation of their effectiveness. In 2023, the Board performance
review comprised an externally facilitated evaluation in accordance
with the UK Corporate Governance Code.
During 2023, the Nomination & Corporate Governance Committee
oversaw the process to appoint an independent service provider to
evaluate the Board and its committees' effectiveness and
performance. The Group Chairman led a formal tender process, with
the support of the Group Company Secretary and Chief Governance
Officer, which included a desktop review of proposals and a panel
interview with prospective firms to discuss their approach to the
evaluation. The panel interviews included the Group Chairman, three
non-executive Directors, and the Group Company Secretary and Chief
Governance Officer.
Following this process, and based on the recommendation of the
panel, the Nomination & Corporate Governance Committee appointed
Independent Board Evaluation (‘IBE’) to conduct the Board review in
2023. IBE is an independent external service provider with no other
connection with the Group or any individual Directors.
Board and committee evaluation process
Appointed IBE
following
competitive tender
process
Evaluation brief
provided to IBE
Board and
committee
meetings observed
by IBE
Reports presented
to the Board and
committees and
actions for 2024
agreed
Observations discussed
with the Group
Chairman, Board and
committee chairs
One-to-one
interviews
conducted
The Board made good progress against all of the action points identified during the 2022 evaluation. In particular:
– Management developed a new key performance indicator
architecture relating to performance, execution and risk
management as well as other key value drivers.
– The Sustainability Execution Committee, a management forum,
was established to provide greater focus and accountability for
progress against the Group’s ESG deliverables and milestones.
– An independent review of the Group’s technology strategy was
performed by a third party, with the outcomes, including lessons
learned, and next steps discussed and agreed by the Board.
– The Board held focused sessions on prioritisation and
simplification.
– Stakeholder engagement plans were structured around the
Board’s visits to Paris, Hong Kong, New York and India during the
year, and broader non-executive Director travel. These plans
provided the Board with the opportunity to engage with the full
spectrum of stakeholder groups, including employees. Further
details of the Board’s engagement activities are detailed on
page 21.
– Continued training and guidance was provided to key paper
authors and contributors to reinforce the importance of timely,
balanced and accurate reporting to the Board.
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HSBC Holdings plc Annual Report and Accounts 2023
Findings and recommendations
Overall, the review concluded that the Board was performing well as
an engaged, global governance body. The Group Chairman is regarded
as an excellent leader of the Board, fostering a culture of openness,
with encouragement for Board members to speak freely on any issue.
In particular, the effectiveness review highlighted that the Board
performed well in various areas including:
– Stakeholder accountability: The Board takes its responsibilities
towards stakeholders seriously, positively and sincerely.
– Board culture: The culture of the Board is regarded as a key
strength. Preserving and sustaining this has been a key factor in
considering candidates for appointment to the Board.
Communication is open and transparent.
– Relationship with senior management: Board members value the
openness between, and access to, the senior management team.
– Committee chairs: Chairs of committees are well supported by the
respective functional teams, including Risk, Finance, HR and
Corporate Governance and Secretariat.
– Board resources and support: The Board appreciates the strategic
advice and counsel it receives on governance issues from the
Group Company Secretary and Chief Governance Officer and her
team.
IBE presented its report to the December 2023 Board meeting, and
was present for the Board’s discussion, led by the Group Chairman,
on the findings identified through IBE’s review. Among other
recommendations for consideration that could strengthen the end-to-
end governance of the Board and its committees, the Board focused
on the following three specific themes:
– Effecting change: A need for greater focus was identified in
relation to the prioritisation of execution, with clearer and more
timely progress reporting to the Board, in particular around
challenges faced.
– Board information: Reporting to the Board requires more succinct
narrative and relevant key performance indicators. It was reiterated
that the Board would continue to hold the Group Chief Executive
and members of the GEC accountable for the quality of reporting
to the Board.
– Technology governance: Strengthened governance mechanisms
were agreed to support the Board’s review and challenge of
technology-related deliverables and monitoring of delivery against
the Group-wide technology strategy.
Further details of the findings and agreed actions to be taken can be
found in the table below. Completion of these actions will be
monitored by the Board throughout 2024.
The additional areas of feedback gathered from members of the
Board and regular attendees will be taken forward at the discretion of
the Group Chairman based on his determination of their impact on the
overall effectiveness of the Board and its committees.
Similar discussions were led by each of the Board committee chairs in
their respective January 2024 meetings. Progress against these
actions will be included in the Annual Report and Accounts 2024.
Summary of 2023 Board effectiveness findings and recommendations for action:
Findings from the evaluation
Agreed actions
Effecting change
– Although the Board is performing well, there are areas
– Consideration will be given to the frequency and format of
where, working with management, enhancements could
be made to drive even greater value.
– This would reinforce a clear understanding of priorities
and enhanced clarity of management reporting,
particularly in relation to areas of challenge in, or delay to,
execution of those key deliverables.
– Greater rigour was required in relation to the
communication of, accountability for, and execution
against the Board’s feedback.
strategic updates to the Board.
– The Group Company Secretary and Chief Governance Officer will
support the Group Chairman and committee chairs to ensure that
there is enhanced consolidation of related discussion and actions
across Board and the committees, including clearer articulation of
expected outcomes.
– The Group Chief Executive will drive an increased focus in
addressing the Board’s feedback within the wider management
team.
Board information – The volume of information provided to the Board and to
– The Board has commissioned a training programme, to be
committee meetings during the year was a common
area of discussion during the review. Enhanced, dynamic
and well-timed reporting of information to the Board is
required.
developed and delivered by the Group Company Secretary and
Chief Governance Officer, to further support senior leaders and
other subject matter experts on reporting to, and interactions
with, the Board.
– Although the Board welcomed the thoroughness of
management’s review of key performance indicators,
these required to be refined for Board purposes to
ensure better alignment with paper narrative to ensure a
clear, consistent basis for Board reporting.
– A condensed key performance indicators framework was approved
by the Board at its meeting in January 2024 and will be cascaded
throughout the Group by the Group Chief Executive, the Group
Chief Financial Officer and the Group Company Secretary and
Chief Governance Officer.
– Although the Board welcomed the important and
– A formal Board-level governance committee consisting of non-
valuable role of the Technology Governance Working
Group, there is still more to do to develop a holistic
oversight of technology at Board-level.
– It was agreed that the future approach to oversight of
technology-related matters needed to complement the
existing responsibilities of the Board, Group Risk
Committee, Group Audit Committee and subsidiary
boards.
executive Directors – the Group Technology Committee – will be
established to provide oversight of technology-related matters
across the Group. This will be chaired by Eileen Murray and take
effect from 1 March 2024.
– The existing Technology Governance Working Group will be
demised at that time.
Technology
governance
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Nomination & Corporate Governance Committee
"I am confident that the changes to the composition of the Board over the past year have further strengthened
the Board’s collective knowledge and experience required to oversee, challenge and support management."
Mark E Tucker
Chair
Nomination & Corporate Governance Committee
Key responsibilities
The Committee’s key responsibilities include:
– overseeing and monitoring the corporate governance framework
of the Group and ensuring that this is consistent with best
practice;
– overseeing succession planning and leading the process for
identifying and nominating candidates for appointment to the
Board and its committees; and
– overseeing succession planning and development for the Group
Executive Committee and other senior executives.
We also welcomed Kalpana Morparia and Swee Lian Teo and,
together with Ann and Brendan’s appointments, I am confident that
the changes to the composition of the Board over the past year have
further strengthened its collective knowledge and experience required
to oversee, challenge and support management.
As a result of the changes to the Board during 2023, our year-end
2023 target of at least 40% female representation was achieved. We
are committed to maintaining this at or above 40% going forward.
More broadly, we remain committed to ensuring the compositions of
the Board and senior management reflect the wider workforce and
communities in which we operate, and you can read more on our
efforts this year on page 313.
The annual review of the performance of the Board and its
committees is a critical part of ensuring that our governance practices
are aligned with best practice and are working effectively.
Independent Board Evaluation conducted the 2023 review for the
Board and its committees, and its findings and agreed actions can be
found on pages 260 to 261.
Membership
Mark Tucker (Chair)
Geraldine Buckingham
Rachel Duan
Dame Carolyn Fairbairn1
James Forese
Ann Godbehere2
Steven Guggenheimer
José Antonio Meade
Kuribreña
Kalpana Morparia3
Eileen Murray4
Brendan Nelson2
David Nish
Jackson Tai5
Swee Lian Teo6
Member since
Meeting attendance
in 2023
Oct 2017
May 2022
Sep 2021
Sep 2021
May 2020
Sep 2023
May 2020
Apr 2019
Mar 2023
Jul 2020
Sep 2023
Apr 2018
Apr 2018
Oct 2023
9/9
9/9
9/9
8/9
9/9
2/2
9/9
9/9
6/6
8/9
2/2
9/9
5/5
1/1
1 Dame Carolyn Fairbairn was unable to attend the January meeting
due to a prior commitment.
2 Ann Godbehere and Brendan Nelson joined the Committee on their
appointments to the Board on 1 September 2023.
3 Kalpana Morparia joined the Committee on her appointment to the
Board on 31 March 2023.
4 Eileen Murray was unable to attend the September meeting due to
a prior commitment.
5 Jackson Tai retired from the Board on 5 May 2023.
6 Swee Lian Teo joined the Committee on her appointment to the
Board on 1 October 2023.
I am pleased to present the Nomination & Corporate Governance
Committee report, which provides an overview of the Committee’s
activities during 2023.
I signalled in last year’s report that succession for key roles on the
Board would be a priority for the Committee through 2023, and we
announced in early December the successors for the roles of Senior
Independent Director and Chair of the Group Audit Committee. This
represented the culmination of considerable work by the Committee
over a number of months.
As announced in December, David Nish confirmed his plans to retire
from the Board at the conclusion of our AGM in May 2024. Brendan
Nelson will succeed David as Chair of the Group Audit Committee
with effect from 21 February 2024, and Ann Godbehere will succeed
him as Senior Independent Director with effect from the conclusion of
the 2024 AGM. On behalf of the Board, I want to take this opportunity
to thank David for his significant commitment and contribution to
HSBC, particularly in his role as Chair of the Group Audit Committee,
and for the valuable counsel he has provided to the Board and to me
personally. You can read more on the Committee’s work on these
appointments later in this report.
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HSBC Holdings plc Annual Report and Accounts 2023
These actions included the decision to establish the Group
Technology Committee, which was discussed by the Committee.
Further information on this new Board-level committee is set out on
page 252. In addition, the Committee reviewed the approach to the
Group’s governance of developing areas such as ESG and AI, and will
continue to focus on whether these remain appropriate and forward-
looking as external standards and practices develop.
There have been numerous consultations issued over 2023, aimed at
improving the effectiveness of the UK audit, governance and
regulatory regimes. Given their potential impact, the Committee
received updates on these and their potential implications on
governance arrangements. The Committee also reviewed and
provided input to the Group’s responses to relevant consultations,
including the Financial Reporting Council's ('FRC') consultation on
proposed revisions to the UK Corporate Governance Code. The
Committee continues to monitor potential future developments in the
UK, Hong Kong and elsewhere to ensure that the impact of any
proposed governance and regulatory changes on HSBC and its
international operations is considered.
As we look ahead to the remainder of 2024, the Committee will look
to oversee and enhance the succession pipeline at Board and senior
management level, as well as efforts to deliver consistent standards
of governance best practice across the Group.
Mark E Tucker
Group Chairman
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 fulfils
its governance responsibilities.
Russell Reynolds Associates supported the Committee and the
management team in relation to Board succession planning and
appointments. It also provides support to management in relation to
senior management succession, development and recruitment. It
regularly and selectively attended meetings during the year, and has
no other connection with the Group or members of the Board.
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, and with regard to the benefits
of a diverse Board. Appointments are made in accordance with HSBC
Holdings’ Articles of Association.
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 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 non-executive Directors are appointed beyond six years, an
explanation will be 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 2023 AGM were elected and re-elected by
shareholders.
Non-executive Director 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.
Non-executive Directors serving on the Board and as a member of
any committees are expected to serve up to 75 days per annum. The
Senior Independent Director is expected to serve an additional 30
days per annum. Those Directors who also chair a large committee
are expected to commit up to 100 days per annum, with the Group
Risk Committee Chair expected to commit up to 150 days per annum.
Any additional time commitment required of non-executive Directors
in connection with Board and committee activities is confirmed to
them separately.
Board approval is required for any non-executive Director’s external
commitments, with consideration given to their total time
commitments, potential conflicts of interest, and regulatory and
investor expectations.
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Board composition and succession
Board diversity
During 2023, the compositions of the Board and its committees were
reviewed, with assessments focused on the skills, knowledge and
experience necessary to oversee, challenge and support management
in the achievement of the Group’s strategic and business objectives.
The assessments were focused on the Board, both collectively and as
individual members. The Committee discussed succession planning
for key roles on the Board and committees, including the roles of
Senior Independent Director and Chair of the Group Audit Committee.
The recruitment process for the new Directors provided an
opportunity to add significant executive experience in banking. It also
provided an opportunity to add deep business and cultural expertise
across Asia that the Board had previously identified as a priority, and
to meet our target for a woman to hold at least one of the senior
Board positions by the end of 2025. In line with these objectives, a list
of potential candidates was identified and considered by the
Committee. Members of the Board, including the Group Chief
Executive and Group Chief Financial Officer, met with potential
candidates and their feedback helped inform the Committee’s
discussions and recommendations to the Board. The Board then
approved the Committee’s recommendations to appoint Kalpana
Morparia with effect from 1 March 2023, Ann Godbehere and
Brendan Nelson with effect from 1 September 2023, and Swee Lian
Teo with effect from 1 October 2023.
Kalpana Morparia and Swee Lian Teo each bring significant banking,
risk and regulatory experience in Asia. Ann’s deep financial acumen
and extensive financial services experience gained over a 30-year
career, as well as her extensive large, public-listed company board
experience as a non-executive director, makes her the right successor
for the role of Senior Independent Director. Brendan’s UK and
international financial expertise and significant experience as statutory
audit partner, and as audit committee chair at UK-listed companies, as
well as previously being President of the Institute of Chartered
Accountants of Scotland, will be particularly valuable in the leadership
of the Group Audit Committee given the evolving audit, regulatory and
disclosure environment in which the Group operates. Their
biographies can be found on pages 239 to 243.
Following the annual review of the Board skills matrix, the Committee
remains focused on identifying candidates for future appointments
with deep business and cultural expertise across Hong Kong and
mainland China.
The Committee will continue to monitor the market during 2024 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.
Neither Jackson Tai, who retired from the Board during the year, nor
David Nish, who is not offering himself for re-election at the 2024
AGM, have raised concerns about the operation of the Board or the
management of the company.
Committee composition
As part of the decision to establish the Group Technology Committee,
when reviewing the Committee composition, it was agreed that
Eileen Murray would be appointed as Chair, and Steven
Guggenheimer, Kalpana Morparia, Swee Lian Teo and Brendan
Nelson would be appointed as members of the Group Technology
Committee with effect from 1 March 2024.
The Committee also reviewed the composition of the Board
committees more broadly to ensure that these remained appropriate
and diverse, with consideration of the Board diversity and inclusion
policy while utilising the respective skills and expertise of the Board
members as set out in the Board skills matrix on page 247. As a
result, and in addition to the appointments of members to the Group
Technology Committee, it was agreed that Ann Godbehere would be
appointed to the Group Audit Committee with effect from
21 February 2024.
The Board recognises the importance of gender, social and ethnic
diversity, and the benefits diversity brings to Board effectiveness.
Diversity is taken into account when considering succession plans
and appointments at both Board and senior management level, as
well as more broadly across the Group. The Committee also
considered the diversity and representation on Board committees
when reviewing their composition.
At the end of 2023, the Board had 47% female representation, with
seven female Board members out of 15, ahead of the year-end 2025
target set by the FTSE Women Leaders Review. Ann Godbehere’s
appointment as Senior Independent Director will mean the Board
achieves the FTSE Women Leaders Review target that at least one of
the senior Board positions of Chair, Chief Executive Officer, Senior
Independent Director or Chief Financial Officer is held by a woman. In
accordance with the UK Listing Rules, the Board is on track to be
compliant with these diversity targets and will be fully compliant with
effect from the conclusion of the 2024 AGM. Beyond gender, the
Board continues to exceed the Parker Review target of having at least
one Director of ethnic heritage. However, given the international
nature of our business, including our heritage in Asia, the Board has
set a target to maintain or improve the current representation of
Directors from a diverse ethnic heritage.
The Board’s diversity and inclusion policy was updated in December
2023. The policy confirms our commitment to, and also details the
approach to achieving, our diversity ambitions. Further details on
activities to improve diversity across senior management and the
wider workforce, together with representation statistics, can be found
from page 76. The Board's diversity and inclusion policy is available on
www.hsbc.com/who-we-are/leadership-and-governance/board-
responsibilities
Independence
Independence is a critical component of good corporate governance,
and a principle that is applied consistently at both HSBC 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 2023, 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.
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HSBC Holdings plc Annual Report and Accounts 2023
Senior executive succession and
development
Following Georges Elhedery’s appointment as Group Chief Financial
Officer from 1 January 2023, the Committee monitored and received
updates on his induction plan.
The succession plans for the Group Executive Committee members
were approved by the Committee in December 2023. These reflect
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. The approval of succession plans included
future internal and external succession options for the Group Chief
Executive, to ensure that the Committee has a robust and actionable
plan when required. The Committee also reviewed longer-term
internal succession options for the Group Chief Executive to enable
the Committee to interact more frequently with high potential and
diverse talent in the Group.
The Committee continued to receive updates on the development of
our talent programme within the Asia-Pacific region. 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 Board and Board
committees, including the Committee, was conducted externally by
Independent Board Evaluation for 2023. It determined that the
Committee continued to operate effectively, with no specific actions
identified for the Committee. Positive feedback was received on the
effectiveness of the recruitment processes of new Board members
and the succession planning for senior management.
Further details of the annual review of the Board and committee
effectiveness can be found on pages 260 to 261.
Matters considered during 2023
Subsidiary governance
In line with the subsidiary accountability framework, the Committee
continued to oversee the corporate governance and succession
arrangements across the principal and material subsidiary portfolio.
The Committee also reviewed the succession plans for the principal
subsidiary chairs to ensure future successors had the necessary skills
and experience to effectively oversee and monitor delivery of the
Group’s strategic and business priorities within their territory, in
accordance with the Group’s governance expectations.
Where a subsidiary was unable to fully comply with the subsidiary
accountability framework, the Committee endorsed exceptions,
where appropriate, subject to strong rationale, including consideration
of local laws and regulations and market practice. Endorsement
requests were also subject to thorough review and consideration by
the Group Company Secretary and Chief Governance Officer in
advance of consideration by the Committee.
The Committee reviewed succession plans and oversaw compliance
with the Group’s governance expectations of principal and material
subsidiaries. The overall quality of succession plans has improved
markedly over the past three years, with plans demonstrating a clear
focus on strengthening boards’ overall diversity and experience, in
line with strategic and business objectives.
The Committee continued to support and seek opportunities to
enhance subsidiary connectivity, including through the Chairman’s
Forum and Remuneration Committee Chairs’ Forum, which regularly
brought together the chairs of the principal subsidiaries to discuss
common issues, and the Non-Executive Director Summit which
brought over 100 non-executive Directors together in Hong Kong in
May 2023.
Subsidiaries also provided opportunities for internal talent to serve on
their boards, following the training that they received through the
HSBC Bank Director Programme. The Committee continues to
support and look for opportunities to enhance subsidiary connectivity
through Non-Executive Director Summits and other engagement
forums.
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
Mar
Apr
May
Jun
Jul
Sep
Dec
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l
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HSBC Holdings plc Annual Report and Accounts 2023
265
Corporate governance Report of the Directors | Corporate governance report | Board committees
Group Audit Committee
"Given the uncertain external environment, as well as HSBC's growth ambitions, the GAC will continue to play
an important role in monitoring the effectiveness of the control environment."
David Nish
Chair
Group Audit Committee
Membership
David Nish (Chair)
Rachel Duan2
James Forese3
Eileen Murray4
Brendan Nelson5
Jackson Tai6
Member since
May 2016
Apr 2022
May 2020
Jun 2022
Sep 2023
Dec 2018
Meeting attendance
in 20231
10/10
9/10
7/7
8/10
4/4
3/3
1 These included two joint meetings with the Group Risk Committee
(‘GRC’) and the Technology Governance Working Group.
2 Rachel Duan was unable to join one meeting, a joint meeting with
the GRC and Technology Governance Working Group, due to prior a
commitment.
3 James Forese rejoined the GAC on 5 May 2023 following his
appointment as GRC Chair.
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, remuneration and
independence;
– overseeing the Group’s policies, procedures and arrangements
for capturing and responding to whistleblower concerns and
ensuring they are operating effectively; and
4 Eileen Murray was unable to join two meetings due to prior
– overseeing the work of Global Internal Audit and monitoring and
commitments.
5 Brendan Nelson joined the GAC upon appointment to the Board with
effect from 1 September 2023 and has been appointed GAC Chair
with effect from 21 February 2024.
6 Jackson Tai retired from the GAC on 5 May 2023 upon his
retirement from the Board.
I am pleased to introduce the Group Audit Committee (‘GAC’) report
setting out the key matters and issues considered in 2023.
As well as the GAC’s usual obligations for financial reporting and the
associated control environment, the GAC spent significant time on
the oversight of the Group's ESG disclosures and improvement of the
Group’s regulatory reporting, specifically assurance of the Group’s
ESG disclosures for the Annual Report and Accounts 2023 and the
net zero transition plan and related policies, which were published in
January 2024.
Internal financial control also remained a key area of focus for the
GAC during 2023. This will continue to be a priority going ahead due
to the need for a robust control environment given the ongoing the
volume of regulatory- and strategy-driven change across the Group.
This included oversight of regulatory and accounting deliverables,
such as the enhancement of Finance systems and controls and the
progress in the implementation of Basel III.
Significant time was also spent at GAC meetings on the positioning
and forward-looking financial guidance provided to the market as part
of our financial reporting for both the current and prior year, notably in
relation to returns, costs and expected credit losses (‘ECL’), including
those associated with the Group’s exposure to the China corporate
real estate market.
Given the uncertain external environment, as well as HSBC’s growth
ambitions, the GAC will continue to play an important role in
monitoring the effectiveness of the control environment in supporting
sustainability of these ambitions.
assessing the effectiveness, performance, resourcing,
independence and standing of the function.
The GAC 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 chairs to discuss key
issues, and through their periodic attendance at GAC meetings. I also
joined a number of principal subsidiary audit committee meetings
throughout the year, which supported connectivity and information
flows across the Group.
The Group’s whistleblowing arrangements continue to satisfy
regulatory obligations. I regularly met the whistleblowing team to
discuss material whistleblowing cases, and the progress made in
enhancing the Group’s whistleblowing arrangements.
The GAC’s performance and effectiveness were reviewed as part of
the Board effectiveness review undertaken during the year. I was
pleased that the review concluded that the GAC continued to operate
effectively, with no material areas for improvement identified.
Finally, as announced on 6 December, Brendan Nelson will succeed
me as Chair of the GAC following the publication of HSBC’s Annual
Report and Accounts 2023 on 21 February 2024. The Board has
determined that Brendan’s previous experience, notably as audit chair
at NatWest and bp, makes him ideally suited to chair the GAC.
David Nish
Chair of the Group Audit Committee
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HSBC Holdings plc Annual Report and Accounts 2023
Committee governance
The Committee operates under delegated authority from the Board,
and advises the Board on matters concerning the Group’s financial
reporting requirements. The Committee Chair reports on the key
matters and discussions at the subsequent Board meeting, and the
Board also receives copies of the Committee agendas and minutes.
This supports the Board's oversight of the work carried out by
management, Global Internal Audit and PricewaterhouseCoopers LLP
(‘PwC‘), as the Group’s statutory auditor.
The Nomination & Corporate Governance Committee has confirmed
that each member of the Committee is independent according to the
criteria from the US Securities and Exchange Commission; and the
Committee and individual members continue to possess competence
relevant to the banking and broader financial services sector in which
the Group operates. The Board has determined that David Nish,
Brendan Nelson and Eileen Murray are the audit committee ‘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 Committee Chair continued to engage with various key
stakeholders, including regulators such as the UK’s PRA and the
Financial Reporting Council, to understand their views, key themes
and areas of focus within the broader financial services sector. These
included trilateral meetings involving the Group’s external auditor,
PwC, and the PRA.
The Group Chief Executive, Group Chief Financial Officer, 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 holds regular meetings with management, Global Internal
Audit and PwC, as the external auditor, to discuss relevant items as
they had arisen during the year outside the formal Committee
process. The Committee also regularly meets with the internal and
external auditors, without management present. Private discussions
are also held with relevant members of senior management, including
the Group Chief Financial Officer and Group Chief Risk and
Compliance Officer.
Matters considered during 2023
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 including:
– oversight of the Group's engagement with PRA-requested skilled person reviews
– reports from the principal subsidiaries on progress and learnings in relation to their local
remediation efforts
– adequacy of resources across Finance and other SME teams to deliver the Group-wide
remediation programme
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
Compliance
Accounting standards and critical accounting policies
Corporate governance codes and listing rules
Whistleblowing
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How the Committee discharged its responsibilities
Financial, ESG and climate reporting
The GAC 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 Pillar 3
disclosures.
Furthermore, as an area of expanded assurance, the GAC, supported
by the executive-level ESG Committee, provided close oversight of
the disclosure risks in relation to ESG and climate reporting, amid
rising stakeholder expectations.
As part of its review, the GAC:
– reviewed the narrative commentary on our financial and non-
financial performance to ensure it remained fair, balanced and
understandable;
– challenged and evaluated management’s application of critical
accounting policies and material areas in which significant
accounting judgements were applied;
– gave particular regard to the analysis and measurement of IFRS 9
ECL, including the key judgements and management adjustments
made in relation to the forward economic guidance, underlying
economic scenarios and reasonableness of the weightings, as well
as modelling and adjustments;
– focused on preparation for disclosures to ensure these were
consistent, appropriate and acceptable under the relevant financial
and governance reporting requirements;
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Board committees
– tracked and monitored developments relating to the strategy and
scope of ESG and climate disclosures, in particular the assurance
related to the Group’s net zero transition plan, which was
published at the end of January 2024. The GAC also focused on
internal and external assurance within ESG reporting in line with
wider market developments to ensure ESG and climate
disclosures were materially accurate and consistent;
– tracked and monitored the delivery against the external audit plan;
– provided advice to the Board on the form and basis underlying the
long-term viability statement; and
– considered the key performance metrics related to strategic
priorities, and ensured that the performance and outlook
statements reflected the risks and uncertainties appropriately.
In addition to its work on the Group’s financial disclosures, PwC also
provided limited standalone assurance on the Group’s climate
reporting. Further details can be found in ’Assurance relating to ESG
data’ on page 43.
In conjunction with the 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. This assessment
informed the GAC’s 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 40.
Fair, balanced and understandable
Following review and challenge of the disclosures, the Committee
recommended to the Board that the Annual Report and Accounts,
taken as a whole, were fair, balanced and understandable. These
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 2023
and results announcements to provide feedback and challenge to
management. It was supported by the work of the Group Disclosure
and Controls Committee, which also reviewed and assessed the
Annual Report and Accounts 2023 and investor communications.
This work enables the GAC to discharge its responsibilities and
support the Board in making the statement required under the UK and
Hong Kong Corporate Governance Codes.
Internal controls
Regular updates and confirmations are provided to the GAC on the
action management takes to remediate any failings or weaknesses
identified through the operation of the Group’s framework of internal
financial controls. This is supplemented by reviews of these controls
by the second line of defence and internal audit, and the external
auditors, who provided additional comfort to the Committee on the
effectiveness of these controls. These reviews confirmed that there
were no material weaknesses as at the year-end.
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.
The GAC continues to focus on controls over the Group's insurance
business following the implementation of the IFRS 17 ‘Insurance
Contracts‘ accounting standards. This will remain a focus through
2024, with the GAC scheduled to receive further updates on the
control environment for this business and in relation to the change
programme more generally through the first half of 2024.
For further details of how the Board reviewed the effectiveness of
key aspects of internal control, see page 311.
The Committee approved the Integrity of Regulatory Reporting
programme, management’s strategy for remediation of deficiencies in
relation to the Group's regulatory reporting governance, process and
controls. The Committee also provided oversight of the Group's
engagement with PRA-requested skilled-persons reviews including
the initiation of a review of the sustainability of the Group’s ongoing
remediation efforts for regulatory reporting, which commenced in
2023 for an initial period to 31 December 2025. Regular updates will
be provided to the Committee by the skilled person throughout the
course of their review.
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. The GAC also discussed root cause themes, remediation of
known issues and new issues identified through the increased
assurance work and focus on regulatory reporting. 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 initiated a schedule under which certain
principal subsidiary audit committee chairs, chief executive officers
and chief financial officers attended GAC meetings to share progress
and learnings in relation to their local remediation efforts.
Further details can be found in the ‘Principal activities and significant
issues considered during 2023’ table on page 271.
Adequacy of resources
The Committee is responsible, under the Hong Kong Listing Rules, to
annually assess 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.
The Committee determined that each of the functions provided
thorough information with regards to people capacity and capability
and endorsed the annual update to the Board.
In recognition that the enhancement of the Group’s regulatory
reporting processes and controls was a priority for both the
Committee and the Group’s regulators, the GAC also considered the
adequacy of regulatory reporting resources as part of the year-end
activities.
Connectivity with principal subsidiary audit committees
The Committee recognises the importance of strong connectivity and
alignment with principal subsidiary audit committees. The
mechanisms to support this are well established and continued to
operate effectively during the year.
This included information sharing and targeted collaboration between
audit committee chairs and management to ensure there was
appropriate focus on the local implementation of programmes. During
2023 this included a particular focus on regulatory reporting, with the
subsidiary audit committee chairs, chief executive officers and chief
financial officers, attending Committee meetings to update on
progress, share local challenges, and areas of focus with the
Committee.
In addition to the Chair's regular meetings with the audit chairs of the
Group’s UK, European, US and Asian principal subsidiaries, and their
attendance at Committee meetings for reference items, escalations
were received by the Committee for its information and action.
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.
Regulatory reporting
External auditor
Regulatory reporting has been a key priority for the Committee over
recent years, and will continue to be a priority for 2024. The
Committee is focused on monitoring the programme of work to
address the quality and reliability of regulatory reporting to meet
regulatory expectations.
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HSBC Holdings plc Annual Report and Accounts 2023
The GAC has the primary responsibility for overseeing the relationship
with the Group’s external auditor, PwC. The GAC undertook a formal
competitive tender process for the Group’s statutory audit during
2022 following PwC’s appointment for the Annual Report and
Accounts 2015. This process concluded that PwC would remain as
the statutory auditor, which was announced in January 2023. As part
of the tender process, PwC committed to a number of initiatives to
enhance the effectiveness and efficiency of the Group audit, and
progress against these is reported to the Committee on a regular
basis to allow these to be monitored.
PwC completed its ninth 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. It was announced during 2023 that Matthew Falconer
would become the senior audit partner from 2024 as part of the
rotation of auditors. The Committee reviewed the external auditor’s
approach and strategy for the annual audit and received regular
updates on the audit, including observations on the control
environment. Key audit matters discussed with PwC are set out in its
report on page 318.
Following the publication of the Financial Reporting Council's (‘FRC’)
Audit Committee and the External Audit: Minimum Standard (’the
Standard’) during 2023, the Committee confirmed that all
requirements of the standard have been complied with.
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 its approach to enhance the quality and
effectiveness of the audit. PwC’s plan supports its, and the GAC's,
focus on audit quality through standardisation, centralisation and the
use of technology. The GAC has questioned PwC on its plans to
utilise more digital solutions on the HSBC audit, and updates on this
will be provided through 2024.
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 Senior
Audit Partner 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. These provide a balanced scorecard and transparent
reporting to the GAC on the work of both HSBC teams and PwC
during the course of the audit. These audit quality indicators focused
on the following areas:
– findings from inspections across the Group and regulators on PwC
as a firm;
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.
The FRC’s Quality Review team routinely monitors the quality of the
audit work of certain UK audit firms through inspections of sample
audits and related quality processes. PwC was reviewed on the audit
of our financial reporting for the 2022 financial year. The Chair had
discussions with the FRC as part of the process, and also discussed
the outcome of the inspection with the Senior Audit Partner and the
other members of the Committee. The Committee was pleased with
the outcome of the inspection, which reported no key findings as well
as a number of specific examples of good audit practice.
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 2023.
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.
Following the recommendation to reappoint PwC as the auditor, the
associated resolutions concerning the reappointment and the audit
fee for 2023 were approved at the 2023 AGM by the shareholders of
the Group.
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 64 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;
– the hours of audit work delivered by senior PwC audit team
– engagements covered under other assurance services that require
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
– matters occurring in PwC's global network that could be relevant
to the audit of HSBC.
Specifically in 2023, PwC reported to the GAC on the recommended
actions taken in response to the independent review of governance,
culture and accountability that was undertaken by Dr Ziggy
Switkowski AO, as well as further detail on audit quality controls
across PwC’s global operations.
The GAC receives regular updates from PwC and management on
performance across the audit quality indicators, which provides wider
visibility of ongoing and emerging issues. The GAC requested that
these indicators included metrics in relation to PwC's IT security,
reflecting the significant volume of information that is shared
between HSBC and PwC as part of the audit activity.
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;
– other permitted services such as advisory attestation reports on
internal controls of a service organisation primarily prepared for
and used by third-party end users; or
– required or permitted by local regulators to be performed by the
external auditor.
Eight 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 independent assurance
reports on global controls for 2023.
Auditors‘ remuneration
Total fees payable
of which fees for non-audit services
Ratio of non-audit fees to audit fees1
2023
$m
155.9
46.1
42.0%
2022
$m
148.1
50.5
51.7%
1 The calculation is on a simple ratio and is not based on FRC guidance
on non-audit fees ratio thresholds.
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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 94
for further information).
The Board has delegated responsibility to the GAC to oversee the
effectiveness of HSBC’s whistleblowing procedures. The Chair of the
GAC is a Group Senior Manager (SMF7), and has a prescribed
responsibility as the whistleblowers’ champion, to ensure integrity of
HSBC’s policies on whistleblowing and protecting those who report
concerns. As part of his responsibility, the GAC Chair reports to the
Board on the GAC’s oversight of whistleblowing as part of his regular
reporting updates.
The Group Head of Regulatory Compliance regularly updates the GAC
on whistleblowing effectiveness, including controls assessments and
internal audit findings. The Committee is briefed on culture and
conduct risks from whistleblowing cases and actions taken.
In 2023, the GAC received updates on topics such as cultural insights
from internal HR-led investigations relating to matters reported
through HSBC Confidential. Reports were also provided on the
actions taken to support different functional areas collaborate post-
investigation. The Chair met with the Group Head of Conduct, Policy
and Whistleblowing for briefings on significant whistleblowing
matters. In 2024, the GAC will continue to receive briefings on these
actions and the ongoing efficiency of the HSBC Confidential channel.
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 2023, 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 2024 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 2024 audit coverage remain as: strategy,
governance and culture; financial crime, conduct and compliance;
financial resilience; and operational resilience. A quarterly continuous
monitoring assessment of key risk themes will form the basis of
thematic reporting and plan updates and will ultimately drive the 2025
planning process.
In 2024, Global Internal Audit’s new or heightened areas of coverage
are: transformation including regulatory change; people capacity and
capability; ESG; material regulatory obligations; Consumer Duty
implementation; retail and wholesale credit risk management;
Basel III; regulatory reporting; treasury; operational resilience;
enterprise-wide risk management; model risk management; machine
learning and artificial intelligence; data management and technology.
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. 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 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 accountable for addressing the matters
raised by Global Internal Audit, which must be 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.
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HSBC Holdings plc Annual Report and Accounts 2023
Principal activities and significant issues considered during 2023
Areas of focus Key issues
Financial and
regulatory
reporting
Significant
accounting
judgements
Environmental, social and governance
(‘ESG’) reporting
The Committee considered
management’s efforts to enhance ESG
disclosures and associated verification and
assurance activities, with a specific focus
on the net zero transition plan and climate-
related disclosures made in the Annual
Report and Accounts 2023.
Regulatory reporting
The GAC monitored the progress of the
regulatory reporting assurance
programme to enhance the Group’s
regulatory reporting, impact on the control
environment and oversight of regulatory
reviews and engagement.
Expected credit losses
The measurement of expected credit
losses involves significant judgements,
particularly under current economic
conditions. There remains uncertainty
over ECL estimation due to sustained high
inflation, a high interest rate environment
and weaker economic growth in the
Group’s key operating markets.
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.
Valuation of defined benefit pension
obligations
The valuation of defined benefit pension
obligations involves highly judgemental
inputs and actuarial assumptions which
includes rate, inflation rate, mortality rates
and other demographic assumptions.
Management considered these
assumptions in consultation with actuarial
experts to determine the valuation of the
defined benefit obligations.
Valuation of financial instruments
During 2023, management continuously
refined its methodology and approach to
valuing the Group’s portfolio in relation to
investments, trading assets and liabilities
and derivatives.
Investment 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
The Committee considered ESG disclosures for the Annual Report and Accounts 2023 in
detail, to ensure these were fair and balanced, and were also transparent on the
challenges faced and aligned with the Group's progress in the embedding of sustainable
and climate-related policies across the business.
The Committee also focused on the evolution of the control environment for ESG
disclosures, particularly data sourcing and policy adherence. Management provided
updates on additional assurance performed over these disclosures while the control
environment matures and the progress of the sustainability enhancement programme (to
upgrade our capabilities in this growing area).
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
proposals on remediation efforts, and endorsed the strategy for the remediation of the
errors in the Group’s reporting submissions to regulators globally.
The chief executive officers, chief financial officers and audit committee chair of the US,
UK ring-fenced bank, European and Asian subsidiaries attended Committee meetings
during the year to report on the remediation activities and priorities with regards to
regulatory reporting in their respective markets.
We continue to keep the PRA and other relevant regulators informed of our progress.
The Committee reviewed economic scenarios for the key countries and territories in
which the Group operates and challenged management’s judgements on the weightings
assigned to the scenarios. The Committee also challenged management’s judgemental
adjustments to account for uncertainty in specific sectors and geographies, including the
controls underpinning the adjustments process and conditions under which the
adjustments would be reduced or removed.
The Committee continued to monitor management’s updates on areas of particular focus,
including downside risk on mainland China and Hong Kong commercial real estate.
The Committee considered the recoverability of deferred tax assets, in particular in the
US, the UK and France.
The Committee 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 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. Details of key assumptions can be found on pages 366 to 368 of the ’Notes on the
financial statements’.
The Committee considered the key valuation metrics and judgements involved in the
determination of the fair value of financial instruments, and agreed with the judgements
applied by management, which were validated through appropriate governance and
control forums.
The Committee reviewed the judgements in relation to the impairment review of HSBC
Overseas Holdings (UK) Limited and the key inputs such as projected profits, underpinning
the recoverable amounts of its subsidiaries.
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Principal activities and significant issues considered during 2023 (continued)
Areas of focus Key issues
Significant
accounting
judgements
Investment in an associate – Bank of
Communications Co., Limited
During the year, management performed
impairment reviews of HSBC’s
investment in Bank of Communications
Co., Ltd (‘BoCom’). This included
consideration of the potential impact of
BoCom’s designation as a globally
systemically important bank in November
2023.
The impairment reviews are complex and
require significant judgements, such as
the appropriateness of projected future
cash flows, discount rate, and regulatory
capital assumptions.
Interest rate management, including
disposal of hold-to-collect-and-sell
portfolio
During 2023, management proposed a
framework for the disposal of selected
hold-to-collect-and-sell securities to
improve risk management of hold-to-
collect-and-sell positions and to stabilise
and protect net interest income over the
medium term.
Impairment of goodwill and non-
financial assets
During the year, management tested for
impairment goodwill and non-financial
assets. Key judgements in this area relate
to long-term growth rates, discount rates
and projected future cash flows to include
for each cash-generating unit tested, both
in terms of compliance with the
accounting standards and reasonableness
of the forecasts.
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.
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:
(i) the ongoing Russia-Ukraine and Middle
East conflicts, and the consequential
impacts on the supply chains globally;
(ii) macroeconomic risks including
inflationary risks, which were expected to
remain heightened in most markets; and
(iii) climate risk, operational resilience, and
other top and emerging risks, and the
related impact on profitability, capital and
liquidity.
Impact of acquisitions and disposals
HSBC engaged in a number of business
acquisitions and disposals, notably in the
UK, Canada, France, Greece, China, Oman
and Russia.
Significant judgement was involved in
determining 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 Committee reviewed and challenged management’s judgements in relation to
impairment reviews of HSBC’s investment in BoCom, performed using a value-in-use
methodology. The GAC reviewed the appropriateness of key assumptions such as
projected future cash flows, with a particular focus on the loan growth and net interest
margin outlook, and potential impacts of the recent designation of BoCom as a globally
systemically important bank.
The Committee held a dedicated meeting to challenge management on the impairment
charge taken in the fourth quarter of 2023, considering sensitivity analysis of value-in-use
to reasonably possible changes in key assumptions and consistency of judgements with
prior impairment reviews, which we have disclosed previously.
The GAC received regular management updates on hedging strategy, including the
repositioning of structural interest rate hedges.
The Committee reviewed controls on, and financial outcomes of, disposals of hold-to-
collect-and-sell securities.
The Committee reviewed and challenged management’s approach and methodology used
for the impairment testing of goodwill and non-financial assets, with a key focus on the
projected cash flows included in the forecasts and discount rates used. The GAC also
challenged management’s key judgements and considered the reasonableness of the
outcomes against business forecasts and strategic objectives of HSBC.
The Committee reviewed reports from management on legal proceedings and regulatory
matters, and challenged related accounting judgements and disclosures.
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 Committee reviewed management’s judgements related to the planned sales of our
banking business in Canada, our retail banking operations in France and our banking
business in Russia, such as the timing of classification as held-for-sale and the
remeasurement of assets.
The Committee considered the financial and accounting impacts of the merger of HSBC
Oman with Sohar International Bank of Oman, and the acquisitions of Silicon Valley Bank
UK Limited, Silkroad Property Partners Pte Limited and Citi’s retail wealth management
portfolio in China.
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Principal activities and significant issues considered during 2023 (continued)
Areas of focus Key issues
Sustainable control environment
The GAC will oversee the impact on the
risk and control environment.
Control
environment
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.
Regulatory
change
Conclusions and actions
The Committee received regular updates on the control environment, and broader change
framework, to review the impact on financial reporting and tax risk within the Group, with
particular focus on the implementation of IFRS 17 in the year.
In these updates the Committee monitored the assessment of the financial reporting risk,
tax risk and progress made on remediation of Sarbanes Oxley significant deficiencies. This
oversight helped the Committee to understand the progress being made by management
to set out strategic actions to remediate identified issues and uplift the control
environment to enable a sustainable reduction in risk.
Management’s updates were supplemented by further focus and assurance work from
Global Internal Audit, including audits of significant programmes of activity during 2023.
The Committee received updates on the progress and impact of the Basel III programme
on the Group.
Management discussed the delayed implementation dates due to ongoing uncertainty
over the final definition of the rules by regulators, and the work undertaken to mitigate
delivery risks given the concentration of delivery during 2024. The discussion highlighted
the dependencies of the Basel III programme with data and management. Management
focus was on ensuring that the data required and evolving internal standards were
delivered by the end of 2023 to allow for integrated testing in the first quarter of 2024.
The Committee reviewed the ongoing management of risks, issues and dependencies
and challenged management to prioritise deliverables across each jurisdiction in line with
regulatory timelines. The Committee discussed focus on ensuring, in each case, solutions
were delivered to the minimum required standards.
Committee
connectivity
Collaboration with GAC/GRC/
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.
Given that all material remediation plans within the Group rely heavily on data, the
committees held joint meetings to develop an understanding of the HSBC data strategy
and execution plan. The joint meetings discussed:
–
–
–
the review undertaken of data within the Group and the associated baseline
established as part of the review;
actions taken to prioritise execution to deliver key capabilities and remediate data
quality, including pilots to provide clarity around scale, key milestones and expected
execution timelines; and
the three-year Group data programme delivery roadmap including detailed plans to
address data quality issues, improve the data control landscape, engage with
colleagues to actively mature data culture, and build sustainable capabilities that meet
a growing global trend towards localisation of data.
Committee evaluation and effectiveness
Committee priorities
The annual review of the effectiveness of the Board committees,
including the GAC, was conducted by IBE, Independent Board
Evaluation during 2023. The review determined that the GAC
continued to operate effectively.
Positive feedback was noted on the leadership of the Committee
Chair, the composition of the Committee and the focus and balance
of time dedicated to discussion at Committee meetings. The review
highlighted the continued importance of strong interaction between
the GAC, GRC, Technology Governance Working Group and the
Board, on key issues including ESG.
Further details of the annual review of the Board and Committee
effectiveness can be found on pages 260 to 261.
At its meeting in December 2023, the Committee agreed a number of
priorities for 2024. These included:
– Regulatory reporting: Given the criticality of accurate and timely
regulatory reporting to the Group’s licence to operate, the
Committee will have a key focus on delivery of the Integrity of
Regulatory Reporting programme during 2024.
– ESG: As competent authorities in the markets in which the Group
operates launch market-specific disclosure requirements under
new regulation, the Committee will continue to focus on the
assurance of reporting and disclosure at both a Group and
subsidiary level, as well as the effectiveness of the supporting
control environment and governance.
– Data: The Committee plans to monitor and provide input into the
data strategy, remediation, and controls for the purposes of
financial and regulatory reporting, including that data management
strategies are embedded across the Group.
HSBC Holdings plc Annual Report and Accounts 2023
273
Corporate governance
Report of the Directors | Corporate governance report | Board committees
Group Risk Committee
"The Committee takes continuous and active steps to safeguard the Group's capital and liquidity positions,
keeping it secure in the face of macroeconomic headwinds, enabling it to effectively deploy capital dynamically
to take advantage of opportunities"
James Forese
Chair
Group Risk Committee
Meeting attendance
in 20231
10/10
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:
10/10
– overseeing and advising the Board on all risk-related matters,
Membership
James Forese (Chair)2
Geraldine Buckingham
Dame Carolyn Fairbairn3
Steven Guggenheimer4
Kalpana Morparia5
Brendan Nelson6
David Nish
Jackson Tai7
Swee Lian Teo8
Member since
Jun 2022
Jun 2022
Sep 2021
May 2020
Jul 2020
Sep 2023
Feb 2020
Sep 2016
Oct 2023
7/10
9/10
7/8
3/3
10/10
4/4
2/2
1 These included six scheduled meetings, three ad hoc meetings and
one joint meeting with the Group Audit Committee and the
Technology Governance Working Group.
2 James Forese was appointed Chair of the Committee on 5 May
2023.
3 Dame Carolyn Fairbairn was unable to attend three meetings due to
prior commitments.
4 Steven Guggenheimer was unable to attend one meeting due to a
prior commitment.
5 Kalpana Morparia joined the GRC on 1 March 2023. She was unable
to attend one meeting due to a prior commitment.
6 Brendan Nelson joined the GRC on 1 September 2023.
7 Jackson Tai stepped down from the GRC on 5 May 2023.
8 Swee Lian Teo joined the GRC on 1 October 2023.
I am pleased to present my first Group Risk Committee (‘GRC’)
report, having taken over the role of Chair of the Committee in May
2023. I would like to take this opportunity to express my sincere
gratitude to Jackson Tai for his service to GRC, and the Group more
broadly, prior to stepping down as Committee Chair. I am also
pleased to welcome Kalpana Morparia, Brendan Nelson and Swee
Lian Teo, all of whom joined as members of the GRC during 2023,
and each of whom brings unique skills and experience to the business
of the Committee.
Geopolitical risks and the macroeconomic environment continued to
dominate the landscape in 2023, with turmoil in the financial markets
leading to the collapse of several banks in the US and Europe in the
first half of the year. Commercial real estate in both the US and Asia
also came under increasing pressure due to the high interest rate
environment, inflationary trends and recessionary concerns. Central
banks’ efforts to lower inflation by rapidly raising interest rates also
had a wide-ranging impact on retail borrowers as the cost of living
increased globally. The GRC has closely monitored the Group’s credit
exposures, market risk and settlement limits in response to these
events, and has endorsed management’s proactive execution in
reducing high risk exposures and accelerating portfolio
transformation.
Oversight of financial risks has been critical against this external
backdrop, and the GRC has paid close focus to the Group’s ongoing
treasury, capital and liquidity risk management activities, including
early warning indicators, delivery of the interest rate risk in the
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HSBC Holdings plc Annual Report and Accounts 2023
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.
banking book strategy, prudential sensitivity analysis and capital and
liquidity adequacy. 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 2023
annual cyclical scenario hybrid mortgage models update and the post-
wind-down business restructuring analysis.
Non-financial risks were also a key focus of the GRC in 2023. The
GRC carefully considered the Group’s regulatory remediation and
change programmes, and worked closely with management to better
prioritise and understand where there are key interdependencies. In
particular, the Committee reviewed and challenged the Group’s data
strategy and other key areas of regulatory focus, including oversight
of the operational resilience enhancements, conduct and financial
crime, technology and cyber risk. The GRC also provided oversight
and support to risk transformation activities to develop stronger risk
management capabilities and outcomes across the Group. Climate
also continues to be a priority area of oversight with regular reports on
areas of risk, such as greenwashing, compliance with regulatory
requirements, and ESG policy changes.
Further details on these and other areas of GRC oversight during the
year are set out below.
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 Legal Officer, and Group Head
of Internal Audit 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 the external auditor, PwC, following scheduled GRC meetings.
The participation of our senior business leaders, including the Group
Chief Executive who attended five scheduled GRC meetings in 2023,
and the chief executive officers of the three global businesses
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, and, where appropriate, members of senior management, to
discuss priorities and track progress on key actions. 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 2023’ table.
Matters considered during 2023
Holistic enterprise risk monitoring including
Group risk profile1
Risk framework and policies
Treasury and traded 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
Climate risk
Jan
Feb
Mar
May
Jun
Jul
Sep
Dec
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l Matter considered
ô Matter not considered
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 October 2023 to review matters
relating to risk transformation, wholesale credit risk, treasury risk, model risk, operational risk, data and climate risk.
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. Areas covered included capital management, stress
testing, ICAAP and ILAAP preparations, as well as briefings on the
Resolvability Assessment Framework. Further details of these
sessions are included in the ’Principal activities and significant issues
considered during 2023’ table starting on page 276.
Connectivity with principal subsidiary risk committees
During 2023, the GRC continued to actively engage with principal
subsidiary risk committees through the scheduled participation of
principal subsidiary risk committee chairs at relevant GRC meetings,
and through a quarterly connectivity meeting with the principal
subsidiary risk committee chairs. This meeting is also attended by the
Group Chief Risk and Compliance Officer. 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 at its regular meetings on the key risks
facing principal subsidiaries including escalations 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 2023, the GRC met with the Risk and Compliance Executive
Committee to promote information sharing, meet and assess the
Group Risk and Compliance function leadership team, 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 progress and remediation of key regulatory
concerns. The engagement 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
Chairs convened on two occasions to consider the Group's data
strategy and ambitions. Further details of these sessions can be
found under ’Collaboration with GAC/GRC/Technology Governance
Working Group’ in the GAC report on page 271.
The committees and working group worked closely to ensure
appropriate alignment in the review, discussion, challenge and
conclusions on topics including risk and control issues relating to
digital assets and currencies, and the transition of core Finance
capabilities to the Cloud. This ensured that the committees benefited
from each other’s expertise and challenge.
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, and this strengthened
connectivity and the flow of information between the committees.
Each of the co-chairs of the Technology Governance Working Group
are members of the GRC and GAC, respectively.
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Principal activities and significant issues considered during 2023
Key issues
Macroeconomic, geopolitical and other emerging
risks have the potential to present significant
challenges to revenue growth, operational
resilience and our commitment to serve
customers and local markets.
Effective risk management policies, frameworks
and thresholds, and oversight of these, are
essential for HSBC to safely, consistently and
sustainably support customers and deliver
strategic aims.
Capital and liquidity risk must be effectively
monitored. It presents key risks to banks globally,
as demonstrated in the first half of 2023 when
there were a number of bank failures in the US
and Europe. Similarly, developing action plans
and guardrails to cover scenarios of recovery or
resolution at a subsidiary or Group level is an
essential part of HSBC’s prudential management.
Risk areas
Holistic
enterprise risk
monitoring,
including
Group risk
profile
Risk
framework and
policies
Treasury risk
Conclusions and actions
The GRC closely monitored geopolitical and macroeconomic risks that could
impact the Group’s strategy, business performance or operations. These risks
were exacerbated by the ongoing Russia-Ukraine war and the developing Israel-
Hamas war, as well as the expected 'higher for longer' interest rate environment,
inflation and impacts on the commercial real estate portfolio.
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 provided oversight and
challenge of a robust book of strategic management actions to respond to
potential downside scenarios.
Reflecting the Committee’s ability to travel to different jurisdictions and regions
more frequently, the GRC requested reports on the risk profile of key business
areas in local geographies and invited principal subsidiary chairs and relevant
management to attend and participate in discussions.
The Group has a risk appetite statement to define risk appetite and tolerance
thresholds, which forms the basis of the risk management procedures for the first
and second lines of defence, the Group’s capacity and capabilities to support
customers, and the achievement of strategic goals. The GRC maintained oversight
of the Group’s risk management framework, reviewing changes to the Group’s risk
appetite statements and recommending these to the Board for approval. The
agreed risk appetite statement then 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 both forward
looking and dynamically responsive to emerging risk drivers, and linked to the
Group's strategy, stress testing and financial resource plan. Changes were
recommended by the GRC to the Group’s risk appetite statement, including in the
areas of interest rate risk in the banking book, wholesale credit risk, climate risk,
model risk, digital assets and currencies, resilience risk, reputational risk and
regulatory reporting risk.
The Group takes continuous and active steps to safeguard its capital and liquidity
positions. It performs internal and regulatory stress tests to measure resilience and
performance against stress, and to consider strategic management actions that
could be applied against anticipated stress events and headwinds.
The GRC conducted its annual review and challenge of the Group’s ICAAP and
ILAAP, and provided recommendation to the Board for approval. The GRC
continued to evaluate the Group’s IRRBB strategy and progress made against the
multi-year liquidity improvement programme.
The GRC reviewed the Group’s ongoing activities to identify, manage and mitigate
treasury, capital and liquidity risks, including early warning indicators, sensitivity
analysis, capital and liquidity reporting and adequacy.
In relation to stress testing exercises, the GRC reviewed the Bank of England’s
2023 annual cyclical scenario hybrid mortgage models update. The results were
approved by the Committee in March 2023. The GRC also considered the 2024
financial resource plan and Group-wide internal stress test overview, scenarios and
outputs, which contribute to the Group’s commitment to regularly test the
resilience of the balance sheet and profit and loss under multiple scenarios of
varying severity.
In addition to oversight of capital and liquidity risk, the GRC also reviewed and
provided challenge to ongoing plans to improve balance sheet velocity across the
Group through better distribution enabling further, targeted origination and
ensuring effective use of capital to support revenue growth.
As part of its regulatory obligations, the Group is required to show how its
resolution strategy could be carried out in an orderly way and identify any risks to
successful resolution. The GRC continued its oversight of the Group’s progress in
developing its capabilities towards the Bank of England’s requirements for
recovery and resolvability. In February 2023, the GRC reviewed the planned
approach for 2023 post-wind-down business restructuring analysis, prior to
submission to the PRA. The GRC reviewed and recommended the 2023
Resolvability Assessment Framework self-assessment to the Board for approval.
The Chairs of the GRC and the GAC both received comprehensive briefings prior to
the presentation of the framework.
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HSBC Holdings plc Annual Report and Accounts 2023
Principal activities and significant issues considered during 2023 (continued)
Risk areas
Key issues
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
Financial
reporting risk
HSBC is exposed to risks where controls
supporting the reporting of its financial
statements are not effective, resulting in material
error or misstatement.
Resilience risks could lead to a situation where
we may be unable to provide our customers with
critical business services due to significant
disruption.
Technology risks could cause unmanaged
disruption to any IT system within HSBC, as a
result of malicious acts, accidental actions or
poor IT practice, or IT system failure.
Resilience risk
(and
operational
risk)
There is a risk that HSBC’s products and services
could be exploited for criminal activity, including
fraud, bribery and corruption, tax evasion,
sanctions and export control violations, money
laundering, terrorist financing and proliferation
financing.
Financial crime
risk
Conclusions and actions
The GRC reviewed updates on the strategy and approach to managing credit risk
and credit risk capabilities. The GRC received regular updates on the Group’s
expected credit losses and provisions, and the credit risk arising from the
wholesale portfolio and mortgage books. Throughout the year, the GRC focused
on oversight of management’s enhancement objectives for wholesale credit risk
management, in particular to improve the Group’s approach to country and
industry concentration risks.
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. A key focus area continued to
be offering support to our retail customers experiencing financial difficulty, by
maintaining appropriate tools and treatments and ensuring that conduct and good
customer outcomes was a priority.
While the GAC maintains primary responsibility in relation to internal financial
control systems, with further detail on pages 266 to 271, the GRC receives 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
relevant audit reports that provide an assessment of control effectiveness for
financial reporting risks.
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 also received reports on system incidents and outages
experienced across the Group, including reports on immediate actions being taken
to enhance system continuity for, and communicate with customers, and
measures being implemented to improve resilience-related controls to prevent
reoccurrence.
The GRC regularly reviewed reports on the Group’s technology risk profile, as well
as receiving bi-annual updates in relation to the risk and control environment, as
well as the current threat landscape and emerging risks. The GRC (working with
the newly-created Group Technology Committee as appropriate) will consider
further the risks and opportunities inherent in the use of AI (generative and
advanced) in 2024.
The GRC maintained a strong focus on understanding the Group’s data risk
landscape, its data strategy and data management programme. The GRC
collaborated with the GAC and the Technology Governance Working Group on data
strategy, the execution plan and timeline for data remediation, the governance
approach and the investment model. Further details on the joint meetings are
included in the 'Collaboration with GAC/GRC/Technology Governance Working
Group’ section on page 275.
The GRC reviewed the Group’s approach to managing its financial crime risk
across geographies and businesses. This included reviewing updates to the
Group’s financial crime policy, enhancing the approach to insider risk, and
monitoring the fraud landscape and strategies for managing fraud risk.
The ongoing Russia-Ukraine war has necessitated continued 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 are central to everything HSBC does and
it is essential to manage the risk of not having
the right people with the right skills, and to
ensure staff always have the customer’s interest
at the forefront.
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 the four 'c’s:
capacity, capability, culture and conduct. It also considered remuneration risks, and
strategies to retain talent and acquire new capabilities in key areas.
People and
conduct risk
Regulatory
compliance
risk
As a result of operating in multiple jurisdictions
globally, HSBC is exposed to risks associated
with inappropriate market conduct or breaching
related financial services regulatory standards or
expectations.
Of key importance, the GRC placed strong emphasis on policies and practices
relating to conduct and fairness to customers, especially vulnerable customers
given heightened macroeconomic pressures and stress on customers across
markets.
The GRC met in November to review 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 GRC and its members actively engage with regulators and act on feedback.
The Committee closely monitors the progress of any regulatory remediation
activities, with support from the Group Chief Risk and Compliance Officer as well
as principal subsidiary risk committee chairs. Throughout 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 Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Principal activities and significant issues considered during 2023 (continued)
Risk areas
Legal risk
Key issues
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.
Conclusions and actions
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.
If models have been inadequately designed,
implemented or used, or do not perform in line
with expectations and predictions, then HSBC
can face risks from inappropriate or incorrect
business decisions arising from their use.
Model risk
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, strengthening
our model risk management capabilities and addressing regulatory requirements
across global jurisdictions. In particular, the GRC reviewed the PRA Supervisory
Statement 1/23 and the impact on the Group. The GRC reviewed the new
guidance, potential resource implications and the planned programme of changes
across all three lines of defence. It also noted the enhanced governance
expectations in relation to model oversight.
Climate risk
Environmental, social and governance risks
present significant risks to organisations both in
terms of their own operations and how they
engage with stakeholders and communities.
The GRC remained focused on climate risk and greenwashing risk. The GRC
received reports on climate risk management and energy policies, while
maintaining oversight of delivery plans to ensure that the Group develops robust
climate risk management capabilities.
The GRC approved the 2023 internal climate scenario analysis and nature scenario
analysis pilot in July 2023. The outcomes will be used to respond to multiple
regional regulatory climate exercises as well as meeting regulatory expectations on
incorporating climate change within the Group’s strategic plans and ICAAP.
Committee evaluation
2022/2023
During 2023, the GRC implemented the recommendations of the
2022 committee evaluation conducted by Lintstock in consultation
with the Group Company Secretary and Chief Governance Officer and
Chief Risk and Compliance Officer. This included the need for
continued focus on the quality of reporting, the importance of
focusing limited agenda time to the most critical issues, and further
clarity in roles and coordination between the GRC and other Board
committees. The outcomes of the evaluation were reported to the
Board, and progress was tracked by the GRC through the year.
2023/2024
During the year, the annual review of the effectiveness of the Board
committees, including the GRC, was conducted externally by
Independent Board Evaluation. The review determined that the GRC
continued to operate effectively.
Areas for enhancement were identified, including the need for:
increased focus on the most significant enterprise risks recognising
the breadth of the risk agenda; continued close engagement with
subsidiaries; and enhancement of induction programmes for new
members given the complexity of much of the subject matter under
discussion. A review of escalation parameters and filters will also be
undertaken by the GRC in 2024.
The outcomes of the evaluation have been reported to the Board and
the GRC will track progress in implementing recommendations during
2024.
Further details of the annual review of effectiveness can be found on
pages 260 to 261.
The Committee will continue to monitor progress to deliver
enhancements in response to feedback from the evaluations in 2024.
Focus of future activities
The GRC’s focus for 2024 will include the following activities:
– oversee risk transformation activities to develop even stronger risk
management capabilities, including the continued enhancement of
the Group's risk appetite and risk management framework,
especially in light of continued geopolitical and macroeconomic
headwinds;
– continue to assess the Group’s operational resilience capability
and the implementation of enhancements to the operating model;
– continue to oversee treasury risk to strengthen our capital and
liquidity management capabilities;
– monitor delivery against our climate ambitions 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 data remediation programme, 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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HSBC Holdings plc Annual Report and Accounts 2023
Directors’ remuneration report
"The Group’s financial and strategic performance is reflected in the positive remuneration outcomes for our
colleagues, and we remain committed to sharing the benefits of our performance with shareholders."
Membership1
Dame Carolyn Fairbairn
Chair
Group Remuneration Committee
Member
since
Meeting attendance
in 2023
Dame Carolyn Fairbairn (Chair)
Geraldine Buckingham
Rachel Duan
James Forese2
Ann Godbehere3
José Antonio Meade
Kuribreña
Eileen Murray4
Sep 2021
May 2022
Sep 2021
May 2020
Sep 2023
May 2021
May 2023
7/7
7/7
7/7
3/3
2/2
7/7
4/4
1 All members of the Committee are independent non-executive
Directors of HSBC Holdings plc.
2 James Forese stepped down from the Committee on 5 May 2023.
3 Ann Godbehere joined the Committee on 1 September 2023.
4 Eileen Murray joined the Committee on 5 May 2023.
Key responsibilities
The Committee’s key responsibilities include:
– making recommendations to the Board, for approval by
shareholders, on the Group's remuneration policy;
– setting the overarching principles, parameters and governance
framework of the Group’s remuneration policy;
– approving the remuneration of executive Directors and other senior
Group employees; and
– regularly reviewing the effectiveness of the remuneration policy of
the Group and its subsidiaries in the context of consistent and
effective risk management.
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.
Dear Shareholder
I am delighted to present our 2023 Directors’ remuneration report on
behalf of the members of the Group Remuneration Committee.
I would like to thank Jamie Forese for the counsel he provided to us
all as a member of the Group Remuneration Committee. We
welcomed Eileen Murray and Ann Godbehere as members. They
have already made valuable contributions since their respective
appointments in 2023.
2023 was a year of good performance and positive progress for the
Group. Our colleagues were critical to delivering those outcomes,
remaining committed to serving our customers and clients around the
world. Against that backdrop, the Committee’s focus in 2023 was on
ensuring we deliver an exceptional experience to colleagues. This is
crucial to attract, retain and energise the people we need to sustain
our performance and grow in markets that are highly competitive.
We also spent considerable time in 2023 thinking about executive
Director remuneration, in the context of our strategy, performance
and the removal of the 2:1 UK regulatory cap between variable and
fixed pay. We have started to consider policy options ahead of the
renewal of the Directors' remuneration policy in 2025.
The Committee reflected on feedback from investors following the
vote on the implementation of our current policy at the Annual
General Meeting (’AGM’) in 2023, which received 79.75% of votes
cast in favour.
We explained in our statements of 5 May 2023 and 3 November 2023
that our largest shareholder voted against the Board’s
recommendations on a number of resolutions including the Directors’
remuneration report, which impacted the voting results on these
resolutions. The Board was pleased that a large majority of
shareholders voting at the AGM supported HSBC’s approach. I have
met with several of our large institutional investors and proxy advisory
firms since the AGM, and there remains strong support for our
current Directors' remuneration policy.
We will continue to engage with our major shareholders and listen to
their views as we develop the Directors' remuneration policy next
year.
Performance in 2023
Financial performance
Our financial performance in 2023 reflected the strength of our
balance sheet in a higher interest rate environment and the good
progress made executing our strategy over the last four years.
We delivered a reported profit before tax of $30.3bn, which was up
$13.3bn compared with 2022. This included a favourable year-on-year
impact of $2.5bn relating to the sale of our retail banking operations in
France and a provisional gain of $1.6bn recognised on the acquisition
of Silicon Valley Bank UK Limited (’SVB UK’), which were partly offset
by the recognition of a $3.0bn impairment charge relating to the
investment in our associate, Bank of Communications Co., Limited
(‘BoCom’).
Reported revenue of $66.1bn grew by 30% or $15.4bn compared
with 2022, due to good performance by all three businesses reflecting
higher net interest income from interest rate rises.
Reported costs fell by 2% to $32.1bn, primarily due to the non-
recurrence of restructuring and other related costs. On our cost target
basis, 2023 costs grew by 6% versus our target of approximately 3%
compared with 2022.
Our return on average tangible equity (‘RoTE‘) for 2023 was 14.6%,
compared with 10.0% in 2022. Excluding strategic transactions and
the BoCom impairment, our RoTE was 15.6%.
This performance together with our 50% payout ratio commitment for
2023 (excluding material notable items and related impacts) enables
us to approve a full year dividend of $0.61 per share.
HSBC Holdings plc Annual Report and Accounts 2023
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Strategic performance
In 2023, there was further good progress in executing our strategy
across the four strategic pillars aligned to our purpose, values and
ambition. The completion of the sale of our retail banking operations
in France on 1 January 2024 was an important milestone in the
turnaround of our business. However, the strategic focus has shifted
to investing for growth. The acquisition of SVB UK, and subsequent
launch of HSBC Innovation Banking, is a good example of this.
We continued to capitalise on our strengths, which are our two home
markets of Hong Kong and the UK, as well as our international
wholesale, transaction banking and wealth businesses. The
digitisation of our services for personal and corporate customers
helped to improve our net promoter scores in key markets and
businesses. Meanwhile the growth of transaction banking revenue,
fee income in Commercial Banking, and net new invested assets in
Wealth all underlined our focus on improving our earnings
sustainability, which remains a key priority.
Our colleagues are the driving force behind our performance and
progress, with our 2023 employee Snapshot survey demonstrating
that they are more engaged than ever. Our employee focus index,
which gauges how colleagues feel about their day-to-day work, was
76%, which was an increase of four percentage points on 2022. Our
employee engagement index is at an all time high of 77%, which was
also an increase of three percentage points and meant we matched or
exceeded the global financial services benchmark in all eight of our
indices.
We also continued to support our customers in challenging economic
times, particularly in the UK where we supported our personal and
business customers by enhancing our range of digital resources and
targeting those most in need.
Rewarding our colleagues
Our goal is to deliver a unique and exceptional experience to
colleagues so that we sustain our performance in competitive
markets. Our reward principles and commitments centre on
rewarding colleagues responsibly, recognising their success and
supporting them to grow.
Pay is a critical part of our proposition. We were encouraged by a nine
percentage point improvement to 52% in colleagues' perceptions
they are paid fairly because of actions we took through 2022. The
Committee remains very focused on the need to improve this further.
For 2024, we are putting more structure in place to improve
transparency and clarity about how we make pay decisions.
Beyond pay we have a strong proposition of benefits, well-being
support, flexible working options, and learning and career
opportunities to support our colleagues.
In 2023, we saw the maturity of the 2020 three-year Sharesave plan,
which had the highest take-up rate and contribution level in recent
years. The share price at maturity was more than double the option
price, meaning colleagues benefited from our share price growth at a
time when they needed it most. Over 90% of colleagues have access
to share ownership plans globally with 25% of our global population
taking part.
For further details, see ‘Our approach to workforce reward‘ on
page 289.
Fixed pay
For the majority of our colleagues, fixed pay is the biggest part of their
reward, and many continue to be impacted by the economic
environment including inflation and cost of living challenges. Our
focus is on ensuring that we provide financial security through fixed
pay.
Fixed pay is primarily reviewed through our annual pay cycle. Fixed
pay ranges were introduced for over 190,000 colleagues to improve
clarity and transparency and simplify decision making for our people
managers. Effective in 2024, we have awarded an overall fixed pay
increase of 4.4%. The level of increases vary by market, depending
on the economic situation and individual roles. The highest increases
were made to lower paid colleagues, and then focused on middle
management, so that we keep pace with wage inflation.
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HSBC Holdings plc Annual Report and Accounts 2023
We have also established Living Wage benchmarks for every market
and were certified as a global Living Wage employer by the Fair Wage
Network for 2024. This is critical to give us further confidence in
meeting our commitments to reward colleagues responsibly.
We continued to take tangible actions to address the most significant
inflationary pressures for colleagues. For example, in Argentina and
Türkiye, we adjusted fixed pay regularly through the year. In Egypt,
we supported our colleagues with a one-off pay adjustment in
response to high inflation.
Variable pay
In determining the 2023 variable pay pool, the Committee wanted to
recognise our strong financial and strategic performance, and the
contribution colleagues have made to that.
The Committee determined an overall variable pay pool of $3,774m,
12% higher than $3,359m in 2022. This was determined based on a
review of our performance against financial and non-financial metrics
set out in the Group risk framework. The Committee considered the
strength of our financial performance in 2023, and the ratio between
variable pay and pre-variable pay profit before tax. The Committee
considered the impact of margins on interest rates in our results, and
lowered the total pool in line with our countercyclical funding
approach. We also considered our total compensation position
compared with the market, and the broader economic outlook.
The Committee considered in respect of all its remuneration decisions
for 2023 the Prudential Regulation Authority's ('PRA') 29 January
2024 Notice relating to HSBC Bank plc's and HSBC UK's compliance
with the UK Financial Services Compensation Scheme ('FSCS') and
related Depositor Protection rules. The PRA penalty was reflected in
the calculation of profitability used to determine the pool. The
Committee carefully considered input from the Group Risk
Committee ('GRC') and determined that no further discretionary
adjustment should be made to the overall variable pay pool. The
circumstances leading to the penalty require a more detailed review
internally to address potential responsibility of individuals, which will
be completed by the Committee in 2024, with any remuneration
adjustments applied once it is complete.
Total compensation across all our businesses increased relative to
2022, rewarding our colleagues for their contribution to our
performance. The distribution of the pool by business considered
relative performance against revenue, reported profit before tax and
cost targets. Strong differentiation has meant our highest performers
received the largest increases in variable pay compared with the
previous year.
Key remuneration decisions for executive Directors
Annual incentive for 2023 performance
The Group’s financial and strategic performance is reflected in the
executive Directors’ annual scorecards. The Committee believes this
reflects their individual leadership and contribution to delivery of the
Group‘s performance.
At the start of the year, the Committee set the scorecards to align
with our reported financial performance. The Committee considered
carefully the impact of strategic transactions and one-offs on the
Group's financial performance in 2023, including the favourable year-
on-year impact of $4.1bn relating to the sale of our retail banking
operations in France and the provisional gain on the acquisition of
SVB UK, balanced with the $3.0bn impairment charge relating to the
investment in BoCom.
Consistent with the approach in prior years, the Committee judged
that it was appropriate to assess financial performance for the
purpose of the annual scorecard excluding these items, to ensure that
out-turns were not impacted by one-offs. The assessment of RoTE
and profit before tax measures therefore excluded strategic
transactions and the BoCom impairment.
The Committee also considered the impact of interest rates on
performance and noted that macroeconomic fluctuations remain a
frequent driver of the Group’s business outcomes for our executives
to manage. In recent years these factors have not led to discretionary
scorecard adjustments for our executive Directors, either positive or
negative, which the Committee continues to believe is appropriate.
As part of its deliberations, the Committee reflected on the overall
risk management in the year, and in respect of the PRA Notice: the
nature of the failings identified; the regulator’s finding that the
breaches identified were not deliberate or reckless; fines levied; and
the tenure and specific responsibilities of the executive Directors in
relation to the issues covered.
Noel Quinn and Georges Elhedery will each receive a 2024–2026 LTI
award of 320% of base salary in respect of their performance for
2023 (Noel Quinn: £4,275,000; Georges Elhedery: £2,496,000).
Subject to performance over the next three years, awards will vest
over a further five years with a one-year retention period on vesting
shares. Further details on our targets can be found on page 286.
Taking into account inputs from the GRC and the overall accountability
of the Group Chief Executive for the performance and risk
management of the Group in 2023, the Committee used its
judgement and applied a downward adjustment of 7.50% to Noel
Quinn’s scorecard outcome.
This results in a final scorecard outcome of 70.24% of the maximum
opportunity for Group Chief Executive Noel Quinn (2022: 75.35%) and
an annual incentive of £2,018,000, which is 7% lower than
£2,164,000 in 2022.
The scorecard for Group Chief Financial Officer Georges Elhedery was
76.75%, resulting in an annual incentive of £1,287,000.
The Committee considered that these final outcomes were a
balanced and appropriate reflection of Group and individual
performance delivered in 2023, and appropriate in the context of the
pay decisions made for the wider workforce.
2021–2023 long-term incentive ('LTI') vesting
Noel Quinn and Ewen Stevenson (the former Group Chief Financial
Officer) participated in the 2021–2023 LTI that will vest in March
2024. As disclosed in our 2020 Directors’ remuneration report, the
Committee considered windfall gains at the time of award and
determined no adjustment was appropriate.
The maximum RoTE and relative total shareholder return (‘TSR’)
targets were exceeded. The capital reallocation to Asia measure was
not met and the environment and sustainability measures were
assessed to be 100% met. Overall, 75.00% of the original award will
vest on a pro-rata basis over the next five years. Ewen Stevenson’s
awards have been pro-rated for time in employment.
As this is the first LTI vesting for Noel Quinn, his single figure of
remuneration for 2023 is materially changed. The 2023 single figure of
remuneration for Noel Quinn is £10,641,000 (compared with
£5,562,000 for 2022). The value of the LTI award reflects the Group's
improvement in performance, shareholder returns and share price
over 2021 to 2023, and Noel Quinn's leadership in reshaping the
Group to deliver more sustainable returns to shareholders.
Noel Quinn's LTI vesting also means that the pay ratio measuring the
total pay of the Group Chief Executive against the median pay of our
UK employees has increased to 169:1 compared with 95:1 last year.
Excluding the LTI vesting in respect of the year, the median ratio
remained broadly in line with prior years at 86:1. This is consistent
with the pay and progression policies for our UK workforce,
considering the diverse mix of employees, the pay mix for various
roles and the differences in pay structure compared with executive
Directors.
2024–2026 LTI awards
We have reviewed the performance measures for LTI awards
considering the next phase of our strategy over 2024 to 2026. We will
retain Group RoTE, relative TSR and environment targets, reflecting
our strategic commitments, and to measure relative performance
compared with peers. The capital reallocation to Asia measure was
previously included to retain focus on repositioning the Group’s capital
base through the transformation of the business. While our
operations in Asia continue to be of significant strategic importance to
the Group, it was the Committee’s view that this measure no longer
appropriately incentivises the delivery of sustainable returns
achievable across wider markets in which HSBC operates. We are
simplifying the 2024–2026 LTI by removing this metric and increasing
the weighting of RoTE and relative TSR.
The relative TSR peer group was amended for 2023 to include more
Asian peers to better reflect our growth and investment focus. We do
not propose to make any changes for 2024 other than the removal of
the Credit Suisse Group following its acquisition by UBS Group.
Fixed pay for 2024
We have increased the base salary of our executive Directors by 3%,
effective from 1 March 2024. The increase is lower than the overall
fixed pay increase of 4.4% for our wider workforce.
Remuneration in 2024
The Committee welcomes the change announced by the PRA and the
Financial Conduct Authority ('FCA') to remove the existing limits on
the ratio between fixed and variable pay.
The announcement, together with the wider considerations on the
overall competitiveness of the UK capital markets, provides us an
opportunity to consider the competitiveness of our remuneration
arrangements for our executive Directors and wider workforce.
At the 2024 AGM, we will seek shareholder approval to provide the
Committee with discretion, where regulations allow, to set an
appropriate variable to fixed pay ratio considering all relevant factors,
including our business activities and associated prudential and
conduct risks.
This will improve flexibility in the structure of remuneration to
increase the amount of pay that is variable, subject to the delivery of
performance. It will also strengthen our ability to recruit and retain
people in competitive markets where many of our international
competitors do not have similar restrictions.
We remain very supportive of the use of deferral mechanisms and the
requirements to deliver a substantial portion of variable remuneration
in shares to ensure alignment between shareholders, good risk
management and individual reward.
For our executive Directors, we have started early engagement with
institutional shareholders and proxy advisory bodies ahead of the
renewal of our Directors' remuneration policy in 2025. Over several
years, the Committee has expressed concerns around the
competitiveness of the executive Director remuneration opportunity
and indicated that our preference would be to operate a policy with a
higher proportion of the package based on variable pay linked to
performance. The Committee continues to believe in a more
performance-based structure, and we will seek shareholder approval
for a new Directors' remuneration policy at the 2025 AGM in line with
the normal three-year cycle after engaging with shareholders through
2024.
Conclusion
On behalf of the Committee, I would like to thank our shareholders
for the time taken to engage with us during the year. We welcome
the feedback on our approach to remuneration and I look forward to
engaging with you further in the year ahead as we continue our
review of the Directors’ remuneration policy, in advance of the 2025
AGM.
As Chair of the Committee, I hope you will support the 2023
Directors’ remuneration report and the resolution to remove the 2:1
cap on variable pay for our Material Risk Takers at this year's AGM.
Dame Carolyn Fairbairn
Chair
Group Remuneration Committee
21 February 2024
HSBC Holdings plc Annual Report and Accounts 2023
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Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Executive remuneration at a glance
This section sets out an overview of our performance, 2023 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 2024.
Our performance
Reported profit before
tax
$30.3bn
(2022: $17.1bn)
Employee engagement
index1
77%
(2022: 74%)
Net new invested
assets
$84bn
(2022: $80bn)
Inclusion index
78%
(2022: 76%)
Operating expenses
$32.1bn
(2022: $32.7bn)
Return on average
tangible equity
14.6%
(2022: 10.0%)
Percentage of colleagues of
Asian heritage in senior
leadership roles
37.8%
(2022: 34.0%)
Percentage of women in
senior leadership roles2
34.1%
(2022: 33.3%)
1 The 2022 employee engagement index score has been recalculated to reflect a change in the composition of questions in the 2023 index to ensure
comparisons remain valid. In 2022 the employee engagement index was reported as 73%.
2 The percentage of women in senior leadership roles excluded the Canada business held for sale.
Remuneration outcomes for executive Directors
Summary remuneration outcomes for 2023 are set out below. Further details are set out in our annual report on Directors‘ remuneration on
pages 284 to 286.
Noel Quinn
Annual incentive outcome (£000)
Georges Elhedery
Georges Elhedery did not participate in the
2021–2023 long-term incentive
Long-term incentive outcome (£000)
Single figure of remuneration (£000)
Shareholding (% of base salary)
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HSBC Holdings plc Annual Report and Accounts 2023
£2,872£2,01870.24%Maximum opportunity2023 annual incentive£1,677£1,28776.75%Maximum opportunity2023 annual incentive£5,195£4,275£3,575£1,619Vesting long-term incentiveShare price appreciationon long-term incentiveMaximum opportunity2021–2023 long-term incentive£5,562 £10,641 Base salary and fixed pay allowancePension and benefitsAnnual incentiveLong-term incentiveNotional returns on deferred cashawarded in respect of prior role 20222023£4,701£3,292Base salary and fixed pay allowancePension and benefitsAnnual incentiveLong-term incentiveNotional returns on deferred cashawarded in respect of prior roleReplacement award for forfeiture upon hire 2022(Ewen Stevenson)2023400%797% Shareholding requirementCurrent shareholding300%598% Shareholding requirementCurrent shareholding
Remuneration policy summary – executive Directors
Our Directors' remuneration policy was approved at the AGM on 29 April 2022. The full 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.
Implementation in 2024
Base salary will increase by
3% for 2024 and will be:
– Noel Quinn: £1,376,000
– Georges Elhedery:
£803,000
Fixed pay allowance (‘FPA’)
– The FPA is granted in instalments of immediately vested shares.
– On vesting, the net number of shares delivered (after those withheld to cover any income
tax and social security) are subject to a retention period and released annually on a pro-rata
basis over five years, starting from the March immediately following the end of the
financial year for which the shares are granted.
FPA will not be increased for
2024 and will remain:
– Noel Quinn: £1,700,000
– Georges Elhedery:
£1,085,000
– Dividends are paid on the vested shares held during the retention period.
Cash in lieu of pension
– 10% of base salary is paid on a monthly basis.
– This allowance, as a percentage of salary, is aligned with the maximum contribution rate
– No change to percentage of
base salary.
Annual incentive
Long-term incentive (‘LTI’)
Benefits
Shareholding guidelines
that HSBC could make for a majority of employees who are defined contribution members
of the HSBC Bank (UK) Pension Scheme.
– The maximum opportunity is up to 215% of base salary.
– Performance is measured against an individual scorecard.
– At least 50% of any award is delivered in shares, which are normally immediately vested.
– On vesting, 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 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 is 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, 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 on the same terms as the annual incentive.
– 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.
– No change to opportunity.
– See page 288 for 2024
measures.
– No change to opportunity.
– See page 287 for details of
the 2024–2026 LTI awards.
– Benefits to be provided as
per policy and details
disclosed in the Annual
Report and Accounts 2024
single figure of
remuneration table.
– No change to percentage of
base salary.
– Participation will be
disclosed in the respective
Annual Report and
Accounts, as required.
HSBC Holdings plc Annual Report and Accounts 2023
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Annual report on Directors’ remuneration
This section sets out how our approved Directors’ remuneration policy was implemented during 2023.
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. Both executive Directors met this requirement for 2023.
The award is determined by applying the outcome of their annual
scorecard to the maximum opportunity, set at 215% of base salary.
The financial measures, weightings and targets were set at the start
of the financial year to align with our reported financial performance
and before significant changes in the interest rate environment. They
considered the 2023 financial plan, data from 2022, external
commitments, scenario testing of upside and downside risks in the
plan, and analyst consensus where relevant.
The Committee considered carefully the wider context in which
performance was delivered and the impact of strategic transactions
and one-offs on the Group's financial performance in 2023, including
the favourable year-on-year impact of $4.1bn relating to the sale of
our retail banking operations in France and the provisional gain on the
acquisition of SVB UK, balanced with the $3.0bn impairment charge
relating to the investment in BoCom.
Consistent with the approach in prior years, the Committee judged
that it was appropriate to assess financial performance for the
purpose of the annual scorecard excluding these items, to ensure that
out-turns were not impacted by one-offs. The assessment of RoTE
and profit before tax measures therefore excluded strategic
transactions and the BoCom impairment.
The Committee also considered the impact of interest rates on
performance and noted that macroeconomic fluctuations remain a
frequent driver of the Group’s business outcomes for our executives
to manage. In recent years these factors have not led to discretionary
scorecard adjustments for our executive Directors, either positive or
negative, which the Committee continues to believe is appropriate.
Performance was above the maximum targets for Group profit before
tax, Group RoTE and Asia RoTE. On our cost target basis, growth was
6% versus our target of approximately 3% compared with 2022 and
below the performance range.
For strategic measures, diversity representation targets were set
based on a trajectory to meet our external commitments. Other
Annual incentive scorecard assessment
(Audited)
Summary assessment
measures were set based on maintaining or improving when
compared with 2022 performance and/or market benchmarks.
The Inclusion index in our employee Snapshot survey exceeded
target, and was significantly above the financial services benchmark.
We met or exceeded our senior leadership diversity representation
targets. Our customer net promoter score ('NPS') performance was
largely positive relative to our competitors in most areas of our
business.
The Committee considered that the scorecard outcome for personal
measures for both Noel Quinn and Georges Elhedery was appropriate
against the targets set at the start of the year.
Overall, this resulted in a formulaic scorecard outcome of 75.93% of
the maximum for Noel Quinn and 76.75% for Georges Elhedery.
The Committee discussed at length whether the risk and compliance
modifier should be applied for 2023 for the Group’s performance
against key risk metrics, including the historical failings identified by
the PRA in its Notice of 29 January 2024.
As part of its deliberations, the Committee reflected on the overall
risk management in the year, and in respect of the PRA Notice: the
nature of the failings identified; the regulator’s finding that the
breaches identified were not deliberate or reckless; fines levied; and
the tenure and specific responsibilities of the executive Directors in
relation to the issues covered.
Taking into account inputs from the Group Risk Committee and Noel
Quinn's overall accountability for the performance and risk
management of the Group in 2023, the Committee used its
judgement and applied a downward adjustment of 7.50% to his
scorecard outcome.
This results in a final outcome of 70.24% of the maximum opportunity
for Noel Quinn (2022: 75.35%) and an annual incentive of £2,018,000,
which is 7% lower than £2,164,000 in 2022.
No risk and compliance modifier was applied for Georges Elhedery
who was appointed as Group Chief Financial Officer on 1 January
2023, after all underlying issues identified by the PRA had been fully
remediated. Georges Elhedery's scorecard outcome of 76.75%
results in an annual incentive of £1,287,000.
Minimum
(25.0%
payout)
Maximum
(100.0%
payout)
25.8
31.0
12.0%
12.8%
11.8
36.6
58.8
30.3
30.5
14.5%
15.0%
13.1
56.8
79.0
Performance2
31.6
31.6
15.6%
16.8%
11.84
55.1
84.3
See following tables for commentary
Profit before tax1 ($bn)
Target basis operating
expenses ($bn)
Group RoTE1
Asia RoTE1
Fee income ($bn)
Growth in
net new
invested
assets ($bn)
Total
Total (ex
Hong Kong)
Customer satisfaction
Employee experience
Personal objectives
Total
Scorecard outcome (000)
7.50% risk adjustment per
Committee judgement (000)
Annual incentive (000)
1 Assessed excluding strategic transactions and BoCom impairment.
2 The CET1 capital ratio underpin was met.
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Weighting
(%)
Noel Quinn
Assessment
(%)
Outcome
(%)
Weighting
(%)
Georges Elhedery
Assessment
(%)
Outcome
(%)
15.0
15.0
15.0
5.0
5.0
2.5
2.5
15.0
15.0
10.0
100.0
15.0
15.0
15.0
5.0
5.0
2.5
2.5
15.0
15.0
10.0
100.0
100.00
15.00
—
100.00
100.00
25.55
—
15.00
5.00
1.28
93.73
2.34
100.00
91.67
93.75
2.50
13.75
14.06
7.00
75.93
£2,181
£(163)
£2,018
100.00
15.00
—
100.00
100.00
25.55
—
15.00
5.00
1.28
93.73
2.34
100.00
91.67
93.75
2.50
13.75
14.06
7.81
76.75
£1,287
£0
£1,287
Stakeholder measures for Noel Quinn and Georges Elhedery
Customer
satisfaction
– NPS is sourced from our strategic NPS surveys with results gathered
15.0%
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
the target in digital markets. Across other growth markets we met our
maximum NPS target.
– In WPB, our NPS increased in five of our six key markets (Hong Kong,
through independent third-party research agencies. The assessment is
against quantitative targets set based on the level of improvement from the
prior year and in rank position.
– In the UK and Hong Kong, we met our maximum NPS target and largely met
mainland China, Mexico, India and Singapore). In the UK, the slight decline
of our NPS was driven by mass affluent customers. We ranked among the
top three banks in three of our six key markets. In Hong Kong, we remained
in first place overall, leading the market with our mobile app performance.
Our rank remained in the top three in mainland China, and rose to the top in
India.
Assessment (%) Outcome (%)
91.67%
13.75%
Employee
experience
Improve
diversity and
inclusion
15.0%
– In CMB, we ranked among the top three banks in four of our six key
markets. We were first place in Hong Kong and within the top three in
mainland China, Singapore and Mexico.
– In GBM, we ranked in first place globally for NPS and digital satisfaction.
– The Inclusion index in our employee Snapshot survey increased by two
percentage points and exceeded the maximum target of 77%. The score is
seven points above the external financial services benchmark.
– The percentage of Black heritage colleagues in senior leadership roles
increased by 0.5 percentage points to 3.0%, meeting the maximum target
and on track to meet our external commitment of 3.4% by 2025.
– We made a 3.8 percentage point year-on-year net gain in senior leadership
representation of colleagues with Asian heritage, against a 2022 year-end
baseline of 34.0%
– The percentage of women in senior leadership roles increased by
0.8 percentage points to 34.1%, meeting the target, and below the
maximum. The targets excluded the Canada business held for sale.
Including colleagues in HSBC Canada, gender representation in senior
leadership is 34.2%.
93.75%
14.06%
Personal objectives for Noel Quinn and Georges Elhedery
For each executive Director, personal objectives were set at the start of the year and measured by the Committee against agreed targets and key performance
indicators.
Noel Quinn
Weighting Assessment Performance achievement
Technology
transformation
4.0%
50.00%
– Our Cloud adoption rate, which is the percentage of our technology services on the private or public Cloud,
increased to 43% (2022: 35%). At the end of 2023, about 54% of our WPB customers were 'mobile active'
users (2022: 49%) and the proportion of WPB sales completed digitally increased to 49% (2022: 43%).
– The Committee's assessment balanced strong progress automating our organisation at scale against the
targets set, and progress to deliver our wider multi-year technology strategy.
Progress on
innovation
programmes
Simplification of
processes and
organisation
4.0%
100.00%
– Several strategic investments were made in Asia including Meditrust, a unicorn start-up, which will support
HSBC Life’s Pinnacle proposition in mainland China. Investments were made in a joint venture with
Tradeshift, an existing Ventures investment, which will support the trade finance business to deploy a range
of technology solutions.
– In 2023, Zing, our new international payments business aimed at non-HSBC customers, was launched, and
a digital currency capability with eHKD was piloted in Hong Kong. We became the first bank to pioneer
quantum protection for foreign exchange trading, and were one of the first international banks to participate
in China’s eCNY programme.
– Progress was made on several generative AI use cases including developer productivity, knowledge
management and content generation. Our first AI patent to be used to detect cyber threats, was filed.
2.0%
50.00%
– Strong progress was made with the completion of the exit from Greece, merger in Oman, and sale of the
New Zealand WPB mortgage portfolio.
– The sale of our retail banking portfolio in France was completed on 1 January 2024 and we remain on track
to sell our retail banking operations in Canada in the first quarter of 2024.
– The timing of our planned exit from our business in Russia was impacted by dependency on the regulatory
and government approval process, which is outside of HSBC’s control.
– Exits from our WPB business in Mauritius and our hedge fund administration business were announced.
Total
7.00% out of 10.00%
Georges Elhedery Weighting Assessment Performance achievement
Deliver activities
relating to
regulatory priorities
2.5%
58.33%
– The Integrity of Regulatory Reporting programme continues to remediate against known gaps to deliver
improvements in quality of regulatory returns.
– The Bank of England Resolvability Assessment Framework self-assessment was submitted, demonstrating
Deliver Finance
change
transformation and
digitisation
More energised
Finance workforce
Drive liquidity and
capital management
across the Group
2.5%
62.50%
2.5%
100.00%
2.5%
91.67%
Total
7.81% out of 10.00%
an uplift in the Group’s capabilities.
– Certain climate considerations have been assessed and incorporated into the annual financial planning cycle.
We also enhanced our climate scenario analysis capabilities in line with plan.
– For the remediation of interest rate risk in the banking book, all 2023 targeted actions were completed from
a first line of defence perspective, subject to second and third line of defence review and confirmation in
early 2024 as planned.
– Identified Finance change transformation activities have been deployed in line with plans.
– Global Finance employee engagement index increased to 79% (2022: 74%), exceeding the target set.
– Global Finance career index increased to 69% (2022: 65%), exceeding the target set.
– The Group’s CET1 capital ratio was delivered above our target operating range.
– Planned liquidity optimisation outcomes were successfully met.
– Targets relating to earnings stabilisation were assessed as met.
HSBC Holdings plc Annual Report and Accounts 2023
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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 remuneration of each executive Director for 2023, together with comparative figures. This is the
first vesting LTI for Noel Quinn since his appointment as Group Chief Executive in 2020 and so materially changes the composition of his single
figure of remuneration for 2023.
Single figure of remuneration
(£000)
Base salary
Fixed pay allowance (’FPA’)
Cash in lieu of pension
Taxable benefits2
Non-taxable benefits
Total fixed
Annual incentive3
Notional returns4
Replacement award
Long-term incentive5
Total variable
Total fixed and variable
Noel Quinn
Georges Elhedery1
2023
1,336
1,700
134
127
89
3,386
2,018
43
—
5,195
7,256
10,641
2022
1,329
1,700
133
119
86
3,367
2,164
31
—
—
2,195
5,562
2023
780
1,085
78
4
52
1,999
1,287
6
—
—
1,293
3,292
2022
—
—
—
—
—
—
—
—
—
—
—
—
1 Georges Elhedery was appointed Group Chief Financial Officer from 1 January 2023.
2 Taxable benefits include the provision of medical insurance, car benefit, accommodation 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 Annual incentive awards to the executive Directors are awarded 50% in cash and 50% in shares. The shares portion of the award vests immediately
at grant and is subject to a retention period of one year and clawback provisions.
4 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
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.
5 An LTI award over 1,118,554 shares was made in February 2021 (in respect of 2020) at a share price of £4.262 for which the performance period
ended on 31 December 2023. The value has been computed based on a share price of £6.192, the average share price during the three-month period
to 31 December 2023. The value attributable to share price appreciation is £1,619,106. See the following section for details of the assessment
outcomes, which resulted in 75.00% vesting due to performance.
Benefits
The values of the significant benefits in the single figure table are set out in the following table. The insurance benefit for Noel Quinn has
increased year on year because of the increase in premium at annual renewal. The car benefits for Georges Elhedery are not included in the
table below as they were not deemed significant.
(£000)
Insurance benefit (non-taxable)
Accommodation in Hong Kong (taxable)
Car and driver in UK and Hong Kong (taxable)
Long-term incentive (’LTI’) awards
(Audited)
LTI awards over 2021 to 2023 performance period
The 2021–2023 LTI award was granted to Noel Quinn and Ewen
Stevenson in February 2021. Georges Elhedery was in a different role
at the time and did not receive the 2021–2023 LTI award.
The scorecard delivered an outcome of 75.00%, reflecting a
significant improvement in shareholder returns across the
performance period.
In line with the terms of his departure, Ewen Stevenson is a good
leaver and his award has been pro-rated for time in employment.
Based on the performance outcome, 838,915 shares will vest for
Noel Quinn and 371,697 shares will vest for Ewen Stevenson. The
awards will vest in five equal annual instalments commencing in
March 2024.
The Committee is mindful of executives not experiencing ’windfall
gains’ through the granting of LTI awards when a share price is
Noel Quinn
Georges Elhedery
2023
84
67
47
2022
82
39
69
2023
49
—
—
2022
—
—
—
particularly low. We introduced an upfront windfall gains check for the
2021–2023 LTI award such that if the LTI grant share price
experienced a greater than 30% decline since the previous grant,
then a downward adjustment would be made. The Committee
determined that there were no windfall gains to consider for this
award given the share price at grant (£4.26) was 24% below the
share price at the previous LTI grant (£5.62).
The 2021–2023 LTI award is subject to a risk and compliance
modifier. The Committee received input from the GRC who assessed
that the performance targets were delivered with appropriate risk
management. On this basis, the Committee considered that no
adjustment for risk should be made to the 2021–2023 LTI award. The
CET1 capital ratio underpin for the 2021–2023 LTI award was also
met.
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HSBC Holdings plc Annual Report and Accounts 2023
Assessment of the 2021–2023 LTI awards
Measures (weighting)1
RoTE with CET1 capital ratio underpin2
(25.0%)
Capital reallocation to Asia with CET1
capital ratio underpin3 (25.0%)
Transition to net
zero4 (25.0%)
Carbon reduction
(own emissions)
Sustainable finance
and investment
Relative TSR5 (25.0%)
Total
Minimum
(25.0% payout)
Target
(50.0% payout)
Maximum
(100.0% payout)
8.0%
45.0%
42.0%
9.0%
47.0%
48.0%
10.0%
50.0%
51.0%
Actual
Assessment Outcome
14.6%
100.0%
25.00%
43.4%
0.0%
0.00%
57.3%
100.0%
12.50%
$200.0bn
$240.0bn
$260.0bn
$294.0bn
100.0%
12.50%
At median of the
peer group
Straight-line
vesting between
minimum and
maximum
At upper quartile
of the peer group
Above upper
quartile
100.0%
25.00%
75.00%
1 Awards vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set out in this table.
2 Assessed based on RoTE in the 2023 financial year. The CET1 capital ratio underpin was met.
3 Assessed based on share of Group tangible equity (on a constant currency basis and excluding associates) allocated to Asia by 31 December 2023,
which was not met.
4 Carbon reduction assessed on percentage reduction in total energy and travel emissions achieved by 31 December 2023 using 2019 as the baseline.
Sustainable finance and investment assessed on cumulative financing provided over the performance period.
5 The peer group was: Bank of America, Barclays, BNP Paribas, Citigroup, DBS Group Holdings, Deutsche Bank, J.P. Morgan Chase & Co., Lloyds
Banking Group, Morgan Stanley, Standard Chartered and UBS Group. Credit Suisse Group was removed from the peer group following its acquisition
by UBS Group in June 2023.
LTI awards over 2024 to 2026 performance period
After taking into account performance for 2023, the Committee
decided to grant Noel Quinn an LTI award of £4,275,000 and Georges
Elhedery an LTI award of £2,496,000 (both 320% of base salary).
– Our emissions reduction targets have been set based on meeting
our commitments to procure 90% renewable energy by 2025 and
halve energy consumption and travel emissions by 2030.
The awards will have a three-year performance period starting on
1 January 2024.
The Committee has reviewed the performance measures considering
feedback from shareholders and the next phase of our strategy. We
are simplifying and improving the focus on shareholder returns by
assessing performance on three measures, including RoTE and
relative TSR which are equally-weighted financial measures, and a
third measure linked to our climate ambitions.
The capital reallocation to Asia measure was previously included to
retain focus on repositioning the Group’s capital base through the
transformation of the business. While our operations in Asia continue
to be of significant strategic importance to the Group, it was the
Committee’s view that this measure no longer appropriately
incentivised the delivery of sustainable returns achievable across
wider markets in which HSBC operates.
Targets have been set to balance stretch and achievability so that
awards act as an effective incentive for management, and incentivise
outperformance, aligned to our external strategic commitments.
– The minimum threshold for the RoTE measure is aligned to our
external commitment of mid-teens RoTE over the medium term.
– The relative TSR peer group was amended for 2023 to include
more Asian peers to better reflect our growth and investment
focus. No changes have been made for 2024 other than the
removal of the Credit Suisse Group following its acquisition by
UBS Group.
– Our sustainable finance and investments measure is based on our
ambition announced in 2020 to provide $750bn to $1tn of
financing and investment by 2030. Although the target range is
lower than for the 2023–2025 LTI awards, we are on track to meet
our 2030 ambition, with changing market conditions slightly
impacting our year-on-year trajectory.
The LTI is subject to a risk and compliance modifier, which gives the
Committee the discretion to ensure performance targets are delivered
with appropriate risk management.
The RoTE measure is subject to a CET1 capital ratio underpin. If the
CET1 capital 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.
The number of shares to be awarded will be adjusted to reflect the
expected dividend yield of the shares over the vesting period, as
awards are not entitled to dividend equivalents in accordance with
regulatory requirements.
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.
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Performance conditions for the 2024–2026 LTI awards
Measures (weighting)1
RoTE with CET1 capital ratio underpin2 (37.5%)
Carbon reduction
(own emissions)
Environment3 (25.0%)
Sustainable finance
and investment
Relative TSR4 (37.5%)
Minimum
Target
Maximum
(25.0% payout)
14.0%
(50.0% payout)
16.0%
(100.0% payout)
17.0%
66.0%
$539.0bn
70.0%
$641.0bn
74.0%
$693.0bn
At the median of the peer
group
Straight-line vesting
between minimum and
maximum
At the upper quartile of the
peer group
Subject to risk and compliance modifier
The Group Remuneration Committee retains the discretion to revise down the formulaic outcome taking into account performance against risk and compliance
factors during the performance period.
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, subject to the CET1 capital ratio underpin.
3 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2026 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 2026.
4 The peer group for the 2023 award is: Bank of China (Hong Kong), Barclays, BNP Paribas, China Merchants Bank, Citigroup, DBS Group Holdings,
J.P. Morgan Chase & Co., Lloyds Banking Group, OCBC Bank, Standard Chartered and UBS Group.
Annual incentive measures for 2024
The 2024 annual incentive scorecard measures for our executive
Directors have been set to incentivise the delivery of the next phase
of our strategy.
We have reduced the number of financial measures, reflecting
feedback from shareholders to simplify our approach and ensure
focus on our key strategic commitments. The weighting of Group
RoTE has increased to 25% (from 15% in 2023). The overall
weighting of financial measures remains at 60%.
Financial measures will be assessed on a reported basis excluding
notable items so that the outcome reflects performance excluding the
impact of one-off and items not controlled by management.
Our first net zero transition plan was launched in January 2024 setting
out our approach to net zero and the actions we are taking. To
support our ambition, a sustainability measure has been added to the
annual scorecard, which will be assessed based on the execution of
our sustainability commitments against Board approved plans.
Personal measures have been set to ensure meaningful weighting for
the most critical objectives for each executive Director.
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 2024 annual
incentive scorecard for executive Directors are in the adjacent table.
The targets have been set to reflect the Group’s 2024 plan, while
considering macroeconomic uncertainty, including the interest rate
environment and inflation. 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 in the 2024 Directors’
remuneration report.
2024 annual incentive performance measures
Financial (all measures subject to CET1 capital ratio
underpin, and excluding notable items)
Weighting
60.0%
15.0%
15.0%
25.0%
5.0%
30.0%
15.0%
10.0%
5.0%
10.0%
Profit before tax
Operating expenses
Group RoTE
Asia RoTE
Stakeholders
Customer satisfaction
Improvement in NPS scores/rank
Employee experience
Gender and ethnicity representation and Inclusion index score
Execution of our sustainability commitments against Board
approved plans
Personal measures
– Group Chief Executive: Technology transformation and
enhanced Board information
– Group Chief Financial Officer: Delivery of regulatory change
programmes (including regulatory reporting), enhancement of
external disclosures and robust liquidity and capital
management
Subject to risk and compliance modifier
The Group Remuneration Committee retains the discretion to
revise down the formulaic outcome taking into account
performance against risk and compliance factors during the
performance period.
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Our approach to workforce reward
Our goal is to deliver a unique and exceptional experience to energise
colleagues to perform at their best. This is critical to strengthening our
ability to attract, retain and motivate the people we need, in
competitive markets where employee expectations continue to
evolve.
Our approach is centred on our purpose and values, and our reward
principles and commitments are:
– We will reward our colleagues responsibly through fixed pay
security and protection through core benefits, a competitive total
compensation opportunity, pay equity, and a more inclusive and
sustainable benefits proposition over time.
– We will recognise colleagues' success through our performance
culture and routines, including feedback and recognition, pay for
performance, and all employee share ownership opportunities.
– We will support our colleagues to grow through our proposition
beyond pay, with a focus on future skills and development,
support for well-being, and flexibility.
Pay is an important part of our overall proposition. Our focus is
improving transparency and clarity for colleagues so they understand
better how we make pay decisions.
For 2024, we will introduce a new variable pay structure for over
150,000 junior and middle management colleagues, providing more
clarity around the variable pay levels for on-target performance, while
retaining flexibility to differentiate outcomes for performance.
We have been certified by the Fair Wage Network as a global Living
Wage employer for 2024. This is an important commitment to give
colleagues confidence that our fixed pay levels are sufficient to
provide financial security.
The section below highlights some of our achievements in 2023.
We will reward you responsibly
78% ▲ up 5% from 2022
of colleagues say pay recommendations
determined regardless of personal
characteristics
52% ▲ up 9% from 2022
of colleagues say they are paid fairly for
what they do
59% same as 2022
of colleagues say my benefits meet my
(and my family's) needs well
We will recognise your success
81% ▲ up 7% from 2022
of colleagues say they receive feedback
helping them improve performance
1.4 million recognitions
the highest since the At Our Best
recognition platform was launched in 2015
We will support you to grow
78% ▲ up 20% from 2022
of colleagues work flexibly and split their
time between home and the workplace
71% ▲ up 3% from 2022
our career index is higher than the
financial services benchmark by 6%
Many of our colleagues found 2023 to be a challenging year. While inflation has
fallen from levels seen in 2022, it remains high across many of our markets, which
has resulted in continued pressures on the cost of living.
Fixed pay increases for 2024 were determined based on consistent principles to
help address wage inflation in the markets where we operate. Across the Group,
there was an overall increase in fixed pay of 4.4%. The level of increases varied by
market, depending on the economic situation and individual roles. Increases were
targeted towards more junior and middle management colleagues where fixed pay
is a larger proportion of overall pay.
We continued to take action outside of our annual cycle to address inflation
pressures for colleagues, where the local context required this. In Argentina and
Türkiye, we gave our colleagues fixed pay increases throughout the year. In Egypt,
we supported our colleagues with a one-off pay adjustment in response to high
inflation.
Over 90% of colleagues have access to share ownership plans globally, with 25%
of our global employee population taking part. In the UK, following the maturity of
the three-year 2020 Sharesave plan with an option price of £2.627, colleagues
benefited from significant share price growth at a time when they needed it most.
The 2020 plan had the highest take up rate and contribution level in recent years.
Our approach to benefits and well-being balances local market practice with global
minimum standards. More than 95% of colleagues have private medical insurance,
a retirement plan and life insurance.
Our well-being programme focuses on mental, physical, financial and social well-
being. In our employee Snapshot survey, 83% of colleagues said their mental
health was positive. HSBC has been ranked top tier for mental health in the global
CCLA Corporate Mental Health Benchmark.
We have prioritised supporting colleagues to work flexibly, balancing customer
needs, social connection and individual flexibility. Flexible working remains one of
the most cited reasons why colleagues would recommend HSBC as a place to
work, and a third of new joiners say it is what attracted them to HSBC.
We have delivered a world-class talent marketplace and learning experience
platform, providing learning pathways, projects and networking opportunities to
more than 200,000 colleagues. An average of 23.9 hours of training was delivered
per FTE in 2023.
HSBC Holdings plc Annual Report and Accounts 2023
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Remuneration structure for employees
We set out below the key features of our remuneration framework, which applies on a Group-wide basis, subject to compliance with local laws:
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.
Buy-out awards
Support recruitment of
key individuals.
Application for Group employees
– Fixed pay may include base 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 colleagues.
– 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
– Provision of medical
insurance, 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.
– Variable pay represent a higher proportion of total compensation for more senior
colleagues 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.
– 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.
– For new hires, the approach
is consistent with the
approach taken for
employees and policy
approved by shareholders.
New hire indicative
variable pay
Support recruitment of
key individuals.
– New hire indicative variable pay is awarded in exceptional circumstances, and is limited to
an 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.
– The exceptional circumstances would typically involve a critical new hire and depend on
factors such as the seniority of the individual, whether the new hire candidate is forfeiting
any awards and the timing of the hire during the performance year.
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HSBC Holdings plc Annual Report and Accounts 2023
Remuneration
components and
objectives (continued)
Deferral
Align employee
interests with the
medium- to long-term
strategy, stakeholder
interests and values-
aligned behaviours.
Application for Group employees
Approach for executive Directors
– A Group-wide deferral approach is applicable to all employees. A portion of annual
– All of the LTI award, or at
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.
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.
– 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 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, for good leavers, 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 2023
291
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Committee governance
The Group Chief Executive, the Group Chief Risk and Compliance
Officer, the Group Company Secretary and Chief Governance Officer,
the Group Chief Human Resources Officer, and the Group Head of
Performance, Reward and Employee Relations routinely and
selectively attend Committee meetings. As detailed below, the Chair
of the Group Remuneration Committee held regular meetings with
management, and Committee advisers to discuss specific issues as
they arose during the year outside the formal Committee process.
The Committee Secretary regularly met with the Chair to ensure the
Committee fulfilled its governance responsibilities, to consider input
Matters considered during 2023
from stakeholders when finalising meeting agendas and track
progress on actions and Committee priorities. The Committee
Secretary will continue to support the Chair in ensuring that the
Committee has fulfilled its governance responsibilities.
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.
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
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
Jan
Feb May
Jun
Jul
Sep
Dec
l
ô
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
l
ô
ô
ô
ô
l
l
l
l
l
l
l
ô
l
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ô
ô
l
l
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l
l Matter considered
ô Matter not considered
Advisers
The Committee received input and advice from different advisers on
specific topics during 2023. Deloitte provided independent advice to
the Committee. Deloitte also provided tax compliance and other
advisory services to the Group in 2023. 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 also
provides actuarial support to Global Finance, benchmarking data for
the wider workforce 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 2023.
For 2023, total fees of £292,800 and £51,492 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.
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;
– Georges Elhedery, Group Chief Financial Officer;
– Jenny Craik, Group Head of Performance, Reward and Employee
Relations;
– Pam Kaur, Group Chief Risk and Compliance Officer;
– Bob Hoyt, Group Chief Legal Officer; 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 Committee meetings when their own
remuneration is discussed.
In addition to the meetings above, the Chair took the opportunity to
meet with the Chair of the Group Risk Committee and Group Audit
Committee to consider 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
In 2023, the annual review of the effectiveness of the Board
committees, including the Group Remuneration Committee, was
conducted externally by Ffion Hague, Independent Board Evaluation.
The review determined that the Committee continued to operate
effectively.
Areas for enhancement were identified, including continued focus on
the relationship between the Group and its subsidiary entities,
building on the efforts taken under the direction of the Committee
Chair, which will be kept under review in 2024.
The outcomes of the evaluation have been reported to the Board, and
the Committee will track the progress in implementing
recommendations during 2024.
As highlighted in the Board effectiveness review disclosure on
page 261, the Board considered that further improvement is required
to ensure reporting is succinct and supported by relevant key
performance indicators. Further details of the annual review of the
Board effectiveness review can be found on pages 260 to 261.
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HSBC Holdings plc Annual Report and Accounts 2023
Additional remuneration disclosures
This section provides further information and disclosure in relation to
executive Director and wider workforce remuneration as required
under the Directors' Remuneration Report Regulations, the UK
Corporate Governance Code, 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.
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.
– The Committee regularly engages and consults with major 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.
Simplicity
Remuneration structures should avoid complexity
and their rationale and operation should be easy
to understand.
– 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 is clearly set out.
Risk
– In line with regulatory requirements, our remuneration practices promote sound and effective 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.
Alignment with culture
Incentive schemes should drive behaviours
consistent with the Group's purpose, values and
strategy.
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 are subject to a CET1 underpin to ensure CET1 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.
– 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
strategy. These include measures related to reducing the environmental impact of our operations,
improving customer satisfaction, diversity and inclusion.
– Each year senior employees participate in a 360 survey, which gathers feedback on values-aligned
behaviours from peers, direct reports, skip level reports and managers.
HSBC Holdings plc Annual Report and Accounts 2023
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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 to support our business objectives and the delivery of our strategy.
We set out below the key features of our framework, which enable us to align 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 and non-financial 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, considering 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
– 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; and risk and compliance measures.
Control
function staff
– A mandatory global risk and compliance objective is included for all other employees. 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.
– 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.
– The performance and reward of individuals in control functions, including risk and compliance colleagues, 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.
– Remuneration is carefully benchmarked with the market and internally to ensure it is set at an appropriate level.
– 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
– 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
– 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
– 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.
–
Sales
incentives
Identification
of MRTs
– Clawback can also be applied to vested or paid awards granted to designated Executive Officers as defined by the US Securities
and Exchange Commission ('SEC') for a period of three years in the event of an accounting restatement due to material non-
compliance with any financial reporting requirement under the US securities laws.
– 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 qualitative and quantitative criteria set out in the PRA's and FCA's Remuneration Rules.
Our identification process is underpinned by the following key principles:
– 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 a colleague’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 Remuneration Rules.
294
HSBC Holdings plc Annual Report and Accounts 2023
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 2023.
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.
The FTSE 100 Total Return Index has been chosen as a recognised
broad equity market index of which HSBC Holdings is a member.
HSBC TSR and FTSE 100 Total Return Index
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Group Chief Executive
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Total single figure £000
Annual incentive1 (% of maximum)
Long-term incentive1,2,3 (% of maximum)
7,619
54%
44%
7,340
45%
41%
5,675
64%
–%
6,086
80%
–%
2,387
76%
100%
John
Flint
4,582
76%
–%
John
Flint
Noel
Quinn
Noel
Quinn
Noel
Quinn
Noel
Quinn
Noel
Quinn
2,922
61%
–%
1,977
66%
–%
4,154
32%
–%
4,895
57%
–%
5,562
75%
–%
10,641
70%
75%
1 The 2012 annual incentive figure for Stuart Gulliver included 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 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 of remuneration 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 2014 to 2015 are therefore related to awards granted in 2015 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. 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 received the 2021–2023 LTI award that had a
performance period which ended on 31 December 2023. This was the first LTI award granted to him as Group Chief Executive.
Voting results from Annual General Meeting
2023 Annual General Meeting voting results
Remuneration report (votes cast)
Remuneration policy (votes cast from 2022 Annual General Meeting)
For
79.75%
8,251,001,243
95.73 %
7,666,488,029
Against
20.25%
2,094,952,768
4.27 %
342,320,697
Withheld
––
32,990,533
––
7,773,468
As set out in the Committee Chair's letter, the Committee reflected
on feedback from investors following the vote on the implementation
of our current policy at last year’s AGM. We explained in our
statements of 5 May 2023 and 3 November 2023 that our largest
shareholder voted against the Board’s recommendations on a number
of resolutions including the Directors’ remuneration report, which
impacted the results of these resolutions.
The Board was pleased that a large majority of shareholders voting at
the AGM supported HSBC’s strategy. The Committee Chair has met
with several of our large institutional investors and proxy advisory
firms since the AGM, and there remains strong support for the
current remuneration policy.
HSBC Holdings plc Annual Report and Accounts 2023
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HSBC TSRFTSE 100 Total Return IndexDec 2013Dec 2014Dec 2015Dec 2016Dec 2017Dec 2018Dec 2019Dec 2020Dec 2021Dec 2022Dec 2023100%200%Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
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 and benefits for the Group Chief Executive is the single
figure of remuneration for Noel Quinn. The increase in median ratio is
primarily driven by the vesting of the 2021–2023 long-term incentive
('LTI'), which is the first he has received as Group Chief Executive.
Excluding the LTI vesting in respect of the year, the ratio remained
broadly in line with prior years at 86:1 at median.
Total pay ratio
Method
A
A
A
A
A
Lower
quartile
291:1
167:1
154:1
139:1
169:1
Median
169:1
95:1
90:1
85:1
105:1
Upper
quartile
88:1
49:1
46:1
43:1
52:1
2023
2022
2021
2020
2019
Total pay and benefits amounts used to calculate the ratio
Lower quartile
Median
Upper quartile
Total
pay and
benefits
36,528
33,284
31,727
29,833
28,920
Total
salary
27,680
24,615
27,666
23,264
24,235
Total
pay and
benefits
63,000
58,257
54,678
48,703
46,593
Total
pay and
benefits
Total
salary
121,223 89,506
113,778 95,000
106,951 84,000
75,000
96,386
72,840
93,365
Total
salary
45,536
41,000
41,500
36,972
41,905
(£) Method
2023
2022
2021
2020
2019
A
A
A
A
A
The total pay and benefits for the median employee for 2023 was
£63,000, an 8.1% increase compared with 2022.
Our UK workforce comprises a diverse mix of colleagues 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 colleagues 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 remuneration 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
and progression policies for our UK workforce, taking into account the
diverse mix of our UK employees, the pay 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 2023. 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
nearly 33,000 UK employees, other than the Group Chief Executive.
We calculated our pay quartiles and benefits information for our UK
employees using:
– full-time equivalent annualised fixed pay, which includes base
salary and allowances, at 31 December 2023;
– variable pay awards for 2023;
– 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;
– gains realised from exercising awards from taxable employee
share plans; and
– 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
2023. 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.
The reported ratios may not be comparable to our international and
listed peers on the FTSE 100, given differences in business mix and
size; employment and compensation practices; methodologies for
computing pay ratios; and assumptions used by companies.
Relative importance of spend on pay
The following chart shows the change in:
– total employee pay between 2022 and 2023; and
– dividends and share buy-backs in respect of 2022 and 2023.
In 2023, total spend on pay was slightly higher than in 2022. The total
return to shareholders increased by 156% compared with 2022,
reflecting a higher dividend and $7bn of capital return to shareholders
through share buy-backs, which included the up to $3bn buy-back
announced at our third quarter of 2023 results. In addition, the Group
has announced the intention to initiate a further up to $2bn buy-back.
Dividends include an approximation of the amount payable in April
2024 in relation to the fourth interim dividend of $0.31 per ordinary
share.
Relative importance of spend on pay
2023 —
$11,816m
$7,000m
$18,816m
Total return to
shareholder
2022 —
$6,343m $1,000m $7,343m1
Employee pay
2023 —
2022 —
$18,220m
$18,003m
↑
156%
↑
1%
Employee pay
Dividends
Share buy-back
1 In our Annual Report and Accounts 2022, we disclosed that the total
return to shareholders was $9,144m, of which $8,144m related to
dividends in 2022. This was an error and has been corrected in the
chart above.
296
HSBC Holdings plc Annual Report and Accounts 2023
Comparison of Directors’ and employees’ pay
The following table compares the changes in each Director’s base
salary, taxable benefits and annual incentive between 2020 and 2023
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 2020 and 2023. The year-on-year percentage
change in fees noted in the table below is primarily driven by any pro-
rated fees received by the non-executive Director for 2020, 2021,
2022 and 2023 based on time served by them on the Board and the
relevant Board committees and any additional responsibilities taken
Annual percentage change in remuneration
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. Page 301
provides the underlying single figure of remuneration for non-
executive Directors used to calculate the figures above.
Non-executive Directors who joined after 1 January 2023 are not
included, which includes Ann Godbehere, Kalpana Morparia, Brendan
Nelson and Swee Lian Teo.
Director/employees
Executive Directors
Noel Quinn1,2
Georges Elhedery3
Non-executive Directors
Geraldine Buckingham4
Rachel Duan5,6
Dame Carolyn Fairbairn6,7
James Forese8
Steven Guggenheimer9
José Antonio Meade Kuribreña10
Eileen Murray5
David Nish
Jackson Tai10,11
Mark Tucker
Employee group12
Base salary/fees
2021
2022
2023
2020
2023
2022
2021
2020
2023
Benefits
Annual incentive
2021
2022
2020
0.5
—
3.2
—
1.7
—
151.7
—
6.7
—
25.3
—
(48.9)
—
353.7
—
(6.7)
—
36.1
—
57.4
8.4
5.3
10.2
0.8
0.8
10.7
0.4
(65.0)
—
5.0
—
235.8
231.1
20.5
4.8
8.5
(1.5)
(1.0)
7.7
—
3.1
—
—
—
257.5
86.6
10.4
121.7
0.4
(1.4)
—
1.0
—
—
—
—
—
28.7
—
108.7
(10.8)
—
2.0
—
(100.0)
(100.0)
—
(90.0)
(71.4)
—
(13.6)
(24.0)
(54.9)
5.7
—
—
—
—
—
—
—
120.0
—
242.4
7.0
—
—
—
—
—
(100.0)
—
25.0
(100.0)
(36.5)
1.3
—
—
—
—
—
100.0
—
(50.0)
(78.9)
(77.5)
2.3
—
—
—
—
—
—
—
—
—
—
11.7
—
—
—
—
—
—
—
—
—
—
3.7
99.0
—
—
—
—
—
—
—
—
—
—
—
25.2
20.2
—
—
—
—
—
—
—
—
—
—
—
(20.0)
1 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.
2 Noel Quinn voluntarily waived the cash portion of his 2020 annual incentive. The year-on-year percentage change between 2020 and 2021 would be
-1% without this cash waiver.
3 Georges Elhedery succeeded Ewen Stevenson as Group Chief Financial Officer with effect from 1 January 2023. Year-on-year comparison for
Georges Elhedery will be available from 2024 onwards.
4 Geraldine Buckingham joined the Board on 1 May 2022.
5 Rachel Duan and Eileen Murray were appointed members of the Group Audit Committee on 1 June 2022.
6 Rachel Duan and Dame Carolyn Fairbairn did not receive taxable benefits in 2023, resulting in a 100% reduction in benefits from the prior year.
7 Dame Carolyn Fairbairn was appointed as Chair of the Group Remuneration Committee effective 29 April 2022.
8 James Forese was appointed as non-executive Chair of HSBC North America Holdings, Inc in 2021. Fees for 2021 included fees in relation to this role.
9 Steven Guggenheimer joined the Board on 1 May 2020 and therefore received fees for only part of 2020.
10 José Antonio Meade Kuribreña and Jackson Tai did not receive taxable benefits in 2021, resulting in a 100% reduction in benefits from the prior year.
11 Jackson Tai retired from the Board on 5 May 2023.
12 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.
HSBC Holdings plc Annual Report and Accounts 2023
297
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Scheme interests awarded during 2023
(Audited)
The table below sets out the scheme interests granted to executive Directors during 2023 in respect of the 2022 performance year, as
disclosed in the 2022 Directors’ remuneration report. No non-executive Directors received scheme interests during the financial year. The below
table includes details of immediate shares and fixed pay allowances in compliance with Chapter 17 of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited.
Scheme awards in 2023
(Audited)
Noel Quinn
Type of interest
awarded
LTI deferred shares1 % of base salary
Immediate shares2 % of base salary
Basis on which
award made
Fixed pay allowance3 N/A
Georges Elhedery
LTI deferred shares1 % of base salary
Immediate shares2 % of base salary
Fixed pay allowance3 N/A
Face
value
awarded
£000
Percentage
receivable for
minimum
performance
Number of
shares
awarded
End of
performance
period
5,476
1,082
300
300
300
1,599
716
192
192
192
25
N/A
N/A
N/A
N/A
25
N/A
N/A
N/A
N/A
861,422
170,206
50,080
51,435
49,291
251,474
112,568
31,962
32,827
31,459
31 December 2025
31 December 2022
N/A
N/A
N/A
31 December 2025
31 December 2022
N/A
N/A
N/A
Date of award
27 February 2023
27 February 2023
15 May 2023
21 August 2023
7 November 2023
27 February 2023
27 February 2023
15 May 2023
21 August 2023
7 November 2023
1 In accordance with the remuneration policy approved by shareholders at the 2022 AGM, the LTI award was determined at 320% of base salary for
Noel Quinn and 160% of base salary for Georges Elhedery. The number of shares to be granted was determined by taking HSBC’s closing share price
of £6.357 taken on 24 February 2023, and applying a discount based on HSBC’s expected dividend yield of 5% per annum for the vesting period
(£4.963). 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. Awards are subject to malus and
clawback for a maximum period of 10 years from the date of the award and are not eligible for dividend equivalents.
2 Immediate share awards are granted based on the previous years' performance as part of the annual incentive and are not subject to forward-looking
performance conditions. On vesting, awards will be subject to a one-year retention period. The face value of the immediate share awards have been
computed using HSBC’s closing share price of £6.357 taken on 24 February 2023. Awards are subject to clawback for a maximum period of 10 years
from the date of the award.
3 Fixed pay allowance awards are granted in instalments in accordance with the remuneration policy approved by shareholders at the 2022 AGM, and
are not subject to forward-looking performance conditions. Individual tax liabilities were satisfied in cash, therefore the face value awarded represents
the net of tax value of the shares and the number of shares awarded reflects the net of tax number of shares. The fixed pay allowance awards have
been computed using HSBC's closing share price of £5.997 taken on 12 May 2023, £5.839 taken on 18 August 2023 and £6.093 taken on
6 November 2023. These awards vest immediately and are subject to a retention period and released annually on pro-rata basis over five years,
starting in March 2024.
Performance conditions for the 2023–2025 LTI awards
(Audited)
Measures (weighting)1
RoTE (with CET1 capital ratio underpin)2 (25.0%)
Capital reallocation to Asia (with CET1 capital ratio underpin)3
(25.0%)
Environment and
sustainability4 (25.0%)
Relative TSR5 (25.0%)
Carbon reduction
Sustainable finance and
investment
Minimum
(25% payout)
13.0%
49.0%
64.0%
$588.0bn
At median of the
peer group
Target
(50% payout)
14.3%
50.5%
68.0%
$700.0bn
Maximum
(100% payout)
15.5%
52.0%
72.0%
$756.0bn
Straight-line vesting
between minimum and
maximum
At upper quartile of
peer group
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.
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
2025.
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,
J.P. Morgan Chase & Co., Lloyds Banking Group, OCBC Bank, Standard Chartered and UBS Group.
298
HSBC Holdings plc Annual Report and Accounts 2023
Executive Directors’ interests in shares
(Audited)
The shareholdings of executive Directors in 2023, including the
shareholdings of their connected persons, at 31 December 2023 (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 2023 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) can
count towards their shareholding requirement under the shareholder-
approved policy.
The Committee reviews compliance with the shareholding
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.
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.
Shares
(Audited)
Executive Directors
Noel Quinn5
Georges Elhedery5
Shareholding
guidelines
(% of salary)
Shareholding at
31 Dec 20232
(% of salary)
Share
interests
(number
of shares)
At 31 December 2023
Scheme interests
Shares awarded
subject to deferral1
Share
options3
without
performance
conditions
with
performance
conditions4
400%
300%
797%
598%
1,721,465
753,467
—
—
308,610
714,008
2,963,315
475,463
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 2023 (£6.192), and
does not include any unvested interests.
3 At 31 December 2023, Noel Quinn and Georges Elhedery did not hold any options under the HSBC Holdings Savings-Related Share Option Plan (UK).
4 LTI awards granted in February 2022 and 2023 are subject to the performance conditions as set out in the preceding sections.
5 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment. Noel Quinn and Georges
Elhedery were appointed on 5 August 2019 and 1 January 2023, respectively.
Service contracts
Payments to past Directors
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
Georges Elhedery
Contract date (rolling)
18 March 2020
1 January 2023
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.
(Audited)
HSBC has received a formal request from the former employer of
Ewen Stevenson to reduce the buy-out award granted to him in 2019
by £82,980, which will be offset against the next available vesting for
this award. The reduction will be made in line with PRA regulations,
acting on the decision made by Ewen Stevenson’s former employer.
We understand the reduction was part of a collective adjustment and
there are no concerns over Ewen Stevenson's conduct or the
discharge of his individual accountabilities.
Payments Ewen Stevenson received after he stepped down as an
executive Director are set out in the following section.
In line with the terms of his departure disclosed in our Annual Report
and Accounts 2022, Ewen Stevenson was granted good leaver status
and is therefore eligible to receive vesting of the 2021–2023 LTI
award, which was pro-rated for time in employment. Ewen’s good
leaver status is conditional upon satisfaction of non-compete
provisions under which he cannot undertake a role with a defined list
of competitor financial services firms for 12 months after his
employment ceases with HSBC. Details of the 2021–2023 LTI
outcome are outlined on page 286.
No other 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.
HSBC Holdings plc Annual Report and Accounts 2023
299
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Payments for loss of office
(Audited)
Departure terms for Ewen Stevenson
Ewen Stevenson left the Group on 30 April 2023.
In accordance with the approved Directors' remuneration policy and
contractual terms agreed for the period between 1 January 2023 and
25 October 2023, Ewen received payments totalling £703,519 in lieu
of his base salary and pension allowance. Ewen also received his
Directors’ emoluments
fixed pay allowance in respect of the same period, which totalled
£885,836 and was awarded in immediately vested shares, which are
subject to a retention period. In accordance with the approved
Directors' remuneration policy, Ewen received cash in lieu of unused
holiday totalling £73,621 on expiry of his notice period.
External appointments
During 2023, executive Directors did not receive any fees from
external appointments.
The details of compensation paid to executive and non-executive Directors for the year ended 31 December 2023 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
2023
£000
3,386
—
6,293
—
—
43
9,722
12,083
2022
£000
3,367
—
6,439
—
—
31
9,837
12,226
Georges Elhedery
Non-executive Directors1
2023
£000
1,999
—
3,783
—
—
6
5,788
7,194
2022
£000
—
—
—
—
—
—
—
—
2023
£000
4,920
—
—
—
—
—
4,920
6,115
2022
£000
4,644
—
—
—
—
—
4,644
5,772
1 Fees and benefits in kind for 2022 reflects the population as per the single figure table for non-executive Directors, which excludes individuals who
have stepped down from the Board during 2022.
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 2023 was $25,391,977. 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, where applicable).
Total benefits in kind of £25,304 ($31,450) were provided to Ewen
Stevenson until he left the Group. This included income protection
benefits valued at £16,414 ($20,401), life assurance benefits of £935
($1,162) and other non-taxable expenses of £7,955 ($9,887).
Post-employment medical insurance benefits were provided to former
Directors, including Douglas Flint valued at £6,721 ($8,354), Stuart
Gulliver valued at £6,721 ($8,354), John Flint valued at £9,706
($12,064), Marc Moses valued at £15,886 ($19,745) and Ewen
Stevenson valued at £377 ($469). Tax return support was also
provided to John Flint valued at £5,441 ($6,763), Marc Moses valued
at £2,500 ($3,107) and Ewen Stevenson valued at £1,320 ($1,641).
Five highest paid employees – share awards (HSBC Share Plan 2011)
The total aggregate value of benefits provided to former executive
Directors was £73,976 ($91,945). The aggregate value of Director
retirement benefits for current Directors is nil. Amounts are converted
into US dollars based on the average exchange rates for the year.
There were payments under retirement benefit arrangements with
three former Directors of £1,381,674. The provision at 31 December
2023 in respect of unfunded pension obligations to two former
Directors amounted to £340,208. This relates to unfunded
unapproved retirement benefits schemes.
Emoluments of senior management and five highest paid
employees
The following tables set out the 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 2023, or for the period of appointment in 2023 as a
Director or member of the Group Executive Committee. Details of the
remuneration paid and share awards granted to the five highest paid
employees, comprising one executive Director and four Group
Executives for the year ended 31 December 2023, are also presented.
Dates of award
2013 to 2022
27 Feb 20232
15 May 20233
21 Aug 20234
7 Nov 20235
1 Jan to 31 Dec 20236
Purchase
price (£)
Usually vesting
from
to
1 Mar 2023 30 Mar 2029
0
0
27 Feb 2023 30 Mar 2030
0 15 May 2023 15 May 2023
0 21 Aug 2023 21 Aug 2023
7 Nov 2023
0
7 Nov 2023
1 Mar 2023 30 Mar 2024
0
HSBC Holdings ordinary share awards
At 1 Jan
2023
5,603,050
—
—
—
—
—
5,603,050
Granted in
period
—
2,533,801
50,080
51,435
49,291
3,345
2,687,952
Vested in
period1
445,705
687,935
50,080
51,435
49,291
982
1,285,428
Lapsed
in period
—
—
—
—
—
—
—
Cancelled in
period At 31 Dec 2023
5,157,345
1,845,866
—
—
—
2,363
7,005,574
—
—
—
—
—
—
—
1 The weighted average closing price of the shares immediately before the dates on which the awards were vested was £5.9681.
2 The closing price on the day before the grant date was £6.3570. The fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair values, which vary based on the length of the vesting period, range between £2.8390 and £6.3180. These awards include LTI
awards and other awards which are subject to satisfaction of performance conditions. LTI awards are subject to a combination of financial and non-
financial metrics that are detailed in the Directors’ remuneration report in the Annual Report and Accounts.
3 The closing price on the day before the grant date was £5.9970. The fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair value of the award was £6.1100.
4 The closing price on the day before the grant date was £5.8390. The fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair value of the award was £5.8330.
5 The closing price on the day before the grant date was £6.093. The fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair value of the award was £6.0830.
300
HSBC Holdings plc Annual Report and Accounts 2023
6 Relates to the allocation of dividend equivalent shares in relation to eligible awards.
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 share awards at grant.
Five highest paid employees
13,357
100
24,259
—
—
37,716
46,877
Senior management
38,960
640
59,286
—
—
98,886
122,906
US dollars
Number of highest paid employees Number of senior management
Emoluments by bands
Hong Kong dollars
$19,000,001 – $19,500,000
$22,500,001 – $23,000,000
$25,000,001 – $25,500,000
$38,000,001 – $38,500,000
$41,000,001 – $41,500,000
$42,000,001 – $42,500,000
$42,500,001 – $43,000,000
$48,000,001 – $48,500,000
$49,000,001 – $49,500,000
$51,500,001 – $52,000,000
$56,000,001 – $56,500,000
$59,000,001 – $59,500,000
$61,000,001 – $61,500,000
$63,500,001 – $64,000,000
$72,500,001 – $73,000,000
$75,000,001 – $75,500,000
$94,000,001 – $94,500,000
Non-executive Directors
(Audited)
$2,426,967 – $2,490,834
$2,874,040 – $2,937,907
$3,193,377 – $3,257,245
$4,853,933 – $4,917,801
$5,237,139 – $5,301,006
$5,364,874 – $5,428,741
$5,428,741 – $5,492,609
$6,131,284 – $6,195,152
$6,259,019 – $6,322,887
$6,578,357 – $6,642,224
$7,153,165 – $7,217,032
$7,536,370 – $7,600,238
$7,791,840 – $7,855,708
$8,111,178 – $8,175,046
$9,260,794 – $9,324,661
$9,580,132 – $9,643,999
$12,007,098 – $12,070,966
—
—
—
—
—
—
—
—
—
—
—
—
1
1
1
1
1
The following table shows the total fees and benefits of non-executive Directors for 2023, together with comparative figures for 2022.
Fees and benefits
(Audited)
(£000)
Geraldine Buckingham
Rachel Duan
Dame Carolyn Fairbairn
James Forese3
Ann Godbehere4
Steven Guggenheimer
José Antonio Meade Kuribreña
Kalpana Morparia5
Eileen Murray6
Brendan Nelson7
David Nish
Jackson Tai8
Swee Lian Teo9
Mark Tucker
Total (£000)
Total ($000)
Fees1
2023
244
244
279
759
68
264
244
170
290
81
479
132
51
1,500
4,805
5,972
2022
155
225
265
689
—
262
242
—
262
—
477
377
—
1,500
4,454
5,536
Benefits2
2023
2022
5
—
—
1
—
1
4
—
3
12
19
19
—
51
115
143
—
5
1
—
—
10
14
—
—
—
22
25
—
113
190
236
Total
2023
249
244
279
760
68
265
248
170
293
93
498
151
51
1,551
4,920
6,115
1 Fees are in line with the Directors’ remuneration policy that was approved at the 2022 AGM. Non-executive Directors receive a pro-rata payment of
£4,000 travel allowance per annum.
2 Benefits include taxable expenses such as accommodation, travel and subsistence relating to attendance at Board and other meetings at HSBC
Holdings' registered offices. Tax for non-executive Director benefits is met by HSBC, therefore amounts disclosed have been grossed up using a tax
rate of 47%, where relevant.
3 Appointed as Chair of the Group Risk Committee on 5 May 2023. Stepped down as a member of the Group Remuneration Committee and joined the
Group Audit Committee as a member on 5 May 2023. Includes fee of £443,000 (2022: £447,000) in relation to his role as Chair of HSBC North
America Holdings, Inc.
4 Appointed to the Board, Nomination & Corporate Governance Committee and Group Remuneration Committee on 1 September 2023.
5 Appointed to the Board, Nomination & Corporate Governance Committee and Group Risk Committee on 1 March 2023.
6 Appointed as a member of the Group Remuneration Committee on 5 May 2023.
7 Appointed to the Board, Nomination & Corporate Governance Committee, Group Audit Committee and Group Risk Committee on 1 September 2023.
8 Retired from the Board and retired as Chair of the Group Risk Committee and member of the Group Audit Committee and member of the Nomination
& Corporate Governance Committee on 5 May 2023.
9 Appointed to the Board, Nomination & Corporate Governance Committee and Group Risk Committee on 1 October 2023.
HSBC Holdings plc Annual Report and Accounts 2023
301
1
1
1
1
1
1
2
1
1
1
2
1
1
1
1
1
1
2022
155
230
266
689
—
272
256
—
262
—
499
402
—
1,613
4,644
5,772
Corporate governance
Report of the Directors | Corporate governance report | Directors’ remuneration report
Non-executive Directors’ interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in
2023, including the shareholdings of their connected persons, at
31 December 2023, or date of cessation as a Director if earlier, are
set out below. There have been no changes in the shareholdings of
the non-executive Directors from 31 December 2023 to the date of
this report.
Shares
Geraldine Buckingham
Rachel Duan
Dame Carolyn Fairbairn
James Forese
Ann Godbehere (appointed to the Board on 1 September 2023)
Steven Guggenheimer
José Antonio Meade Kuribreña
Kalpana Morparia (appointed to the Board on 1 March 2023)
Eileen Murray
Brendan Nelson (appointed to the Board on 1 September 2023)
David Nish
Jackson Tai (retired on 5 May 2023)
Swee Lian Teo (appointed to the Board on 1 October 2023)
Mark Tucker
2024 fees for non-executive Directors
Non-executive Directors are expected to meet the shareholding
guidelines of 15,000 shares 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 2023 met the guidelines.
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
15,000
15,000
115,000
15,000
15,000
15,000
15,000
75,000
—
50,000
66,515
15,200
307,352
Following a review of fees during 2023, and in accordance with the shareholder approved Directors’ Remuneration Policy at the Company’s
2022 Annual General Meeting, the Board approved increases to certain of the fees payable to the non-executive Directors and for roles on the
Board Committees with effect from 1 January 2024. As a result, each non-executive Director receives a fee of £136,500 per annum. The
separate travel allowance of £4,000 per annum has been incorporated within this fee – a separate travel allowance is no longer paid. The fees
paid to non-executive Directors who are standing for election or re-election as members of Board Committees are set out in the table below
(these Board Committees’ fees and Board fees are pro-rated for part year service where relevant).
Position
Non-executive Group Chairman1
Non-executive Director (base fee)
Senior Independent Director
Group Risk Committee
Group Audit Committee, Group Remuneration Committee and Group Technology Committee
Nomination & Corporate Governance Committee
Designated workforce engagement non-executive Director
2024 fees
£
1,500,000
136,500
200,000
150,000
42,000
78,750
42,000
––
34,650
40,000
Chair
Member
Chair
Member
Chair
Member
1 The Group Chairman does not receive a base fee or any other fee in respect of chairing of the Nomination & Corporate Governance Committee.
Non-executive Director appointment and re-election
Non-executive Directors and the Chair 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 and the
Chair do not have service 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’ or Chair's letters of appointment that could give
rise to remuneration payments or payments for loss of office.
2024 AGM
James Forese
Ann Godbehere1
Steven Guggenheimer
Eileen Murray
Brendan Nelson1
Swee Lian Teo1
2025 AGM
Rachel Duan
Dame Carolyn Fairbairn
José Antonio Meade Kuribreña
2026 AGM
Geraldine Buckingham
Kalpana Morparia
1 Ann Godbehere, Brendan Nelson and Swee Lian Teo were appointed following the 2023 AGM and therefore their initial three-year appointment terms
are subject to approval of their election by shareholders at the 2024 AGM. Their initial three-year term of appointment will end at the conclusion of the
2027 AGM, subject to annual re-election by shareholders at the relevant AGMs.
302
HSBC Holdings plc Annual Report and Accounts 2023
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 2023 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)
Fixed
remuneration
Variable
remuneration3
Number of identified staff
Total fixed pay ($m)
– 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
– of which: cash-based ($m)
– of which: deferred ($m)
– 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
13.0
5.9
5.9
—
—
—
—
13.0
—
—
—
—
—
—
—
—
—
—
—
5.9
2.0
6.7
3.2
3.5
—
—
—
2.0
15.6
2.1
—
13.5
11.5
—
—
—
—
—
—
22.3
16.9
39.8
39.8
—
—
—
—
16.9
67.4
30.5
18.3
36.9
24.7
—
—
—
—
—
—
107.2
1,238.0
690.3
690.3
—
—
—
—
1,238.0
740.2
371.2
174.5
354.6
201.6
10.1
5.6
—
—
4.3
2.7
1,430.5
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 2023. 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. HSBC has continued to use the
discount rate previously published as PRA remuneration rule 15.13 for 17 individuals for the purpose of calculating the ratio between fixed and variable
components of 2023 total remuneration.
4 26 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
37.0
32.8
—
37.0
3.4
1 No guaranteed variable remuneration was awarded in 2023. 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
HSBC Holdings plc Annual Report and Accounts 2023
303
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
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
—
—
—
—
—
—
52.4
7.5
44.9
—
—
—
149.0
51.4
97.2
0.4
—
—
1,097.3
408.0
663.6
15.3
—
10.4
1,298.7
—
—
—
—
—
—
12.0
1.0
11.0
—
—
—
20.1
6.6
13.1
0.4
—
—
301.4
89.0
200.2
7.9
—
4.3
333.5
—
—
—
—
—
—
40.4
6.5
33.9
—
—
—
128.9
44.8
84.1
—
—
—
795.9
319.0
463.4
7.4
—
6.1
965.2
—
—
—
—
—
—
-2.3
—
-2.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
-2.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.7
—
3.7
—
—
—
12.3
—
12.3
—
—
—
63.7
—
60.7
2.0
—
1.0
79.7
—
—
—
—
—
—
6.3
1.0
5.3
—
—
—
19.7
6.5
12.8
0.4
—
—
290.5
87.7
192.9
7.7
—
2.2
316.5
—
—
—
—
—
—
4.2
—
4.2
—
—
—
5.1
—
4.9
0.2
—
—
54.9
—
50.2
3.5
—
1.2
64.2
$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 2023. For details of variable pay awards granted for 2023, 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
€12,000,000 – 13,000,000
Identified staff that are high
earners as set out in Article
450(i) CRR
260
125
54
20
14
6
8
7
8
3
4
—
2
—
—
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.
304
HSBC Holdings plc Annual Report and Accounts 2023
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
1,269.9
13.0
2.0
15.0
1.0
2.0
506.5
298.0
—
31.0
5.9
2.0
6.0
153.0
180.9
68.6
5.9
—
5.9
22.3 28.2
712.7
305.9
40.9
200.7
141.2 136.3
15.6 15.6
392.0
155.6
21.6
100.5
63.8 74.1
6.7 12.6
320.7
150.3
19.3
100.2
77.4 62.2
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 2023. 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.
Share plan matters considered by the Group Remuneration Committee
The Group Remuneration Committee and its delegates considered
various matters relating to the HSBC share plans during the financial
year.
The HSBC International Employee Share Purchase Plan
(‘ShareMatch’) and The HSBC Holdings Savings-Related Share Option
Plan (UK) (‘Sharesave’) were offered in 2023. ShareMatch was
offered in the Philippines for the first time. The HSBC variable pay
deferral approach for the 2023 performance year was approved, for
which certain minor updates were made to comply with legal and
regulatory requirements. The structure and quantum of LTI awards for
the executive Directors and members of the Group Executive
Committee were approved for the 2023 performance year. Other
awards with performance conditions were approved for certain
strategically important projects during 2023.
Certain awards were granted to executive Directors or senior
managers with vesting periods of less than 12 months:
– Fixed pay allowance awards were granted to executive Directors
in accordance with the approved Directors’ remuneration policy,
which vest immediately and are subject to a retention period.
These awards are not subject to clawback on the basis that they
form part of the executive Directors’ fixed pay. The awards were
granted under the HSBC Share Plan 2011.
– Immediate share awards were granted to executive Directors and
senior managers in compliance with our regulatory requirements
to deliver a portion of non-deferred variable pay in instruments.
These awards vest immediately, and are subject to a retention
period and clawback provisions.
HSBC Holdings plc Annual Report and Accounts 2023
305
Corporate governance
Report of the Directors | Corporate governance report
Share capital and other related governance disclosures
Share buy-back programme
On 10 May 2023, HSBC Holdings commenced a share buy-back
programme of its ordinary shares of $0.50 each up to a maximum
consideration of $2.0bn. This programme concluded on 27 July 2023,
with 129,000,963 ordinary shares repurchased for cancellation on UK
trading venues and 128,774,800 ordinary shares repurchased for
cancellation on The Stock Exchange of Hong Kong Limited (’HKEx’).
On 3 August 2023, HSBC Holdings commenced a further share buy-
back programme of its ordinary shares of $0.50 each up to a
maximum consideration of $2.0bn. This programme concluded on
26 October 2023, with 129,814,790 ordinary shares repurchased for
cancellation on UK trading venues and 129,109,200 ordinary shares
repurchased for cancellation on HKEx.
On 1 November 2023, HSBC Holdings commenced a further share
buy-back programme of its ordinary shares of $0.50 each up to a
maximum consideration of $3.0bn.
As at 31 December 2023, 143,374,864 ordinary shares had been
repurchased on UK trading venues and 100,547,200 ordinary shares
were repurchased on HKEx.
The purpose of the buy-back programmes was to reduce HSBC’s
number of outstanding ordinary shares.
As at 31 December 2023, the total number of ordinary shares
repurchased during the year was 760,621,817, representing a nominal
value of $380,310,908.50 and an aggregate consideration paid by
HSBC of £2,470,004,997 on UK trading venues and
HK$21,646,177,512 on HKEx. The shares repurchased represent
3.95% of the shares in issue. Of the repurchased shares, 44,237,528
were awaiting cancellation as at 31 December 2023.
The table that follows outlines details of the shares repurchased and
cancelled on a monthly basis during 2023.
First share buy-back on UK trading venues in 2023
Month shares cancelled
May 2023
Jun 2023
Jul 2023
Total
Number of shares
repurchased and
cancelled
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
31,169,005
52,376,598
45,455,360
129,000,963
£
6.2000
6.1900
6.4570
£
5.8710
5.8810
5.9840
£
£
6.0716
6.0754
6.2246
189,244,725
318,208,161
282,943,198
790,396,084
Number of shares
repurchased
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
First share buy-back on HKEx in 2023
(HK$)
(HK$)
(HK$)
(HK$)
Month shares repurchased
May 2023
Jun 2023
Jul 2023
Total
Second share buy-back on UK trading venues in 2023
Month shares cancelled
Aug 2023
Sep 2023
Oct 2023
Total
37,500,000
50,900,000
40,374,800
128,774,800
Number of shares
repurchased and
cancelled
41,102,164
48,597,672
40,114,954
129,814,790
59.9500
61.4500
65.0000
57.2000
57.1000
60.3000
59.0377
60.0303
62.6018
2,213,913,666
3,055,542,282
2,527,536,243
7,796,992,191
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
£
6.4470
6.4950
6.5750
£
5.7940
5.7690
5.9550
£
£
6.0941
6.1120
6.3949
250,481,897
297,030,003
256,532,508
804,044,408
Number of shares
repurchased
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
Second share buy-back on HKEx in 2023
(HK$)
(HK$)
(HK$)
(HK$)
Month shares repurchased
Aug 2023
Sep 2023
Oct 2023
Total
Third share buy-back on UK trading venues in 2023
Month shares repurchased/cancelled
Nov 2023
Dec 2023
Total
46,350,400
51,388,400
31,370,400
129,109,200
Number of shares
repurchased and
cancelled
70,595,556
72,779,308
143,374,864
64.6000
62.2000
63.6500
57.9500
56.8500
56.6500
60.7539
59.7717
61.7430
2,815,966,340
3,071,570,280
1,936,902,040
7,824,438,660
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
£
6.2070
6.3640
£
5.8910
5.9000
£
£
6.0717
6.1409
428,636,659
446,927,846
875,564,505
306
HSBC Holdings plc Annual Report and Accounts 2023
Third share buy-back on HKEx in 2023
(HK$)
(HK$)
(HK$)
(HK$)
Number of shares
repurchased
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
51,083,600
49,463,600
100,547,200
60.5500
63.2500
56.4500
59.1500
59.0032
60.8660
3,014,094,399
3,010,652,262
6,024,746,661
Month shares repurchased
Nov 2023
Dec 2023
Total
Dividends
Dividends for 2023
First, second and third interim dividends for 2023, each of $0.10 per
ordinary share, were paid on 23 June 2023, 21 September 2023 and
21 December 2023. For further details of the dividends approved in
2023, see Note 8 on the financial statements.
On 21 February 2024, the Directors approved a fourth interim
dividend for 2023 of $0.31 per ordinary share, making a total of $0.61
for the 2023 full-year. The fourth interim dividend for 2023 will be
payable on 25 April 2024 in cash in US dollars, or in sterling or Hong
Kong dollars at exchange rates to be determined on 15 April 2024.
The fourth interim dividend for 2023 of $1.55 per American
Depositary Share, each of which represents five ordinary shares, will
be payable by the depositary in US dollars. As the fourth interim
dividend for 2023 was approved after 31 December 2023, it has not
been included in the balance sheet of HSBC as a liability. The
distributable reserves of HSBC Holdings at 31 December 2023 were
$30.9bn.
A quarterly dividend of £0.01 per Series A sterling preference share
was paid on 15 March, 15 June, 15 September and 15 December
2023.
Dividends for 2024
The Group intends to pay quarterly dividends on its ordinary shares
during 2024.
A quarterly dividend of £0.01 per Series A sterling preference share is
payable on 15 March, 17 June, 16 September and 16 December 2024
for the quarter then ended at the sole and absolute discretion of the
Board of HSBC Holdings plc. Accordingly, the Board of HSBC
Holdings plc has approved a quarterly dividend to be payable on
15 March 2024 to holders of record on 29 February 2024.
Share capital
Issued share capital
The nominal value of HSBC Holdings’ issued share capital paid up at
31 December 2023 was $9,631,364,096.50 divided into
19,262,728,193 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 2023.
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 435.
Dividend waivers
The Group’s 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 2023 was $27.16m.
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 2022 and 2023 may be found
in Note 8 on the financial statements on page 371.
Further details of the rights and obligations attaching to the HSBC
Holdings’ issued share capital may be found in Note 33 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 Limited.
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 2023
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.
Treasury shares
On 30 October 2023, HSBC Holdings cancelled 325,273,407 ordinary
shares which were held in treasury, and no longer holds any ordinary
shares in treasury.
HSBC Holdings plc Annual Report and Accounts 2023
307
Corporate governance Report of the Directors | Corporate governance report
All-employee share plans1
HSBC International Employee Share Purchase Plan
HSBC Holdings
ordinary shares issued
Aggregate
nominal value
179,676
89,838
$
Market value per share
from
£
6.386
to
£
6.386
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 314 for details of options granted, exercised and lapsed.
HSBC share plans
Vesting of awards under the HSBC Share Plan 2011
10,598,803
5,299,401.50
5.421
6.357
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 2023, shareholders renewed the general authority for
the Directors to allot new shares up to 13,314,186,248 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/off-market purchases of up to 1,997,127,937 ordinary shares.
The Directors exercised their market/off-market purchase authority
from the 2023 AGM and repurchased 760,621,817 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
3,994,255,874 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 33 on the financial statements.
Other than as disclosed in the tables above headed ‘Share capital
changes in 2023’, the Directors did not allot any shares during 2023.
Debt securities
In 2023, HSBC Holdings issued the equivalent of $24.5bn of debt
securities in the public capital markets in a range of currencies and
maturities, of which $17.2bn were in the form of senior 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 33 on pages 406 and 414.
Treasury shares
In accordance with the terms of a waiver granted by The Stock
Exchange of Hong Kong Limited 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.
HSBC Holdings does not hold any ordinary shares in treasury.
Notifiable interests in share capital
During 2023, 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’).
No notifications had been received between 31 December 2023 and
15 February 2024. 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,
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HSBC Holdings plc Annual Report and Accounts 2023
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 2023, 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
2023 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 2023.
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 2023
had certain interests, all beneficial unless otherwise stated, in the
shares or debentures of HSBC Holdings and its associated
corporations.
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.
Directors’ interests – shares and debentures
HSBC Holdings ordinary shares
Geraldine Buckingham1
Rachel Duan1
Georges Elhedery2 (appointed to the Board on 1 Jan 2023)
Dame Carolyn Fairbairn
James Forese1
Ann Godbehere1 (appointed to the Board on 1 Sep 2023)
Steven Guggenheimer1
José Antonio Meade Kuribreña1
Kalpana Morparia1 (appointed to the Board on 1 Mar 2023)
Eileen Murray1
Brendan Nelson (appointed to the Board on 1 Sep 2023)
David Nish
Noel Quinn2
Jackson Tai1,3(retired on 5 May 2023)
Swee Lian Teo (appointed to the Board on 1 Oct 2023)
Mark Tucker
At 31 Dec 2023 or date of cessation, if earlier
At 1 Jan 2023, or
date of
appointment,
if later
Beneficial
owner
Child
under 18
or spouse
Jointly
with
another
person
Trustee
Total
interests
15,000
15,000
572,575
15,000
115,000
15,000
15,000
15,000
—
75,000
—
50,000
15,000
15,000
753,467
15,000
115,000
—
—
15,000
15,000
75,000
—
—
1,422,650 1,721,465
32,800
15,200
307,352
66,515
—
307,352
—
—
—
—
—
15,000
15,000
—
—
—
—
50,000
—
11,965
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21,750
—
—
15,000
—
15,000
—
753,467
—
15,000
—
115,000
—
15,000
—
15,000
—
15,000
—
15,000
—
75,000
—
—
—
—
50,000
— 1,721,465
66,515
—
15,200
—
307,352
—
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, Ann Godbehere has an
interest in 3,000, Steven Guggenheimer has an interest in 3,000, José Antonio Meade Kuribreña has an interest in 3,000, Kalpana Morparia 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 279. At 31 December 2023, 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 – 4,993,390; and Georges Elhedery – 1,942,938, representing approximately 0.03% and 0.01%
of the shares in issue respectively.
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 2023 to the date of this report.
Conflicts of interest
Listing Rule 9.8.4 and other
disclosures
This section of the Annual Report and Accounts 2023 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
Emissions
Energy efficiency
Principal activities of HSBC
Business review and future developments
Page references
286
307
307
306
45
45, 49, 51
11, 30, 110, 395
11–40, 42, 137, 145, 426
Board governance
Appointment and re-election of Directors
For details on the processes governing the appointment and re-
election of Directors, see the Nomination & Corporate Governance
Committee report from page 262.
Commitments
For details on the processes governing Director commitments, see
the Nomination & Corporate Governance Committee report from
page 262.
The Board has an established policy and set of procedures 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. 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
subject to re-vetting by the Group's compliance team on a triennial
basis following appointment. As part of this re-vetting process, all
conflicts checks are refreshed.
Joint Company Secretary
Aileen Taylor is the Group Company Secretary and Chief Governance
Officer.
Hannah Ashdown (47) was appointed as Deputy Group Secretary in
December 2021 and for administrative purposes, in October 2022,
was appointed 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.
HSBC Holdings plc Annual Report and Accounts 2023
309
Corporate governance
Report of the Directors | Corporate governance report
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 2023, 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’ liability insurance and pension trustees’ liability
insurance.
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 2023, 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.
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
engagement with shareholders' on page 256 and the Group
Remuneration Committee Chair’s letter on page 279. During 2023,
approximately 643 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 2023 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. They can be contacted via the Group Company Secretary
and Chief Governance Officer at 8 Canada Square, London E14 5HQ.
The results of the poll vote at the 2023 AGM were published on
5 May 2023 and showed that on resolutions 2, 3(l), 6, 7, 14 and 15 we
received votes of between 20.04% to 23.30% against the Board’s
recommendations. In our statement of 5 May 2023, it was noted that
our largest shareholder, Ping An, voted against the Board’s
recommendations on the above resolutions and a number of others.
Ping An’s votes accounted for approximately 18% to 19% of all votes
cast at the 2023 AGM based on a turnout of around 50%. The Board
was pleased that a large majority of shareholders voting at the 2023
AGM supported HSBC’s strategy and since the AGM there have been
no concerns expressed by shareholders regarding the above
resolutions. As referenced in the announcement released on 3
November 2023, we continue to have constructive dialogue and
provide corporate access to all our institutional shareholders, including
Ping An and respect and listen to their views.
Annual General Meeting
The AGM in 2024 is planned to be held in London, UK at 11:00am on
Friday, 3 May 2024. Information on how to vote and participate, both
in advance and on the day, can be found in the Notice of the 2024
AGM, which will be sent to shareholders on 22 March 2024 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.
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
The Articles of Association were last approved at the 2022 AGM. The
Articles of Association can be found at www.hsbc.com/who-we-are/
leadership-and-governance/board-responsibilities.
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HSBC Holdings plc Annual Report and Accounts 2023
Events after the balance sheet date
For details of events after the balance sheet date, see Note 39 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.
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 $110,004 during 2023 (2022: $100,250).
Charitable contributions
For details of charitable contributions, see page 86.
Internal control
The Board is responsible for maintaining and reviewing the
effectiveness of the Group’s 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 Rulebook, 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 2024, the date of publication of the Annual
Report and Accounts 2023.
The Board, the GRC and the GAC monitored the effectiveness of the
Group’s system of risk management and internal control throughout
the year. In particular, this focused on the Group’s regulatory
remediation and change programmes, and involved working closely
with management to better prioritise and understand where there are
key interdependencies. In 2024, continued focus will be placed on
overseeing emerging risks and potential risks arising from new
products and offerings.
To support the work of the Board, the GRC and the GAC in
discharging their responsibilities in this regard, assurance was also
provided by executive management confirming that a 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 and included the implementation of additional assurance
procedures including in relation to the Group's externally driven ESG
and climate-related disclosures, change programmes and regulatory
reporting.
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. In
2024, the Global Principles will be replaced by a more concise and
targeted version of the document, known as the HSBC Book.
Risk management framework
The risk management framework supports our Global Principles, and
going forward, our HSBC Book. 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. A new
delegation of authorities framework was implemented in April 2023
with the aim of providing a simpler Group structure within which the
Board and its subsidiaries can manage their delegated powers. These
delegated authorities can be used for the approval, signing and
execution of specific written agreements and documents such as
procurement contracts.
The delegation of authorities framework is either granted via a
separate board resolution or power of attorney or is set out in the
relevant Group policy with clear systems of control that are
appropriate to the business or function. Authorities to enter into credit
and market risk exposures are delegated with limits to line
management of Group companies in line with Group policy. 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 both 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
HSBC Holdings plc Annual Report and Accounts 2023
311
Corporate governance Report of the Directors | Corporate governance report
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 to annually review 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.
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 2023. 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 primary mechanism through which comfort over risk
management and internal control systems is achieved is through
annual 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.
The key risk management and internal control procedures over
financial reporting include the following:
Entity level controls
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 on an
ongoing basis. 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 136. The GAC has continued
to receive regular updates on HSBC’s ongoing activities for improving
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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 controls
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 2023.
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 2023, 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.
Other information included in the Annual
Report and Accounts 2023
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 43 and 267 that we are seeking to enhance our
governance, process, systems and controls capabilities in both areas,
although the scale and nature of the challenges differ between
reporting areas. Our improvements in regulatory reporting are
intended to strengthen our global processes, improve consistency
and enhance controls in order to meet regulatory expectations. ESG
reporting continues to evolve, with a lack of globally consistent
metrics, taxonomies and best practices 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 267).
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 40.
Employees
At 31 December 2023, HSBC had a total workforce equivalent to
221,000 full-time employees compared with 219,000 at the end of
2022. Our main centres of employment were India with
approximately 42,000 employees, the UK with 33,000, mainland
China with 33,000, Hong Kong with 26,000, 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.
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. Members of our Group Executive
Committee are held to account for the actions they take on diversity
via aspirational goals contained within their performance scorecards.
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 identify inclusion barriers and take action where
required. Our approach to diversity and inclusion is set out on page 76
alongside our goals and progress.
Further details of our diversity and inclusion activity, alongside our
Gender and Ethnicity Pay Gap Reports 2023, can be found at
www.hsbc.com/diversitycommitments.
Employment of people with a disability
We strongly believe in providing equal opportunities for our
employees. The employment of people with a disability is included in
this commitment. We are committed to retaining disabled employees
in the workplace and to providing reasonable adjustments to enable
this.
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 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.
Effective people management and impactful leadership remain critical
to our ability to energise for growth. In 2023 we have continued to
focus on equipping our management population with the skills they
need to lead the organisation and energise our colleagues. We have
continued to run our Enterprise Leadership Programme for our most
senior leaders and developed the Managing Director Leadership
Programme further following the launch in 2022. We have also
refreshed our People Management Excellence programme which is
available to leaders at all levels of the organisation to help them
manage colleagues and nurture a productive team.
HSBC Holdings plc Annual Report and Accounts 2023
313
Corporate governance Report of the Directors | Corporate governance report
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 2023 to help us understand
and manage our health and safety risks:
– 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 235,000
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, to ensure we were meeting our standards and
continuously improving our safety performance.
– We maintained measures in our workplaces globally to minimise
the risks from the spread of respiratory disease, including through
the provision of hand sanitiser, improved ventilation, and guidance
on good hygiene practices.
– 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.
– We continued to provide 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 7,500 construction workers received
safety passport training across 20 countries.
– In 2023, our Eat Well Live Well programme continued to promote
healthier and more sustainable diets among our colleagues with
30% of global food sales from HSBC catering outlets comprising
healthy options. We also extended the reach of our programme
through the launch of increased plant-based offers, monthly
events dedicated to Eat Well Live Well, and virtual teaching
kitchens accessible to all our employees.
– 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
2023, there were 27 named storms that passed over 2,010 of our
buildings, resulting in no injuries. Only five buildings in Mexico
were affected with minor business impact following Storm Otis.
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
2023
—
12
110
594
2022
2021
—
7
70
485
—
14
64
358
1 Fractures, dislocation, concussion, loss of consciousness, overnight
admission to hospital.
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 290.
Employee share plans
Summaries of the share options and share awards granted, exercised/
vested or lapsed during the year and other 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, including
detailed summaries of the HSBC share plans, 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 299.
Note 5 on the financial statements gives details of share-based
payments, including discretionary awards of shares granted under
HSBC share plans.
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HSBC Holdings plc Annual Report and Accounts 2023
Statement of compliance
The statement of corporate governance practices set out on pages
238 to 316 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 2023, HSBC complied with the provisions and
requirements of both the UK and Hong Kong Corporate Governance
Codes.
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. The Group has been granted certain waivers by HKEx 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.
The Group Audit Committee has reviewed and provided assurance to
the HSBC Holdings Board on the publication of the Annual Report and
Accounts 2023.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
21 February 2024
HSBC Holdings plc Annual Report and Accounts 2023
315
Corporate governance
Report of the Directors | Corporate governance report
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and
Accounts 2023, 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 the 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) No 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 (IFRS Accounting
Standards). 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 the 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 IFRS Accounting Standards 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 2023 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 2023,
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 239
to 243 of the Annual Report and Accounts 2023, 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 IFRS Accounting Standards, 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 266 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 2024
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HSBC Holdings plc Annual Report and Accounts 2023
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.
318
Report of Independent Registered Public
Accounting Firm to the Board of Directors
and Shareholders of HSBC Holdings plc
329 Financial statements
341 Notes on the financial statements
Unlocking a world of travel freedom
We have continued to build our suite of products aimed at
internationally minded customers, with the launch of the
TravelOne credit card.
The card, which in May 2023 initially launched in Singapore,
Malaysia and Vietnam, allows customers to earn extra reward
points for travel and cross-border spending. They can then
redeem them instantly with 17 international airline programmes
and 20,000 hotel partners – a first in the markets where it has
launched.
TravelOne builds on our wealth strategy and supports our
ambitions to grow our cross-border international customer
franchise and unsecured lending business in south Asia.
HSBC Holdings plc Annual Report and Accounts 2023
317
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
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 parent company financial statements (the “financial statements”):
– give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the group’s and
parent company’s profit and the group’s and parent 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 2023 (the ’Annual Report’), which comprise: the
consolidated and parent company balance sheets as at 31 December 2023; the consolidated and parent company income statements, the
consolidated and parent company statements of comprehensive income, the consolidated and parent company statements of changes in equity
and the consolidated and parent company statements of cash flows for the year then ended; and the notes to the financial statements,
comprising material accounting policy information 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 135 to 237 and the
Directors’ remuneration report disclosures on pages 279 to 305.
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 parent 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 parent 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 International Financial Reporting Standards as
issued by the International Accounting Standards Board
As explained in note 1.1(a) to the financial statements, the group and parent company, in addition to applying UK-adopted international
accounting standards, have also applied international financial reporting standards as issued by the International Accounting Standards Board
(’IFRS Accounting Standards’).
In our opinion, the group and parent company financial statements have been properly prepared in accordance with IFRS Accounting Standards.
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 parent company or its controlled undertakings.
Other than those disclosed in note 6, we have provided no non-audit services to the parent company or its controlled undertakings in the period
under audit.
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HSBC Holdings plc Annual Report and Accounts 2023
Our audit approach
Overview
Audit scope
– This was the fifth and final 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 (parent company)
– Valuation of defined benefit pension obligations (group)
Materiality
– Overall group materiality: US$1.6bn (2022: US$1bn) based on 5% of profit before tax adjusted for notable items.
– Overall parent company materiality: US$1.5bn (2022: US$950m) based on 0.75% of total assets. This would result in an overall materiality of
US$2.1bn and was therefore reduced below the group materiality.
– Performance materiality: US$1.2bn (2022: US$750m) (group) and US$1.1bn (2022: US$712m) (parent 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), which was a key audit matter last year, is no longer included because the risk has reduced following the
completion of the sale of the retail banking operations in France. Otherwise, the key audit matters below are consistent with last year.
HSBC Holdings plc Annual Report and Accounts 2023
319
Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
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 economic scenarios and their probability weightings (specifically the central and downside scenarios given these have the most material
impact on ECL) and estimating discounted cash flows for material credit impaired exposures in relation to the mainland China commercial real estate
portfolio.
The level of estimation uncertainty and judgement has remained high during 2023 as a result of the uncertainties in the macroeconomic and
geopolitical environment, persistently high levels of inflation in some territories and the rising global interest rate environment, as well as
developments in mainland China’s commercial real estate sector and economy more broadly.
Macroeconomic conditions vary between territories and industries, leading to uncertainty around judgements made in determining the severity and
probability weighting of 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 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 the differentiated impact
of economic conditions on certain industry sectors. These limitations are addressed with management judgemental adjustments, the measurement of
which is inherently judgemental and subject to estimation uncertainty.
Matters discussed with the Group Audit Committee
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 mainland China’s commercial real estate sector. We discussed a number of areas, including:
– the severity of economic scenarios, and their related probability weightings, across territories;
– significant assumptions used to estimate the discounted cash flow projections for defaulted exposures in relation to the mainland China commercial
real estate portfolio;
– assumptions made in determining judgemental management adjustments; and
– the disclosures made in relation to ECL.
How our audit addressed our 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 economic scenarios and their probability weightings, and (2) the assessment of ECL for Retail and
Wholesale portfolios, including the assessment of management judgemental adjustments.
We also tested controls over:
– model validation and monitoring;
– 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 economic
scenarios. These assessments considered the sensitivity of ECL to variations in the severity and probability weighting of economic scenarios. We
involved our modelling specialists 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 the mainland China commercial real estate portfolio, we involved our business recovery experts in assessing
the 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;
– a sample of critical data used in ECL models and to estimate management judgemental adjustments; and
– assumptions and critical data for a sample of credit impaired wholesale exposures.
We evaluated and tested the audited Credit Risk disclosures made in the Annual Report.
Relevant references in the Annual Report and Accounts 2023
– Audited credit risk disclosures
– Group Audit Committee Report
– Note 1.2(d):Financial instruments measured at amortised cost
– Note 1.2(i): Impairment of amortised cost and FVOCI financial assets
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Impairment of investment in associate – Bank of Communications Co., Ltd (‘BoCom’) (group)
Nature of the key audit matter
At 31 December 2023, the fair value of the investment in BoCom, based on the share price, had been lower than the carrying amount for a number of
years. This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using a
value in use (‘VIU’) model. On this basis, the investment in BoCom was impaired by US$3.0bn. The carrying value of the investment in BoCom
amounts to US$21.2bn at 31 December 2023.
The methodology applied 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, market data or other relevant
information.
The assumptions that we focused our audit on were those with greater levels of management judgement and subjectivity, and for which variations had
the most significant impact on the VIU. Specifically, these significant assumptions included:
– the discount rate;
– short term assumptions for operating income growth rate, loans and advances to customers growth rate, cost-income ratio, and expected credit
losses as a percentage of loans and advances to customers;
– long-term assumptions for profit and asset growth rates, expected credit losses as a percentage of loans and advances to customers, and effective
tax rates; and
– capital related assumptions (risk-weighted assets as a percentage of total assets and capital adequacy ratios).
Matters discussed with the Group Audit Committee
We discussed the appropriateness of the methodology, its consistent application period over period and significant assumptions with the GAC. We
also discussed the disclosures made in relation to BoCom, including the use of sensitivity analysis to explain estimation uncertainty.
How our audit addressed our key audit matter
We had oversight of the audit work performed by our component audit team in Hong Kong in relation to the impairment assessment of BoCom. This
work included:
– testing controls in place over the significant assumptions, the methodology and its consistent application period over period used to determine the
VIU, assessing the appropriateness of the methodology used, its application, and the mathematical accuracy of the calculations;
– challenging the appropriateness of the significant assumptions and, where relevant, their interrelationships;
– obtaining evidence to corroborate and challenge the data supporting significant assumptions, which included past experience, external market
information, third-party sources including analyst reports, information from BoCom management and historical publicly available BoCom financial
information;
– determining a reasonable range for the discount rate assumption, with the assistance of our valuation experts, and comparing it to the discount rate
used by management;
– assessing whether the judgements made in determining the significant assumptions would give rise to indicators of possible management bias; and
– evaluating and testing the disclosures in relation to BoCom in the Annual Report.
We observed certain meetings alongside the component auditor, management and BoCom management to identify facts and circumstances impacting
significant 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.
Relevant references in the Annual Report and Accounts 2023
– Group Audit Committee Report
– Note 1.2(a): Interests in associates and joint arrangements
– Note 18: Interests in associates and joint ventures
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Financial statements
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Investments in subsidiaries (parent 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 2023. 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.
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 2024 to 2028 focusing on revenue, cost and expected credit loss forecasts;
– regulatory capital requirements;
– long term growth rates; and
– discount rates.
Management’s assessment resulted in an impairment charge of US$5.5bn in relation to the investment in HSBC Overseas Holdings (UK) Limited
(‘HOHU’), which is an intermediate holding company of certain businesses in North America. This resulted in investment in subsidiaries of US$159bn
at 31 December 2023.
Matters discussed with the Group Audit Committee
We discussed 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.
How our audit addressed our key audit matter
We assessed the design and tested the effectiveness of 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 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 compliance with the relevant accounting standard;
– assessing the sensitivity of the recoverable amount 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 2023
– Group Audit Committee Report
– Note 1.2(a): Investments in subsidiaries
– Note 19: Investments in subsidiaries
Valuation of defined benefit pensions obligations (group)
Nature of the key audit matter
The group has a defined benefit obligation of US$27.0bn, of which US$19.8bn relates to HSBC Bank (UK) pension scheme (‘the principal plan’).
The valuation of the defined benefit obligation for the principal plan 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 our key audit matter
We assessed the design and tested the effectiveness of 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 of the principal plan.
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 2023
– Group Audit Committee Report
– Note 1.2(k): Post-employment benefit plans
– Note 5: Employee compensation and benefits
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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 parent 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 included 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 44, 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 2021 and 2022 on-balance sheet financed emissions for 6 sectors (page 61);
– the 2020 thermal coal financing drawn balance exposure (page 67) and the 2020 thermal coal mining on-balance sheet financed emissions
(page 61);
– the 2019, 2020, 2021 and 2022 off balance facilitated emissions for 2 sectors (page 61);
– the cumulative progress made by HSBC on providing and facilitating sustainable financing and investments (page 49); and
– HSBC’s own operations scope 1, 2 and 3 (limited to business travel) greenhouse gas emissions data for 2023 (page 64); and supply chain
greenhouse gas emissions for purchased goods and services, and capital goods for 2023 (page 64).
The work performed for a limited assurance report is substantially less than the work performed for our financial audit, which provides
reasonable assurance.
Scoping
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 HSBC Bank Middle East Limited - UAE Operations and the HSBC UK Bank plc group. 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.
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, held for
sale classifications and 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, IT dependencies, forward looking economic scenarios for ECL, operating
expenses, intangible assets, valuation of financial instruments, existence testing 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.
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Significant Subsidiaries audit approach
In March 2023, we held a meeting in Hong Kong with the partners and senior staff from the group audit team and certain PwC teams who
undertake audits of the Significant Subsidiaries and the operations centres. The meeting focused primarily on 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 with a focus on
technology and our global delivery model. 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 overall materiality levels ranged from US$107m to US$1.0bn. 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 component auditors 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 where a full scope audit was
requested and we had oversight over certain areas of audit work performed. 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
83% of total assets and 74% of total operating income.
Using the work of others
We have continued our use of evidence provided by others through our reliance on management assurance testing of certain controls across
the group. This included testing of controls performed by management themselves in certain low risk areas including reconciliations and
footnote disclosure 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.
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
Financial statements – parent company
Overall materiality
US$1.6bn (2022: US$1bn).
US$1.5bn (2022: US$950m).
How we determined it
5% of profit before tax adjusted for notable items (2022:
adjusted profit before tax).
0.75% of total assets. This would result in an overall
materiality of US$2.1bn and was therefore reduced below
the group materiality.
Rationale for benchmark
applied
We believe a standard benchmark of 5% of profit before
tax adjusted for notable items is an appropriate quantitative
indicator of materiality, although certain items could also be
material for qualitative reasons. This benchmark is
consistent with our approach for listed entities.
A benchmark of total assets has been used, as the parent
company‘s primary purpose is to act as a holding parent
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% (2022: 75%) of overall materiality, amounting to US$1.2bn (2022: US$750m) for the group financial
statements and US$1.1bn (2022: US$712m) for the parent 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$80m (group audit) (2022: US$50m)
and US$80m (parent company audit) (2022: US$50m) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
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Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the parent 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;
– understanding and evaluating 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 parent 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 parent
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.
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 2023 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 parent 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 parent 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 parent 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 parent company’s prospects, the period this assessment covers and
why the period is appropriate; and
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– The directors’ statement as to whether they have a reasonable expectation that the parent 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 parent 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 parent 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 parent 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 parent 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 parent 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 parent 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.
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 and relevant tax legislation.
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, the impairment assessment of 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
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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 parent 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 parent 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
parent company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group and parent 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 parent 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 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 parent 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 parent 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 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 nine years, covering the years
ended 31 December 2015 to 31 December 2023.
HSBC Holdings plc Annual Report and Accounts 2023
327
Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
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 2024
328
HSBC Holdings plc Annual Report and Accounts 2023
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
329
330
331
332
335
Consolidated income statement
for the year ended 31 December 2023
337
337
338
339
340
HSBC Holdings income statement
HSBC Holdings statement of comprehensive income
HSBC Holdings balance sheet
HSBC Holdings statement of changes in equity
HSBC Holdings statement of cash flows
Net interest income
– interest income2,3
– interest expense4
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
Net insurance premium income
Insurance finance (expense)/income
Insurance service result
– insurance revenue
– insurance service expense
Gain on acquisition5
(Impairment)/reversal of impairment relating to the sale of our retail banking operations in France6
Other operating (expense)/income7
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 charges8
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 assets9
Amortisation and impairment of intangible assets
Goodwill impairment
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Impairment of interest in associate
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
4
5
18
18
7
9
9
2023
$m
35,796
100,868
(65,072)
11,845
15,616
(3,771)
16,661
20221
$m
30,377
52,826
(22,449)
11,770
15,124
(3,354)
10,278
2021
$m
26,489
36,188
(9,699)
13,097
16,788
(3,691)
7,744
7,887
(13,831)
4,053
—
(7,809)
1,078
2,259
(1,181)
1,591
150
(1,141)
66,058
—
66,058
(3,447)
62,611
(18,220)
(10,383)
(1,640)
(1,827)
—
(32,070)
30,541
2,807
(3,000)
30,348
(5,789)
24,559
22,432
—
1,101
1,026
24,559
$
1.15
1.14
—
13,799
809
1,977
(1,168)
—
(2,316)
(266)
50,620
—
50,620
(3,584)
47,036
(18,003)
(10,848)
(2,149)
(1,701)
—
(32,701)
14,335
2,723
—
17,058
(809)
16,249
14,346
—
1,213
690
16,249
$
0.72
0.72
10,870
—
—
—
—
—
—
1,687
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
2
* For Notes on the financial statements, see page 341.
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Interest income includes $88,657m (2022: $45,994m; 2021: $30,916m) of interest recognised on financial assets measured at amortised cost and
$12,134m (2022: $6,293m; 2021: $4,337m) 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 mainly interest recognised on financial assets measured at either
amortised cost or fair value through other comprehensive income.
Interest expense includes $62,095m (2022: $20,798m; 2021: $8,227m) of interest on financial instruments, excluding 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 included in interest expense.
4
3
5 Provisional gain recognised in respect of the acquisition of SVB UK.
6 In the fourth quarter of 2023, an impairment loss of $2.0bn was recognised relating to the sale of our retail banking operations in France. This largely
offset the $2.1bn recognised in the first quarter of 2023 on the reversal of the held for sale classification at that time. In 2023, a total net $0.1bn of
credit was recognised in other operating income, reflecting the net asset value disposed under the final terms of sale. The $0.4bn impairment of
goodwill recognised in the third quarter in 2022 has not been reversed.
7 Other operating (expense)/income includes a loss on net monetary positions of $1,667m (2022: $678m; 2021: $576m) as a result of applying IAS 29
‘Financial Reporting in Hyperinflationary Economies’ and the disposal losses on capitalised Markets Treasury repositioning of $977m in 2023.
8 Net operating income before change in expected credit losses and other credit impairment charges also referred to as revenue.
9 Includes depreciation of the right-of-use assets of $663m (2022: $717m; 2021: $878m).
HSBC Holdings plc Annual Report and Accounts 2023
329
Financial statements
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2023
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 losses/(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
Net finance income/(expenses) from insurance contracts
– before income taxes
– income taxes
Exchange differences
Items that will not be reclassified subsequently to profit or loss:
Fair value gains on property revaluation
Remeasurement of defined benefit 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
2023
$m
24,559
2,599
2,381
905
59
(746)
2,953
2,534
1,463
(1,044)
47
47
(364)
(491)
127
(204)
1
(314)
(413)
99
(1,219)
(1,617)
398
(120)
(120)
—
1,604
4,983
29,542
27,397
—
1,101
1,044
29,542
20221
$m
2021
$m
16,249
14,693
(7,232)
(9,618)
(18)
56
2,348
(3,655)
(4,207)
(758)
1,310
(367)
(367)
1,775
2,393
(618)
(9,918)
280
(1,031)
(1,723)
692
1,922
2,573
(651)
107
107
—
877
(17,242)
(993)
(2,810)
—
1,213
604
(993)
(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
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
330
HSBC Holdings plc Annual Report and Accounts 2023
Consolidated balance sheet
at 31 December 2023
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 sale
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
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 sale
Accruals, deferred income and other liabilities
Current tax liabilities
Insurance contract liabilities
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
31 Dec
2023
$m
285,868
6,342
42,024
289,159
110,643
229,714
112,902
938,535
252,217
442,763
114,134
165,255
1,536
27,344
12,487
7,754
3,038,677
42,024
73,163
1,611,647
172,100
7,295
73,150
141,426
234,772
93,917
108,406
136,606
2,777
120,851
1,741
1,238
24,954
2,846,067
9,631
14,738
17,719
(8,907)
152,148
185,329
7,281
192,610
3,038,677
At1
31 Dec
2022
$m
327,002
7,297
43,787
218,093
100,101
284,159
104,475
923,561
253,754
364,726
115,919
156,149
1,230
29,254
11,419
8,360
2,949,286
43,787
66,722
1,570,303
127,747
7,864
72,353
127,321
285,762
78,149
114,597
134,313
1,135
108,816
1,958
972
22,290
2,764,089
10,147
14,664
19,746
(9,133)
142,409
177,833
7,364
185,197
2,949,286
1 Jan
2022
$m
403,018
4,136
42,578
248,842
110,795
196,882
82,567
1,044,534
241,648
392,005
3,411
136,196
970
29,609
11,169
5,432
2,953,792
42,578
101,152
1,710,574
126,670
5,214
84,904
145,503
191,064
78,557
9,005
115,900
699
119,307
2,566
3,294
20,487
2,757,474
10,316
14,602
22,414
6,447
135,236
189,015
7,303
196,318
2,953,792
Notes*
11
14
15
16
23
22
18
21
7
24
25
15
26
23
27
4
28
7
29
33
33
19
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data and the IFRS 17 transition impact on the balance sheet at 1 January 2022.
* For Notes on the financial statements, see page 341.
The accompanying notes on pages 341 to 434 and the audited sections in the Risk review on pages 135 to 237 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 156 to 168, and ‘Directors’ remuneration report’ on pages 279 to 305 form an
integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2024 and signed on its behalf by:
Mark E Tucker
Group Chairman
Georges Elhedery
Group Chief Financial Officer
HSBC Holdings plc Annual Report and Accounts 2023
331
Financial statements
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2023
Other reserves
Called up
share
capital
and share
premium
Other
equity
instru-
ments
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Merger
and
other
reserves
1,2
Retained
earnings
1,4
Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
Insurance
finance
reserve3
$m
At 1 Jan 2023
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
– insurance finance income/
(expense) recognised in
other comprehensive income
– exchange differences
Total comprehensive income
for the year
Shares issued under employee
remuneration and share plans
Capital securities issued5
Dividends to shareholders
Redemption of securities6
Transfers7
Cost of share-based payment
arrangements
Share buy-back8
Cancellation of shares
Other movements
At 31 Dec 2023
$m
$m
24,811 19,746
—
—
$m
(7,038)
—
$m
(3,808)
—
$m
$m
(32,575) 33,209
—
—
$m
1,079 142,409 177,833
23,533 23,533
—
$m
$m
$m
7,364 185,197
1,026 24,559
—
—
2,402
3,030
(211)
1
(371)
114
4,965
18 4,983
—
—
2,574
—
—
—
—
—
2,574
25 2,599
—
—
—
—
(93)
—
—
2,919
—
—
—
—
—
—
—
—
(93)
2,919
(27)
(120)
34 2,953
—
—
—
—
—
—
—
—
—
—
—
1
—
—
(1,220)
(1,220)
—
1
1 (1,219)
—
1
—
—
—
—
—
—
—
(317)
(317)
3
(314)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(79)
—
111
—
(211)
—
—
—
—
—
—
47
47
1,604
1,604
—
47
— 1,604
(364)
(7)
—
—
(364)
(186)
—
(364)
(18)
(204)
—
—
2,402
3,030
(211)
1
(371)
23,647 28,498
1,044 29,542
79
—
— 1,996
—
—
— (4,023)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,130)
—
—
—
—
—
(79)
—
— —
—
1,996
(11,593) (11,593)
(4,003)
—
20
5,130
— 1,996
(603) (12,196)
— (4,003)
— —
—
—
—
—
—
—
—
482
482
—
482
—
(521)
—
—
—
—
24,369 17,719
—
—
1,129
(3,507)
—
—
(255)
(1,033)
—
—
(967)
—
521
—
(33,753) 28,601
—
—
77
(7,025)
(7,025)
—
—
(859)
(843)
785 152,148 185,329
— (7,025)
— —
(524) (1,383)
7,281 192,610
332
HSBC Holdings plc Annual Report and Accounts 2023
Consolidated statement of changes in equity (continued)
for the year ended 31 December 2022
At 31 Dec 2021 (IFRS 4)
Impact on transition to IFRS 179
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
– insurance finance income/
(expense) recognised in
other comprehensive income
– exchange differences
Total comprehensive income
for the year
Shares issued under employee
remuneration and share plans
Dividends to shareholders
Redemption of securities
Transfers
Cost of share-based payment
arrangements
Share buy-back
Cancellation of shares
Other movements
At 31 Dec 2022
Other reserves
Called up
share
capital and
share
premium
Other
equity
instru-
ments
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Merger
and
other
reserves
1,2
$m
$m
—
24,918 22,414
—
24,918 22,414
—
—
$m
(634)
683
49
—
$m
(197)
—
(197)
—
$m
$m
—
(22,769) 30,060
—
(22,769) 30,060
—
—
Insurance
finance
reserve3
$m
Retained
earnings
1,4
Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
$m
$m
$m
$m
— 144,458 198,250
(696)
(9,235)
(9,222)
(696) 135,236 189,015
15,559 15,559
—
8,527 206,777
(1,224) (10,459)
7,303 196,318
690 16,249
—
—
(7,089)
(3,613)
(9,806)
174
1,775
1,403
(17,156)
(86) (17,242)
—
—
(7,181)
—
—
—
—
—
(7,181)
(51) (7,232)
—
—
—
—
92
—
—
(3,613)
—
—
—
—
—
—
—
92
15
107
—
(3,613)
(42) (3,655)
—
—
—
—
—
—
—
—
—
—
—
174
—
—
1,922
1,922
— 1,922
—
174
106
280
—
—
—
—
—
—
—
(1,029)
(1,029)
(2) (1,031)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9,806)
—
—
—
—
(367)
(367)
—
877
877
—
(367)
—
877
1,775
—
1,775
— 1,775
—
—
(9,806)
(112) (9,918)
—
—
(7,089)
(3,613)
(9,806)
174
1,775
16,962
(1,597)
604
(993)
67
—
—
—
— (2,668)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,499
—
—
—
—
(67)
—
— —
(6,544)
402
(2,499)
(6,544)
(2,266)
—
(426) (6,970)
— (2,266)
— —
—
—
—
—
—
—
—
400
400
—
400
—
(174)
—
—
—
—
24,811 19,746
—
—
2
(7,038)
—
—
2
(3,808)
—
—
—
—
174
302
(32,575) 33,209
—
—
—
(1,000)
—
(175)
1,079 142,409 177,833
(1,000)
—
(481)
— (1,000)
— —
(292)
7,364 185,197
(117)
HSBC Holdings plc Annual Report and Accounts 2023
333
Financial statements
Financial statements
Consolidated statement of changes in equity (continued)
for the year ended 31 December 2021
Other reserves
Called up
share
capital and
share
premium
Other
equity
instru-
ments
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Merger
and
other
reserves
1,2
$m
$m
$m
24,624 22,414
—
—
1,816
—
$m
457
—
$m
$m
(20,375) 26,935
—
—
Insurance
finance
reserve3
$m
Retained
earnings
1,4
Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
$m
$m
$m
$m
— 140,572 196,443
13,917 13,917
—
8,552 204,995
776 14,693
—
—
(2,455)
(654)
(2,394)
—
—
661
(4,842)
(125) (4,967)
—
—
(2,105)
—
—
—
—
—
(2,105)
(34) (2,139)
—
—
—
—
(350)
—
—
(654)
—
—
—
—
—
—
—
—
(350)
(654)
(96)
(446)
(10)
(664)
—
—
—
—
—
—
—
531
531
—
531
—
—
—
—
—
—
—
(288)
(288)
14
(274)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,394)
—
—
—
—
—
—
103
315
—
103
315
(2,394)
—
103
—
315
1 (2,393)
—
—
(2,455)
(654)
(2,394)
—
—
14,578
9,075
651 9,726
354
—
— 2,000
—
—
— (2,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,065
—
—
—
—
—
(336)
18
—
18
(4)
(5,790)
—
(3,065)
1,996
(5,790)
(2,000)
—
— 1,996
(593) (6,383)
— (2,000)
— —
—
—
(60)
—
—
—
24,918 22,414
—
—
5
(634)
—
—
—
(197)
—
—
—
467
467
—
467
—
—
60
—
(22,769) 30,060
(2,004)
(2,004)
—
—
45
40
— 144,458 198,250
— (2,004)
(38)
(83)
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 issued
Dividends to shareholders
Redemption of securities
Transfers
Cost of share-based payment
arrangements
Cancellation of shares
Other movements
At 31 Dec 2021
1 Cumulative goodwill amounting to $5,138m was 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 was charged against retained
earnings.
2 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.
3 The insurance finance reserve reflects the impact of the adoption of the other comprehensive income option for our insurance business in France.
Underlying assets supporting these contracts are measured at fair value through other comprehensive income. Under this option, only the amount
that matches income or expenses recognised in profit or loss on underlying items is included in finance income or expenses, resulting in the
elimination of income statement accounting mismatches. The remaining amount of finance income or expenses for these insurance contracts is
recognised in other comprehensive income (‘OCI’).
4 At 31 December 2023, retained earnings included 256,289,431 treasury shares (2022: 554,452,437; 2021: 558,397,704). 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.
In March 2023, HSBC Holdings issued $2,000m 8.000% contingent convertible securities on which there were $4m of external issue costs.
5
6 In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent convertible securities. In September 2023, HSBC Holdings further redeemed
€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.
7 At 31 December 2023, an impairment of $5,512m of HSBC Overseas Holdings (UK) Limited was recognised, resulting in a permitted transfer of
$5,130m from the merger reserve to retained earnings and a realisation of $382m shared-based payment reserve within retained earnings.
8 In May 2023, HSBC Holdings announced a share buy-back of up to $2.0bn, which was completed in July 2023. In August 2023, HSBC Holdings
announced another share buy-back of up to $2.0bn, which was completed in October 2023. In October 2023, HSBC Holdings further announced a
share buy-back of up to $3.0bn, which was completed in February 2024.
9 The impact of IFRS 17 on previously reported total equity was $(10,831)m at 31 December 2022.
334
HSBC Holdings plc Annual Report and Accounts 2023
Consolidated statement of cash flows
for the year ended 31 December 2023
Profit before tax
Adjustments for non-cash items:
Depreciation, amortisation and impairment
Net loss/(gain) from investing activities
Share of profit in associates and joint ventures
Impairment of interest in associate
(Gain)/loss on acquisition/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 differences2
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 assets3
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 investments3
Proceeds from the sale and maturity of financial investments3
Net cash flows from the purchase and sale of property, plant and equipment
Net cash flows from disposal of loan portfolio and customer accounts
Net investment in intangible assets
Net cash flow from (acquisition)/disposal of subsidiaries, businesses, associates and joint ventures4
Net cash from investing activities
Issue of ordinary share capital and other equity instruments
Cancellation of shares
Net sales/(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 repaid5
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 Dec6
2023
$m
30,348
3,466
1,213
(2,807)
3,000
(1,775)
3,717
266
482
(4,299)
(10,678)
(63,247)
(14,145)
(2,095)
(9,994)
(10,254)
45,021
43,366
11,945
10,097
8,742
1,067
(208)
(4,117)
39,111
(563,561)
504,174
(1,145)
623
(2,550)
(453)
(62,912)
1,996
(5,812)
(614)
(19)
(4,003)
5,237
(2,147)
(12,196)
(17,558)
(41,359)
521,671
10,621
490,933
20221
$m
2021
$m
17,058
18,906
3,850
11
(2,723)
—
2,554
3,898
638
400
(774)
48,718
20,166
31,649
(23,405)
14,164
(12,858)
(91,194)
4,344
12,518
(13,654)
6,021
944
(194)
(2,776)
19,355
(511,097)
492,624
(1,284)
(3,530)
(3,125)
(989)
(27,401)
—
(2,285)
(91)
(197)
(2,266)
7,300
(1,777)
(6,970)
(6,286)
(14,332)
574,032
(38,029)
521,671
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
HSBC Holdings plc Annual Report and Accounts 2023
335
Financial statements
Financial statements
Consolidated statement of cash flows (continued)
for the year ended 31 December 2023
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 sale7
– less: items in the course of transmission to other banks
Cash and cash equivalents at 31 Dec6
2023
$m
20221
$m
285,868
6,342
76,620
64,341
33,303
15,819
15,935
(7,295)
490,933
327,002
7,297
72,295
68,682
26,727
19,445
8,087
(7,864)
521,671
2021
$m
403,018
4,136
55,705
76,658
28,488
11,241
—
(5,214)
574,032
Interest received was $98,910m (2022: $55,664m; 2021: $40,175m), interest paid was $65,980m (2022: $22,856m; 2021: $12,695m) and
dividends received (excluding dividends received from associates, which are presented separately above) were $1,869m (2022: $1,638m; 2021:
$1,898m).
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 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.
3 Post adoption of IFRS 17 ‘Insurance Contracts’, certain assets have been reclassified from ‘Investing activities’ to ‘Operating activities’. The
comparative data have not been re-presented.
4 The ‘Net cash flow on (acquisition)/disposal of subsidiaries, businesses, associates and joint ventures’ includes $1.2bn of net cash inflows from the
acquisition of Silicon Valley Bank UK Limited in March 2023.
5 Subordinated liabilities changes during the year are attributable to repayments of $(2.1)bn (2022: $(1.8)bn; 2021: $(0.9)bn) of securities. Non-cash
changes during the year included foreign exchange gains/(losses) of $0.6bn (2022: $(1.1)bn; 2021: $(0.3)bn) and fair value gains/(losses) of $0.8bn
(2022: $(3.1)bn; 2021: $(1.0)bn).
6 At 31 December 2023, $61.8bn (2022: $59.3bn; 2021: $33.6bn) was not available for use by HSBC due to a range of restrictions, including currency
exchange and other restrictions.
7 Includes $5.6bn (2022: $6.5bn) of cash and balances at central banks, $0.2bn (2022: $1.3bn) of reverse repurchase agreements with banks of one
month or less, $10.5bn (2022: $0.2bn) of loans and advances to banks of one month or less and items in the course of transmission to other banks
$(0.4)bn (2022: $(0.2)bn).
336
HSBC Holdings plc Annual Report and Accounts 2023
HSBC Holdings income statement
for the year ended 31 December 2023
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
(Impairment) of subsidiaries/reversal of impairment
Total operating expenses
Profit before tax
Tax credit2
Profit for the year
Notes*
3
3
3
5
19
2023
$m
(5,339)
2,864
(8,203)
2
1,063
(1,468)
3,692
45
16,824
332
15,151
(15)
(1,327)
(5,574)
(6,916)
8,235
977
9,212
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
* For Notes on the financial statements, see page 341.
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2 The tax credit in 2022 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 2023
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
2023
$m
9,212
(124)
(166)
42
(124)
9,088
2022
$m
2021
$m
12,357
10,834
326
435
(109)
326
12,683
267
259
8
267
11,101
HSBC Holdings plc Annual Report and Accounts 2023
337
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
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 341.
31 Dec 2023
31 Dec 2022
Notes*
$m
$m
15
16
19
25
15
26
29
33
33
33
7,029
59,879
3,344
27,354
19,558
5,341
924
159,478
180
2,082
285,169
168
43,638
6,090
65,239
4,289
24,439
143,863
9,631
14,738
17,703
35,946
63,288
141,306
285,169
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
The accompanying notes on pages 341 to 434, the audited sections in the Risk review on pages 135 to 237 and ‘Directors’ remuneration report’
on pages 279 to 305 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2024 and signed on its behalf by:
Mark E Tucker
Group Chairman
Georges Elhedery
Group Chief Financial Officer
338
HSBC Holdings plc Annual Report and Accounts 2023
HSBC Holdings statement of changes in equity
for the year ended 31 December 2023
At 1 Jan 2023
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 issued3
Cancellation of shares4
Dividends to shareholders
Redemption of capital securities5
Transfers6
Other movements
At 31 Dec 2023
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 shares
Dividends to shareholders
Redemption of capital securities
Transfers6
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 shares
Dividends to shareholders
Redemption of capital securities
Transfers6
Other movements
At 31 Dec 2021
Called up
share
capital
Share
premium
Other
equity
instruments
$m
$m
10,147
—
—
14,664
—
—
—
—
5
—
(521)
—
—
—
—
—
—
74
—
—
—
—
—
—
$m
19,746
—
—
—
—
—
1,980
—
—
(4,023)
—
—
9,631
14,738
17,703
10,316
—
—
14,602
—
—
—
—
—
5
—
(174)
—
—
—
—
10,147
—
62
—
—
—
—
—
—
14,664
10,347
—
—
14,277
—
—
—
—
—
29
—
(60)
—
—
—
—
10,316
—
325
—
—
—
—
—
—
14,602
22,414
—
—
—
—
—
—
—
—
(2,668)
—
—
19,746
22,414
—
—
—
—
—
2,000
—
—
(2,000)
—
—
22,414
Other
reserves
Merger
and other
reserves
$m
Retained
earnings1,2
$m
Total
shareholders’
equity
67,996
9,212
(124)
(124)
9,088
(328)
—
(7,025)
(11,593)
20
5,130
—
63,288
65,116
12,357
326
326
12,683
(161)
—
(1,001)
(6,544)
402
(2,499)
—
67,996
65,005
10,834
267
267
11,101
(103)
(20)
(2,004)
(5,790)
—
(3,065)
(8)
65,116
40,555
—
—
—
—
—
—
521
—
—
(5,130)
—
35,946
37,882
—
—
—
—
—
—
174
—
—
2,499
—
40,555
34,757
—
—
—
—
—
—
60
—
—
3,065
—
37,882
$m
153,108
9,212
(124)
(124)
9,088
(249)
1,980
(7,025)
(11,593)
(4,003)
—
—
141,306
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
Dividends per ordinary share at 31 December 2023 were $0.53 (2022: $0.27; 2021: $0.22).
1 Retained earnings include unrealised profits from intercompany transactions and share-based payment reserves, which are excluded from distributable
reserves. Distributable reserves include the distributable portions of retained earnings and the merger reserve. Distributable reserves are reduced by
ordinary dividend payments, distributions on additional tier 1 instruments, share buy-backs and impairments in investments in subsidiaries. They are
increased by profits and the realisation of retained earnings or merger reserves upon impairment of an associated investment in subsidiary.
2 At 31 December 2023, retained earnings included 20,018,490 ($100m) treasury shares (2022: 331,874,221 ($2,615m); 2021: 329,871,829 ($2,542m)).
3
4
In March 2023, HSBC Holdings issued $2,000m 8.000% contingent convertible securities, on which there were $20m of issue costs.
In May 2023, HSBC announced a share buy-back of up to $2.0bn, which was completed in July 2023. In August 2023, HSBC announced another share
buy-back of up to $2.0bn, which was completed in October 2023. In October 2023, HSBC further announced a share buy-back of up to $3.0bn, which
was completed in February 2024.
In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent convertible securities. In September 2023, HSBC Holdings further redeemed
€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.
5
6 At 31 December 2023, an impairment of $5,512m of HSBC Overseas Holdings (UK) Limited was recognised, resulting in a permitted transfer of
$5,130m from the merger reserve to retained earnings, and a realisation of $382m share-based payment reserve within retained earnings. In 2022, a
part-reversal of the impairment resulted in a transfer from retained earnings back to the merger reserve of $2,499m (2021: $3,065m).
HSBC Holdings plc Annual Report and Accounts 2023
339
Financial statements
Financial statements
HSBC Holdings statement of cash flows
for the year ended 31 December 2023
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
– elimination of exchange differences1
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 flow from capital contribution, acquisition and disposal of 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
Exchange differences in respect of cash and cash equivalents2
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
2023
$m
8,235
5,611
5,629
—
(38)
20
(1,267)
(7,767)
(529)
363
—
1,964
3,096
1,947
577
12,230
(7,803)
20,074
2,476
(46)
14,701
2,059
(4,003)
(855)
(5,812)
5,270
—
17,180
(13,047)
(10,492)
(1,101)
(10,801)
16,130
6,756
(72)
22,814
7,029
3,422
12,363
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
(1,836)
(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
663
(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
Interest received was $5,695m (2022: $2,410m; 2021: $1,636m), interest paid was $7,754m (2022: $3,813m; 2021: $2,724m) and dividends
received were $16,824m (2022: $9,478m; 2021: $11,404m).
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. As this change has immaterial impact, prior period comparatives have not been restated.
2 In 2023, additional disclosure has been made in respect of exchange differences on cash and cash equivalents. As this change has immaterial impact,
prior period comparatives have not been restated.
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HSBC Holdings plc Annual Report and Accounts 2023
Notes on the financial statements
Contents
341
355
1 Basis of preparation and material accounting policies
2 Net fee income
356
356
363
368
368
371
372
372
375
375
382
383
384
389
390
391
395
397
399
3 Net income/(expense) from financial instruments
measured at fair value through profit or loss
4 Insurance business
5 Employee compensation and benefits
6 Auditor’s 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
21 Goodwill and intangible assets
401
401
404
404
404
405
405
406
407
412
414
414
416
416
417
420
422
426
426
22 Prepayments, accrued income and other assets
23 Assets held for sale, liabilities of disposal groups held for
sale and business acquisitions
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 Interest rate benchmark reform
33 Called up share capital and other equity instruments
34 Contingent liabilities, contractual commitments and
guarantees
35 Finance lease receivables
36 Legal proceedings and regulatory matters
37 Related party transactions
38 Effects of adoption of IFRS 17
39 Events after the balance sheet date
40 HSBC Holdings’ subsidiaries, joint ventures and
associates
1 Basis of preparation and material 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 as issued by the International Accounting Standards Board (‘IFRS Accounting
Standards’), including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRS Accounting
Standards for the periods presented. There were no unendorsed standards effective for the year ended 31 December 2023 affecting these
consolidated and separate financial statements.
Standards adopted during the year ended 31 December 2023
IFRS 17 ‘Insurance Contracts’
On 1 January 2023, the Group adopted the requirements of IFRS 17 ‘Insurance Contracts’ retrospectively with comparatives restated from the
transition date, 1 January 2022. At transition, the Group’s total equity reduced by $10,459m.
On adoption of IFRS 17, balances based on IFRS 4, including the present value of in-force long-term insurance business (‘PVIF’) asset in relation
to the upfront recognition of future profits of in-force insurance contracts, were derecognised. Insurance contract liabilities have been
remeasured under IFRS 17 based on groups of insurance contracts, which include the fulfilment cash flows comprising the best estimate of the
present value of the future cash flows (for example premiums and payouts for claims, benefits and expenses), together with a risk adjustment
for non-financial risk, as well as the contractual service margin (‘CSM’). The CSM represents the unearned profits that will be released and
systematically recognised in insurance revenue as services are provided over the expected coverage period.
In addition, the Group has made use of the option under the standard to re-designate certain eligible financial assets held to support insurance
contract liabilities, which were predominantly measured at amortised cost, as financial assets measured at fair value through profit or loss, with
comparatives restated from the transition date. The effects of adoption of IFRS 17 are set out in Note 38 with a description of the policy in Note
1.2(j).
The key differences between IFRS 4 and IFRS 17 are summarised in the following table:
HSBC Holdings plc Annual Report and Accounts 2023
341
Financial statements
Notes on the financial statements
Balance sheet
Profit emergence/
recognition
IFRS 4
IFRS 17
– Insurance contract liabilities for non-linked life insurance
contracts are calculated by local actuarial principles.
Liabilities under unit-linked life insurance contracts are at
least equivalent to the surrender or transfer value, by
reference to the value of the relevant underlying funds or
indices. Grouping requirements follow local regulations.
– Insurance contract liabilities are measured for groups of
insurance contracts at current value, comprising the fulfilment
cash flows and the CSM.
– The fulfilment cash flows comprise the best estimate of the
present value of the future cash flows, together with a risk
adjustment for non-financial risk.
– An intangible asset for the PVIF is recognised,
representing the upfront recognition of future profits
associated with in-force insurance contracts.
– The CSM represents the unearned profit.
– The value of new business is reported as revenue on
– The CSM is systematically recognised in revenue as services
Day 1 as an increase in PVIF.
– The impact of the majority of assumption changes is
recognised immediately in the income statement.
– Variances between actual and expected cash flows are
recognised in the period they arise.
are provided over the expected coverage period of the group of
contracts (i.e. no Day 1 profit).
– Contracts are measured using the general measurement model
(‘GMM’) or the variable fee approach (‘VFA’) model for
insurance contracts with direct participation features upon
meeting the eligibility criteria. Under the VFA model, the
Group’s share of the investment experience and assumption
changes are absorbed by the CSM and released over time to
profit or loss. For contracts measured under GMM, the Group’s
share of the investment volatility is recorded in profit or loss as
it arises.
– Losses from onerous contracts are recognised in the income
statement immediately.
– Under the market consistent approach, expected future
investment spreads are not included in the investment return
assumption. Instead, the discount rate includes an illiquidity
premium that reflects the nature of the associated insurance
contract liabilities.
– Projected lifetime expenses that are directly attributable costs
are included in the insurance contract liabilities and recognised
in the insurance service result.
– Non-attributable costs are reported in operating expenses.
Investment return
assumptions (discount
rate)
– PVIF is calculated based on long-term investment return
assumptions based on assets held. It therefore includes
investment margins expected to be earned in future.
Expenses
– Total expenses to acquire and maintain the contract over
its lifetime are included in the PVIF calculation.
– Expenses are recognised across operating expenses and
fee expense as incurred and the allowances for those
expenses are released from the PVIF simultaneously.
Transition
In applying IFRS 17 for insurance contracts retrospectively, the full retrospective approach (‘FRA’) has been used unless it was 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’). The Group has applied 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.
Under the FVA, the valuation of insurance liabilities on transition is based on the applicable requirements of IFRS 13 ‘Fair Value Measurement’.
This requires consideration 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 (an exit price). The CSM is calculated as the difference between what a market participant would
demand for assuming the unexpired risk associated with insurance contracts, including required profit, and the fulfilment cash flows that are
determined using IFRS 17 principles.
In determining the fair value, the Group considered the estimated profit margin that a market participant would demand in return for assuming
the insurance liabilities with the consideration of the level of capital that a market participant would be required to hold, and the discount rate
with an allowance for an illiquidity premium that takes into account the level of ‘matching’ between the Group’s assets and related liabilities.
These assumptions were set taking into account the assumptions that a hypothetical market participant operating in each local jurisdiction
would consider.
Amendments to IAS 12 ‘International Tax Reform – Pillar Two Model Rules’
On 23 May 2023, the International Accounting Standards Board (‘IASB’) issued amendments to IAS 12 ‘International Tax Reform – Pillar Two
Model Rules’, which became effective immediately and were approved for adoption by all members of the UK Endorsement Board on 19 July
2023 and by the European Union on 8 November 2023. On 20 June 2023, legislation was substantively enacted in the UK to introduce the
OECD’s Pillar Two global minimum tax rules and a UK qualified domestic minimum top-up tax, with effect from 1 January 2024. The Group has
applied the IAS 12 exception from recognising and disclosing information on associated deferred tax assets and liabilities.
There were no other new standards or amendments to standards that had an effect on these financial statements.
(b) Differences between IFRS Accounting Standards and Hong Kong Financial Reporting Standards
There are no significant differences between IFRS Accounting Standards 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 IFRS Accounting Standards and Hong Kong Financial Reporting Standards.
(c)
Future accounting developments
Minor amendments to IFRS Accounting Standards
The IASB has published a number of minor amendments to IFRS Accounting Standards that are effective from 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. Additionally, in August 2023, the IASB published amendments to IAS 21 ‘Lack of Exchangeability’ effective from 1 January
2025. The Group is undertaking an assessment of the potential impact, which is not expected to be significant.
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HSBC Holdings plc Annual Report and Accounts 2023
(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.
Transactions in foreign currencies are recorded at the rate of exchange at 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 IFRS Accounting Standards have been included in the sections marked as (‘Audited’) in the Annual Report and
Accounts 2023 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 135 to 237.
– The ‘Own funds disclosure’ is included in the ‘Risk review’ on page 207.
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 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 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 2023 management did 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 impacts of climate-related risks of associated judgements and estimates in our value in use
calculations.
(g) 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, liquidity, capital requirements and capital
resources.
These considerations include stressed scenarios that reflect the uncertainty in the macroeconomic environment following rising inflation, slower
Chinese economic activity, and disrupted supply chains as a result of the ongoing Russia-Ukraine and Israel-Hamas wars. They also included
other top and emerging risks, including climate change, as well as the related impacts on profitability, capital and liquidity.
1.2 Summary of material 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. Indicators of impairment include both external and internal sources of information. Similarly, assessments are made as to
whether an impairment loss recognised in prior periods may no longer exist or may have decreased. Where this is the case, such an impairment
loss is reversed if there has been a change in the estimate used to determine the relevant recoverable amount since the last impairment loss
was recognised, and to the extent that it does not increase the carrying amount above that had no impairment loss been previously recognised.
HSBC Holdings plc Annual Report and Accounts 2023
343
Financial statements Notes on the financial statements
Critical 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
Estimates
– The accuracy of forecast cash flows is subject to a
– 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 or reversal more frequently than once a
year when indicators 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 and their reversal where
relevant 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 its main legal entities 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 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
Estimates
– 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.
– 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.
The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill in the next financial year,
but does consider this to be an area that is inherently judgemental.
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 which 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, by comparing the recoverable amount of the relevant investment to its carrying amount. 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. Previously recognised impairments are assessed for reversal when there are indicators that they may no longer exist or have
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HSBC Holdings plc Annual Report and Accounts 2023
decreased. Any reversal, which may arise only from changes in estimates used to determine the prior impairment loss, is recognised to the
extent that it does not increase the carrying amount above that had no impairment loss been previously recognised.
Critical estimates and judgements
The most significant critical 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
Estimates
– The value in use calculation uses discounted cash flow projections based on
management’s best estimate of future earnings available to ordinary shareholders
prepared in accordance with IAS 36 ‘Impairment of Assets’.
– Key assumptions used in estimating BoCom’s value in use and the sensitivity of
the value in use calculations to different assumptions are described in Note 18.
(b)
Income and expense
Operating income
Interest income and expense
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 by applying the effective interest rate to the amortised cost (i.e. gross carrying amount
of the asset less allowance for expected credit losses).
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, 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 all gains and losses from changes in the fair value, together with related interest income, expense and dividends 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 service result and insurance finance income/(expenses) 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 2023
345
Financial statements
Notes on the financial statements
Critical 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 amount 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 managed within 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 trade date when HSBC enters
into contractual arrangements to purchase and are generally derecognised when they are either sold or redeemed. They are subsequently
remeasured at fair value with changes therein (except for those relating to impairment, interest income and foreign currency exchange gains
and losses) 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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– 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 or by a valuation
method. 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 a hedged item for which the effective interest rate method is used 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 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 recognised for
ECL resulting from possible default events 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 recognised 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, and 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. 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 (i.e. gross carrying amount less allowance for ECL).
HSBC Holdings plc Annual Report and Accounts 2023
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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 curing
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.
The Group applies 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 148.
Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable curing 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 restructuring 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 148.
For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from internal models, 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.
We continue to refine the retail transfer criteria approach for certain portfolios as additional data becomes available, in order to utilise a more
relative approach. 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.
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 2023
349
Financial statements
Notes on the financial statements
HSBC makes use of the IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the following
table:
Model
Regulatory capital
IFRS 9
PD
EAD
LGD
Other
– Through the cycle (represents long-run average PD throughout
– Point in time (based on current conditions, adjusted to take into
a full economic cycle)
account estimates of future conditions that will impact PD)
– The definition of default includes a backstop of 90+ days past
– Default backstop of 90+ days past due for all portfolios
due
– Cannot be lower than current balance
– Downturn LGD (consistent losses expected to be suffered
– Amortisation captured for term products
– Expected LGD (based on estimate of loss given default
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 IRB 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 primarily on an individual basis using a discounted cash flow (‘DCF’) methodology. The expected
future cash flows are based on 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 up to
four different scenarios are probability-weighted by reference to the status of the borrower, economic scenarios applied more generally by the
Group and judgement in relation to the likelihood of the work-out strategy succeeding or receivership being required. For less significant cases
where an individual assessment is undertaken, the effect of different economic scenarios and work-out strategies results in an ECL calculation
based on a most likely outcome which is adjusted to capture losses resulting from less likely but possible outcomes. For certain less significant
cases, the bank may use a LGD-based modelled approach to ECL assessment, which factors in a range of economic scenarios.
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 156.
Critical 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
credit 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 156, 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
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(j) Insurance contracts
A contract is classified as an insurance contract where the Group accepts significant insurance risk from another party by agreeing to
compensate that party if it is adversely affected by a specified uncertain future event. An insurance contract may also transfer financial risk, but
is accounted for as an insurance contract if the insurance risk is significant. In addition, the Group issues investment contracts with DPF, which
are also accounted under IFRS 17 ’Insurance Contracts’.
Aggregation of insurance contracts
Individual insurance contracts that are managed together and subject to similar risks are identified as a portfolio. Contracts that are managed
together usually belong to the same product group, and have similar characteristics such as being subject to a similar pricing framework or
similar product management, and are issued by the same legal entity. If a contract is exposed to more than one risk, the dominant risk of the
contract is used to assess whether the contract features similar risks. Each portfolio is further separated by the contract’s expected profitability.
The portfolios are split by their profitability into: (i) contracts that are onerous at initial recognition; (ii) contracts that at initial recognition have no
significant possibility of becoming onerous subsequently; and (iii) the remaining contracts. These profitability groups are then divided by issue
date, with most contracts the Group issues after the transition date being grouped into calendar quarter cohorts. For multi-currency groups of
contracts, the Group considers its groups of contracts as being denominated in a single currency.
The measurement of the insurance contract liability is based on groups of insurance contracts as established at initial recognition, and will
include fulfilment cash flows as well as the CSM representing the unearned profit. The Group has elected to update the estimates used in the
measurement on a year-to-date basis.
Fulfilment cash flows
The fulfilment cash flows comprise the following:
Best estimates of future cash flows
The cash flows within the contract boundary of each contract in the Group include amounts expected to be collected from premiums and
payouts for claims, benefits and expenses, and are projected using a range of scenarios and assumptions in an unbiased way based on the
Group’s demographic and operating experience along with external mortality data where the Group’s own experience data is not sufficiently
large in size to be credible.
Adjustment for the time value of money and financial risks associated with the future cash flows
The estimates of future cash flows are adjusted to reflect the time value of money (i.e. discounting) and the financial risks to derive an expected
present value. The Group generally makes use of stochastic modelling techniques in the estimation for products with options and guarantees.
A bottom-up approach is used to determine the discount rate to be applied to a given set of expected future cash flows. This is derived as the
sum of the risk-free yield and an illiquidity premium. The risk-free yield is determined based on observable market data, where such markets are
considered to be deep, liquid and transparent. When information is not available, management judgement is applied to determine the
appropriate risk-free yield. Illiquidity premiums reflect the liquidity characteristics of the associated insurance contracts.
Risk adjustment for non-financial risk
The risk adjustment reflects the compensation required for bearing the uncertainty about the amount and timing of future cash flows that arises
from non-financial risk. It is calculated as a 75th percentile level of stress over a one-year period. The level of the stress is determined with
reference to external regulatory stresses and internal economic capital stresses.
For the main insurance manufacturing entity in these locations, the one-year 75th percentile level of stress corresponds to the following
percentiles based on an ultimate view of risk over all future years:
– Asia-Pacific (Hong Kong): 60th percentile (2022: 59th percentile).
– Europe (France): 60th percentile (2022: 60th percentile).
– Latin America (Mexico): 65th percentile (2022: 66th percentile).
The Group does not disaggregate changes in the risk adjustment between insurance service result (comprising insurance revenue and insurance
service expense) and insurance finance income or expenses. All changes are included in the insurance service result.
Measurement models
The variable fee approach (‘VFA’) measurement model is used for most of the contracts issued by the Group, which is mandatory upon meeting
the following eligibility criteria at inception:
– the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
– the Group expects to pay to the policyholder a substantial share of the fair value returns on the underlying items. The Group considers that a
substantial share is a majority of returns; and
– the Group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value
of the underlying items. The Group considers that a substantial proportion is a majority proportion of change on a present value probability-
weighted average of all scenarios.
For some contracts measured under VFA, the other comprehensive income (‘OCI’) option is used. The OCI option is applied where the
underlying items held by the Group are not accounted for at fair value through profit or loss. Under this option, only the amount that matches
income or expenses recognised in profit or loss on underlying items is included in finance income or expenses for these insurance contracts,
and hence results in the elimination of accounting mismatches. The remaining amount of finance income or expenses for these insurance
contracts issued for the period is recognised in OCI. In addition, the risk mitigation option is used for a number of economic offsets against the
instruments that meet specific requirements.
The remaining contracts issued and the reinsurance contracts held are accounted for under the general measurement model (‘GMM’).
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351
Financial statements Notes on the financial statements
CSM and coverage units
The CSM represents the unearned profit and results in no income or expense at initial recognition when the group of contracts is profitable. The
CSM is adjusted at each subsequent reporting period for changes in fulfilment cash flows relating to future service (e.g. changes in non-
economic assumptions, including mortality and morbidity rates). For initial recognition of onerous groups of contracts and when groups of
contracts become onerous subsequently, losses are recognised in insurance service expense immediately.
For groups of contracts measured using the VFA, changes in the Group’s share of the underlying items, and economic experience and economic
assumption changes adjust the CSM, whereas these changes do not adjust the CSM under the GMM, but are recognised in profit or loss as
they arise. However, under the risk mitigation option for VFA contracts, the changes in the fulfilment cash flows and the changes in the Group’s
share in the fair value return on underlying items that the instruments mitigate are not adjusted in CSM but recognised in profit or loss. The risk
mitigating instruments are primarily reinsurance contracts held.
The CSM is systematically recognised in insurance revenue to reflect the insurance contract services provided, based on the coverage units of
the group of contracts. Coverage units are determined by the quantity of benefits and the expected coverage period of the contracts.
The Group identifies the quantity of the benefits provided as follows:
– Insurance coverage: This is based on the expected net policyholder insurance benefit at each period after allowance for decrements, where
net policyholder insurance benefit refers to the amount of sum assured less the fund value or surrender value.
– Investment services (including both investment-return service and investment-related service): This is based on a constant measure basis
which reflects the provision of access for the policyholder to the facility.
For contracts that provide both insurance coverage and investment services, coverage units are weighted according to the expected present
value of the future cash outflows for each service.
Insurance service result
Insurance revenue reflects the consideration to which the Group expects to be entitled in exchange for the provision of coverage and other
insurance contract services (excluding any investment components). Insurance service expenses comprise the incurred claims and other
incurred insurance service expenses (excluding any investment components), and losses on onerous groups of contracts and reversals of such
losses.
Insurance finance income and expenses
Insurance finance income and expenses comprise the change in the carrying amount of the group of insurance contracts arising from the
effects of the time value of money, financial risk and changes therein. For VFA contracts, changes in the fair value of underlying items (excluding
additions and withdrawals) are recognised in insurance finance income or expenses.
(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.
Critical estimates and judgements
The most significant critical 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.
352
HSBC Holdings plc Annual Report and Accounts 2023
(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 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 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
Estimates
– Determining whether a present obligation exists. Professional advice is
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.
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
– 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.
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.
(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.
HSBC Holdings plc Annual Report and Accounts 2023
353
Financial statements
Notes on the financial statements
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 amount 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 are 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 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 estimates and judgements’ in
Note 1.2(a).
The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill and non-financial assets in
the next financial year, but does consider this to be an area that is inherently judgemental.
(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 amount of the non-current assets in scope of IFRS 5 for measurement is recognised against the total
assets of the disposal group.
Critical 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 governmental approvals, which are almost always required for sales of banking businesses, and sanctions risk. 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 2023, 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
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
historical adjustments.
354
HSBC Holdings plc Annual Report and Accounts 2023
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
Wealth and
Personal
Banking
Commercial
Banking
2023
Global
Banking and
Markets
Corporate
Centre
$m
1,763
2,385
103
463
402
727
—
128
86
—
280
1,433
7,770
(2,416)
5,354
$m
71
353
856
22
788
10
3
6
389
470
18
1,161
4,147
(210)
3,937
$m
539
38
615
592
347
1
583
730
347
154
—
2,458
6,404
(3,858)
2,546
Wealth and
Personal
Banking
$m
1,765
2,146
100
576
337
682
1
140
72
—
283
1,330
7,432
(2,128)
5,304
20221
Global
Banking and
Markets2
$m
Commercial
Banking2
$m
107
313
783
40
730
14
2
19
380
493
16
1,102
3,999
(212)
3,787
500
32
591
635
344
—
443
762
346
141
1
2,376
6,171
(3,459)
2,712
$m
—
—
—
—
—
—
—
—
1
—
—
(2,706)
(2,705)
2,713
8
Corporate
Centre
$m
(12)
—
—
—
1
—
(5)
—
1
—
—
(2,463)
(2,478)
2,445
(33)
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)
Total
$m
2,373
2,776
1,574
1,077
1,537
738
586
864
823
624
298
2,346
15,616
(3,771)
11,845
Total
$m
2,360
2,491
1,474
1,251
1,412
696
441
921
799
634
300
2,345
15,124
(3,354)
11,770
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
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data
have been re-presented accordingly.
2
HSBC Holdings plc Annual Report and Accounts 2023
355
Financial statements
Notes on the financial statements
Net fee income included $6,971m 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 (2022: $6,410m; 2021: $6,742m), $1,872m 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 (2022: $1,613m; 2021: $1,520m),
$3,452m of fees earned on trust and other fiduciary activities (2022: $3,492m; 2021: $3,849m) and $333m of fees payable relating to trust and
other fiduciary activities (2022: $370m; 2021: $305m).
3 Net income/(expense) 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
2023
$m
20,391
(3,730)
16,661
8,086
(199)
20221
$m
2,372
7,906
10,278
(14,392)
561
2021
$m
6,668
1,076
7,744
4,134
(81)
7,887
(13,831)
4,053
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
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
4
Insurance business
Insurance service result
2023
$m
(546)
1,609
1,063
426
(1,894)
(1,468)
3,692
3,287
2022
$m
2,094
35
2,129
(1,529)
3,673
2,144
(2,409)
1,864
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage
Contractual service margin recognised for services provided
Change in risk adjustment for non-financial risk for risk expired
Expected incurred claims and other insurance service expenses
Other
Recovery of insurance acquisition cash flows
Total insurance revenue
Insurance service expenses
Incurred claims and other insurance service expenses
Losses and reversal of losses on onerous contracts
Amortisation of insurance acquisition cash flows
Adjustments to liabilities for incurred claims
Total insurance service expenses
Total insurance service results
Year ended 31 Dec 2023
Year ended 31 Dec 2022¹
Life direct
participating
and investment
DPF contracts2
$m
Life other
contracts3
$m
1,626
975
21
594
36
109
1,735
(615)
(32)
(109)
(1)
(757)
978
470
151
15
304
—
54
524
(292)
(77)
(54)
(1)
(424)
100
Life direct
participating and
investment DPF
contracts2
$m
Life other
contracts3
$m
1,399
781
17
528
73
102
1,501
(573)
(84)
(102)
(2)
(761)
740
446
151
17
278
—
30
476
(280)
(86)
(30)
(11)
(407)
69
Total
$m
2,096
1,126
36
898
36
163
2,259
(907)
(109)
(163)
(2)
(1,181)
1,078
2021
$m
87
23
110
(625)
974
349
(420)
39
Total
$m
1,845
932
34
806
73
132
1,977
(853)
(170)
(132)
(13)
(1,168)
809
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 ‘Life direct participating and investment DPF contracts’ are substantially measured under the variable fee approach measurement model.
3 ‘Life other contracts’ are measured under the general measurement model and excludes reinsurance contracts.
356
HSBC Holdings plc Annual Report and Accounts 2023
Net investment return
Investment return
Amounts recognised in profit or loss2
Amounts recognised in OCI3
Total investment return (memorandum)
Net finance income/(expense)
Changes in fair value of underlying items of direct participating contracts
Effect of risk mitigation option
Interest accreted
Effect of changes in interest rates and other financial assumptions
Effect of measuring changes in estimates at current rates and adjusting
the CSM at rates on initial recognition
Total net finance income/(expense) from insurance contracts
Represented by:
Amounts recognised in profit or loss
Amounts recognised in OCI
Total net investment results
Represented by:
Amounts recognised in profit or loss
Amounts recognised in OCI
Year ended 31 Dec 2023
Year ended 31 Dec 2022¹
Life direct
participating
and
investment
DPF contracts
Life other
contracts
$m
$m
Life direct
participating
and
investment
DPF contracts
Life other
contracts
$m
$m
Total
$m
Total
$m
7,663
493
8,156
(7,995)
(35)
—
(12)
214
—
214
7,877
493
8,370
—
—
(127)
(121)
(7,995)
(35)
(127)
(133)
(13,520)
(2,392)
(15,912)
15,937
99
—
—
(181)
—
(181)
(13,701)
(2,392)
(16,093)
— 15,937
99
—
(80)
(80)
233
233
—
(10)
(10)
—
3
3
(8,042)
(258)
(8,300)
16,036
156 16,192
(7,551)
(491)
114
(258)
—
(44)
(7,809)
(491)
70
13,643
2,393
124
156 13,799
2,393
99
—
(25)
112
2
(44)
—
68
2
123
1
(25)
—
98
1
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 Total Group ‘Net income/(expense) from assets and liabilities of insurance business, including related derivatives, measured at fair value through profit
or loss’ of $7,886m gain (2022: $13,831m loss) includes returns on assets and liabilities supporting insurance policies of $7,627m (2022: $13,949m
loss) and on shareholder assets of $259m (2022: $118m gain). Investment returns of $7,877m (2022: $13,701m loss) include gains of $7,627m (2022:
$13,949m loss) on underlying assets supporting insurance liabilities reported in ‘Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value through profit or loss’, $257m gains (2022: $248m gain) reported in ‘Net interest
income’ and $7m loss (2022: nil) reported in ‘Other operating income’.
3 ‘Amounts recognised in OCI’ gross of tax for the year ended 31 December 2023 included fair value gains of $497m (2022: $2,396m loss) and
impairment of $4m (2022: $4m impairment reversals).
Reconciliation of amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive
income – assets supporting contracts measured under the modified retrospective approach
Balance at 1 Jan
Net change in fair value
Net amount reclassified to profit or loss
Related income tax
Foreign exchange and other
Balance at 31 Dec
2023
$m
(973)
451
(6)
(115)
(27)
(670)
2022
$m
622
(2,099)
(2)
543
(37)
(973)
HSBC Holdings plc Annual Report and Accounts 2023
357
Financial statements
Notes on the financial statements
Movements in carrying amounts of insurance contracts – analysis by remaining coverage and incurred claims
Year ended 31 Dec 2023
Life direct participating and investment DPF
contracts
Liabilities for remaining
coverage:
Excluding
loss
component
Loss
component
Incurred
claims
Life other contracts
Liabilities for remaining
coverage:
Excluding
loss
component
Loss
component
Incurred
claims
$m
(5)
104,676
104,671
(508)
(148)
(1,079)
(1,735)
$m
—
114
114
—
—
—
—
109
—
—
109
(8,104)
(9,730)
8,042
513
942
—
32
—
26
—
26
—
(5)
1
Total
$m
$m
—
(5)
355 105,145
355 105,140
$m
(187)
3,359
3,172
—
(508)
(196)
—
—
—
(148)
(1,079)
(1,735)
(22)
(306)
(524)
—
109
—
32
1
622
8,104
8,726
1
757
—
(978)
—
54
—
—
54
(818)
(1,288)
—
8,042
254
(214)
6
294
949
(8)
25
—
(6)
621
615
$m
21
109
130
—
—
—
—
Total
Total
$m
$m
(136)
(131)
3,671 108,816
3,540 108,680
$m
35
203
238
—
(196)
(704)
—
—
—
(22)
(170)
(306)
(524)
(1,385)
(2,259)
(24)
316
292
907
—
77
—
53
—
53
3
4
(2)
—
54
163
—
77
109
1
317
818
1,135
1
424
—
(100)
2
1,181
—
(1,078)
1
258
8,300
(13)
8
(17)
31
277
980
(233)
22
8,518
8,307
(1,017)
58
1,131
172
8,479
12,616
—
— 12,616
1,256
—
—
1,256 13,872
(15)
—
(8,502)
(8,517)
(522)
12,079
14
116,531
(15)
116,546
116,531
—
—
(14)
122
1
121
122
—
(8,502)
—
(522)
3,577
—
371 117,024
(13)
370 117,037
371 117,024
1
1
(282)
975
(9)
3,121
(279)
3,400
3,121
—
(1,112)
(1,111)
(9,628)
—
—
(13)
175
(16)
191
175
—
(1,112)
22
279
56
223
279
(282)
(137)
—
(804)
3,440
—
3,575 120,599
(252)
(239)
3,814 120,851
3,575 120,599
Opening assets
Opening liabilities
Net opening balance at 1 Jan 2023
Changes in the statement of profit or
loss and other comprehensive income
Insurance revenue
Contracts under the fair value approach
Contracts under the modified
retrospective approach
Other contracts2
Total insurance revenue
Insurance service expenses
Incurred claims and other insurance
service expenses
Amortisation of insurance acquisition
cash flows
Losses and reversal of losses on
onerous contracts
Adjustments to liabilities for incurred
claims
Total insurance service expenses
Investment components
Insurance service result
Net finance (income)/expense from
insurance contracts3
Other movements recognised in the
statement of profit or loss
Effect of movements in exchange rates
Total changes in the statement of
profit or loss and other
comprehensive income
Cash flows
Premiums received
Claims and other insurance service
expenses paid, including investment
components, and other cash flows
Insurance acquisition cash flows
Total cash flows
Other movements
Net closing balance at 31 Dec 2023
Closing assets
Closing liabilities
Net closing balance at 31 Dec 2023
358
HSBC Holdings plc Annual Report and Accounts 2023
Movements in carrying amounts of insurance contracts – analysis by remaining coverage and incurred claims (continued)
Year ended 31 Dec 20221
Life direct participating and investment DPF
contracts
Liabilities for remaining
coverage:
Loss
component
Incurred
claims
Life other contracts
Liabilities for remaining
coverage:
Excluding
loss
component
Loss
component
Incurred
claims
Excluding
loss
component
$m
—
114,952
114,952
(571)
(147)
(783)
(1,501)
$m
—
93
93
—
—
—
—
Total
$m
$m
—
—
226 115,271
226 115,271
$m
(159)
3,825
3,666
—
(571)
(234)
—
—
—
(147)
(783)
(1,501)
$m
7
67
74
—
—
—
—
Total
$m
Total
$m
(116)
(116)
4,036 119,307
3,920 119,191
$m
36
144
180
—
(234)
(805)
—
—
—
(24)
(171)
(218)
(476)
(1,001)
(1,977)
(6)
286
280
853
—
—
30
132
86
—
80
—
80
2
(2)
—
11
297
549
846
86
11
407
—
(69)
170
13
1,168
—
(809)
(4)
(3)
(156)
(16,192)
(93)
(2,267)
(24)
(218)
(476)
—
30
—
—
30
(549)
(995)
(154)
(88)
—
5
568
573
102
—
—
102
—
—
102
(5,487)
(6,886)
(16,038)
(2,159)
84
—
89
—
89
—
(4)
—
2
570
5,487
6,057
84
2
761
—
(740)
2
(16,036)
(11)
(2,174)
(25,083)
85
6,048
(18,950)
(1,237)
80
839
(318)
(19,268)
12,740
—
— 12,740
882
—
—
882 13,622
—
(423)
12,317
2,485
104,671
(5)
104,676
104,671
—
—
—
(5,783)
(5,783)
—
(5,783)
(423)
6,534
(64)
114
—
114
114
(136)
2,285
—
355 105,140
(5)
355 105,145
355 105,140
—
(162)
720
23
3,172
(187)
3,359
3,172
—
—
—
(24)
130
21
109
130
(880)
—
(880)
99
238
35
203
238
(880)
(6,663)
(162)
(160)
(585)
6,374
98
2,383
(131)
3,540 108,680
(136)
3,671 108,816
3,540 108,680
Opening assets
Opening liabilities
Net opening balance at 1 Jan 2022
Changes in the statement of profit or loss
and other comprehensive income
Insurance revenue
Contracts under the fair value approach
Contracts under the modified retrospective
approach
Other contracts2
Total insurance revenue
Insurance service expenses
Incurred claims and other insurance service
expenses
Amortisation of insurance acquisition cash
flows
Losses and reversal of losses on onerous
contracts
Adjustments to liabilities for incurred claims
Total insurance service expenses
Investment components
Insurance service result
Net finance (income)/expense from
insurance contracts3
Effect of movements in exchange rates
Total changes in the statement of profit or
loss and other comprehensive income
Cash flows
Premiums received
Claims and other insurance service
expenses paid, including investment
components, and other cash flows
Insurance acquisition cash flows
Total cash flows
Acquisition of subsidiaries and other
movements
Net closing balance at 31 Dec 2022
Closing assets
Closing liabilities
Net closing balance at 31 Dec 2022
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 ‘Other contracts’ are those contracts measured by applying IFRS 17 from inception of the contracts. These include contracts measured under the full
retrospective approach at transition and contracts incepted after transition and excludes reinsurance contracts.
3 ‘Net finance (income)/expense from insurance contracts’ expense of $8,300m (2022: $16,192m income) comprises expense of $7,809m (2022:
$13,799m income) recognised in the statement of profit or loss and expense of $491m (2022: $2,393m income) recognised in the statement of other
comprehensive income.
HSBC Holdings plc Annual Report and Accounts 2023
359
Financial statements
Notes on the financial statements
Movements in carrying amounts of insurance contracts – analysis by measurement component
Life direct participating and investment DPF contracts
Life other contracts
Year ended 31 Dec 2023
Contractual service margin
Contractual service margin
Estimates
of present
value of
future cash
flows and
risk
adjustment
Contracts
under the
modified
retros-
pective
approach
Contracts
under the
fair value
approach
$m
(18)
96,174
$m
3
4,364
Other
contracts2
$m
10
Total
$m
(5)
3,815 105,145
$m
—
792
Estimates
of present
value of
future cash
flows and
risk
adjustment
Contracts
under the
modified
retros-
pective
approach
Contracts
under the
fair value
approach
$m
(308)
3,162
$m
86
325
Other
contracts2 Total
$m $m
91 (131)
$m
(136)
166 3,671 108,816
Total
$m
—
18
96,156
4,367
792
3,825 105,140
2,854
411
18
257 3,540 108,680
—
(188)
(70)
(717)
(975)
—
(69)
(6)
(76) (151) (1,126)
(21)
21
—
—
—
—
—
—
(21)
21
(15)
(12)
—
—
—
—
—
(15)
(36)
—
(12)
9
(1,606)
—
—
1,619
13
(176)
—
—
207
31
44
(771)
368
(33)
436
—
21
26
6
(53) —
—
19
—
—
—
19
46
—
—
—
46
65
1
—
—
—
1
1
—
—
—
1
2
(36)
(2,393)
—
180
—
—
(36)
(103)
1,338
(978)
—
(135)
—
(43)
—
—
— —
(36)
78 (100) (1,078)
8,042
—
—
— 8,042
235
11
—
12 258 8,300
145
133
(1)
17
294
(43)
6
—
20
(17)
277
883
2
27
37
949
—
12
1
18
31
980
6,677
315
(77)
1,392 8,307
57
(14)
1
128 172 8,479
12,616
—
—
— 12,616
1,256
—
—
— 1,256 13,872
(8,517)
(522)
3,577
—
—
—
106,410
(30)
106,440
4,682
3
4,679
—
—
—
715
—
715
— (8,517)
(1,111)
—
(522)
— 3,577
5,217 117,024
14
(13)
5,203 117,037
(282)
(137)
2,774
(339)
3,113
—
—
—
397
36
361
—
—
—
19
—
19
— (1,111) (9,628)
— (282)
(804)
— (137) 3,440
385 3,575 120,599
64 (239)
(252)
321 3,814 120,851
106,410
4,682
715
5,217 117,024
2,774
397
19
385 3,575 120,599
Opening assets
Opening liabilities
Net opening balance at
1 Jan 2023
Changes in the
statement of profit or
loss and other
comprehensive income
Changes that relate to
current services
Contractual service
margin recognised for
services provided
Change in risk adjustment
for non-financial risk
expired
Experience adjustments
Changes that relate to
future services
Contracts initially
recognised in the year
Changes in estimates that
adjust the contractual
service margin
Changes in estimates that
result in losses and
reversal of losses on
onerous contracts
Changes that relate to
past services
Adjustments to liabilities
for incurred claims
Other movements
recognised in insurance
service result
Insurance service result
Net finance (income)/
expense from insurance
contracts3
Other movements
recognised in the
statement of profit or loss
Effect of movements in
exchange rates
Total changes in the
statement of profit or
loss and other
comprehensive income
Cash flows
Premiums received
Claims, other insurance
service expenses paid
(including investment
components) and other
cash flows
Insurance acquisition cash
flows
Total cash flows
Net closing balance at
31 Dec 2023
Closing assets
Closing liabilities
Net closing balance at
31 Dec 2023
360
HSBC Holdings plc Annual Report and Accounts 2023
Movements in carrying amounts of insurance contracts – analysis by measurement component (continued)
Life direct participating and investment DPF contracts
Year ended 31 Dec 20221
Contractual service margin
Estimates
of present
value of
future cash
flows and
risk
adjustment
Contracts
under the
fair value
approach
$m
—
105,861
$m
—
5,823
Contracts
under the
modified
retros-
pective
approach
$m
Other
contracts2
$m
Total
$m
—
704
—
—
2,883 115,271
Life other contracts
Contractual service margin
Estimates
of present
value of
future cash
flows and
risk
adjustment
Contracts
under the
modified
retros-
pective
approach
Contracts
under the
fair value
approach
$m
(236)
3,532
$m
57
331
Other
contracts2
$m
Total
Total
$m
$m
$m
—
26
63 (116)
(116)
147 4,036 119,307
105,861
5,823
704
2,883 115,271
3,296
388
26
210 3,920 119,191
—
(297)
(69)
(415)
(781)
—
(69)
(6)
(76) (151)
(932)
(17)
45
—
—
—
—
—
—
(17)
45
(17)
2
—
—
—
—
—
(17)
—
2
(34)
47
(1,092)
—
—
1,101
9
(110)
—
—
117
7
16
820
(1,349)
208
321
—
(7)
23
—
(16) —
—
75
—
—
—
75
79
—
—
—
79
154
2
(73)
—
—
—
—
(240)
(1,646)
139
1,007
(740)
—
(73)
—
(42)
—
(46)
—
2
11
—
(16,025)
(10)
—
(1) (16,036)
(169)
7
—
—
(6)
—
—
11
13
— —
(73)
25
(69)
(809)
6 (156) (16,192)
(2,082)
(16)
(51)
(25)
(2,174)
(74)
(17)
(2)
—
(93) (2,267)
(18,347)
(1,672)
88
981 (18,950)
(285)
(56)
(8)
31 (318) (19,268)
12,740
—
—
— 12,740
882
—
—
— 882 13,622
(5,783)
(423)
6,534
—
—
—
2,108
216
—
—
—
—
—
(5,783)
(880)
—
(423)
— 6,534
(162)
(160)
—
—
—
(39) 2,285
3
79
96,156
4,367
(18)
96,174
3
4,364
792
—
792
3,825 105,140
10
(5)
3,815 105,145
2,854
(308)
3,162
411
86
325
—
—
—
—
18
—
18
— (880) (6,663)
— (162)
(585)
— (160) 6,374
16
98 2,383
257 3,540 108,680
91 (131)
(136)
166 3,671 108,816
96,156
4,367
792
3,825 105,140
2,854
411
18
257 3,540 108,680
Opening assets
Opening liabilities
Net opening balance at 1 Jan
2022
Changes in the statement of
profit or loss and other
comprehensive income
Changes that relate to current
services
Contractual service margin
recognised for services
provided
Change in risk adjustment for
non-financial risk expired
Experience adjustments
Changes that relate to future
services
Contracts initially recognised
in the year
Changes in estimates that
adjust contractual service
margin
Changes in estimates that
result in losses and reversal of
losses on onerous contracts
Changes that relate to past
services
Adjustments to liabilities for
incurred claims
Other movements recognised
in insurance service result
Insurance service result
Net finance (income)/expense
from insurance contracts3
Effect of movements in
exchange rates
Total changes in the
statement of profit or loss and
other comprehensive income
Cash flows
Premiums received
Claims, other insurance
service expenses paid
(including investment
components) and other cash
flows
Insurance acquisition cash
flows
Total cash flows
Acquisition of subsidiaries and
other movements
Net closing balance at
31 Dec 2022
Closing assets
Closing liabilities
Net closing balance at
31 Dec 2022
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 ‘Other contracts' are those contracts measured by applying IFRS 17 from inception of the contracts. These include contracts measured under the full
retrospective approach at transition and contracts incepted after transition and excludes reinsurance contracts.
3 ‘Net finance (income)/expense from insurance contracts’ expense of $8,300m (2022: $16,192m income) comprises expense of $7,809m (2022:
$13,799m income) recognised in the statement of profit or loss and expense of $491m (2022: $2,393m income) recognised in the statement of other
comprehensive income.
HSBC Holdings plc Annual Report and Accounts 2023
361
Financial statements
Notes on the financial statements
Effect of contracts initially recognised in the year
Life direct participating and investment DPF contracts
Estimates of present value of cash outflows
– insurance acquisition cash flows
– claims and other insurance service expenses payable
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Losses recognised on initial recognition
Life other contracts
Estimates of present value of cash outflows
– insurance acquisition cash flows
– claims and other insurance service expenses payable
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Losses recognised on initial recognition
Year ended 31 Dec 2023
Year ended 31 Dec 20221
Profitable
contracts
issued
Onerous
contracts
issued
$m
$m
12,418
602
11,816
(14,074)
37
1,619
—
1,116
106
1,010
(1,350)
27
207
—
215
21
194
(204)
2
—
(13)
464
50
414
(438)
5
—
(31)
Profitable
contracts
issued
$m
Onerous
contracts
issued
$m
9,714
401
9,313
(10,844)
29
1,101
—
640
57
583
(778)
21
117
—
123
16
107
(115)
1
—
(9)
111
9
102
(105)
1
—
(7)
Total
$m
12,633
623
12,010
(14,278)
39
1,619
(13)
1,580
156
1,424
(1,788)
32
207
(31)
Total
$m
9,837
417
9,420
(10,959)
30
1,101
(9)
751
66
685
(883)
22
117
(7)
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
Present value of expected future cash flows of insurance contract liabilities and contractual service margin
Less than
1 year
1–2
years
2–3
years
3–4
years
4–5
years
5–10
years
10–20
years
Over 20
years
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
Insurance liability future cash flows
Life direct participating and investment DPF contracts
Life other contracts
Insurance liability future cash flows at 31 Dec 2023
Remaining contractual service margin
Life direct participating and investment DPF contracts
Life other contracts
Remaining contractual service margin at 31 Dec 2023
Insurance liability future cash flows
Life direct participating and investment DPF contracts
Life other contracts
Insurance liability future cash flows at 31 Dec 20221
Remaining contractual service margin
Life direct participating and investment DPF contracts
Life other contracts
Remaining contractual service margin at 31 Dec 20221
(2,620)
1,276
(1,344)
(545) 2,321 2,419 3,344 11,695 23,351 65,897 105,862
362
1,628 3,016
(183) 1,974 2,423 3,299 11,731 23,453 67,525 108,878
(347)
102
(45)
36
4
917
172
1,089
848
113
961
783
84
867
722
74
796
666 2,597 2,653
141
115
727 2,738 2,768
61
1,428 10,614
801
1,469 11,415
41
(5,049) (1,891)
770
(4,354) (1,121)
695
180 1,417 1,685 9,585 30,108 59,762 95,797
395
859 3,098
172
575 1,404 1,723 9,757 30,290 60,621 98,895
182
(13)
38
757
194
951
689
64
753
638
56
694
590
48
638
547 2,177 2,293
99
134
589 2,311 2,392
42
1,293 8,984
686
1,342 9,670
49
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
Discount rates
The discount rates applied to expected future cash flows are determined through a bottom-up approach as set out in Note 1.2(j) ‘Summary of
material accounting policies – Insurance contracts’ on page 351. The blended average of discount rates used within our most material
manufacturing entities are as follows:
At 31 Dec 2023
10-year discount rate (%)
20-year discount rate (%)
At 31 Dec 2022
10-year discount rate (%)
20-year discount rate (%)
HSBC Life (International) Ltd
Hang Seng Insurance Co Ltd
HSBC Assurances
Vie (France)
HK$
4.02
4.21
4.56
4.63
US$
4.47
4.91
4.59
4.96
HK$
4.16
4.34
4.70
4.76
US$
4.62
5.06
4.80
5.17
€
2.96
2.97
3.66
3.33
362
HSBC Holdings plc Annual Report and Accounts 2023
5
Employee compensation and benefits
Employee compensation and benefits1
Capitalised wages and salaries2
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
2023
$m
18,220
1,403
19,623
17,359
1,507
757
19,623
2022
$m
18,003
1,285
19,288
16,970
1,403
915
19,288
2021
$m
18,742
870
19,612
17,072
1,503
1,037
19,612
1 In 2023 and 2022, employee compensation and benefits are presented in the income statement net of software capitalisation costs and costs included
in the insurance contract fulfilment cash flow liabilities under IFRS 17. In 2021, employee compensation and benefits are presented net of software
capitalisation costs in the income statement.
2 Comprises $1,043m (2022: $922m; 2021: $870m) software capitalisation costs and $360m (2022: $363m; 2021: n/a) costs included in the insurance
contract fulfilment cash flow liabilities under IFRS 17.
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
2023
132,336
46,826
48,043
347
227,552
2022
135,676
48,004
48,597
365
232,642
2021
138,026
44,992
48,179
359
231,556
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 legal entity1
HSBC UK Bank plc
HSBC Bank plc
The Hongkong and Shanghai Banking Corporation Limited
HSBC Bank Middle East Limited
HSBC North America Holdings Inc.
HSBC Bank Canada
Grupo Financiero HSBC, S.A. de C.V.
Other trading entities2
Holding companies, shared service centres and intra-Group eliminations
Year ended 31 Dec
2023
20,415
14,809
54,321
3,316
6,046
4,354
14,412
9,247
100,632
227,552
1 Average number of persons employed represents the number of persons with contracts of service with the Group.
2 Other trading entities includes entities located in Oman, Türkiye, Egypt and Saudi Arabia.
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
2023
$m
3,774
(353)
3,421
375
(56)
3,740
2022
20,501
15,405
54,792
3,338
6,749
4,241
14,484
10,026
103,106
232,642
2022
$m
3,359
(343)
3,016
239
(22)
3,233
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $482m was equity settled (2022: $400m;
2021: $467m), as follows:
Conditional share awards
Savings-related and other share award option plans
Year ended 31 Dec
2023
$m
499
23
522
2022
$m
402
22
424
2021
21,447
16,823
55,253
3,429
8,197
4,369
14,529
10,442
97,067
231,556
2021
$m
3,495
(379)
3,116
270
4
3,390
2021
$m
479
27
506
HSBC Holdings plc Annual Report and Accounts 2023
363
Financial statements
Notes on the financial statements
HSBC share awards
Award
Policy
Deferred share awards
(including annual
incentive awards, long-
term incentive (‘LTI’)
awards delivered in
shares)
An assessment of performance over the relevant period ending on 31 December is used to determine the amount
of the award to be granted.
– Deferred awards generally require employees to remain in employment over the vesting period and are generally not
subject to performance conditions after the grant date. An exception to these are LTI awards, which are subject to
performance conditions.
– Deferred share awards generally vest over a period of three, four, five or seven years.
– Vested shares may be subject to a retention requirement post-vesting.
– Awards are generally subject to malus and clawback provisions.
International Employee
Share Purchase Plan
(‘ShareMatch’)
The plan was first introduced in Hong Kong in 2013 and now includes employees based in 30 jurisdictions.
– Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
– Matching awards are added at a ratio of one free share for every three purchased. In mainland China, matching
awards are settled in cash.
– Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum
period of two years and nine months.
Movement on HSBC share awards
Conditional share awards outstanding at 1 Jan
Additions during the year
Released in the year
Forfeited in the year
Conditional share awards outstanding at 31 Dec
Weighted average fair value of awards granted ($)
HSBC share option plans
Main plans
Policy
2023
Number
(000s)
126,246
72,289
(70,054)
(3,458)
125,023
5.84
2022
Number
(000s)
109,364
90,190
(67,718)
(5,590)
126,246
5.60
Savings-related share
option plans (‘Sharesave’)
– 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% (2022: 20%) discount to the market value immediately preceding the date of
invitation.
Calculation of fair values
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 2023
Granted during the year2
Exercised during the year3
Expired during the year
Forfeited during the year
Outstanding at 31 Dec 2023
– of which exercisable
Weighted average remaining contractual life (years)
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)
1 Weighted average exercise price.
2 The weighted average fair value of options granted during the year was $1.92 (2022: $1.45).
3 The weighted average share price at the date the options were exercised was $7.39 (2022: $6.22).
364
HSBC Holdings plc Annual Report and Accounts 2023
Savings-related
share option plans
Number
(000s)
WAEP1
£
115,651
23,382
(49,007)
(3,832)
(2,200)
83,994
7,165
2.41
123,197
8,928
(3,483)
(9,047)
(3,944)
115,651
4,029
2.26
2.89
4.70
2.73
3.78
2.88
3.42
2.70
2.85
4.24
3.49
3.55
2.79
2.89
4.11
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 206 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 climate risk’ on page 65.
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.
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, with an
effective date of 31 December 2022, is currently underway and will be concluded no later than the regulatory deadline of 31 March 2024. 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 would 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.
Income statement charge/(credit)
Defined benefit pension plans
Defined contribution pension plans
Pension plans
Defined benefit and contribution healthcare plans
Year ended 31 Dec
2023
$m
(151)
874
723
34
757
2022
$m
42
845
887
28
915
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
Fair value of
plan assets
Present value of
defined benefit obligations
Effect of limit on plan
surpluses
Defined benefit pension plans
Defined benefit healthcare plans
At 31 Dec 2023
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 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’)
$m
33,897
107
34,004
32,171
96
32,267
$m
(27,011)
(403)
(27,414)
(25,693)
(388)
(26,081)
$m
—
—
—
—
—
—
2021
$m
243
767
1,010
27
1,037
Total
$m
6,886
(296)
6,590
(1,160)
7,750
6,478
(292)
6,186
(1,096)
7,282
HSBC Holdings plc Annual Report and Accounts 2023
365
Financial statements
Notes on the financial statements
HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2023 amounted to $15m (2022: $41m). The average
number of persons employed during 2023 was 29 (2022: 42). 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.
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
At 1 Jan 2023
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 2023
At 1 Jan 2022
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 2022
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
$m
25,121
—
—
$m
7,050
—
—
—
$m
(18,787)
(10)
(14)
4
$m
(6,906)
(150)
(135)
(15)
1,247
298
(925)
(286)
(225)
(225)
—
—
—
—
1,472
(1,063)
38
26,590
41,384
—
—
—
110
110
—
—
—
—
228
(548)
169
7,307
7
(300)
—
(123)
357
(227)
—
(1,098)
1,063
(32)
(19,782)
—
(327)
17
10
—
(190)
629
(26)
(7,229)
10,047
—
—
—
(32,255)
(30)
(12)
(18)
(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)
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other
plans
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(23)
—
—
—
Principal1
plan
Other
plans
$m
6,334
(10)
(14)
4
$m
144
(150)
(135)
(15)
322
12
(218)
(225)
(123)
357
(227)
—
374
—
6
6,808
9,129
(30)
(12)
(18)
(190)
110
(327)
17
10
—
38
81
143
78
2
(170)
(161)
(9)
(1)
157
(5)
(3)
—
—
—
—
(3)
2
—
25
—
(1,973)
176
(11,505)
10,543
(123)
(888)
—
(963)
—
14
6,334
(2,181)
2,383
24
(47)
(3)
(143)
70
214
144
1 For further details of the principal plan, see page 365.
2 Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.
HSBC expects to make $113m of contributions to defined benefit pension plans during 2024, consisting of $nil for the principal plan and $113m
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
2024
$m
1,125
465
2025
$m
1,160
473
2026
$m
1,196
456
2027
$m
1,234
478
2028
$m
1,273
476
2029-2033
$m
6,988
2,403
1 The duration of the defined benefit obligation is 12.9 years for the principal plan under the disclosure assumptions adopted (2022: 13.2 years) and 10.3
years for all other plans combined (2022: 10.2 years).
2 For further details of the principal plan, see page 365.
366
HSBC Holdings plc Annual Report and Accounts 2023
Fair value of plan assets by asset classes
31 Dec 2023
Quoted
market price
in active
market
No quoted
market price
in active
market
$m
$m
Thereof
HSBC1
$m
15,006
—
4,739
10,300
—
—
—
(33)
5,361
556
3,623
90
415
(1)
108
570
11,584
83
523
—
1,061
830
9,087
—
1,946
—
1
—
32
3
4
1,906
547
—
—
—
547
—
—
—
39
3
5
—
—
—
—
31
Value
$m
26,590
83
5,262
10,300
1,061
830
9,087
(33)
7,307
556
3,624
90
447
2
112
2,476
31 Dec 2022
Quoted
market price
in active
market
No quoted
market price
in active
market
$m
$m
Thereof
HSBC1
$m
13,915
—
4,822
9,479
—
—
—
(386)
5,848
486
3,472
58
1,007
(1)
104
722
11,206
112
463
—
1,203
842
8,586
—
1,202
153
99
—
350
5
5
590
510
—
—
—
510
—
—
—
37
2
4
—
—
—
—
31
Value
$m
25,121
112
5,285
9,479
1,203
842
8,586
(386)
7,050
639
3,571
58
1,357
4
109
1,312
The principal plan2
Fair value of plan assets
– equities3
– bonds fixed income
– bonds index-linked
– derivatives
– property
– pooled investment vehicles
– other
Other plans
Fair value of plan assets
– equities
– bonds fixed income
– bonds index-linked
– bonds other
– derivatives
– property
– other
1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 37.
2 For further details of the principal plan, see page 365.
3
Includes $83m (2022: $112m) in relation to private equities.
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
UK
At 31 Dec 2023
At 31 Dec 2022
Discount rate
Inflation rate (RPI)
Inflation rate (CPI) Rate of increase for pensions Rate of pay increase
%
4.65
4.93
%
3.23
3.39
%
2.67
2.84
%
3.14
3.27
%
3.42
3.34
1 For further details of the principal plan, see page 365.
Mortality tables and average life expectancy at age 60 for the principal plan1
UK
At 31 Dec 2023
At 31 Dec 2022
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
26.2
27.1
27.7
28.6
28.3
28.4
29.8
29.9
1 For further details of the principal plan, see page 365.
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 2022 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, a
0% weighting to 2020 and 2021 mortality experience, and a 25% weighting to 2022 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/decrease of 1 year
Impact on HBUK section of the
HSBC Bank (UK) Pension Scheme obligation2
Financial impact of increase
Financial impact of decrease
2023
$m
(599)
500
622
8
613
2022
$m
(582)
466
551
10
470
2023
$m
631
(497)
(590)
(6)
(613)
2022
$m
612
(446)
(519)
(10)
(489)
1 For further details of the principal plan, see page 365.
2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions during 2023 to the nearest 0.01% (2022: 0.01%).
HSBC Holdings plc Annual Report and Accounts 2023
367
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 279.
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
2023
$m
109.8
2.2
112.0
2023
$m
24.1
131.8
85.7
26.0
20.1
155.9
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
1 Audit fees payable to PwC in 2023 included adjustments made to the prior year audit fee after finalisation of the 2022 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 users, 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
2023
$000
297
297
2022
$000
480
480
2021
$000
382
382
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 $12.3m (2022: $13.1m;
2021: $6.3m). 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.
7
Tax
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
2023
$m
5,718
5,737
(19)
71
19
17
35
5,789
2022
$m
2,984
3,264
(280)
(2,175)
(2,278)
(293)
396
809
2021
$m
3,250
3,182
68
963
874
132
(43)
4,213
1 Current tax included Hong Kong profits tax of $1,328m (2022: $604m; 2021: $813m). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong was 16.5% (2022: 16.5%; 2021: 16.5%).
2 In addition to amounts recorded in the income statement, a tax credit of $41m (2022: credit of $145m) was recorded directly to equity.
368
HSBC Holdings plc Annual Report and Accounts 2023
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 23.5% (2022: 19.0%, 2021: 19.0%)
Impact of differently taxed overseas profits in overseas locations
UK banking surcharge
Items increasing tax charge in 2023:
– impairment of interest in associate
– local taxes and overseas withholding taxes
– impacts of hyperinflation
– other permanent disallowables
– bank levy
– impact of changes in tax rates
– adjustments in respect of prior period
– tax impact of sale of French retail banking business
– impact of differences between French tax basis and IFRSs
Items reducing tax charge in 2023:
– non-taxable income and gains
– effect of profits in associates and joint ventures
– movements in provisions for uncertain tax positions
– accounting gain on acquisition of SVB UK
– deductions for AT1 coupon payments
– movements in unrecognised deferred tax
Year ended 31 December
2023
$m
30,348
7,132
(612)
350
705
419
348
227
112
17
16
—
—
(1,189)
(571)
(472)
(442)
(229)
(22)
5,789
%
23.5
(2.0)
1.2
2.3
1.4
1.1
0.7
0.4
0.1
0.1
—
—
(3.9)
(1.9)
(1.6)
(1.5)
(0.7)
(0.1)
19.1
2022
$m
17,058
3,241
459
283
—
346
171
363
59
(293)
116
115
—
(825)
(504)
27
—
(246)
(2,503)
809
%
19.0
2.7
1.7
—
2.0
1.0
2.1
0.3
(1.7)
0.7
0.7
—
(4.8)
(3.1)
0.2
—
(1.4)
(14.7)
4.7
2021
$m
18,906
3,592
280
332
—
360
68
414
93
132
25
(434)
434
(641)
(414)
15
—
(270)
227
4,213
%
19.0
1.5
1.8
—
1.9
0.4
2.2
0.5
0.7
0.1
(2.3)
2.3
(3.4)
(2.2)
0.1
—
(1.4)
1.1
22.3
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
2023 include Hong Kong (16.5%), the US (21%) and the UK (23.5%). 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 22.6% (2022: 23.3%).
The effective tax rate for the year of 19.1% was higher than in the previous year (2022: 4.7%). The effective tax rate for the year was increased
by 2.3% by the non-taxable impairment of the Group’s interest in BoCom, reduced by 1.6% by the release of provisions for uncertain tax
positions and reduced by 1.5% by the non-taxable accounting gain on the acquisition of SVB UK. The effective tax rate for 2022 was reduced by
14.7% 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.
On 20 June 2023, legislation was substantively enacted in the UK to introduce the ‘Pillar Two’ global minimum tax model rules of the OECD’s
Inclusive Framework on Base Erosion and Profit Shifting (’BEPS’) and a UK qualified domestic minimum top-up tax, with effect from 1 January
2024. Under these rules, a top-up tax liability arises where the effective tax rate of the Group’s operations in a jurisdiction, calculated using
principles set out in the Pillar Two legislation, is below 15%. Any resulting tax is payable by HSBC Holdings plc, being the Group’s ultimate
parent, to HMRC. In response to the OECD’s Pillar Two global minimum tax rules, many national governments have announced their intention
to introduce domestic minimum tax rules that are closely aligned to the OECD’s Pillar Two model rules. Where such qualifying domestic
minimum tax rules are introduced, they may be expected to have the effect of increasing local tax liabilities to the 15% minimum rate,
eliminating the top-up tax liability payable in the UK by HSBC Holdings plc in such cases. Based on the Group’s forecasts, top-up tax liabilities
are expected to arise in approximately 10 jurisdictions as a result of low or 0% statutory tax rates, in particular in respect of the Group’s banking
operations in Bermuda and the Channel Islands. Additionally, the application of local tax laws in Hong Kong and mainland China, particularly with
regard to the non-taxation of dividend income and income on government bonds, has typically resulted in effective tax rates of below 15%. This
is expected to create future top-up tax liabilities in these jurisdictions, which have statutory tax rates of 16.5% and 25%, respectively. The
application of the Pillar Two global minimum tax rules and the introduction of new domestic minimum tax regimes are currently forecast to
increase the Group’s annual effective tax rate by around 0.5 and 1.0 percentage points.
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 2023, resulting in a credit of $472m 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 2023
369
Financial statements
Notes on the financial statements
Movement of deferred tax assets and liabilities
Assets
Liabilities
At 1 Jan 2023
Income statement
Other comprehensive income
Foreign exchange and other adjustments
At 31 Dec 2023
Assets1
Liabilities1
Assets2
Liabilities2
At 1 Jan 2022
Income statement
Other comprehensive income
Foreign exchange and other adjustments
At 31 Dec 2022
Assets1
Liabilities1
Loan
impairment
provisions
Unused tax
losses and
tax credits
Financial
assets at
FVOCI
Cash flow
hedges
Retirement
obligations
$m
1,062
—
1,062
(39)
—
135
1,158
1,158
—
1,151
—
1,151
7
—
(96)
1,062
1,062
—
$m
4,397
—
4,397
102
—
45
4,544
4,544
—
2,001
—
2,001
2,425
—
(29)
4,397
4,397
—
$m
850
—
850
541
(598)
83
876
876
—
382
—
382
(1,127)
2,281
(686)
850
850
—
$m
1,271
—
1,271
1
(974)
121
419
419
—
154
—
154
1
1,159
(43)
1,271
1,271
—
$m
—
(1,673)
(1,673)
(114)
99
(126)
(1,814)
—
(1,814)
—
(2,819)
(2,819)
217
692
237
(1,673)
—
(1,673)
Other
$m
3,048
(1,567)
1,481
(562)
399
15
1,333
2,933
(1,600)
1,744
(475)
1,269
652
(1,260)
820
1,481
3,048
(1,567)
Total
$m
10,628
(3,240)
7,388
(71)
(1,074)
273
6,516
9,930
(3,414)
5,432
(3,294)
2,138
2,175
2,872
203
7,388
10,628
(3,240)
1 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets of $7,754m (2022: $8,360m)
and deferred tax liabilities of $1,238m (2022: $972m).
2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
In applying judgement in recognising deferred tax assets, management has assessed all relevant 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 different 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 net deferred tax asset of $6.5bn (2022: $7.4bn) included $3.3bn (2022: $4.0bn) of deferred tax assets relating to the UK, $3.1bn
(2022: $3.3bn) of deferred tax assets relating to the US and a net deferred asset of $0.9bn (2022: $1.0bn) in France.
The UK deferred tax asset of $3.3bn excluded a $1.9bn 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 four years and as such are less sensitive to changes in long-term profit forecasts.
The net US deferred tax asset of $3.1bn included $1.3bn related to US tax losses, of which $1.0bn 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 nine years.
The net deferred tax asset in France of $0.9bn included $0.7bn related to tax losses, which are expected to be substantially recovered within 12
years.
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 $10.4bn (2022: $9.2bn). This amount included unused US state tax losses of $4.0bn (2022: $4.1bn) which are forecast to expire
before they are recovered and unused UK tax losses of $4.5bn (2022: $3.5bn), 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, $5.1bn (2022: $3.6bn) had no expiry date, $0.5bn
(2022: $1.2bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 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 was $14.4bn (2022: $11.7bn) and
the corresponding unrecognised deferred tax liability was $0.7bn (2022: $0.7bn).
370
HSBC Holdings plc Annual Report and Accounts 2023
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
– second interim dividend
– third 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
2023
2022
2021
Per
share
$
Total
$m
Per
share
$
Total
$m
Per
share
$
Total
$m
0.23
4,589
0.18
3,576
0.15
3,059
0.10
0.10
0.10
0.53
—
2,001
1,956
1,946
10,492
—
1,101
11,593
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
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%
$1,000m issued at 4.000%4
$1,000m issued at 4.700%5
$2,000m issued at 8.000%6
€1,500m issued at 5.250%7
€1,000m issued at 6.000%8
€1,250m issued at 4.750%
£1,000m issued at 5.875%
SGD1,000m issued at 4.700%9
SGD750m issued at 5.000%10
Total
2023
First call date
Per security
Jun 2021
Sep 2024
Mar 2025
May 2027
Mar 2023
Mar 2028
Dec 2030
Mar 2026
Mar 2031
Mar 2028
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
$80.000
€52.500
€60.000
€47.500
£58.750
SGD47.000
SGD50.000
Total
$m
—
143
156
180
52
117
69
40
47
80
—
56
64
72
—
25
1,101
2022
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
1 Discretionary coupons are paid semi-annually, based on the denominations of each 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 was redeemed and cancelled on 23 March 2023.
4 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six calendar months prior to the reset date of
9 September 2026.
5 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six calendar months prior to the reset date of
9 September 2031.
6 This security was issued by HSBC Holdings on 7 March 2023. The first call period commences six calendar months prior to the reset date of
7 September 2028.
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 3 August 2023 and was redeemed and cancelled on 29 September 2023.
9 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.
10 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 25 September 2023.
On 21 February 2024, the Directors approved a fourth interim dividend in respect of the financial year ended 31 December 2023 of $0.31 per
ordinary share, a distribution of approximately $5,913m. The fourth interim dividend for 2023 will be payable on 25 April 2024 to holders on the
Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 8 March 2024. No liability
was recorded in the financial statements in respect of the fourth interim dividend for 2023.
On 4 January 2024, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($33m). No
liability was recorded in the balance sheet at 31 December 2023 in respect of this coupon payment.
HSBC Holdings plc Annual Report and Accounts 2023
371
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.
Basic and diluted earnings per share
Basic2
Effect of dilutive potential
ordinary shares
Diluted2
2023
Number
of shares
Profit
$m (millions)
22,432
19,478
Per
share
$
1.15
2022¹
Number
of shares
(millions)
Profit
$m
Per
share
$
2021
Number
of shares
Profit
$m
(millions)
14,346
19,849
0.72
12,607
20,197
Per
share
$
0.62
122
137
105
22,432
19,600
1.14
14,346
19,986
0.72
12,607
20,302
0.62
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 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 was
23 million (2022: 9.4 million; 2021: 8.6 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
constant currency performance that removes the effects of currency translation from reported results. Therefore, we disclose these results on a
constant currency basis as required by IFRS Accounting Standards. The 2022 and 2021 income statements are converted at the average rates of
exchange for 2023, and the balance sheets at 31 December 2022 and 31 December 2021 at the prevailing rates of exchange on 31 December
2023.
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. Measurement of segmental assets, liabilities, income
and expenses is in accordance with the Group’s accounting policies. Shared costs are included in segments on the basis of actual recharges.
The intra-Group elimination items for the global businesses are presented in Corporate Centre.
Resegmentation
In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our Global Banking customers within our entities in Latin America was transferred from Global Banking and Markets to
Commercial Banking for reporting purposes. Comparative data have been re-presented accordingly. Similar smaller transfers from Global
Banking and Markets to Commercial Banking were also undertaken within our entities in Australia and Indonesia, where comparative data have
not been re-presented.
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.
372
HSBC Holdings plc Annual Report and Accounts 2023
HSBC constant currency profit before tax and balance sheet data
Net operating income/(expense) before change in expected credit losses
and other credit impairment charges2
– external
– inter-segment
– of which: net interest income/(expense)4
Change in expected credit losses and other credit impairment charges
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit/(loss) in associates and joint ventures less impairment5
Constant currency profit before tax
Share of HSBC’s constant currency profit before tax
Constant currency cost efficiency ratio
Constant currency 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 charges2
– external
– inter-segment
– of which: net interest income/(expense)4
Change in expected credit losses and other credit impairment charges
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit/(loss) in associates and joint ventures
Constant currency profit/(loss) before tax
Share of HSBC’s constant currency profit before tax
Constant currency cost efficiency ratio
Constant currency balance sheet data
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
Wealth and
Personal
Banking
$m
Commercial
Banking3
$m
2023
Global
Banking and
Markets3
$m
Corporate
Centre
$m
Total
$m
27,275
19,107
8,168
20,492
(1,058)
26,217
(14,738)
11,479
65
11,544
%
38.0
54.0
$m
454,878
551
937,079
804,863
22,867
24,209
(1,342)
17,147
(2,062)
20,805
(7,524)
13,281
(1)
13,280
%
43.8
32.9
$m
309,422
28
632,406
475,666
16,115
(199)
66,058
28,021
(11,906)
7,141
(326)
15,789
(9,865)
5,924
—
5,924
%
19.5
61.2
$m
173,966
111
1,331,395
330,522
2022¹
(5,279)
5,080
(8,984)
(1)
(200)
57
(143)
(257)
(400)
%
(1.3)
28.6
$m
269
26,654
137,797
596
66,058
—
35,796
(3,447)
62,611
(32,070)
30,541
(193)
30,348
%
100.0
48.5
$m
938,535
27,344
3,038,677
1,611,647
20,884
16,283
14,602
(1,898)
49,871
18,299
2,585
15,971
(1,186)
19,698
(14,248)
5,450
30
5,480
%
33.1
68.2
$m
434,122
514
893,867
793,310
16,973
(690)
11,763
(1,862)
14,421
(6,894)
7,527
—
7,527
%
45.6
42.3
$m
316,863
33
620,193
472,424
18,744
(4,142)
4,696
(573)
14,029
(9,338)
4,691
(2)
4,689
%
28.3
64.0
$m
190,202
93
1,341,575
332,303
(4,145)
2,247
(2,668)
(9)
(1,907)
(1,822)
(3,729)
2,574
(1,155)
%
(7.0)
(96.0)
$m
361
28,143
152,049
458
49,871
—
29,762
(3,630)
46,241
(32,302)
13,939
2,602
16,541
%
100.0
64.8
$m
941,548
28,783
3,007,684
1,598,495
HSBC Holdings plc Annual Report and Accounts 2023
373
Financial statements
Notes on the financial statements
HSBC constant currency profit before tax and balance sheet data (continued)
Net operating income/(expense) before change in expected credit losses and
other credit impairment charges2
– external
– inter-segment
– of which: net interest income/(expense)4
Change in expected credit losses and other credit impairment charges
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit in associates and joint ventures
Constant currency profit/(loss) before tax
Share of HSBC’s constant currency profit before tax
Constant currency cost efficiency ratio
Constant currency 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
2021
Global
Banking and
Markets
Corporate
Centre
$m
$m
$m
$m
Total
$m
20,972
12,699
13,086
(678)
46,079
20,787
185
13,445
195
21,167
(15,338)
5,829
36
5,865
%
33.7
73.1
$m
473,304
493
905,024
834,767
12,685
14
8,467
339
13,038
(6,691)
6,347
1
6,348
%
36.5
52.7
$m
340,603
31
605,696
495,492
14,533
(1,447)
3,419
221
13,307
(9,255)
4,052
—
4,052
%
23.3
70.7
$m
196,193
101
1,171,909
322,306
(1,926)
1,248
(714)
3
(675)
(960)
(1,635)
2,770
1,135
%
6.5
(141.6)
$m
712
27,036
178,074
622
46,079
—
24,617
758
46,837
(32,244)
14,593
2,807
17,400
%
100.0
70.0
$m
1,010,812
27,661
2,860,703
1,653,187
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3
In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective
needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data
have been re-presented accordingly.
4 Net interest expense recognised in Corporate Centre includes $8.7bn (2022: $2.5bn; 2021: undisclosed) of interest expense in relation to the internal
cost to fund trading and fair value net assets; and the funding cost of foreign exchange swaps in our Markets Treasury function. In the second quarter
of 2023, we implemented a consistent reporting approach across the most material entities that contribute to our trading and fair value net assets,
which resulted in an increase to the associated funding costs reported through the intersegment elimination in Corporate Centre.
5 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.
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/(expense) by country/territory2
– UK
– Hong Kong
– US
– France
– other countries/territories
2023
$m
66,058
11,027
20,185
3,816
4,208
26,822
2022¹
$m
50,620
11,710
15,454
3,893
(177)
19,740
2021
$m
49,552
10,909
14,245
3,795
2,179
18,424
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Constant currency results reconciliation
2023
Reported
and
constant
currency
$m
66,058
(3,447)
(32,070)
(193)
30,348
2022¹
2021
Constant
currency
Currency
translation
Reported
Constant
currency
Currency
translation
Reported
$m
49,871
(3,630)
(32,302)
2,602
16,541
$m
(749)
(46)
399
(121)
(517)
$m
50,620
(3,584)
(32,701)
2,723
17,058
$m
46,079
758
(32,244)
2,807
17,400
$m
(3,473)
(170)
2,376
(239)
(1,506)
$m
49,552
928
(34,620)
3,046
18,906
Revenue2
ECL
Operating expenses
Share of profit in associates and joint ventures
less impairment3
Profit before tax
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.
374
HSBC Holdings plc Annual Report and Accounts 2023
Constant currency balance sheet reconciliation
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
2023
Reported and
constant
currency
$m
938,535
27,344
3,038,677
1,611,647
2022¹
Currency
translation
$m
(17,987)
471
(58,398)
(28,192)
Constant
currency
$m
941,548
28,783
3,007,684
1,598,495
Reported
$m
923,561
29,254
2,949,286
1,570,303
Constant
currency
$m
1,010,812
27,661
2,860,703
1,653,187
2021
Currency
translation
$m
35,002
1,948
97,236
57,387
Reported
$m
1,045,814
29,609
2,957,939
1,710,574
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Notable items
Year ended 31 Dec
Notable items
Revenue
Disposals, acquisitions and related costs1,2
Fair value movements on financial instruments3
Restructuring and other related costs
Disposal losses on Markets Treasury repositioning
Operating expenses
Disposals, acquisitions and related costs
Impairment of non-financial items
Restructuring and other related costs4
Impairment of interests in associates5
2023
$m
2022
$m
2021
$m
1,298
14
—
(977)
(321)
—
136
(3,000)
(2,737)
(618)
(247)
—
(18)
—
(2,882)
—
—
(221)
(307)
—
—
(587)
(1,836)
—
Includes the impact of the sale of our retail banking operations in France.
1
2 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Amounts in 2023 relate to reversals of restructuring provisions recognised during 2022.
5 Relates to an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.
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
2023
$m
24,433
106,108
123,663
254,204
9,761
25,194
289,159
2022
$m
22,897
78,126
88,026
189,049
8,769
20,275
218,093
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.
HSBC Holdings plc Annual Report and Accounts 2023
375
Financial statements
Notes on the financial statements
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.
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
2023
20221
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
202,020
82,833
4,306 289,159 148,592
64,684
4,817 218,093
27,030
63,825
19,788 110,643
23,146
59,548
17,407 100,101
931 226,714
76,591
215,228
2,069 229,714
2,618 294,437 181,659
2,917 279,278
71,040
1,964 284,159
2,961 255,660
53,354
19,318
1,266 129,232
1,918 230,285
478
73,150
10,928 141,426
2,569 234,772
44,787
27,092
1,125 115,764
2,399 280,443
474
72,353
10,432 127,321
2,920 285,762
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
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
2023
2022
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
2,403
61
—
2,465
2,932
244
—
3,176
—
—
9,357
1,352
—
—
15
528
—
64
2,370
615
49
—
28
—
—
—
64
528
9,385
1,417
2,370
615
—
—
11,184
14
866
—
2,572
—
—
182
3,523
813
47
—
—
—
—
—
61
866
11,184
2,754
3,523
813
376
HSBC Holdings plc Annual Report and Accounts 2023
Transfers between Level 1 and Level 2 fair values
Financial
investments
Trading
assets
$m
$m
Assets
Designated and otherwise
mandatorily measured
at fair value Derivatives
Liabilities
Designated
at fair
value Derivatives
Trading
liabilities
$m
$m
$m
$m
$m
13,200
9,975
8,066
5,758
4,721
8,208
5,284
5,964
1,709
2,477
2,565
3,340
—
—
—
—
54
309
113
233
—
—
—
—
—
—
—
—
At 31 Dec 2023
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
At 31 Dec 2022
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of
levels of the fair value hierarchy are 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 amount of fair value adjustments do not necessarily translate in equivalent movements
of profits or losses within the income statement, as these movements can be compensated by other related profits or loss effects. 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.
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
2023
GBM
$m
Corporate
Centre
$m
2022
GBM
$m
Corporate
Centre
$m
692
414
75
164
(54)
93
63
63
86
841
41
—
3
35
—
3
—
—
—
41
650
426
86
245
(175)
68
61
61
97
808
40
—
—
35
—
5
—
—
—
40
The increase in fair value adjustments was predominantly driven by the reduction in the debit valuation adjustment including a consideration of
the overlap with the funding fair value adjustment. This was partly offset by reductions from changes to exposure, and tightening of credit and
liquidity market spreads.
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. The DVA considers the overlap with the funding fair value adjustment.
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.
HSBC Holdings plc Annual Report and Accounts 2023
377
Financial statements
Notes on the financial statements
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.
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.
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
Liabilities
Trading
liabilities
Designated
at fair
value Derivatives
$m
$m
$m
Total
$m
Total
$m
Private equity including strategic
investments
Asset-backed securities
Structured notes
Other derivatives
Other portfolios
At 31 Dec 2023
Private equity including strategic
investments
Asset-backed securities
Structured notes
Other derivatives
Other portfolios
At 31 Dec 2022
507
309
—
—
1,802
2,618
647
438
—
—
1,876
2,961
7
128
—
—
4,171
4,306
19
208
—
—
4,590
4,817
17,640
8
3
—
2,137
19,788
15,653
95
—
—
1,659
17,407
— 18,154
—
—
2,069
—
445
3
2,069
8,110
2,069 28,781
— 16,319
—
—
1,964
—
741
—
1,964
8,125
1,964 27,149
—
—
—
—
478
478
92
—
—
—
382
474
1
—
1
—
10,331
—
596
10,928
—
—
10,432
—
—
10,432
—
—
— 10,331
2,569
1,074
2,569 13,975
2,569
—
—
92
—
—
— 10,432
2,920
382
2,920 13,826
2,920
—
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.
378
HSBC Holdings plc Annual Report and Accounts 2023
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
2,961
(44)
$m
4,817
266
$m
17,407
921
$m
1,964
692
$m
474
75
$m
10,432
97
$m
2,920
910
—
266
—
692
75
97
910
—
(44)
—
—
28
108
(44)
72
353
—
(290)
(352)
(662)
624
2,618
—
108
2,276
2
(2,478)
(872)
(922)
1,109
4,306
—
(152)
—
(152)
921
—
87
—
87
3,555
—
(658)
(1,886)
(156)
518
19,788
82
—
—
—
81
—
81
—
—
—
(1,018)
(240)
590
2,069
737
737
—
—
24
—
24
291
2
(320)
(74)
(45)
51
478
—
—
—
—
523
335
188
—
5,389
(2)
(3,258)
(2,881)
628
10,928
—
—
111
—
111
—
—
—
(1,565)
(358)
551
2,569
(433)
(903)
—
(903)
—
—
82
—
—
(433)
—
3,389
(12)
3,377
(4)
2,662
—
2,662
(245)
14,238
1,468
15,706
132
2,478
—
2,478
390
785
—
785
(52)
7,880
—
7,880
(1,334)
3,088
—
3,088
1,014
—
(245)
—
390
(52)
—
1,014
—
(4)
(325)
(202)
(123)
1,048
1
(240)
(464)
(489)
57
2,961
—
—
—
—
(137)
—
(137)
3,436
—
(1,102)
(1,273)
(442)
1,918
4,817
(100)
(100)
132
—
(217)
—
(217)
4,410
—
(801)
(1,883)
(76)
136
17,407
—
—
(219)
—
(219)
—
—
—
(918)
(409)
642
1,964
(158)
707
—
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
—
—
(158)
—
—
100
—
At 1 Jan 2023
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 2023
Unrealised gains/(losses) recognised in profit or loss
relating to assets and liabilities held at 31 Dec 2023
– 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 2022
IFRS 17 impacts
At 1 Jan 2022 (as restated)
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 2022
– 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 2023
379
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
2023
2022
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
492
(531)
—
—
264
(291)
—
1,092
13
1,597
(1,100)
(12)
(1,643)
—
61
61
—
(66)
(66)
981
11
1,256
(978)
(11)
(1,280)
—
65
65
$m
—
—
(55)
(55)
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 2023.
Quantitative information about significant unobservable inputs in Level 3 valuations
Fair value
Assets Liabilities Key valuation
$m
techniques
$m
Key unobservable
inputs
2023
Full range
of inputs
Lower Higher
2022
Full range
of inputs
Lower Higher
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
– bonds
– other1
At 31 Dec 2023
18,154
1 See below
See below
445
44
401
3
3
—
— Market proxy
— Market proxy
10,331
7,054
Model – Option model
Model – Option model
—
—
1,733 Model – Option model
1,544
Bid quotes
Bid quotes
—
—
94
220
—
—
92
99
Equity volatility
Equity correlation
Foreign exchange
volatility
6% 154%
34% 100%
6% 142%
99%
32%
1%
34%
3%
37%
2,069
864
146
57
661
308
2,569
784
136 Model – Discounted cash flow Prepayment rate
69 Model – Option model
Interest rate
volatility
5%
10%
5%
10%
11%
37%
8%
53%
579
427
255
356 Model – Option model
Foreign exchange
volatility
1%
31%
1%
46%
53
600
391
209
297
8,110
1,090
3,278
3,742
28,781
71
981
609 Model – Option model
372
377
1,074
Equity volatility
6% 110%
7% 153%
310 Model – Discounted cash flow Interest rate curve
1 Market proxy
Mid quotes
3%
—
8%
101
1%
—
9%
102
763
13,975
1
‘Other’ includes a range of smaller asset holdings.
The range of values above shows the highest and lowest unobservable inputs that have been used to value significant Level 3 exposures and
reflects the diversity of the underlying financial instruments in scope and subsequent differentiation in pricing.
380
HSBC Holdings plc Annual Report and Accounts 2023
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 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.
Correlation
Correlation is a measure of the inter-relationship between two market variables 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 variable. 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 variable 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
2023
$m
2022
$m
3,344
59,879
43,638
6,090
3,801
52,322
32,123
6,922
HSBC Holdings plc Annual Report and Accounts 2023
381
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 2023
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 20221
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
112,902
938,535
252,217
148,326
73,163
1,611,647
172,100
93,917
24,954
104,475
923,561
253,754
109,066
66,722
1,570,303
127,747
78,149
22,290
2
—
—
115,383
—
—
—
—
—
4
—
—
84,087
—
—
—
—
—
111,263
13,258
252,243
30,765
73,176
1,611,795
172,081
93,196
27,151
103,641
8,791
253,668
21,850
66,831
1,570,209
127,500
76,640
22,723
1,479
911,124
—
440
—
—
—
706
—
814
903,107
—
475
—
—
—
381
—
Total
$m
112,744
924,382
252,243
146,588
73,176
1,611,795
172,081
93,902
27,151
104,459
911,898
253,668
106,412
66,831
1,570,209
127,500
77,021
22,723
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Fair values of financial instruments not carried at fair value and bases of valuation – assets and disposal groups held for sale
At 31 Dec 2023
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 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
Fair value
Carrying
amount
Quoted market
price Level 1
Observable
inputs Level 2
Significant
unobservable
inputs Level 3
$m
$m
$m
$m
10,487
73,376
2,723
7,624
78
85,950
2,768
9,084
8
253
80,687
4,646
6,165
64
85,274
3,266
12,928
8
—
—
—
7,530
—
—
—
—
—
—
—
—
6,042
—
—
—
—
—
10,487
90
2,723
—
78
86,475
2,768
8,820
7
257
111
4,646
—
64
85,303
3,266
12,575
7
—
72,200
—
5
—
—
—
—
—
—
78,048
—
—
—
—
—
—
—
Total
$m
10,487
72,290
2,723
7,535
78
86,475
2,768
8,820
7
257
78,159
4,646
6,042
64
85,303
3,266
12,575
7
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.
382
HSBC Holdings plc Annual Report and Accounts 2023
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. This may be different from the theoretical economic value attributed from an instrument’s cash
flows 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 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; recent origination
pricing 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 amount. 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
2023
Carrying amount
$m
27,354
19,558
65,239
24,439
Fair value1
$m
27,878
19,531
65,172
26,651
2022
Carrying amount
$m
26,765
19,466
66,938
19,727
Fair value1
$m
26,962
19,314
65,364
20,644
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
2023
Mandatorily
measured at
fair value
$m
2,353
695
1,658
—
371
—
2,724
$m
101,152
724
60,045
40,383
5,495
1,272
107,919
Designated at
fair value
2022¹
Mandatorily
measured at
fair value
$m
3,096
649
2,447
—
—
—
3,096
$m
91,936
869
56,633
34,434
3,455
1,614
97,005
Total
$m
103,505
1,419
61,703
40,383
5,866
1,272
110,643
Total
$m
95,032
1,518
59,080
34,434
3,455
1,614
100,101
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
HSBC Holdings plc Annual Report and Accounts 2023
383
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 2023
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
Gross total fair values
Offset (Note 31)
At 31 Dec 2022
Notional contract amount
Fair value – Assets
Fair value – Liabilities
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
$m
9,463,768
14,853,397
677,149
153,606
90,007
25,237,927
$m
63,547
361,312
—
—
—
424,859
$m
99,014
223,534
14,427
1,351
1,820
340,146
$m
935
5,119
—
—
—
6,054
25,237,927
424,859
340,146
6,054
8,434,453
15,213,232
570,410
183,995
78,414
24,480,504
38,924
276,589
—
—
—
315,513
122,206
285,449
9,325
1,091
1,484
419,555
525
5,066
—
—
—
5,591
24,480,504
315,513
419,555
5,591
$m
99,949
228,653
14,427
1,351
1,820
346,200
(116,486)
229,714
122,731
290,515
9,325
1,091
1,484
425,146
(140,987)
284,159
$m
99,949
225,443
17,603
1,861
1,542
346,398
$m
780
4,080
—
—
—
4,860
346,398
4,860
123,088
287,876
9,176
1,264
1,678
423,082
166
3,501
—
—
—
3,667
423,082
3,667
Total
$m
100,729
229,523
17,603
1,861
1,542
351,258
(116,486)
234,772
123,254
291,377
9,176
1,264
1,678
426,749
(140,987)
285,762
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
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 decreased during 2023, 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 2023
Foreign exchange
Interest rate
At 31 Dec 2022
Notional contract amount
Assets
Trading
Hedging
Trading
Hedging
$m
66,711
33,480
100,191
60,630
34,322
94,952
$m
—
92,268
92,268
—
81,873
81,873
$m
486
1,730
2,216
502
2,386
2,888
$m
—
1,128
1,128
—
913
913
Total
$m
486
2,858
3,344
502
3,299
3,801
Liabilities
Trading
Hedging
$m
1,705
747
2,452
1,683
826
2,509
$m
—
3,638
3,638
—
4,413
4,413
Total
$m
1,705
4,385
6,090
1,683
5,239
6,922
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.
384
HSBC Holdings plc Annual Report and Accounts 2023
Hedge accounting derivatives
HSBC applies hedge accounting to manage the following risks: interest rate and foreign exchange risks. Further details of 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 for an amount of net assets as the hedged 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.
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 2023
Interest rate3
At 31 Dec 2022
Notional amount1
$m
172,985
172,985
162,062
162,062
Hedging instrument
Carrying amount
Assets
Liabilities
$m
3,729
3,729
4,973
4,973
$m
2,965
2,965
2,573
2,573
Balance sheet
presentation
Derivatives
Change in fair value2
$m
(1,043)
(1,043)
Derivatives
4,064
4,064
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
Accumulated fair value
hedge adjustments
included in carrying
amount1
Carrying amount
Assets
Liabilities
Assets
Liabilities
Hedged risk
$m
$m
$m
$m
82,321
(2,282)
Interest rate3
514
4,701
—
32
(18)
—
Ineffectiveness
Change in
fair value2
$m
Recognised
in profit
and loss
$m
Profit and loss
presentation
2,053
32
122
15
Net income from
financial instruments
held for trading or
managed on a fair
value basis
5
Balance sheet
presentation
Financial investments -
measured at fair value
through other
comprehensive income
Financial investments -
measured at amortised
cost
Loans and advances to
customers
Reverse repurchase
agreements – non-
trading
At 31 Dec 2023
87,536
64,269
(2,268)
64,269
—
—
(2,147) Debt securities in issue
Deposits by banks
Subordinated liabilities
—
—
(2,147)
(1,179)
—
5
1,048
5
HSBC Holdings plc Annual Report and Accounts 2023
385
Financial statements
Notes on the financial statements
HSBC hedged item by hedged risk (continued)
Hedged item
Accumulated fair value
hedge adjustments
included in carrying
amount1
Carrying amount
Hedged risk
$m
$m
$m
$m
Balance sheet presentation
Assets
Liabilities
Assets
Liabilities
Ineffectiveness
Change in fair
value2
$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
Interest rate3
82,792
3,415
519
(5,100)
(210)
(18)
At 31 Dec 2022
86,726
49,263
(5,328)
49,180
83
Financial investments -
measured at fair value through
other comprehensive income
Loans and advances to
customers
Reverse repurchase
agreements – non-trading
Debt securities in issue
Deposits by banks
(2,006)
—
(2,006)
(8,005)
(233)
(17)
4,138
(5)
(4,122)
(59)
(59)
1 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 $136m (2022: $252m) for FVOCI assets and liabilities of $1,256m (2022: $916m) for debt issued.
2 Used in effectiveness testing, which comprise an amount attributable to the designated hedged risk that can be a risk component.
3 The hedged risk ‘interest rate’ includes inflation risk.
HSBC Holdings hedging instrument by hedged risk
Hedging instrument
Hedged risk
Interest rate4
At 31 Dec 2023
Interest rate4
At 31 Dec 2022
Notional amount1,2
$m
92,268
92,268
81,873
81,873
Carrying amount
Assets
Liabilities
$m
1,128
1,128
913
913
$m
3,638
3,638
4,413
4,413
Balance sheet
presentation
Derivatives
Change in fair value3
$m
1,426
1,426
Derivatives
(5,599)
(5,599)
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 The notional amount of non-dynamic fair value hedges is equal to $92,268m (2022: $81,873m), of which the weighted-average maturity date is
May 2029 and the weighted-average swap rate is 2.46% (2022: 2.33%). The majority of these hedges are internal to the Group.
3 Used in effectiveness testing, comprising the full fair value change of the hedging instrument not excluding any component.
4 The hedged risk ‘interest rate’ includes foreign exchange risk.
HSBC Holdings hedged item by hedged risk
Hedged item
Accumulated fair value
hedge adjustments
included in carrying
amount1
Carrying amount
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Balance sheet
presentation
Change in
fair value2
$m
80,889
(2,971)
in issue
(1,716)
Debt securities
Hedged risk
Interest rate3
At 31 Dec 2023
7,772
80,889
7,772
(490)
(490)
(2,971)
Loans and
advances to banks
319
(1,397)
Recognised
in
profit and
loss
$m
29
29
Ineffectiveness
Interest rate3
At 31 Dec 2022
6,812
68,223
6,812
(789)
(789)
(3,829)
Loans and
advances to banks
(693)
5,565
(34)
68,223
(3,829)
in issue
6,258
(34)
Debt securities
1 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 $1,299m (2022: $971m) for debt issued.
2 Used in effectiveness testing, comprising amount attributable to the designated hedged risk that can be a risk component.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.
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.
386
HSBC Holdings plc Annual Report and Accounts 2023
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
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.
Hedging instrument by hedged risk
Hedging instrument
Hedged item
Ineffectiveness
Hedged risk
Notional
amount1
$m
Assets
Liabilities
$m
$m
Balance
sheet
presentation
Change in
fair value2
$m
Change in fair
value3
$m
Carrying amount
Foreign currency
29,772
935
257
Derivatives
977
977
Interest rate
188,327
1,390
At 31 Dec 2023
218,099
2,325
1,116
1,373
Derivatives
1,542
2,519
1,512
2,489
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)
Recognised
in profit and
loss
$m
—
30
30
—
(24)
(24)
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.
Reconciliation of equity and analysis of other comprehensive income by risk type
Interest rate
Foreign currency
Cash flow hedging reserve at 1 Jan 2023
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 2023
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 loss
Income taxes
Others
Cash flow hedging reserve at 31 Dec 2022
1 Hedged items that have affected profit or loss are primarily recorded within interest income.
Net investment hedges
$m
(3,387)
1,512
2,196
(937)
(285)
(901)
8
(4,973)
325
1,123
130
(3,387)
$m
(421)
977
(718)
(29)
59
(132)
(205)
659
(926)
28
23
(421)
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. An economic relationship exists between the
hedged net investment and hedging instrument due to the shared foreign currency risk exposure. For further details of our structural foreign
exchange exposures, see page 205.
HSBC Holdings plc Annual Report and Accounts 2023
387
Financial statements
Notes on the financial statements
The aggregate positions at the reporting date and the performance indicators of both live and de-designated hedges are summarised below.
Hedges of net investment in foreign operations
Carrying amount
Derivative
assets
Derivative
liabilities
Nominal
amount
$m
$m
$m
Amounts
recognised
in OCI1
$m
Change in
fair value2
$m
Hedge ineffectiveness
recognised in income
statement
Description of hedged risk
2023
Pound sterling-denominated structural foreign exchange
Swiss franc-denominated structural foreign exchange
Hong Kong dollar-denominated structural foreign exchange
Other structural foreign exchange3
Total
2022
Pound sterling-denominated structural foreign exchange
Swiss franc-denominated structural foreign exchange
Hong Kong dollar-denominated structural foreign exchange
Other structural foreign exchange3
Total
(404)
(23)
—
(96)
(523)
—
(21)
(19)
(117)
(157)
16,415
526
5,792
11,042
33,775
14,000
727
4,597
10,819
30,143
604
49
—
477
1,130
1,447
111
(2)
375
1,931
(843)
(62)
2
102
(801)
1,573
10
(7)
369
1,945
—
264
—
—
—
264
$m
—
—
—
—
—
—
—
—
—
—
1 Amount recognised in OCI for Swiss franc includes $110m (2022: $110m) related to de-designated hedge.
2 Used in effectiveness assessment, comprising amount attributable to the designated hedged risk that can be a risk component.
3 Other currencies include euro, New Taiwan dollar, Singapore dollar, Canadian dollar, Omani rial, South Korean won, UAE dirham, Indian rupee, Chinese
renminbi, Kuwaiti dinar, Qatari riyal, Saudi riyal, Indonesian rupiah and Philippine peso.
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 in Note 32. For further details of Ibor transition, see ‘Ibor transition’
on page 139.
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 2023
Fair value hedges
Cash flow hedges
At 31 Dec 2022
Hedging instrument
Impacted by Ibor reform
£
$m
—
—
—
—
—
—
$
$m
—
—
—
2,015
—
2,015
Other2
$m
4,384
3,504
7,888
12,643
27,830
40,473
€1
$m
16,907
10,850
27,757
12,756
8,865
21,621
Not impacted
by Ibor
reform
$m
151,694
173,973
325,667
134,648
77,832
212,480
Total
$m
21,291
14,354
35,645
27,414
36,695
64,109
Notional
amount3
$m
172,985
188,327
361,312
162,062
114,527
276,589
1 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform consist of hedges with a Euribor benchmark.
2 Other benchmarks impacted by Ibor reform consist mainly of Emirates interbank offered rate, Mexican interbank equilibrium interest rate (‘TIIE’) and
Korean won-related derivatives. In 2022, the Hong Kong interbank offered rate (‘HIBOR’) was included in ‘Other‘ given that reform in the benchmark
was considered possible. At 31 December 2023, HIBOR was no longer expected to be directly affected by Ibor reform following the successful
transition of all Libor settings and the HKMA’s affirmation that there are no plans to discontinue HIBOR. As a result HIBOR has been moved from
‘Other‘ to ‘Not impacted by Ibor reform‘.
3 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of
transactions outstanding at the balance sheet date and they do not represent amounts at risk.
388
HSBC Holdings plc Annual Report and Accounts 2023
Hedging instrument impacted by Ibor reform held by HSBC Holdings
Fair value hedges
At 31 Dec 2023
Fair value hedges
At 31 Dec 2022
Hedging instrument
Impacted by Ibor reform
£
$m
—
—
—
—
$
$m
—
—
2,000
2,000
Other
$m
583
583
1,336
1,336
€
$m
19,614
19,614
15,210
15,210
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
Not impacted
by Ibor
reform
Total
$m
20,197
20,197
18,546
18,546
$m
72,071
72,071
63,327
63,327
2023
$m
294,437
102,438
190,119
1,447
433
148,326
30,733
117,593
442,763
Notional
amount
$m
92,268
92,268
81,873
81,873
2022¹
$m
255,660
86,749
167,107
1,696
108
109,066
34,507
74,559
364,726
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
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 2023
Investments required by central institutions
Business facilitation
Others
At 31 Dec 2022
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
609
793
45
1,447
690
954
52
1,696
$m
27
35
2
64
24
28
2
54
Up to 1
year
Yield
%
1 to 5
years
Yield
%
5 to 10
years
Yield
%
Over 10
years
Yield
%
2.1
3.6
1.0
0.2
1.0
3.2
1.4
5.5
8.9
7.9
2.3
—
—
2.7
4.7
2.6
2.0
3.1
2.6
2.8
1.4
3.5
6.6
3.1
3.7
7.8
3.7
—
2.6
3.5
—
2.6
2.0
3.3
2.1
0.8
1.6
3.3
4.8
3.1
3.7
5.8
3.4
0.9
—
5.3
7.7
3.5
2.4
3.0
1.8
2.5
—
2.9
5.3
2.4
2.1
4.5
2.9
4.5
—
—
—
5.2
HSBC Holdings plc Annual Report and Accounts 2023
389
Financial statements
Notes on the financial statements
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 2023 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
2023
$m
2022
$m
15,629
3,929
19,558
12,796
6,670
19,466
Up to 1
year
Yield
%
3.2
1 to 5
years
Yield
%
4.3
5 to 10
years
Yield
Over 10
years
Yield
%
—
%
—
The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended
31 December 2023 by the book amount of debt securities at that date. The yields do not include the effect of related derivatives.
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
2023
$m
20,504
13,636
27,490
88,367
40,280
61,223
251,500
2022
$m
18,364
10,198
27,627
60,542
26,902
67,576
211,209
Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 27 of the Pillar 3 Disclosures at
31 December 2023, 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
2023
$m
77,847
39,324
117,171
2022
$m
56,894
27,841
84,735
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 $495,653m (2022: $449,896m). The
fair value of any such collateral sold or repledged was $284,108m (2022: $228,245m).
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.
390
HSBC Holdings plc Annual Report and Accounts 2023
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.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
Carrying amount of:
Transferred
assets
Associated
liabilities
$m
$m
81,486
46,663
74,517
3,826
52,604
39,134
48,501
4,613
2023
$m
27,200
144
27,344
2022
$m
29,127
127
29,254
At 31 Dec 2023
Repurchase agreements
Securities lending agreements
At 31 Dec 2022
Repurchase agreements
Securities lending agreements
1 Excludes assets classified as held for sale.
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
Saudi Awwal Bank
2023
Carrying amount
$m
21,210
4,659
Fair value1
$m
8,812
6,438
2022
Carrying amount
$m
23,307
4,494
Fair value1
$m
8,141
6,602
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
Saudi Awwal Bank
At 31 Dec 2023
Jurisdiction of incorporation
and principal place of
business
Mainland China
Saudi Arabia
Principal activity
Banking services
Banking services
HSBC’s interest1
%
19.03
31.00
1 There has been no percentage change in HSBC’s shareholding interest in the principal associates when compared with 2022.
Share of profit in associates and joint ventures
Bank of Communications Co., Limited
Saudi Awwal Bank
Other associates and joint ventures
Share of profit in associates and joint ventures
Less: Impairment of interest in BoCom
A list of all associates and joint ventures is set out in Note 40.
2023
$m
2,250
538
19
2,807
(3,000)
2022
$m
2,377
342
4
2,723
—
HSBC Holdings plc Annual Report and Accounts 2023
391
Financial statements
Notes on the financial statements
Bank of Communications Co., Limited
We maintain a 19.03% interest in Bank of Communications Co., Limited (‘BoCom’). The Group’s investment in 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 associate’s net assets. An impairment test is required if there is any
indication of impairment.
Impairment testing
The fair value of the Group’s investment in BoCom had been below the carrying amount for approximately 12 years. We have previously
disclosed that the excess of the value in use (‘VIU’) calculation over its balance sheet value has been marginal in recent years, and that
reasonably possible changes in assumptions could generate an impairment.
Recent macroeconomic, policy and industry-wide factors resulted in a wider range of possible VIU calculation outcomes, and our VIU calculation
uses both historical experience and market participant views to estimate future cash flows, relevant discount rates and associated capital
assumptions. At 31 December 2023, the Group performed an impairment test on the carrying amount, which resulted in an impairment of
$3.0bn, as the recoverable amount as determined by a VIU calculation was lower than the carrying value.
BoCom
At 31 Dec 2023
At 31 Dec 2022
VIU
$bn
21.2
Carrying value
$bn
21.2
Fair value
$bn
8.8
VIU Carrying value
$bn
$bn
Fair value
$bn
23.5
23.3
8.1
The impairment test will be updated in future periods, reflecting updated assumptions in the VIU impairment calculation. Going forward, the
carrying value will be aligned to the updated VIU calculation and capped at carrying value that would have been determined had no impairment
loss been recognised, rather than at cost and adjusted thereafter for the post-acquisition change in the Group’s share of associate’s net assets,
and therefore there is a risk of reversals or further impairments 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 increases or reductions in the VIU include changes in BoCom’s short-
term performance, a change in regulatory capital requirements or revisions to the forecast of BoCom’s future profitability.
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 value.
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 is lower than recent (within the last five years) actual growth, and reflects the impact of recent
macroeconomic, policy and industry factors in mainland China. As a result of management‘s intent to continue to retain its investment, earnings
beyond the 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 CMC reflects the revised capital
requirements arising from revisions of the ratio of risk-weighted assets to total assets assumption. 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% (2022: 3%) for periods after 2027, which does not exceed forecast GDP growth in mainland China and is
similar to forecasts by external analysts.
– Long-term asset growth rate: 3% (2022: 3%) for periods after 2027, which is the rate that assets are expected to grow to achieve long-term
profit growth of 3%.
– Discount rate: 9.00% (2022: 10.04%), which is based on a capital asset pricing model (‘CAPM’), using market data. The discount rate used is
within the range of 7.9% to 9.7% (2022: 8.4% to 10.4%) indicated by the CAPM, and decreased as a consequence of a market-driven
reduction in beta. While the CAPM range sits at the lower end of the range adopted by selected external analysts of 8.8% to 13.5%
(2022: 8.8% 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 loans and advances to customers: ranges from 0.80% to 0.97% (2022: 0.99% to 1.05%) in
the short to medium term, reflecting reported credit experience in mainland China. For periods after 2027, the ratio is 0.97% (2022: 0.97%),
which is higher than BoCom’s average ECL as a percentage of loans and advances to customers in recent years prior to the pandemic.
– Risk-weighted assets as a percentage of total assets: ranges from 62.0% to 63.7% (2022: 61.0% to 64.4%) 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 2027, the ratio
is 62.0% (2022: 61.0%), which is similar to BoCom’s actual results in recent years.
– Loans and advances to customers growth rate: ranges from 9.0% to 10.0% (2022: 7.1% to 11.0%) in the short to medium term, reflecting
higher growth rate in loans and advances to customers as a result of recent macroeconomic, policy and industry factors in mainland China.
Increases in the forecast growth rate of loans and advances to customers results in higher forecast ECL.
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HSBC Holdings plc Annual Report and Accounts 2023
– Operating income growth rate: ranges from -0.4% to 9.7% (2022: 1.9% to 7.7%) in the short to medium term, which is lower than BoCom’s
actual results in recent years, and is impacted by projections of net interest income in the short term as a consequence of recent
macroeconomic, policy and industry factors in mainland China.
– Cost-income ratio: ranges from 35.5% to 39.8% (2022: 35.5% to 36.3%) in the short to medium term. These ratios are higher than BoCom‘s
actual results in recent years and forecasts disclosed by external analysts.
– Effective tax rate (‘ETR’): ranges from 5.3% to 15.0% (2022: 4.4% 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 2027, the rate is 15.0%
(2022: 15.0%), which is higher than the recent historical average, and aligned to the minimum tax rate as proposed by the OECD/Group of 20
(‘G20’) Inclusive Framework on Base Erosion and Profit Shifting.
– Capital requirements: capital adequacy ratio of 12.5% (2022: 12.5%) and tier 1 capital adequacy ratio of 9.5% (2022: 9.5%), based on
BoCom’s capital risk appetite and capital requirements respectively.
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. Loans and advances to customers growth rate has been added to the list of key assumptions detailed in the table to reflect the greater
potential variability associated with the assumption as a result of recent macroeconomic, policy and industry factors in mainland China. 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. Unless specified, favourable and unfavourable changes are consistently
applied throughout short-to-medium and long-term forecast years, based on a straight-line average of the base case assumption.
Sensitivity of VIU to reasonably possible changes in key assumptions
At 31 Dec 2023
Long-term profit growth rate1
Long-term asset growth rate1
Discount rate
Expected credit losses as a percentage
of loans and advances to customers
Risk-weighted assets as a percentage of total assets
Loans and advances to customers growth rate
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 2022
Long-term profit growth rate1
Long-term asset growth rate1
Discount rate
Expected credit losses as a percentage
of loans and advances to customers
Risk-weighted assets as a percentage of total assets
Loans and advances to customers growth rate
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
Decrease in
VIU
bps
$bn
VIU
$bn
58
(79)
(110)
2023 to 2027: 78
2028 onwards: 91
(150)
(213)
57
(212)
(426)
—
—
75
(71)
(164)
2022 to 2026: 95
2027 onwards: 91
(118)
(75)
44
(122)
(426)
—
—
3.3
4.5
4.5
24.5
25.7
25.7
2.9
24.1
0.9
3.2
2.6
0.8
1.6
—
—
3.6
3.1
6.9
22.1
24.4
23.8
22.0
22.8
21.2
21.2
27.1
26.6
30.4
(79)
58
280
2023 to 2027: 120
2028 onwards: 104
216
207
(81)
99
1,000
215
248
(71)
75
136
1.9
25.4
0.1
1.1
1.3
1.0
1.5
—
—
23.6
24.6
24.8
24.5
25.0
23.5
23.5
2022 to 2026: 120
2027 onwards: 104
239
295
(83)
174
1,000
191
266
(3.4)
(4.0)
(6.1)
17.8
17.2
15.1
(4.4)
16.8
(1.6)
(2.9)
(2.6)
(2.9)
(3.5)
(7.5)
(3.7)
(2.7)
(4.1)
(3.7)
19.6
18.3
18.6
18.3
17.7
13.7
17.5
20.8
19.4
19.8
(2.9)
20.6
(2.3)
(3.2)
(2.5)
(2.1)
(3.6)
(6.3)
(3.2)
21.2
20.3
21.0
21.4
19.9
17.2
20.3
1 The favourable and unfavourable 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
$13.1bn to $28.8bn (2022: $16.9bn to $28.7bn), acknowledging that the fair value of the Group’s investment has ranged from $6.8bn to $11.6bn
over the last five years as at the date of the impairment tests. The possible range of VIU 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
loans and advances to customers, 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.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2023, HSBC included the associate’s
results on the basis of the financial statements for the 12 months ended 30 September 2023, taking into account any known changes in the
subsequent period from 1 October 2023 to 31 December 2023 that would have materially affected the results.
HSBC Holdings plc Annual Report and Accounts 2023
393
Financial statements
Notes on the financial statements
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
At 31 Dec
2023
$m
112,800
100,464
1,087,613
587,949
59,215
1,948,041
292,065
1,216,611
251,246
36,776
1,796,698
151,343
2022
$m
116,942
100,160
1,035,151
583,898
48,796
1,884,947
295,205
1,153,184
249,230
37,153
1,734,772
150,175
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 originally arising on acquisition
Impairment
Carrying amount
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
Saudi Awwal Bank
At 30 Sep
2023
$m
23,746
464
(3,000)
21,210
2022
$m
22,828
479
—
23,307
For the 9 months ended 30 Sep
2023
$m
17,519
4,815
(6,836)
(1,977)
(552)
9,835
631
10,466
736
2022
$m
19,004
5,181
(7,641)
(1,785)
(436)
10,102
(37)
10,065
749
The Group’s investment in Saudi Awwal Bank (‘SAB’) is classified as an associate. HSBC is the largest shareholder in SAB with a shareholding
of 31%. Significant influence in SAB 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 2023. The fair value of the Group’s investment in SAB of $6.4bn was above the
carrying amount of $4.7bn.
394
HSBC Holdings plc Annual Report and Accounts 2023
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 Limited2
HSBC Bank (China) Company Limited
HSBC Bank Malaysia Berhad
HSBC Life (International) Limited
The Hongkong and Shanghai Banking Corporation Limited
Middle East, North Africa and Türkiye
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 2023
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. There has been no material percentage change in HSBC’s
shareholding for its main subsidiaries since 2022.
2 In addition to the strategic holding disclosed above, the Group held 0.09% (2022: 0.07%) shareholding as part of its trading books.
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 40. The principal countries and territories 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 financial resource 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 2023, consistent with the Group’s capital plan, the Group’s material 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 from material subsidiaries. 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.
The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 34.
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 as at 31 December 2023, cash flow projections until the end of 2028 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: The long-term growth rate is used to extrapolate the free cash flows in perpetuity because of the long-term
perspective of the legal entity. The growth rate reflects long-term inflation for the country or territory within which the investment operates.
HSBC Holdings plc Annual Report and Accounts 2023
395
Financial statements Notes on the financial statements
– 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 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 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.
As at 31 December 2023, the carrying amount of HSBC Holdings’ investments in subsidiaries was $159.5bn (2022: $167.5bn). The net year-on-
year reduction was predominantly due to the recognition of a $5.5bn impairment of HSBC Holdings’ investment in HSBC Overseas Holdings
(UK) Limited, resulting in a cumulative impairment of $10.2bn (2022: $4.7bn), and a carrying amount of $25.8bn as at 31 December 2023 (2022:
$32.8bn).
The recoverable amount of HSBC Overseas Holdings (UK) Limited is assessed as the aggregate of the recoverable amounts of its subsidiaries.
During 2023, the principal subsidiaries of HSBC Overseas Holdings (UK) Limited were HSBC North America Holdings Limited, HSBC Bank
Canada and HSBC Bank Bermuda. In October 2023, HSBC Bank Bermuda was transferred to HSBC Bank plc. As at 31 December 2023, the
adjusted net asset value of HSBC Overseas Holdings (UK) Limited fell below the carrying amount therefore management assessed that
indicators of impairment were present and an impairment test was performed. The recoverable amount reduced owing to lower projected
profits and higher projected capital requirements for HSBC North America Holdings, the transfer of HSBC Bank Bermuda to HSBC Bank plc at
its book value which stood below its assessed recoverable amount, and higher prevailing discount rates, as a result of which a $5.5bn
impairment was recognised.
As HSBC Overseas Holdings (UK) Limited has entered into a sales purchase agreement with Royal Bank of Canada to dispose of our banking
business in Canada, the sales purchase agreement has been used to support the recoverable amount of $11.0bn (2022: $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
(2022: $3.7bn) premium to the book value recorded in HSBC Overseas Holdings (UK) Limited. In 2024, a distribution of the proceeds from the
planned sale of our banking business in Canada to HSBC Holdings from HSBC Overseas Holdings (UK) Limited could lead to a future
impairment. In respect of distributable reserves, an impairment would be offset by the dividend income recognised on the distributions from
sales proceeds.
Impairment test results
Investments
At 31 Dec 2023
HSBC North America Holdings Limited
At 31 Dec 2022
HSBC North America Holdings Limited
Recoverable
amount
Discount
rate
Long-term growth
rate
$m
12,756
18,363
%
10.50
10.00
%
2.17
2.22
Sensitivities of key assumptions in calculating VIU
At 31 December 2023, the recoverable amount of HSBC Overseas Holdings (UK) Limited remained sensitive to reasonably possible changes in
key assumptions impacting its principal subsidiary, HSBC North America Holdings 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 attached to the key
assumptions underlying cash flow.
The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for HSBC North America
Holdings Limited, the key risks attached to each, and details of a reasonably possible change to assumptions where, in the opinion of
management, these could result in a change in VIU.
Reasonably possible changes in key assumptions
Investment
HSBC North America Holdings
Limited (subsidiary of HSBC
Overseas Holdings (UK) Limited)
Input
Key assumptions
Associated risks
Reasonably possible
change
Free cash flows projections
– Level of interest rates
– Strategic actions
– Free cash flow
Discount rate
and yield curves.
– Competitors’ positions
within the market.
– Discount rate used is a
reasonable estimate of
a suitable market rate
for the profile of the
business.
relating to revenue
and costs are not
achieved.
projections decrease
by 10%.
– External evidence
– Discount rate
arises to suggest that
the rate used is not
appropriate to the
business.
decreases by 1%.
– Discount rate
increases by 1%.
396
HSBC Holdings plc Annual Report and Accounts 2023
Sensitivity of VIU to reasonably possible changes in key assumptions
In $bn (unless otherwise stated)
At 31 December 2023
VIU
Impact on VIU
100bps decrease in the discount rate – single variable1
100bps increase in the discount rate – single variable1, 2
10% decrease in forecast profitability – single variable1, 2
HSBC North America
Holdings Limited
12.8
1.6
(1.2)
(1.3)
1 The recoverable amount of HSBC Overseas Holdings (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.
2 As at 31 December 2022, the impact on the VIU of HSBC North America Holdings Limited of a 100bps increase in the discount rate was $(1.7)bn and
a 10% decrease in forecast profitability was $(1.8)bn, respectively on a single variable basis.
Subsidiaries with significant non-controlling interests
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by non-controlling interests (%)2
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
2023
2022¹
37.86
Hong Kong
$m
889
6,877
490
214,321
194,621
5,210
2,356
2,723
37.86
Hong Kong
$m
574
6,513
361
235,630
216,917
4,379
1,518
1,428
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
2 In addition to the strategic holding disclosed above, the Group held 0.09% (2022: 0.07%) shareholding as part of its trading books.
20 Structured entities
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 2023
At 31 Dec 2022
Conduits Securitisations HSBC managed funds
Other
$bn
3.6
4.2
$bn
7.8
7.2
$bn
5.5
4.8
$bn
8.2
7.5
Total
$bn
25.1
23.7
Conduits
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 2023, Solitaire, HSBC’s principal SIC, held $1.0bn of ABSs (2022: $1.3bn). It is currently funded entirely by commercial
paper (‘CP’) issued to HSBC. At 31 December 2023, HSBC held $1.3bn of CP (2022: $1.5bn).
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 $6.1bn at 31 December 2023 (2022: $6.2bn). First
loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of
secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset
origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically
through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent
in its role as investment manager, HSBC controls these funds.
Other
HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions
where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its
involvement as a principal in the funds.
HSBC Holdings plc Annual Report and Accounts 2023
397
Financial statements
Notes on the financial statements
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group enters into transactions with
unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
Nature and risks associated with HSBC interests in unconsolidated structured entities
Total asset values of the entities ($m)
0–500
500–2,000
2,000–5,000
5,000–25,000
25,000+
Number of entities at 31 Dec 2023
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 2023
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
Securitisations
HSBC managed
funds
Non-HSBC
managed funds
Other
120
4
—
—
—
124
$bn
3.2
—
—
3.2
—
—
—
—
0.1
3.3
85
8
—
—
—
93
$bn
2.5
—
—
2.5
—
—
—
—
0.2
2.7
337
96
39
24
3
499
$bn
13.9
0.6
12.6
—
0.7
—
—
—
1.9
15.8
338
102
28
18
5
491
$bn
10.7
0.4
9.7
—
0.6
—
—
—
1.5
12.2
1,271
1,069
418
217
11
2,986
$bn
20.7
—
19.7
0.6
0.4
—
—
—
5.0
25.7
1,321
929
388
206
24
2,868
$bn
19.7
0.1
18.7
0.5
0.4
—
—
—
4.6
24.3
42
3
—
—
—
45
$bn
3.3
—
—
2.5
—
0.8
0.3
0.3
1.2
4.2
41
4
—
—
—
45
$bn
2.6
—
—
1.9
—
0.7
0.4
0.4
1.8
4
Total
1,770
1,172
457
241
14
3,654
$bn
41.1
0.6
32.3
6.3
1.1
0.8
0.3
0.3
8.2
49.0
1,785
1,043
416
224
29
3,497
$bn
35.5
0.5
28.4
4.9
1
0.7
0.4
0.4
8.1
43.2
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
amount 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 118.
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.
398
HSBC Holdings plc Annual Report and Accounts 2023
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 2023 and 2022 was not significant.
21 Goodwill and intangible assets
Goodwill
Other intangible assets2
At 31 Dec
2023
$m
4,323
8,164
12,487
2022¹
$m
4,156
7,263
11,419
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 Included within other intangible assets is internally generated software with a net carrying amount of $6,895m (2022: $6,166m). During the year,
capitalisation of internally generated software was $2,306m (2022: $2,663m), reversal of impairment was $285m (2022: impairment of $125m) and
amortisation was $1,877m (2022: $1,447m).
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
Exchange differences
Reclassified to held for sale1
At 31 Dec
Net carrying amount at 31 Dec
2023
$m
18,965
523
73
(1)
19,560
(14,809)
(428)
—
(15,237)
4,323
2022
$m
22,215
(776)
(2,485)
11
18,965
(17,182)
482
1,891
(14,809)
4,156
1 Includes goodwill allocated to disposal groups as a result of the sales of our retail banking operations in France and branch operations in Greece, and
planned sale of our banking business in Canada, offset by goodwill arising from the acquisition of L&T Investment Management Limited. For further
details, see Note 23.
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 2023. 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 2023
Carrying
amount at
1 Oct 2023
of which
goodwill
Value in
use at
1 Oct 2023
Discount
rate
Growth
rate
beyond
initial
cash flow
Carrying
amount at
1 Oct 2022
of which
goodwill
Value in
use at
1 Oct 2022
$m
$m
$m
%
%
$m
$m
HSBC UK
Bank plc –
WPB1
Europe –
WPB1
11,167
2,597
27,933
N/A
N/A
N/A
10.4
N/A
2.0
N/A
N/A
N/A
15,215
2,643
46,596
Growth
rate
beyond initial
cash flow
projections
%
N/A
2.0
Discount
rate
%
N/A
9.9
$m
N/A
1 Following change in the Reporting Framework the Group’s CGUs are main legal entities subdivided by global business effective 1 January 2023.
HSBC Holdings plc Annual Report and Accounts 2023
399
Financial statements
Notes on the financial statements
At 1 October 2023, aggregate goodwill of $1,599m (1 October 2022: $1,464m) 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 Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill in the next financial year,
but does consider this to be an area that is inherently judgemental. 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 2023 impairment test, cash flow projections until the end of 2028 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 IFRS Accounting
Standards, 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 2023, given the extent by which VIU exceeds carrying amount, the HBUK 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
The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of other intangible assets in the next
financial year, but does consider this to be an area that is inherently judgemental. 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 IFRS Accounting Standards, 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.
– 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.
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 2023 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.
400
HSBC Holdings plc Annual Report and Accounts 2023
22 Prepayments, accrued income and other assets
Prepayments and accrued income
Settlement accounts
Cash collateral and margin receivables
Bullion
Endorsements and acceptances
Insurance contract assets (Note 4)
Reinsurance contract assets
Employee benefit assets (Note 5)
Right-of-use assets
Owned property, plant and equipment
Other accounts
At 31 Dec
2023
$m
13,854
32,853
57,058
13,701
7,939
252
4,728
7,750
2,456
10,478
14,186
165,255
2022¹
$m
10,279
19,565
63,421
15,752
8,407
136
4,310
7,282
2,219
10,365
14,413
156,149
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
Prepayments, accrued income and other assets include $122,863m (2022: $112,464m) of financial assets, the majority of which are measured
at amortised cost.
23 Assets held for sale, liabilities of disposal groups held for sale and
business acquisitions
Held for sale at 31 Dec
Disposal groups
Unallocated impairment losses1
Non-current assets held for sale
Assets held for sale
Liabilities of disposal groups held for sale
2023
$m
115,836
(1,975)
273
114,134
108,406
2022
$m
118,055
(2,385)
249
115,919
114,597
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 and other planned disposals
Sale of our retail banking operations in France
On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking business in France to CCF, a subsidiary of Promontoria
MMB SAS (‘My Money Group’). The sale also included HSBC Continental Europe’s 100% ownership interest in HSBC SFH (France) and its 3%
ownership interest in Crédit Logement.
In the first quarter of 2023, the sale had become less certain, as a result of which we recognised a $2.1bn partial reversal of the impairment loss
recognised in 2022, when the disposal group was classified as held for sale. In the fourth quarter of 2023, following the receipt of regulatory
approvals and the satisfaction of other relevant conditions, we reclassified the disposal group as held for sale, and it was subsequently
remeasured at the lower of the carrying amount and fair value less costs to sell. This resulted in the reinstatement of a €1.8bn ($2.0bn) pre-tax
impairment loss reflecting the final terms of the sale, giving rise to a net reversal of impairment recognised in other operating income in the year
of $0.1bn.
Upon completion and in accordance with the terms of the sale, HSBC Continental Europe received a €0.1bn ($0.1bn) profit participation interest
in the ultimate holding company of My Money Group. The associated impacts on initial recognition of this stake at fair value were recognised as
part of the pre-tax loss on disposal. In addition, we recognised the reversal of a €0.4bn ($0.4bn) deferred tax liability, which had arisen as a
consequence of the temporary difference in tax and accounting treatment in respect of the provision for loss on disposal, which was deductible
in the French tax return in 2021.
In accordance with the terms of the sale, HSBC Continental Europe retained a portfolio of €7.1bn ($7.8bn) consisting of home and certain other
loans, in respect of which it may consider on-sale opportunities at a suitable time, and the CCF brand, which it licensed to the buyer under a
long-term licence agreement. Additionally, HSBC Continental Europe’s subsidiaries, HSBC Assurances Vie (France) and HSBC Global Asset
Management (France), have entered into distribution agreements with the buyer. Ongoing costs associated with the retention of the home and
certain other loans, net of income on distribution agreements and the brand licence, are estimated to have an after-tax loss impact of €0.1bn
($0.1bn) in 2024 based on expected funding rates.
Planned sale of our banking business in Canada
On 29 November 2022, HSBC Holdings plc announced that its wholly-owned subsidiary, HSBC Overseas Holdings (UK) Limited, had entered
into an agreement for the sale of its banking business in Canada to the Royal Bank of Canada. Completion of the transaction is expected to
occur in the first quarter of 2024 and the required governmental approvals have been obtained. The majority of the estimated gain on sale of
$5.2bn (as at 31 December 2023) will be recognised on completion, reduced by earnings recognised by the Group in the period to completion.
There would be no tax on the gain recognised at completion. This estimated gain would also have been reduced by $0.3bn in fair value losses
recognised on the related foreign exchange hedges in 2023. 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. At 31 December 2023, total assets of $87.9bn and total liabilities of
$81.5bn met the criteria to be classified as held for sale in accordance with IFRS 5.
HSBC Holdings plc Annual Report and Accounts 2022
401
Financial statements
Notes on the financial statements
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 sale of its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). In 2022, a $0.3bn
impairment loss on the planned sale was recognised, upon classification as held for sale in accordance with IFRS 5. As at 31 December 2023,
following US sanctions designation of the buyer, the outcome of the planned sale became less certain. This resulted in the reversal of $0.2bn of
the previously recognised loss, as the business was no longer classified as held for sale. However, owing to restrictions impacting the
recoverability of assets in Russia, we recognised charges of $0.2bn in other operating income. Completion of the planned sale remains subject
to regulatory approval. On completion, accumulated foreign currency translation reserves will be recycled to the income statement.
Our branch operations in Greece
On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement for the sale of its branch operations in Greece to Pancreta
Bank SA. In the second quarter of 2022, we recognised a loss of $0.1bn upon reclassification as held for sale in accordance with IFRS 5. At
completion on 28 July 2023, the disposal group included $0.3bn of loans and advances to customers and $1.1bn of customer accounts.
Merger of our business in Oman
In November 2022, HSBC Bank Oman SAOG entered into a binding merger agreement with Sohar International Bank SAOG, under which the
two banks agreed to take the necessary steps to implement a merger by incorporation, whereby HSBC Bank Oman would merge into Sohar
International Bank. Following regulatory and shareholder approvals, the merger was completed on 17 August 2023 by way of dissolution and
transfer of all the assets and liabilities of HSBC Bank Oman to Sohar International Bank, with the shareholders of HSBC Bank Oman receiving
the consideration in cash and shares in Sohar International Bank. Separately, HSBC Bank Middle East Limited is in the process of establishing a
new wholesale banking branch in Oman subject to regulatory approvals.
Our New Zealand loan portfolio
In August 2023, the Hongkong and Shanghai Banking Corporation Limited (acting through its New Zealand branch) entered into an agreement
with Pepper New Zealand Limited, a wholly-owned subsidiary of Pepper Money Limited, to sell its New Zealand retail mortgage loan portfolio.
The sale was classified as held for sale in the third quarter of 2023 and was completed on 1 December 2023.
Our retail business in Mauritius
In November 2023, the Hongkong and Shanghai Banking Corporation Limited (acting through its Mauritius branch) entered into an agreement
with ABSA Bank (Mauritius) Limited, a wholly-owned subsidiary of ABSA Bank Group Limited, to sell its Wealth and Personal Banking business.
The sale is expected to complete in the second half of 2024 subject to regulatory approvals.
At 31 December 2023, the major classes of assets and associated liabilities of disposal groups held for sale, excluding allocated impairment
losses, were as follows:
Assets of disposal groups held for sale
Cash and balances at central banks2
Trading assets
Financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
Derivatives
Loans and advances to banks2
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments3
Goodwill
Prepayments, accrued income and other assets
Total assets at 31 Dec 2023
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 Dec 2023
Expected date of completion
Operating segment
Canada
$m
Retail banking
operations in France
$m
Other1
$m
5,370
2,465
15
528
154
56,129
2,723
16,978
225
3,318
87,905
1,417
78
63,001
2,768
—
608
7,707
8
5,916
81,503
226
—
49
—
10,333
16,902
—
33
—
132
27,675
—
—
22,307
—
2,370
7
1,377
—
196
26,257
—
—
—
—
—
254
—
2
256
—
—
642
—
—
—
—
—
4
646
Total
$m
5,596
2,465
64
528
10,487
73,285
2,723
17,011
225
3,452
115,836
1,417
78
85,950
2,768
2,370
615
9,084
8
6,116
108,406
First quarter of 2024
All global businesses
1 January 2024
WPB
1 Includes balances classified as held for sale in respect of the planned sale of our retail business in Mauritius and planned sale of our global hedge fund
administration business across several markets.
2 Under the financial terms of the sale of our retail banking operations in France, HSBC Continental Europe will transfer the business with a net asset
value of €1.7bn ($1.8bn) for a consideration of €1. Any required increase to the net asset value of the business to achieve this will be satisfied by the
inclusion of additional cash. Based upon the net liabilities of the disposal group at 31 December 2023, HSBC would be expected to include a cash
contribution of $11bn, of which $10.5bn was reclassified as held for sale at 31 December 2023 (‘Loans and advances to banks’, $10.3bn, ‘Cash and
balances at central bank’, $0.2bn).
3 Includes financial investments measured at fair value through other comprehensive income of $9.4bn and debt instruments measured at amortised
cost of $7.6bn.
402
HSBC Holdings plc Annual Report and Accounts 2023
At 31 December 2022, the major classes of assets and associated liabilities of disposal groups held for sale, excluding 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 Dec 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 Dec 2022
Expected date of completion
Operating segment
Canada
$m
Retail banking
operations in France
$m
4,664
3,168
13
866
99
55,197
4,396
17,243
225
4,245
90,127
2,751
62
60,606
3,266
—
806
11,602
8
5,727
84,828
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 $11.2bn and debt instruments measured at amortised
cost of $6.2bn.
Business acquisitions
Acquisition of Silicon Valley Bank UK Limited
In March 2023, HSBC UK Bank plc acquired Silicon Valley Bank UK Limited (‘SVB UK’), and in June 2023 changed its legal entity name to HSBC
Innovation Bank Limited. The acquisition was funded from existing resources and brought the staff, assets and liabilities of SVB UK into the
HSBC portfolio. On acquisition, we performed a preliminary assessment of the fair value of the assets and liabilities purchased. We established
an opening balance sheet on 13 March 2023 and applied the result of the fair value assessment, which resulted in a reduction in net assets of
$0.2bn. The provisional gain on acquisition of $1.6bn represents the difference between the consideration paid of £1 and the net assets
acquired. Further due diligence has been performed post-acquisition, resulting in the recognition of an additional gain of $0.1bn at 30 September
2023, as required by IFRS 3 ‘Business Combinations’.
HSBC Innovation Bank Limited contributed $0.5bn of revenue and $0.2bn to the Group profit after tax for the period from 13 March 2023 to
31 December 2023. As per the disclosure requirements set out in IFRS 3 ‘Business Combinations’, if HSBC Innovation Bank Limited had been
acquired on 1 January 2023, management estimates that for the 12 months to 31 December 2023, consolidated revenue would have been
$66bn and consolidated profit after tax would have been $25bn. In determining these amounts, management has assumed that the previously
determined fair value adjustments, which arose on acquisition would have been the same if the acquisition had occurred on 1 January 2023.
The details of the business combination at acquisition are as follows:
Fair value of assets acquired
Fair value of liabilities acquired
Fair value of net assets acquired
Provisional gain on acquisition
Consideration transferred settled in cash
Cash and cash equivalents acquired
Net cash inflow on acquisition
At
13 Mar
2023
$m
11,367
(9,776)
1,591
1,591
—
1,243
1,243
HSBC Holdings plc Annual Report and Accounts 2023
403
Financial statements
Notes on the financial statements
Acquisition of Citibank China’s wealth management portfolio
In October 2023, HSBC Bank (China) Company Limited, a wholly-owned subsidiary of The Hongkong and Shanghai Banking Corporation Limited,
entered into an agreement to acquire Citibank China’s retail wealth management portfolio in mainland China. The portfolio comprises assets
under management and deposits and the associated wealth customers. Upon completion, the acquired business will be integrated into HSBC
Bank China’s Wealth and Personal Banking operations. The transaction is expected to complete in the first half of 2024.
Acquisition of Silkroad Property Partners Singapore
In October 2023, HSBC Global Asset Management Singapore Limited entered into an agreement to acquire 100% of the shares of Silkroad
Property Partners Pte Ltd (‘Silkroad’) and for HSBC Global Asset Management Limited to acquire Silkroad’s affiliated General Partner entities.
Silkroad is a Singapore headquartered Asia-Pacific-focused, real estate investment manager. The acquisition was completed on 31 January
2024.
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 accounts2
Liabilities to customers under investment contracts
Debt securities in issue (Note 26)
Subordinated liabilities (Note 29)
At 31 Dec
2023
$m
6,779
8,955
27
57,389
73,150
2023
$m
21,043
5,103
103,803
11,477
141,426
2022
$m
9,332
10,724
978
51,319
72,353
2022¹
$m
19,171
5,374
93,140
9,636
127,321
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
2 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 $4,421m less than the contractual amount at maturity (2022: $8,124m
less). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $1,286m (2022: profit of $234m).
HSBC Holdings
Debt securities in issue (Note 26)
Subordinated liabilities (Note 29)
At 31 Dec
2023
$m
35,189
8,449
43,638
2022
$m
25,423
6,700
32,123
The carrying amount of financial liabilities designated at fair value was $246m less than the contractual amount at maturity (2022: $2,405m less).
The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $682m (2022: $516m).
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
404
HSBC Holdings plc Annual Report and Accounts 2023
2023
$m
160,632
37,115
197,747
(27)
(103,803)
93,917
2022
$m
145,240
27,027
172,267
(978)
(93,140)
78,149
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)
Reinsurance contract liabilities
Lease liabilities
Other liabilities
At 31 Dec
2023
$m
100,428
(35,189)
65,239
2023
$m
16,814
28,423
56,832
7,911
1,160
819
2,813
21,834
136,606
2022
$m
92,361
(25,423)
66,938
2022
$m
12,605
18,178
70,298
8,379
1,096
748
2,767
20,242
134,313
1 Accruals, deferred income and other liabilities include $129,401m (2022: $125,957m) of financial liabilities, the majority of which are measured at
amortised cost.
2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
28 Provisions
Provisions (excluding contractual commitments)
At 1 Jan 2023
Additions
Amounts utilised
Unused amounts reversed
Exchange and other movements
At 31 Dec 2023
Contractual commitments1
At 1 Jan 2023
Net change in expected credit loss provision and other movements
At 31 Dec 2023
Total provisions
At 31 Dec 2022
At 31 Dec 2023
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
Restructuring
costs
Legal
proceedings
and regulatory
matters
Customer
remediation
Other
provisions
$m
445
255
(288)
(149)
21
284
$m
$m
$m
409
236
(231)
(30)
(4)
380
195
37
(69)
(41)
8
130
397
170
(68)
(95)
16
420
383
434
(288)
(87)
3
445
619
271
(393)
(82)
(6)
409
386
60
(106)
(109)
(36)
195
558
206
(168)
(125)
(74)
397
Total
$m
1,446
698
(656)
(315)
41
1,214
512
15
527
1,958
1,741
1,946
971
(955)
(403)
(113)
1,446
620
(108)
512
2,566
1,958
1 Contractual commitments include the expected credit loss provision in relation to off-balance sheet financial guarantee contracts and commitments
where HSBC has become party to an irrevocable commitment, as defined under IFRS 9 ‘Financial Instruments’; and provisions for performance and
other guarantee contracts.
Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 36. 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’ refers 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.
HSBC Holdings plc Annual Report and Accounts 2023
405
Financial statements
Notes on the financial statements
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 34. Further analysis of the movement in the expected credit loss provision is disclosed within the ‘Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees‘
table on page 169.
Brazil PIS and COFINS tax matters
Beginning in the late 1990s, HSBC Bank Brasil S.A. – Banco Múltiplo (‘HSBC Brazil’) and other financial services firms brought legal proceedings
in Brazil challenging the assessment of PIS and COFINS taxes, which are federal taxes imposed on gross revenues earned by legal entities in
Brazil. The Supreme Court of Brazil selected three cases – one involving an insurer, in 2007, and two involving other banks, in 2011 – to set
standards that would apply to all of these proceedings. In June 2023, the court ruled against the financial services firms in all three cases. The
standards set by the court in this ruling have not yet been applied to HSBC Brazil’s legacy cases, liability for which remained with HSBC after
the sale of HSBC’s operations in Brazil to Bradesco in 2016. There are many factors that may affect the range of outcomes and any resulting
financial impact for HSBC. Based upon the information currently available, a provision was recognised in respect of one legacy case. The
remaining additional tax liability subject to challenge on all legacy PIS and COFINS cases is up to $0.4bn.
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
2023
$m
24,954
23,149
1,805
11,477
11,477
—
36,431
4,154
32,277
2022
$m
22,290
20,547
1,743
9,636
9,636
—
31,926
6,094
25,832
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’s subordinated liabilities: subsidiaries
Additional tier 1 capital securities issued by HSBC subsidiaries
Tier 2 securities issued by HSBC subsidiaries
– Tier 2 securities issued by HSBC Bank plc
– Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Limited
– Tier 2 securities issued by HSBC Bank USA Inc
– Tier 2 securities issued by HSBC Bank USA N.A.
– Tier 2 securities issued by HSBC Bank Canada1
Securities issued by other HSBC subsidiaries
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec
1 Liability accounts for HSBC Bank Canada have been reclassified to ‘Liabilities of disposal groups held for sale’.
HSBC Holdings’ subordinated liabilities
At amortised cost
Designated at fair value (Note 25)
At 31 Dec
HSBC Holdings’ subordinated liabilities in issue
Tier 2 securities issued by HSBC Holdings
Amounts owed to third parties
Amounts owed to HSBC undertakings
Subordinated liabilities issued by HSBC Holdings at 31 Dec
406
HSBC Holdings plc Annual Report and Accounts 2023
2023
$m
1,672
764
—
223
1,449
—
46
4,154
2023
$m
24,439
8,449
32,888
2023
$m
31,975
913
32,888
2022
$m
1,584
2,427
400
223
1,405
—
55
6,094
2022
$m
19,727
6,700
26,427
2022
$m
25,527
900
26,427
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 408 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 present value of expected future cash flows of insurance contract
liabilities and contractual service margin is provided on page 411. 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.
HSBC Holdings plc Annual Report and Accounts 2023
407
Financial statements Notes on the financial statements
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
285,868
6,342
42,024
—
—
—
284,865
2,010
—
—
—
637
—
—
—
363
—
—
—
555
—
—
—
165
—
—
—
564
— 285,868
—
6,342
—
42,024
— 289,159
5,530
697
821
753
581
4,839
11,917
85,505 110,643
138
18,662
66,425
9,558
50,268
6,599
43,893
69,816
2,929
6,574
134
227,343
6,487
76,524
52,218
142,803
6,960
44,105
38,250
83,281
7,008
15,417
23,840
164,826
44,493
48,969
7,041
39,882
108,138
4,404
1,433,114 211,144 140,075
—
1,433,114 211,144 140,075
—
—
71
2,689
40,135
6,422
24,685
9,028
6,708
16,348
4,176
550
71,793
—
71,793
383
2,756
570
2,328
35
3,281
36,323
6,127
24,566
5,630
5,126
18,603
3,261
698
1,040 229,714
175 112,902
94,206 175,381 331,044 938,535
54,365 297,512 444,655
19,606
30,592 419,852
61,612 106,598
74,028
14,418
12,988
— 252,217
1,711
6,113
92,293 442,763
46,124 106,117
7,943 115,332
33,015
17,085
1,513 122,861
764
220
68,463 171,891 332,367 519,513 2,948,360
90,317
68,463 171,891 332,367 609,830 3,038,677
90,317
2,940
—
—
—
39,836
—
—
—
—
—
—
—
39,836
42,024
52,747
—
2,758
1,343,858 138,117
84,909
621,112
43,562
545,207
9,646
177,539
10,311
158,882
—
2,324
78,611
61,286
14,525
2,800
1,759
—
381
20,832
14,794
4,605
1,433
300
—
94
17,724
12,465
3,393
1,866
847
7,295
—
66,548
6,302
—
300
—
—
—
—
—
1,458
7,785
5,507
2,165
113
1
—
—
—
13,064
4,616
2,742
1,527
347
—
42,024
—
337
73,163
104 1,611,647
2 802,817
92 615,076
10 193,754
— 172,100
—
—
—
—
7,295
73,150
22,080
8,366
7,823
7,197
6,239
16,679
39,497
33,545 141,426
—
10,383
—
2,760
—
5,748
—
6,225
—
5,390
—
14,090
—
34,757
—
—
23,898 103,251
—
1,995
—
—
—
1,471
3,429
4,581
11,476
3,611
113
6,664
—
44
6,620
5,231
11,827
13
11,697
233,134
6,891
—
447
6,444
69,868
104,264
—
2,075
25
10,816
—
62
10,754
5,479
6,007
—
2,107,591 189,702 113,144
—
2,107,591 189,702 113,144
—
—
895,140
256,272
472,507
166,361
95
21
74
—
126
30
26
70
972
9
6,896
—
58
6,838
6,728
1,205
—
43,548
—
43,548
72
46
26
—
849
47
6,427
—
55
6,372
6,541
1,414
—
39,333
—
39,333
171
107
64
—
1,118
73
6,317
—
188
6,129
4,730
1,053
1,790
39,886
—
39,886
439
279
160
—
5,066
22,454
—
1,679
20,775
1,311
1,223
27,452
1,273
861
25,318
7,918
1,491
897
96,158
26,699
148 234,772
93,917
1,273
3,394
89,250
1,511 108,006
2,137 129,398
22,254
24,954
82,490 2,711,852
— 134,215 134,215
96,158 216,705 2,846,067
807
745
62
—
300 897,150
192 257,692
108 473,027
— 166,431
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 sale2
Accrued income and other financial assets
Financial assets at 31 Dec 2023
Non-financial assets
Total assets at 31 Dec 2023
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 sale3
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 Dec 2023
Non-financial liabilities
Total liabilities at 31 Dec 2023
Off-balance sheet commitments given
Loan and other credit-related commitments
– personal
– corporate and commercial
– financial
408
HSBC Holdings plc Annual Report and Accounts 2023
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 sale2
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 sale3
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
327,002
7,297
43,787
—
—
—
—
—
—
1,333
718
132
13,965
75,486
9,141
60,067
6,278
51,736
79,309
3,755
6,042
213,234
3,282
281,724
72,240
139,934
41,834
84,955
13,145
171,173
46,493
33,781
99,113
1,343
1,369
29
8,323
58,951
6,659
45,695
6,597
16,164
30,722
3,452
3,766
1,439,060 232,476 124,119
—
1,439,060 232,476 124,119
—
—
—
—
—
338
1,178
21
860
35,633
5,745
24,430
5,458
5,840
11,798
3,044
620
59,332
—
59,332
—
—
—
—
—
—
—
—
—
— 327,002
—
7,297
—
43,787
808
1,967
261
3,058
222
13,353
1,052
3,569
425
479
65
2,328
33,730
5,773
22,629
5,328
2,776
13,067
3,263
703
390 218,093
77,755 100,101
875 284,159
132 104,475
99,933 173,076 306,818 923,561
51,050 273,487 412,015
18,326
30,231 444,898
68,473 108,418
66,648
13,608
13,134
2,066
3,999
— 253,754
74,676 364,726
67,951
40,710
14,697 117,378
40,017
15,369
1,295 112,384
302
543
56,836 166,648 301,608 476,638 2,856,717
92,569
56,836 166,648 301,608 569,207 2,949,286
92,569
3,100
—
—
—
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
7,864
66,027
16,430
—
7,056
—
—
5,668
7,398
—
3,620
281
6,562
—
4,793
—
205
14,244
10,431
3,080
733
170
—
113
4,308
—
3,157
—
136
17,295
12,374
3,824
1,097
645
—
113
5,325
—
4,288
—
1,455
4,719
2,835
1,667
217
1,250
—
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
—
—
—
7,864
116
19,287
—
16,234
35
34,886
—
29,941
—
72,353
33,125 127,321
—
92,599
—
23,510
—
—
—
—
—
1,971
3,675
3,990
9,636
9,374
284,412
4,514
—
705
3,809
76,928
104,295
—
3,778
73
7,400
—
28
7,372
4,342
9,576
—
2,160,741 131,728
—
2,160,741 131,728
—
825,781
242,953
449,843
132,985
184
2
176
6
1,769
18
7,476
—
40
7,436
5,374
4,776
11
76,405
—
76,405
75
3
72
—
1,151
46
4,745
—
38
4,707
6,599
967
160
31,557
—
31,557
59
—
59
—
1,037
57
3,585
—
36
3,549
8,606
1,564
—
37,326
—
37,326
210
110
84
16
1,082
171
9,198
—
124
9,074
2,343
1,028
—
39,567
—
39,567
242
199
43
—
5,625
21,991
—
1,346
20,645
1,270
849
19,240
601
656
17,983
8,653
2,016
1,689
85,712
25,086
136 285,762
78,149
601
2,973
74,575
1,479 114,324
1,725 125,947
20,430
22,290
79,533 2,642,569
— 121,520 121,520
85,712 201,053 2,764,089
975
811
163
1
328 827,854
300 244,378
28 450,468
— 133,008
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated
accordingly.
2 Unallocated impairment losses in relation to disposal groups of $2.0bn (2022: $2.4bn) and non-financial assets of $0.9bn (2022: $1bn) that are
presented within assets held for sale on the balance sheet have been included within non-financial assets in the table above.
3 A total of $0.4bn (2022: $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 2023
409
Financial statements
Notes on the financial statements
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments
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
7,029
—
—
—
—
—
—
— 7,029
—
2,217
—
10,365
3,511
23,122
—
23,122
—
—
—
—
2,452
—
1,437
—
3,889
—
3,889
—
—
—
6,017
860
6,877
—
6,877
168
—
—
—
209
—
1,599
1,987
3,963
—
3,963
—
—
120
898
254
1,272
—
1,272
—
—
—
—
7
816
1,049
—
1,872
—
1,872
—
—
—
750
229
979
—
979
—
—
—
—
59
2,158
127
—
2,344
—
2,344
—
—
—
757
5
762
—
762
—
—
—
—
75
—
34
—
109
—
109
3,815
26,284 29,780 59,879
18
1,016
771
—
5,620
—
5,620
—
5,287
3,816
675
—
—
434 3,344
6,783 19,435 27,354
— 19,558
— 4,859
33,742 49,649 122,023
— 163,146 163,146
33,742 212,795 285,169
—
—
168
19,604 18,747 43,638
16,175 15,198 35,189
1,471
3,429
3,549 8,449
558
4,920
—
1,600
12,365
—
12,365
—
1,318
1,412 6,090
33,735 23,610 65,239
23 4,269
880 19,972 24,439
55,537 63,764 143,843
20
55,537 63,784 143,863
20
—
3,210
—
—
—
—
—
—
—
3,210
—
2,889
—
1,517
68
7,684
—
7,684
48
—
—
—
2,540
—
722
—
3,310
—
3,310
—
—
2,163
2,712
4,147
9,022
—
9,022
266
—
—
—
—
—
450
—
716
—
716
—
—
240
8,870
179
9,289
—
9,289
—
—
—
—
35
1,972
648
—
2,655
—
2,655
—
—
—
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
—
2,035
3,153
—
14,195
—
14,195
116
17,913
—
—
796
4,414
—
14
21,454
3,801
26,765
19,466
4,502
45,114 110,066
— 171,035 171,035
21,454 216,149 281,101
—
—
—
—
102
714
35
—
851
—
851
—
1,447
1,447
—
16,459
12,784
—
14,217
11,192
314
32,123
25,423
—
3,675
3,025
6,700
460
11,046
—
1,941
14,894
—
14,894
1,638
25,380
14
1,492
44,983
—
44,983
6,922
2,147
66,938
27,378
1,961
31
16,294
19,727
60,067 127,985
8
60,075 127,993
8
Financial assets
Cash at bank and in hand:
– 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
Accrued income and other financial assets
Total financial assets at 31 Dec 2023
Non-financial assets
Total assets at 31 Dec 2023
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 2023
Non-financial liabilities
Total liabilities at 31 Dec 2023
Financial assets
Cash at bank and in hand:
– 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
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 at 31 Dec 2022
Non-financial liabilities
Total liabilities at 31 Dec 2022
410
HSBC Holdings plc Annual Report and Accounts 2023
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 2023
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 2022
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
52,938
1,345,006
159,264
73,150
22,262
232,598
6,837
39
149,904
2,041,998
895,156
16,966
2,954,120
83%
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%
$m
2,898
141,348
10,457
—
9,156
609
7,407
135
9,752
181,762
95
4
181,861
5%
406
96,474
3,852
—
7,859
171
8,217
168
8,670
125,817
184
25
126,026
4%
$m
3,304
119,660
2,996
—
26,033
1,295
24,117
1,465
5,943
184,813
371
39
185,223
5%
4,024
80,608
1,535
—
18,740
1,181
17,522
1,395
5,994
130,999
344
62
131,405
4%
$m
17,123
13,423
1
—
63,960
2,445
43,513
9,020
2,555
152,040
1,437
—
153,477
4%
16,050
9,961
1,268
—
63,606
2,222
34,283
7,321
3,230
137,941
1,217
—
139,158
4%
$m
362
109
—
—
44,886
2,910
27,119
34,920
2,109
112,415
91
—
112,506
3%
359
346
—
—
43,475
1,059
26,428
32,946
1,704
106,317
328
—
106,645
3%
Total
$m
76,625
1,619,546
172,718
73,150
166,297
239,857
108,993
45,579
170,263
2,673,028
897,150
17,009
3,587,187
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
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 and maintain an appropriate liquidity buffer. 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
2023, consistent with the Group’s capital plan, the Group’s material 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 from
material subsidiaries. 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 and forecast requirements. Liquidity risk in HSBC Holdings is overseen by
Holdings ALCO.
HSBC Holdings plc Annual Report and Accounts 2023
411
Financial statements
Notes on the financial statements
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
HSBC Holdings 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 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 2023
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
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
—
23
1,244
—
46
1,436
2,749
—
—
2,749
48
11
1,182
—
46
721
2,008
—
—
2,008
$m
168
405
556
680
2,163
1,620
5,592
—
—
5,592
266
72
177
544
161
458
1,678
—
—
1,678
$m
—
1,437
1,651
4,787
1,360
1,210
10,445
—
—
10,445
—
1,139
1,089
4,899
1,068
745
8,940
—
—
8,940
$m
—
31,050
2,227
46,909
8,239
—
88,425
—
—
88,425
—
22,921
4,231
44,608
8,262
14
80,036
—
—
80,036
$m
—
25,610
726
27,745
30,862
23
84,966
—
—
84,966
—
19,196
1,321
32,540
27,045
31
80,133
—
—
80,133
Total
$m
168
58,525
6,404
80,121
42,670
4,289
192,177
—
—
192,177
314
43,339
8,000
82,591
36,582
1,969
172,795
—
—
172,795
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied. Prior period comparatives have been
restated. Refer to footnote 1 in Note 34.
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.
412
HSBC Holdings plc Annual Report and Accounts 2023
Offsetting of financial assets and financial liabilities
Amounts subject to enforceable netting arrangements
Amounts not set off in the
balance sheet
Gross
amounts
Amounts
offset
Net
amounts
in the
balance
sheet
Financial
instruments,
including
non-cash
collateral
Cash
collateral
Net
amount
$m
$m
$m
$m
$m
$m
Amounts not
subject to
enforceable
netting
arrangements1
$m
Total
$m
341,473
(116,486)
224,987
(198,743)
(22,926)
3,318
4,727 229,714
29,152
365,922
34,173
770,720
(602)
(135,210)
(15,792)
(268,090)
28,550
230,712
18,381
502,630
(28,513)
(230,240)
(15,613)
(473,109)
(34)
(80)
(93)
(23,133)
3
392
2,675
6,388
2,633
31,183
21,653 252,365
18,383
29,015 531,645
2
419,020
(140,987)
278,033
(236,372)
(36,486)
5,175
6,126 284,159
24,370
335,193
28,336
806,919
(236)
(102,888)
(12,384)
(256,495)
24,134
232,305
15,952
550,424
(24,105)
(231,432)
(13,166)
(505,075)
(29)
(449)
—
(36,964)
—
424
2,786
8,385
1,369
25,503
21,689 253,994
16,219
29,451 579,875
267
344,799
(116,486)
228,313
(198,640)
(23,748)
5,925
6,459 234,772
15,686
270,493
42,522
673,500
(172)
(135,640)
(15,792)
(268,090)
15,514
134,853
26,730
405,410
(15,453)
(134,095)
(15,613)
(363,801)
—
(669)
(93)
(24,510)
61
89
11,024
17,099
6
15,520
37,247 172,100
26,743
43,725 449,135
13
419,992
(140,987)
279,005
(239,234)
(29,276)
10,495
6,757 285,762
20,026
206,827
37,164
684,009
(236)
(102,888)
(12,384)
(256,495)
19,790
103,939
24,780
427,514
(19,790)
(103,296)
(13,166)
(375,486)
—
(249)
—
(29,525)
—
394
11,614
22,503
5
19,795
23,809 127,748
24,794
30,585 458,099
14
Financial assets
Derivatives (Note 15)2
Reverse repos, stock borrowing and similar
agreements classified as:3
– trading assets
– non-trading assets
Loans and advances to customers4
At 31 Dec 2023
Derivatives (Note 15)2
Reverse repos, stock borrowing and similar
agreements classified as:3
– trading assets
– non-trading assets
Loans and advances to customers4
At 31 Dec 20226
Financial liabilities
Derivatives (Note 15)2
Repos, stock lending and similar
agreements classified as:3
– trading liabilities
– non-trading liabilities
Customer accounts6
At 31 Dec 2023
Derivatives (Note 15)2
Repos, stock lending and similar
agreements classified as:3
– trading liabilities
– non-trading liabilities
Customer accounts6
At 31 Dec 20226
1 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.
2 At 31 December 2023, the amount of cash margin received that had been offset against the gross derivatives assets was $5,105m (2022 $8,357m).
The amount of cash margin paid that had been offset against the gross derivatives liabilities was $7,142m (2022: $10,918m).
3 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading
assets’ of $31,183m (2022: $25,503m) and ‘Trading liabilities’ of $15,520m (2022: $19,795m), see the ‘Funding sources and uses’ table on page 211.
4 At 31 December 2023, the total amount of ‘Loans and advances to customers’ was $938,535m (2022: $923,561m), of which $18,381m (2022:
$15,952m) was subject to offsetting.
5 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative
data.
6 At 31 December 2023, the total amount of ‘Customer accounts’ was $1,611,647m (2022: $1,570,303m), of which $26,730m (2022: $24,780m) was
subject to offsetting.
HSBC Holdings plc Annual Report and Accounts 2023
413
Financial statements
Notes on the financial statements
32 Interest rate benchmark reform
At 31 Dec 2023
Non-derivative financial assets2
Non-derivative financial liabilities
Derivative notional contract amount
At 31 Dec 2022
Non-derivative financial assets2
Non-derivative financial liabilities
Derivative notional contract amount
Financial instruments yet to transition to alternative benchmarks, by main
benchmark
USD Libor GBP Libor3
$m
45
2,054
—
$m
2,644
905
12,013
JPY Libor
CDOR
$m
—
558
—
$m
2,132
181
134,636
TIIE
$m
3,961
1,323
32,836
Others1
$m
1,941
9
11,821
54,348
25,564
2,348,412
304
1,804
68
—
1,179
—
1,695
176
119,832
3,635
—
17,698
4,144
—
56,759
1 Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, SOR, THBFIX,
MIFOR, Sibor and Johannesburg interbank average rate (‘JIBAR’)). An announcement was made by the South African regulator during the first half of
2023 on the cessation of the JIBAR. Therefore, JIBAR is also included in ‘Others‘ during the current period.
2 Gross carrying amount excluding allowances for expected credit losses.
3 Non-derivative assets exposure relates to contracts for clients requiring additional time for loan restructuring or repayment. The limited number of
remaining contracts are expected to be transitioned prior to cessation of ‘synthetic’ GBP Libor from 31 March 2024. Non-derivative financial liabilities
relate to MREL instruments that include references to GBP Libor in their contractual terms but are currently using a fixed interest rate. HSBC remains
committed to seeking to remediate and/or mitigate the risks associated with these contracts by the relevant interest rate calculation dates.
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.
33 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
Less: treasury shares cancelled
At 31 Dec1
HSBC Holdings share premium
At 31 Dec
Total called up share capital and share premium
2023
Number
20,293,607,410
10,778,479
—
716,384,289
325,273,407
19,262,728,193
$m
10,147
5
—
358
163
9,631
2022
Number
20,631,520,439
10,226,221
—
348,139,250
—
20,293,607,410
$m
10,316
5
—
174
—
10,147
2022
$m
14,664
2022
$m
24,811
2023
$m
14,738
2023
$m
24,369
At 31 Dec
1 All HSBC Holdings ordinary shares in issue confer identical rights, including in respect of capital, dividends and voting.
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.
414
HSBC Holdings plc Annual Report and Accounts 2023
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
Original nominal
amount (LCY)
$2,250m
$2,450m
$3,000m
$2,350m
$1,800m
$1,500m
€1,000m
$1,000m
$2,000m
€1,000m
€1,250m
S$750m
€1,000m
At 31 Dec
6.375% perpetual subordinated contingent convertible securities
6.375% perpetual subordinated contingent convertible securities
6.000% perpetual subordinated contingent convertible securities
6.250% perpetual subordinated contingent convertible securities1
6.500% perpetual subordinated contingent convertible securities
4.600% perpetual subordinated contingent convertible securities2
4.000% perpetual subordinated contingent convertible securitiess3
4.700% perpetual subordinated contingent convertible securities4
8.000% perpetual subordinated contingent convertible securities5
6.000% perpetual subordinated contingent convertible securities6
4.750% perpetual subordinated contingent convertible securities
5.000% perpetual subordinated contingent convertible securities7
5.875% perpetual subordinated contingent convertible securities
First call
date
Sep 2024
Mar 2025
May 2027
Mar 2023
Mar 2028
Dec 2030
Mar 2026
Mar 2031
Mar 2028
Sep 2023
Jul 2029
Sep 2023
Sep 2026
2023
$m
2,250
2,450
3,000
—
1,800
1,500
1,000
1,000
1,980
—
1,422
—
1,301
17,703
2022
$m
2,250
2,450
3,000
2,350
1,800
1,500
1,000
1,000
—
1,123
1,422
550
1,301
19,746
1 This security was called by HSBC Holdings on 30 January 2023 and redeemed and cancelled on 23 March 2023.
2 This security was issued by HSBC Holdings on 17 December 2020. The first call period commences six months prior to reset date of 17 June 2031.
3 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six months prior to reset date of 9 September 2026.
4 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six months prior to reset date of 9 September 2031.
5 This security was issued by HSBC Holdings on 7 March 2023. The first call period commences six months prior to reset date of 7 September 2028.
This security has been accounted for net of directly attributable transaction costs.
6 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 29 September 2023.
7 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 25 September 2023.
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
31 Dec 2023
Number of
HSBC Holdings
ordinary shares
83,993,678
Usual period of
exercise
Exercise price
Number of
HSBC Holdings
ordinary shares
2022 to 2029
£2.6270–£5.4490
115,650,723
31 Dec 2022
Usual period of
exercise
2021 to 2028
Exercise price
£2.6270–5.9640
Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2023, 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 208,539,316 (2022: 240,612,019). The total number of shares at 31 December 2023 held by employee benefit
trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 20,902,218 (2022: 12,315,711).
HSBC Holdings plc Annual Report and Accounts 2023
415
Financial statements
Notes on the financial statements
34 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
2023
$m
17,009
94,277
636
111,922
7,818
78,535
810,797
897,150
2022
$m
18,783
88,240
676
107,699
8,241
50,852
768,761
827,854
HSBC Holdings1
2023
$m
—
7,723
—
7,723
—
—
—
—
2022
$m
—
17,707
90
17,797
—
—
—
—
1 Guarantees by HSBC Holdings are in favour of other Group entities. These include contracts that provide protection against credit risk on a specified
exposure but do not meet the definition of financial guarantees, which have been reclassified to ‘performance and other guarantees’. Prior period
comparatives have been restated and the full balance reclassified.
Includes $661,015m of commitments at 31 December 2023 (31 December 2022: $618,788m), to which the impairment requirements in IFRS 9 are
applied where HSBC has become party to an irrevocable commitment.
2
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 36.
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.
Associates
HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $69.9bn at 31 December 2023 (2022:
$64.8bn). No matters arose where HSBC was severally liable.
35 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 $1,595m (2022: $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
2023
Unearned
finance
income
$m
$m
Total future
minimum
payments
2022
Unearned
finance
income
$m
$m
Present
value
$m
2,355
1,954
1,380
930
593
4,857
4,116
11,328
(308)
(249)
(189)
(153)
(132)
(723)
(838)
(1,869)
2,047
1,705
1,191
777
461
4,134
3,278
9,459
2,159
1,652
1,391
906
613
4,562
4,064
10,785
(236)
(201)
(161)
(131)
(112)
(605)
(736)
(1,577)
Present
value
$m
1,923
1,451
1,230
775
501
3,957
3,328
9,208
416
HSBC Holdings plc Annual Report and Accounts 2023
36 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 2023 (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 alleged
transfers from Madoff Securities to HSBC in the amount of $543m (plus interest), 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) 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 the amount of $382m (plus interest). Fairfield’s
claims against most of the HSBC companies have been dismissed by the US Bankruptcy Court and the US District Court for the Southern
District of New York, but remain pending on appeal before the US Court of Appeals for the Second Circuit. Fairfield’s claims against HSBC
Private Bank (Suisse) SA and HSBC Securities Services Luxembourg (‘HSSL’) have not been dismissed and their appeals are also pending
before the US Court of Appeals for the Second Circuit. Meanwhile, proceedings before the US Bankruptcy Court with respect to the claims
against HSBC Private Bank (Suisse) SA and HSSL 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) brought an action against HSSL and Bank of Bermuda
(Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary duty and claiming damages.
Following dismissal of Primeo’s action by the Grand Court and Court of Appeal of the Cayman Islands, in 2019, Primeo appealed to the Judicial
Committee of the Privy Council. In November 2023, the Privy Council issued a judgment upholding the dismissal of Primeo’s claims. This matter
is now closed.
Luxembourg litigation: In 2009, Herald Fund SPC (‘Herald’) (in liquidation) brought an action against HSSL before the Luxembourg District
Court, seeking restitution of cash and securities in the amount of $2.5bn (plus interest), or damages in the amount of $2bn (plus interest). In
2018, HSBC Bank plc was added to the claim and Herald increased the amount of the alleged damages claim to $5.6bn (plus interest). The
Luxembourg District Court has dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution and damages claims.
Herald has appealed this dismissal to the Luxembourg Court of Appeal, where the matter is pending.
Beginning in 2009, various HSBC companies have been named as defendants in a number of actions brought by Alpha Prime Fund Limited
(‘Alpha Prime’) in the Luxembourg District Court seeking damages for alleged breach of contract and negligence in the amount of $1.16bn (plus
interest). These matters are currently pending before the Luxembourg District Court.
Beginning in 2014, HSSL and the Luxembourg branch of HSBC Bank plc have been named as defendants in a number of actions brought by
Senator Fund SPC (‘Senator’) before the Luxembourg District Court seeking restitution of securities in the amount of $625m (plus interest), or
damages in the amount of $188m (plus interest). These matters are currently pending before the Luxembourg District Court.
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.
US Anti-Terrorism Act litigation
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, alleged 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, or provided banking services to
customers alleged to have connections to terrorism financing. Seven actions, which seek damages for unspecified amounts, remain pending
and HSBC’s motions to dismiss have been granted in three of these cases. These dismissals are subject to appeals and/or the plaintiffs re-
pleading their claims. The four other actions are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
HSBC Holdings plc Annual Report and Accounts 2023
417
Financial statements Notes on the financial statements
Interbank offered rates investigation 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 individual and putative class
action lawsuits filed in federal and state courts 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’). HSBC has concluded
class settlements with five groups of plaintiffs, and several class action lawsuits brought by other groups of plaintiffs have been voluntarily
dismissed. A number of individual US dollar Libor-related actions seeking damages for unspecified amounts remain pending.
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.
Since 2017, HSBC Bank plc, among other financial institutions, has been defending a complaint filed by the Competition Commission of South
Africa before the South African Competition Tribunal for alleged anti-competitive behaviour in the South African foreign exchange market. In
2020, a revised complaint was filed which also named HSBC Bank USA N.A. (‘HSBC Bank USA’) as a defendant. In January 2024, the South
African Competition Appeal Court dismissed HSBC Bank USA from the revised complaint, but denied HSBC Bank plc’s application to dismiss.
The Competition Commission has appealed the dismissal of HSBC Bank USA to the Constitutional Court of South Africa.
Since 2015, various HSBC companies and other banks have been named as defendants in a putative class action in the US District Court for the
Southern District of New York filed by a group of retail customers who dealt in foreign exchange products. The plaintiffs allege that the
defendants conspired to manipulate foreign exchange rates and seek damages for unspecified amounts. This action has been dismissed but
remains pending on appeal.
In January 2023, HSBC Bank plc and HSBC Holdings reached a settlement-in-principle with plaintiffs in Israel to resolve a class action filed in the
local courts alleging foreign exchange-related misconduct. The settlement remains subject to court approval. Lawsuits alleging foreign
exchange-related misconduct remain pending against HSBC and other banks in courts in Brazil.
In February 2024, HSBC Bank plc and HSBC Holdings were joined to an existing claim brought in the UK Competition Appeals Tribunal against
various other banks alleging historical anti-competitive behaviour in the foreign exchange market and seeking damages for unspecified amounts.
This matter is at an early stage. 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 the pending matters, which could be
significant.
Precious metals fix-related litigation
US litigation: HSBC and other members of The London Silver Market Fixing Limited are defending a class action pending in the US District
Court for the Southern District of New York alleging 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 May
2023, this action, which seeks damages for unspecified amounts, was dismissed but remains pending on appeal.
HSBC and other members of The London Platinum and Palladium Fixing Company Limited are defending a class action pending in the US
District Court for the Southern District of New York alleging 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
February 2023, the court reversed an earlier dismissal of the plaintiffs’ third amended complaint and this action, which seeks damages for
unspecified amounts, is proceeding.
Canada litigation: HSBC and other financial institutions are defending putative class actions filed in the Ontario and Quebec Superior Courts of
Justice alleging that the defendants conspired to manipulate the price of silver, gold and related derivatives in violation of the Canadian
Competition Act and common law. These actions each seek CA$1bn in damages plus CA$250m in punitive damages. Two of the actions are
proceeding and the others have been stayed.
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.
Tax-related investigations
Various tax administration, regulatory and law enforcement authorities around the world are conducting investigations in connection with
allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation. HSBC continues to cooperate with
these investigations.
In March 2023, the French National Financial Prosecutor announced an investigation into a number of banks, including HSBC Continental Europe
and the Paris branch of HSBC Bank plc, in connection with alleged tax fraud related to the dividend withholding tax treatment of certain trading
activities. HSBC Bank plc and HSBC Germany also continue to cooperate with investigations by the German public prosecutor into numerous
financial institutions and their employees, in connection with the dividend withholding tax treatment of certain trading activities.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
418
HSBC Holdings plc Annual Report and Accounts 2023
Gilts trading investigation and litigation
Since 2018, the UK Competition and Markets Authority (‘CMA’) has been investigating HSBC and four other banks for suspected anti-
competitive conduct in relation to the historical trading of gilts and related derivatives. In May 2023, the CMA announced its case against HSBC
Bank plc and HSBC Holdings; both HSBC companies are contesting the CMA’s allegations.
In June 2023, HSBC Bank plc and HSBC Securities (USA) Inc., among other banks, were named as defendants in a putative class action filed in
the US District Court for the Southern District of New York by plaintiffs alleging anti-competitive conduct in the gilts market and seeking
damages for unspecified amounts. In September 2023, the defendants filed a motion to dismiss which remains pending. It is possible that
additional civil actions will be initiated against HSBC in relation to its historical gilts trading activities.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
UK depositor protection arrangements investigation
In January 2022, the UK Prudential Regulation Authority (‘PRA’) commenced an investigation into HSBC Bank plc’s and HSBC UK Bank plc’s
compliance with depositor protection arrangements under the Financial Services Compensation Scheme in the UK. In January 2024, the PRA
concluded its investigation and imposed a £57m fine on HSBC Bank plc and HSBC UK Bank plc, which has been paid, and this matter is now
closed.
UK collections and recoveries investigation
Since 2019, the FCA has been investigating HSBC Bank plc’s, HSBC UK Bank plc’s and Marks and Spencer Financial Services plc’s compliance
with regulatory standards relating to collections and recoveries operations in the UK between 2017 and 2018. HSBC continues to cooperate
with this investigation.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of this matter, which could be significant.
Korean short selling investigation
In December 2023, the Korean Securities and Futures Commission issued a decision to impose a fine on The Hongkong and Shanghai Banking
Corporation Limited in connection with trades in breach of Korean short selling rules and to refer the case to the Korean Prosecutors’ Office for
investigation.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of this matter, which could be significant.
Silicon Valley Bank (‘SVB’) litigation
In May 2023, First-Citizens Bank & Trust Company (‘First Citizens’) brought a lawsuit in the US District Court for the Northern District of
California against various HSBC companies and seven US-based HSBC employees who had previously worked for SVB. The lawsuit seeks $1bn
in damages and alleges, among other things, that the various HSBC companies conspired with the individual defendants to solicit employees
from First Citizens and that the individual defendants took confidential information belonging to SVB and/or First Citizens. In January 2024, the
court denied the defendants’ motion to dismiss in part and granted it in part, and directed the plaintiff to amend its complaint to specify its
allegations as to each defendant. In February 2024, First Citizens filed its amended complaint. This action is ongoing.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, 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 seeking damages for unspecified amounts in connection with PBGB’s role in the development of
Eclipse film finance schemes. These actions are ongoing.
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.
US mortgage securitisation litigation
Beginning in 2014, a number of lawsuits were filed in various state and federal courts in the US against HSBC Bank USA, as a trustee of more
than 280 mortgage securitisation trusts, seeking unspecified damages for losses in collateral value allegedly sustained by the trusts. HSBC Bank
USA has reached settlements with a number of plaintiffs to resolve nearly all of these lawsuits. The remaining two actions are pending in a New
York state court. HSBC Bank USA and certain of its affiliates continue to defend a mortgage loan repurchase action seeking unspecified
damages and specific performance brought by the trustee of a mortgage securitisation trust in New York state court.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of the pending matters, which could be
significant.
Mexican government bond litigation
HSBC Mexico S.A. and other banks are named as defendants in a consolidated putative class action pending in the US District Court for the
Southern District of New York alleging anti-competitive conduct in the Mexican government bond market between 2006 and 2017 and seeking
damages for unspecified amounts. In February 2024, the US Court of Appeals for the Second Circuit reversed an earlier dismissal of this lawsuit
and this matter is proceeding.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any
possible impact on HSBC, which could be significant.
Stanford litigation
Since 2009, HSBC Bank plc has been named as a defendant in numerous claims filed in courts in the UK and the US arising from the collapse of
Stanford International Bank Ltd, for which it was a correspondent bank from 2003 to 2009. In February 2023, HSBC Bank plc reached
settlements with the plaintiffs to resolve these claims. The US settlement is subject to court approval and the UK settlement has concluded.
HSBC Holdings plc Annual Report and Accounts 2023
419
Financial statements Notes on the financial statements
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are also subject to a number of other enquiries and examinations, requests for information,
investigations and reviews by various regulators and competition and law enforcement authorities, as well as legal proceedings including
litigation, arbitration and other contentious proceedings, in connection with various matters arising out of their ordinary course businesses and
operations.
At the present time, HSBC does not expect the ultimate resolution of any of these matters to be material to the Group’s financial position;
however, given the uncertainties involved in legal proceedings and regulatory matters, there can be no assurance regarding the eventual
outcome of a particular matter or matters.
37 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 239 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 279 to 305.
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
2023
$m
51
1
10
29
91
2022
$m
52
1
8
26
87
2023
(000s)
32
20,409
228
20,669
2021
$m
50
—
6
27
83
2022
(000s)
35
18,185
228
18,448
Advances and credits, guarantees and deposit balances during the year with Key Management Personnel
2023
2022
Key Management Personnel
Advances and credits1
Deposits
11
60
Highest amounts
outstanding
during year
Balance at
31 Dec
$m
Highest amounts
outstanding
during year
Balance at
31 Dec
$m
$m
16
130
$m
25
123
16
53
1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2023 with Directors and former Directors, disclosed pursuant to
section 413 of the Companies Act 2006, totalled $2.6m (2022: $2.5m).
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.
420
HSBC Holdings plc Annual Report and Accounts 2023
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
2023
2022
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
98
7,907
3,002
95
1,514
4,388
503
$m
94
5,910
1,668
61
795
2,962
331
$m
140
7,378
2,548
57
1,205
4,319
513
$m
90
6,594
1,295
53
841
3,648
293
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 2023, $3.1bn (2022: $2.9bn) of HSBC post-employment benefit plan assets were under management by HSBC companies,
earning management fees of $13m in 2023 (2022: $13m). At 31 December 2023, HSBC’s post-employment benefit plans had placed deposits
of $402m (2022: $369m) with its banking subsidiaries, earning interest payable to the schemes of $2m (2022: 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 2023, the gross notional value of the swaps was $7.1bn (2022: $6.6bn). These swaps had a
positive fair value to the scheme of $0.5bn (2022: $0.5bn); and HSBC had delivered collateral of $0.6bn (2022: $0.5bn) 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 40.
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
2023
2022
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
$m
$m
$m
Balance at
31 Dec
$m
8,396
7,029
7,421
3,210
60,309
4,010
28,213
7,417
167,542
275,887
179
9,309
505
927
10,920
7,723
59,879
3,344
27,354
5,145
159,478
262,229
168
6,090
341
913
7,512
7,723
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
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.
HSBC Holdings plc Annual Report and Accounts 2023
421
Financial statements
Notes on the financial statements
38 Effects of adoption of IFRS 17
On 1 January 2023, the Group adopted IFRS 17 ‘Insurance Contracts’, and as required by the standard applied the requirements retrospectively,
with comparatives restated from the transition date, 1 January 2022. The tables below provide the transition restatement impact on the Group’s
consolidated balance sheet as at 1 January 2022, as well as the Group consolidated income statement and the Group consolidated statement of
comprehensive income for the year ended 31 December 2022.
Further information about the effect of the adoption of IFRS 17 is provided in Note 1 ‘Basis of preparation and material accounting policies’ on
page 341.
IFRS 17 transition impact on the Group consolidated balance sheet at 1 January 2022
Removal of
PVIF and
IFRS 4
balances
Remeasure-
ment effect
of IFRS 9 re-
designations
Recognition
of IFRS 17
fulfilment
cash flows
Recognition
of IFRS 17
contractual
service
margin Tax effect
Under
IFRS 17
Total
movements
$m
$m
$m
$m
$m
$m
$m
—
—
—
—
(9,453)
—
(4,468)
(13,921)
(112,745)
—
78
(112,667)
92,738
6,008
98,746
(13,921)
60,991
(569)
(1,280)
(54,269)
—
—
—
4,873
—
—
—
—
—
—
4,198
4,198
—
—
—
—
4,558
315
4,873
4,873
109,393
—
1,102
110,495
(99,631)
(6,666)
(106,297)
4,198
—
—
—
—
—
—
(105)
(105)
9,914
—
(51)
9,863
(8,847)
(1,121)
(9,968)
(105)
— 110,795
60,991
—
82,567
— 1,044,534
— 392,005
11,169
—
5,432
808
— 1,307,290
808 2,953,792
(1,379)
— 119,307
3,294
— 2,634,873
(1,379) 2,757,474
1,947 189,015
7,303
2,187 196,318
808 2,953,792
240
(569)
(1,280)
(54,269)
(9,453)
808
(375)
(4,147)
6,562
(1,379)
1,129
6,312
(9,235)
(1,224)
(10,459)
(4,147)
Assets
Financial assets designated and otherwise
mandatorily measured at fair value through
profit or loss
Loans and advances to banks
Loans and advances to customers
Financial investments
Goodwill and intangible assets
Deferred tax assets
All other assets
Total assets
Liabilities and equity
Liabilities
Insurance contract liabilities
Deferred tax liabilities
All other liabilities
Total liabilities
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
Under
IFRS 4
$m
49,804
83,136
1,045,814
446,274
20,622
4,624
1,307,665
2,957,939
112,745
4,673
2,633,744
2,751,162
198,250
8,527
206,777
2,957,939
Transition drivers
Removal of PVIF and IFRS 4 balances
The PVIF intangible asset of $9,453m previously reported under IFRS 4 within ‘Goodwill and intangible assets’ arose from the upfront
recognition of future profits associated with in-force insurance contracts. The PVIF intangible asset is no longer reported following the transition
to IFRS 17, as future profits are deferred within the CSM. Other IFRS 4 insurance contract assets (shown above within ‘All other assets’) and
insurance contract liabilities are removed on transition, to be replaced with IFRS 17 balances.
Remeasurement effect of IFRS 9 re-designations
Loans and advances of $1,849m and debt securities of $53,201m, both supporting associated insurance liabilities, were re-designated from an
amortised cost classification to fair value through profit and loss. Debt securities supporting the associated insurance liabilities of $1,068m were
reclassified from fair value through other comprehensive income to fair value through profit or loss. The re-designations were made in order to
more closely align the asset accounting with the valuation of the associated insurance liabilities. The re-designation of amortised cost assets
generated a net increase to assets of $4,873m because the fair value measurement on transition was higher than the previous amortised cost
carrying amount.
Recognition of the IFRS 17 fulfilment cash flows
The measurement of the insurance contracts liabilities under IFRS 17 is based on groups of insurance contracts and includes a liability for
fulfilling the insurance contracts, such as premiums, directly attributable expenses, insurance benefits and claims including policyholder returns
and the cost of guarantees. These are recorded within the fulfilment cash flow component of the insurance contract liability, together with the
risk adjustment for non-financial risk.
Recognition of the IFRS 17 contractual service margin
The CSM is a component of the insurance contract liability and represents the future unearned profit associated with insurance contracts that
will be released to the profit and loss over the expected coverage period.
Tax effect
The removal of deferred tax liabilities primarily results from the removal of the associated PVIF intangible asset, and new deferred tax assets are
reported, where appropriate, on temporary differences between the new IFRS 17 accounting balances and their associated tax bases.
422
HSBC Holdings plc Annual Report and Accounts 2023
IFRS 17 transition impact on the reported Group consolidated income statement for the year ended 31 December 2022
Removal
of PVIF
and
IFRS 4
balances
Under
IFRS 4
Remeasure-
ment effect
of IFRS 9 re-
designations
Insurance
finance
income/
expense
Contrac
- tual
service
margin
Onerous
contracts
Experience
variance
and other
Attribut-
able
expenses
Tax
effect
Under
IFRS 17
$m
32,610
11,451
$m
—
—
$m
(2,233)
—
$m
$m
—
—
—
—
$m
—
—
$m
—
—
$m
—
319
$m
$m
— 30,377
— 11,770
10,469
—
(191)
—
—
—
—
—
— 10,278
(3,394)
12,825
—
—
—
—
(2,365)
61,596
—
(12,825)
—
—
—
—
(265)
(13,090)
(10,437)
—
—
—
—
—
—
(12,861)
—
—
13,799
—
—
—
48
13,847
—
—
—
965
965
—
—
965
—
—
—
(186)
—
(186)
—
(186)
—
—
—
30
1,012
(982)
—
30
—
—
—
—
—
—
—
319
— (13,831)
—
—
— 13,799
809
—
1,977
—
(1,168)
—
—
(2,582)
— 50,620
(9,869)
9,869
—
—
—
—
—
—
—
—
51,727
(3,221)
(12,861)
13,847
965
(186)
30
319
— 50,620
(3,592)
48,135
(33,330)
14,805
2,723
17,528
(858)
16,670
—
(3,221)
—
(3,221)
—
(3,221)
—
(3,221)
8
—
(12,853)
—
(12,853)
13,847
—
13,847
—
—
(12,853)
—
(12,853)
13,847
—
13,847
—
965
—
965
—
965
—
965
—
(186)
—
(186)
—
(186)
—
(186)
—
30
—
30
—
30
—
30
—
319
629
948
—
948
—
948
—
(3,584)
— 47,036
— (32,701)
— 14,335
—
2,723
— 17,058
49
(809)
49 16,249
Net interest income
Net fee income
Net income from financial
instruments held for trading or
managed on a fair value basis
Net expense from assets and
liabilities of insurance businesses,
including related derivatives,
measured at fair value through profit
or loss
Net insurance premium income
Insurance finance income/(expense)
Insurance service result
– insurance revenue
– insurance service expense
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
charges
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 for the period
Transition drivers
Removal of IFRS 4-based revenue items
As a result of the removal of the PVIF intangible asset and IFRS 4 results, the associated revenue of $265m for the year ended 31 December
2022 that was previously reported within ‘Other operating income/(loss)’ is no longer reported under IFRS 17. This includes the removal of the
value of new business and changes to PVIF intangible asset from valuation adjustments and experience variances.
On the implementation of IFRS 17, new income statement line items associated with insurance contract accounting were introduced.
Consequently, the previously reported IFRS 4 line items ‘Net insurance premium income’ and ‘Net insurance claims and benefits paid and
movement in liabilities to policyholders’ were also removed.
Remeasurement effect of IFRS 9 re-designations
Following the re-designation of financial assets supporting associated insurance liabilities to fair value through profit or loss classification, the
related income statement reporting also changed. Under our previous IFRS 4-based reporting convention, these assets generated interest
income of $2,233m for the year ended 31 December 2022, which is no longer reported in ‘Net interest income’ under IFRS 17. To the extent
that this interest income was shared with policyholders, the corresponding policyholder sharing obligation was previously included within the
‘net insurance claims and benefits paid and movement in liabilities to policyholders’ line.
Following re-designation to fair value through profit or loss, gains and losses from changes in the fair value of underlying assets, together with
interest income earned, are both reported within ‘Net expense from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss’. Similar to an IFRS 4 basis, IFRS 17 accounting provides for an offset. While this offset was
reported within the claims line under IFRS 4, under IFRS 17 it is reported within the ‘Insurance finance income/(expense)’ line described below.
HSBC Holdings plc Annual Report and Accounts 2023
423
Financial statements
Notes on the financial statements
Introduction of IFRS 17 income statement
Insurance finance income/(expense)
Insurance finance income/(expense) of $13,799m for the year ended 31 December 2022 represents the change in the carrying amount of
insurance contracts arising from the effect of, and changes in, the time value of money and financial risk. For variable fee approach contracts,
which represent more than 90% of HSBC’s insurance contracts, the insurance finance income/(expense) includes the changes in the fair value
of underlying items (excluding additions and withdrawals). It therefore has an offsetting impact to investment income earned on underlying
assets supporting insurance contracts. This includes an offsetting impact to the gains and losses on assets re-designated on transition to fair
value through profit or loss, and which is now included in ‘Net expense from assets and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or loss’.
Contractual service margin
Revenue is recognised for the release of the CSM associated with the in-force business, which was allocated at a rate of approximately 9%
during 2022. The CSM release is largely impacted by the constant measure allocation approach for investment services, but may vary over time
primarily due to changes in the total amount of CSM reported on the balance sheet from factors such as new business written, the Group’s
share of investment experience, or changes to assumptions.
Onerous contracts
Losses on onerous contracts are taken to the income statement as incurred.
Experience variance and other
‘Experience variance and other’ represents the expected expenses, claims and recovery of acquisition cash flows, which are reported as part of
the insurance revenue. This is offset with the actual expenses and claims incurred in the year and amortisation of acquisition cash flows, which
are reported as part of insurance service expense.
Attributable expenses
Directly attributable expenses are the costs associated with originating and fulfilling an identified portfolio of insurance contracts. These costs
include distribution fees paid to third parties as part of originating insurance contracts together with appropriate allocations of fixed and variable
overheads, which are included within the fulfilment cash flows and are no longer shown on the operating expenses line, whereas non-
attributable expenses remain in the operating expenses.
IFRS 17 transition impact on the Group comprehensive income
Total equity at 1 Jan
of which
– retained earnings
– financial assets at FVOCI reserve
– insurance finance reserve
Profit for the period
Debt instruments at fair value through other comprehensive income
Equity instruments designated at fair value through other comprehensive income
Insurance finance income recognised in other comprehensive income
Other comprehensive expense for the period, net of tax
Total comprehensive (expense)/income for the period
Other movements
Total equity at 31 Dec
Transition drivers
Insurance finance reserve
Year ended 31 Dec 2022
Under
IFRS 17
$m
196,318
135,236
49
(696)
16,249
(7,232)
107
1,775
(11,892)
(993)
(10,128)
185,197
Under
IFRS 4
$m
206,777
144,458
(634)
—
16,670
(5,468)
107
—
(11,940)
(631)
(10,118)
196,028
The insurance finance reserve reflects the impact of the adoption of the other comprehensive income option for our insurance business in
France. Underlying assets supporting these contracts are measured at fair value through other comprehensive income. Under this option, only
the amount that matches income or expenses recognised in profit or loss on underlying items is included in finance income or expenses,
resulting in the elimination of income statement accounting mismatches. The remaining amount of finance income or expenses for these
insurance contracts is recognised in OCI. At the transition date an insurance finance reserve of $696m was recognised and following transition,
gains net of tax of $1,775m were recorded in the year ended 31 December 2022. An offsetting fair value through other comprehensive income
reserve of $683m recorded on transition represents the accumulated fair value movements on assets supporting these insurance contract
liabilities, with associated losses net of tax of $1,898m recorded within the fair value through other comprehensive income reserve for the year
ended 31 December 2022.
424
HSBC Holdings plc Annual Report and Accounts 2023
Group‘s consolidated balance sheet at the transition date and at 31 December 2022
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 sale
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 sale
Accruals, deferred income and other liabilities
Current tax liabilities
Insurance contract liabilities
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
Under IFRS 17
Under IFRS 4
31 Dec
2022
$m
1 Jan
2022
$m
31 Dec
2022
$m
1 Jan
2022
$m
327,002
7,297
43,787
218,093
100,101
284,159
104,475
923,561
253,754
364,726
115,919
156,149
1,230
29,254
11,419
8,360
2,949,286
43,787
66,722
1,570,303
127,747
7,864
72,353
127,321
285,762
78,149
114,597
134,313
1,135
108,816
1,958
972
22,290
2,764,089
10,147
14,664
19,746
(9,133)
142,409
177,833
7,364
185,197
2,949,286
403,018
4,136
42,578
248,842
110,795
196,882
82,567
1,044,534
241,648
392,005
3,411
136,196
970
29,609
11,169
5,432
2,953,792
42,578
101,152
1,710,574
126,670
5,214
84,904
145,503
191,064
78,557
9,005
115,900
699
119,307
2,566
3,294
20,487
2,757,474
10,316
14,602
22,414
6,447
135,236
189,015
7,303
196,318
2,953,792
327,002
7,299
43,787
218,093
45,063
284,146
104,882
924,854
253,754
425,563
115,919
156,865
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
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
HSBC Holdings plc Annual Report and Accounts 2023
425
Financial statements
Notes on the financial statements
39 Events after the balance sheet date
On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking business in France to CCF, a subsidiary of Promontoria
MMB SAS (‘My Money Group’). The sale also included HSBC Continental Europe’s 100% ownership interest in HSBC SFH (France) and its 3%
ownership interest in Crédit Logement. In the fourth quarter of 2023, a loss of $2.0bn was recognised upon reclassification to held for sale, in
accordance with IFRS 5, which net of the $2.1bn partial reversal of impairment recognised in the first quarter of 2023, gave rise to a net reversal
of impairment recognised in the year of $0.1bn.
On 30 January 2024, the PRA concluded its investigation into HSBC Bank plc’s and HSBC UK Bank plc’s compliance with depositor protection
arrangements under the Financial Services Compensation Scheme in the UK. The PRA imposed a fine of $73m (£57m) on these entities, which
was fully provided for as at 31 December 2023, and has now been paid.
On 31 January 2024, HSBC Global Asset Management Limited, through its indirect subsidiary HSBC Global Asset Management Singapore
Limited, completed the acquisition of the Asia-Pacific-focused real estate investment manager Silkroad Property Partners Pte Ltd. HSBC Global
Asset Management Limited also acquired Silkroad’s affiliated General Partner entities as part of the transaction.
On 6 February 2024, HSBC Europe B.V., an indirect subsidiary of HSBC Holdings plc, signed an agreement to sell HSBC Bank Armenia CJSC, its
wholly-owned subsidiary, to Ardshinbank CJSC subject to regulatory approvals. The transaction is expected to complete within the next 12
months.
A fourth interim dividend for 2023 of $0.31 per ordinary share (a distribution of approximately $5,913m) was approved by the Directors after
31 December 2023. On 21 February 2024, HSBC Holdings announced a share buy-back programme to purchase its ordinary shares up to a
maximum consideration of $2.0bn, which is expected to commence shortly and complete by our first quarter 2024 results announcement.
HSBC Holdings called $2,500m 3.803% and $500m floating rate senior unsecured debt securities on 25 January 2024. These securities are
expected to be redeemed and cancelled on 11 March 2024. These accounts were approved by the Board of Directors on 21 February 2024 and
authorised for issue.
40 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 2023 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.
426
HSBC Holdings plc Annual Report and Accounts 2023
Subsidiaries
Subsidiaries
452 TALF SPV LLC
AI Nominees (UK) One Limited
AI Nominees (UK) Two Limited
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 (In Liquidation)
Assetfinance March (B) Limited
Assetfinance March (D) Limited
Assetfinance March (F) Limited
Assetfinance September (F) Limited
Assetfinance September (G) Limited
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 HSBC Real Estate Leasing Company
Limited
Beijing Miyun HSBC Rural Bank Company
Limited
BentallGreenOak China Real Estate
Investments, L.P.
Canada Crescent Nominees (UK) Limited
Canada Square Nominees (UK) Limited
Canada Water Nominees (UK) Limited (In
Liquidation)
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
Dempar 1
Desarrollo Turistico, S.A. de C.V. (In
Liquidation)
Electronic Data Process México, S.A. de C.V.
Eton Corporate Services Limited
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
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
N/A
100.00
100.00
N/A
100.00
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
1, 15
1, 16
116
17
18
16
16
16
16
18
19
20
18
16
16
18
16
21
22
22
23
0, 24
1, 12, 25
12, 26
0, 1, 27
16
16
19
28
15
15
29
16
30
16
16
16
12, 31
12, 32
12, 33
0, 16
0, 1, 34
12, 35
0, 36
4, 37
17
1, 38
22
4, 37
4, 37
12, 39
40
11, 17
28
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
(广州汇丰房地产有限公司)
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 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 (亨京企業有
限公司)
Honey Green Enterprises Ltd.
Honey Grey Enterprises Limited (亨穗企業有
限公司)
Honey Silver Enterprises Limited (亨深企業有
限公司)
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
N/A
100.00
99.99
100.00
100.00
100.00
N/A
100.00
62.14
100.00
100.00
100.00
100.00
100.00
N/A
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
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
99.99
100.00
100.00
100.00
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(62.14)
(99.99)
Footnotes
0, 15
16
17
12, 41
1, 12, 42
(62.14)
40
0, 12, 43
(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)
(62.14)
(62.14)
(99.99)
(99.99)
40
40
40
40
40
40
40
0, 1, 44
40
40
40
40
0, 12, 45
40
40
40
1, 40
40
19
40
4, 37
1, 46
47
1, 48
1, 48
5, 49
50
0, 1, 29
16
2, 51
22
52
53
54
55
16
52
15
56
16
2, 48
5, 16
16
16
1, 16
3, 57
58
4, 59
5, 60
HSBC Holdings plc Annual Report and Accounts 2023
427
Financial statements Notes on the financial statements
Subsidiaries
HSBC BANK (CHILE)
HSBC Bank (China) Company Limited
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 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
Financiero HSBC
HSBC Cayman Limited
HSBC Cayman Services Limited
HSBC City Funding Holdings (In Liquidation)
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 Services (Shanghai) Co., Ltd
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.
% of share class
held by immediate
parent company
(or by the Group
where this varies)
(99.99)
(94.54)
(99.99)
100.00
N/A
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
99.62
100.00
70.03
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
N/A
99.99
100.00
100.00
100.00
N/A
100.00
100.00
100.00
100.00
N/A
N/A
100.00
99.99
Footnotes
61
0, 12, 62
51
63
0, 13, 64
54
65
66
67
68
56
69
60
23
3, 70
0, 51
0, 51
71
3, 52
72
3, 73
74
16
2, 3, 16
3, 75
18
21
48
48
48
48
48
48
76
0, 76
3, 15
0, 51
15
17
192
77
19
16
78
0, 15
4, 37
52
48
1, 2, 16
0, 1, 79
16
60
22
80
0, 81
0, 12, 82
83
84
Subsidiaries
HSBC Electronic Data Processing India
Private Limited
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 Group Management Services Limited
HSBC Group Nominees UK Limited
HSBC Holdings B.V.
HSBC IM Pension Trust Limited
HSBC Infrastructure Debt GP 1 S.à r.l.
HSBC Infrastructure Debt GP 2 S.à r.l.
428
HSBC Holdings plc Annual Report and Accounts 2023
% 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
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.80
100.00
N/A
100.00
100.00
Footnotes
85
86
87
(99.99)
4, 59
(99.99)
18
16
16
18
4, 37
2, 16
3, 15
16
88
16
1, 54
89
90
0, 1, 91
3, 23
70
100.00
(99.99)
6, 92
100.00
100.00
(99.99)
100.00
(70.03)
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
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
N/A
4, 59
24
93
17
54
4, 94
95
16
96
97
98
2, 16
16
1, 16
88
16
99
16
2, 16
16
2, 16
16
16
0, 1, 100
0, 1, 100
% 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 Limited (In Liquidation)
HSBC Innovation Bank Limited
HSBC INSN (Non Operating) Pte. Ltd. (In
Liquidation)
HSBC Institutional Trust Services (Asia)
Limited
HSBC Institutional Trust Services (Bermuda)
Limited
HSBC Institutional Trust Services (Mauritius)
Limited
HSBC Institutional Trust Services (Singapore)
Limited
HSBC Insurance (Asia-Pacific) Holdings
Limited
HSBC Insurance (Asia) Limited
HSBC Insurance (Bermuda) Limited
HSBC Insurance Agency (USA) Inc.
HSBC Insurance Brokerage Company Limited
HSBC Insurance Brokers Greater China
Limited
HSBC Insurance Holdings Limited (In
Liquidation)
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.
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
99.99
99.99
98.99
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 (In Liquidation)
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 (Singapore) Pte. Ltd.
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
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
(70.03)
19
1, 101
54
48
23
102
54
103
104
105
106
0, 1, 107
1, 108
2, 16
23
1, 109
16
110
10, 111
54
112
61
57
57
113
57
114
16
16
2, 16
5, 115
24
116
18
16
19
16
2, 16
48
1, 23
104
104
23
104
1, 54
104
16
1, 104
93
0, 12, 117
16
118
HSBC Markets (USA) Inc.
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 Philanthropy Foundation Beijing
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 (In
Liquidation)
HSBC Securities (Singapore) Pte Limited
HSBC Securities (South Africa) (Pty) Limited
HSBC Securities (Taiwan) Corporation Limited
100.00
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
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
N/A
100.00
100.00
100.00
100.00
100.00
N/A
100.00
N/A
100.00
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
15
16
16
17
119
2, 3, 73
0, 120
121
122
15
52
48
123
52
3, 15
6, 92
2, 3, 16
124
16
56
125
126
127
17
0, 191
128
129
16
116
130
16
126
125
16
3, 115
0, 1, 131
48
132
16
16
48
0, 12, 133
4, 37
0, 1, 100
4, 59
1, 2, 16
1, 16
134
135
88
71
1, 58
16
54
136
65
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(66.18)
(94.65)
HSBC Holdings plc Annual Report and Accounts 2023
429
Financial statements Notes on the financial statements
Subsidiaries
HSBC Securities (USA) Inc.
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 Transaction Services GmbH
HSBC Trinkaus & Burkhardt (International)
S.A.
HSBC Trinkaus & Burkhardt Gesellschaft fur
Bankbeteiligungen mbH
HSBC Trinkhaus & Burkhardt 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 Holdings Limited (In Liquidation)
HSBC UK Societal Projects 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
Hubei Macheng HSBC Rural Bank Company
Limited
Hubei Suizhou Cengdu HSBC Rural Bank
Company Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Subsidiaries
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
100.00
100.00
N/A
15
5, 113
48
48
23
22
127
116
127
1, 48
56
56
17
(99.99)
(99.99)
(99.99)
(99.99)
1, 6, 92
(99.99)
(99.99)
(99.99)
(99.99)
137
4, 37
138
139
17
17
59
22
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
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
Midcorp Limited
Midland Bank (Branch Nominees) Limited
Midland Nominees Limited
MP Payments Group Limited
0, 12, 140
MP Payments Netherlands B.V.
MP Payments Operations Limited
100.00
(99.99)
141
100.00
100.00
N/A
100.00
100.00
(99.99)
100.00
(99.99)
83
3, 16
0, 12, 142
15
6, 92
143
100.00
(99.99)
92
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
N/A
N/A
(99.99)
(99.99)
(99.99)
(62.14)
1, 6, 144
6, 92
6, 92
122
110
16
125
145
22
48
54
2, 18
18
2, 3, 146
0, 1, 18
3, 124
15
80
1, 18
68
15
40
16
0, 12, 147
0, 12, 148
MP Payments Singapore Pte. Ltd.
MP Payments UK Limited
MW Gestion SA
Prudential Client HSBC GIS Nominee (UK)
Limited
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 (丝睿科技开发（上海）有限公司)
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
St Cross Trustees Limited
Sterling Credit Limited
Sun Hung Kai Development (Lujiazui III)
Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
N/A
N/A
100.00
100.00
(62.14)
(99.99)
(99.99)
(99.99)
(99.99)
(98.93)
(85.00)
(99.99)
(99.99)
(99.99)
(99.99)
(59.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(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
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
100.00
100.00
99.99
100.00
100.00
100.00
100.00
N/A
100.00
100.00
N/A
N/A
100.00
60.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
Footnotes
0, 12, 149
0, 12, 150
40
92
17
17
17
16
16
16
16
48
1, 151
151
1, 48
48
152
152
16
18
18
1, 16
1, 153
1, 16
1, 154
1, 16
56
16
155
155
15
15
22
1, 16
1, 16
11, 37
4, 37
4, 37
11, 59
48
0, 1, 12,
156
4, 37
136
0, 12, 157
0, 1, 12,
158
159
11, 59
4, 37
4, 37
4, 37
4, 37
127
23
4, 37
16
18
183
0, 12, 160
430
HSBC Holdings plc Annual Report and Accounts 2023
% 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
(99.99)
Footnotes
19
5, 48
19
2, 16
6, 92
100.00
(99.99)
6, 92
100.00
(99.99)
6, 92
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
(99.99)
(99.99)
(99.99)
(62.14)
6, 92
6, 92
18
4, 37
48
48
0, 15
23
40
Subsidiaries
Swan National Limited (In Liquidation)
The Hongkong and Shanghai Banking
Corporation Limited
The Venture Catalysts Limited (In Liquidation)
Tooley Street View Limited
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
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
% of share class
held by
immediate parent
company (or by
the Group where
this varies)
Climate Asset Management Limited
Global Payments Technology Mexico S.A. De
C.V
HCM Holdings Limited (In Liquidation)
MK HoldCo Limited
Pentagreen Capital Pte. Ltd
ProServe Bermuda Limited
The London Silver Market Fixing Limited
Vaultex UK Limited
40.00
50.00
50.99
50.32
50.00
50.00
N/A
50.00
Footnotes
1, 161
162
19
1, 163
1, 164
165
0, 1, 166
167
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 Inc.
EPS Company (Hong Kong) Limited
Euro Secured Notes Issuer
HSBC Jintrust Fund Management Company
Limited
HSBC UK Covered Bonds (LM) Limited
HSBC UK Covered Bonds LLP
Liquidity Match LLC
London Precious Metals Clearing Limited
MENA Infrastructure Fund (GP) Ltd
Monese Ltd
Quantexa Ltd
RadiantESG Global Investors LLC
Saudi Awwal Bank
Services Epargne Entreprise
The London Gold Market Fixing Limited
Threadneedle Software Holdings Limited
Trade Information Network Limited
Trinkaus Europa Immobilien-Fonds Nr. 7
Frankfurt Mertonviertel KG
We Trade Innovation Designated Activity
Company (In Liquidation)
% of share class
held by
immediate parent
company (or by
the Group where
this varies)
19.03
15.31
24.62
4.84
26.00
9.87
7.70
38.66
5.69
38.66
16.67
N/A
20.00
N/A
N/A
30.00
33.33
5.39
9.36
N/A
31.00
14.18
N/A
7.10
12.76
N/A
9.88
Footnotes
168
169
170
1, 171
172
1, 173
1, 174
48
1, 175
48
176
0, 177
1, 178
0, 1, 18
0, 1, 179
1, 180
181
1, 182
183
0, 1, 184
186
187
0, 188
1, 189
1, 161
0, 92
1, 190
HSBC Holdings plc Annual Report and Accounts 2023
431
Financial statements
Notes on the financial statements
Footnotes for Note 40
Description of shares
Registered offices
35
First & Second Floor, No.3 Nanshan Road, Pulandian, Dalian,
Liaoning, China
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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).
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
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
8 Canada Square, London, United Kingdom, E14 5HQ
Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500
1 Centenary Square, Birmingham, United Kingdom, B1 1HQ
C/O Teneo Financial Advisory Limited, The Colmore Building, 20
Colmore Circus, Queensway, Birmingham, United Kingdom, B4
6AT
5 Donegal Square South , Northern Ireland, Belfast, United
Kingdom, BT1 5JP
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, Harbourview Centre, Ground Floor, Hamilton,
Pembroke, Bermuda, HM 11
HSBC Main Building, 1 Queen's Road Central, Hong Kong
2401-55 24/F, Office Tower Two 1 Jianguomenwai Street,
Chaoyang District, Beijing, China
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
America, 14043
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
432
HSBC Holdings plc Annual Report and Accounts 2023
36
37
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
160 Mine Lake CT, Ste 200, Raleigh, North Carolina, United
States of America, 27615-6417
38 Avenue Kléber, Paris, France, 75116
Avenida de las Granjas 972, Building A, Floor 2, Colonia Santa
Bárbara, Alcaldía Azcapotzalco, Mexico City, Mexico, 02230
No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China
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
1001 T2 Office Building, Qianhai Kerry Business Center, Qianhai
Avenue, Nanshan Street, Qianhai Shenzhen-Hong Kong
Cooperation Zone, Shenzhen, Guangdong, China
1 Queen’s Road Central, Hong Kong
Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town,
Tortola, British Virgin Islands, VG1110
1 Queen's Road Central, Hong Kong
156 C/O Teneo Financial Advisory Limited, Great Charles Street,
Queensway, West Midlands, Birmingham, United Kingdom, B3
3HN
701 S CARSON ST STE 200, Carson City, Nevada, United States
of America, 89701
HSBC House Esplanade, St. Helier, Jersey, JE4 8UB
Level 21, Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala
Lumpur, Malaysia, 55188
Level 19, Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala
Lumpur, Malaysia, 55188
10 Marina Boulevard, #48-01 Marina Bay Financial Centre,
Singapore, 018983
52/60, M G Road Fort, Mumbai, India, 400 001
557 Bouchard Level 20, Ciudad de Buenos Aires, Federal Capital,
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, Russia, 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, Vietnam
Esentepe Mah. Büyükdere Caddesi No.128 Şişli, Istanbul,
Turkiye, 34394
90 Area 42 Paronyan Street, Yerevan, Armenia, 0015
885 West Georgia Street 3rd Floor, Vancouver, British Columbia,
Canada, V6C 3E9
306 Corniche El Nil, Maadi, Egypt, 11728
Registered offices
72
116 Archbishop Street, Valletta, Malta
73
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
Unit 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
1800 Tysons Boulevard Suite 50, Tysons, Virginia, United States
of America, 22102
66 Wellington Street West, Suite 5300, Toronto, Ontario,
Canada, M5K 1E6
P.O. Box 1109, Strathvale House, Ground floor, 90 North Church
Street, George Town, Grand Cayman, Cayman Islands, KY1-1102
HSBC House Esplanade, St. Helier, Jersey, JE1 1HS
RM 2113 HSBC Building, Shanghai ifc, No. 8 Century Avenue,
Pudong, Shanghai, China, 200120
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
Building C-1 UP Ayala Technohub, Commonwealth Avenue,
Diliman, Quezon City, Metro Manila, Philippines
HSBC House Plot No.8 Survey No.64 (Part), Hightec City Layout
Madhapur, Hyderabad, India, 500081
Mireka City 324/9 Havelock Road, Colombo 05, Sri Lanka, 00500
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,
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 2nd Road, Lingang
New Area, China (Shanghai) Pilot Free Trade Zone, Shanghai,
China
Hansaallee 3, Düsseldorf, Germany, 40549
80 Mill Street, Qormi, Malta, QRM 3101
Gartenstrasse 26, Zurich, Switzerland, 8002
36F., No. 68 Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City,
Taiwan, 110419
452 Fifth Avenue, New York, United States of America, NY10018
Bouchard 557, Piso 18° , Cdad. Autónoma de Buenos Aires,
Argentina, 1106
Mareva House 4 George Street, Nassau, Bahamas
1 Queen’s Road Central, Hong Kong
4 rue Peternelchen, Howald, Luxembourg, 2370
Alphabeta 14-18 Finsbury Square, London, United Kingdom,
EC2A 1BR
IConEbene Rue de L’institut, Ebene, Mauritius
HSBC Main Building, 1 Queen's Road Central, Hong Kong
18th Floor Tower 1, HSBC Centre 1 Sham Mong Road, Kowloon,
Hong Kong
37 Front Street, Harbourview Center, Ground Floor, Hamilton,
Pembroke, Bermuda, HM 11
CT Corporation System 28 Liberty Street, New York, New York,
United States of America, 10005
Unit 201, Floor 2, Building 3 No. 12, Anxiang Street, Shunyi
District, Beijing, China
HSBC Main Building, 1 Queen’s Road Central, Hong Kong
37 Front Street, Harbourview Centre, Ground Floor, Hamilton
Pembroke, Bermuda, HM 11
Registered offices
110
300 Delaware Avenue Suite 1401, Wilmington, Delaware, United
States of America, 19801
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
Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.
Box 916
Craigmuir Chambers, Road Town Tortola, British Virgin Islands,
VG1110
52/60 M G Road Fort, Mumbai, India, 400 001
5/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City,
Taguig City, Philippines
300-885 West Georgia Street, Vancouver, British Columbia,
Canada, V6C 3E9
18 Boulevard de Kockelscheuer, Luxembourg, 1821
Unit 2002 of 20/F, Unit 2101 of 21/F HSBC Building, 8 Century
Avenue, China (Shanghai) Pilot Free Trade Zone, Shanghai,
China, 200120
Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1
1WA
HSBC Tower, Downtown Dubai, P.O. Box 66. United Arab
Emirates
Unit 401, Level 4, Gate Precinct Building 2, Dubai International
Financial Centre, P. O. Box 506553, Dubai, United Arab Emirates
Level 16, HSBC Tower, Downtown Dubai, P.O. Box 66, United
Arab Emirates
885 West Georgia Street, Suite 300, Vancouver, British
Columbia, Canada, V6C 3E9
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
HSBC House Esplanade, St. Helier, Jersey, JE1 1GT
Quai des Bergues 9-17 , Geneva, Switzerland, 1201
1 Grand Canal Square Grand Canal Harbour, Dublin 2, Ireland,
D02 P820
6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201
Esentepe Mah. Büyükdere Caddesi No.128, 34394, Şişli,
Istanbul, Turkiye
Quai des Bergues 9-17, Geneva, Switzerland, 1201
5 rue Heienhaff, Senningerberg, Luxembourg, L-1736
52/60 M G Road, Fort, Mumbai, India, 400 001
Unit 2201, 22/F, Qianhai Chow Tai Fook Finance Tower (Phase I)
No. 66 Shu Niu Avenue, Nanshan Subdistrict, the Shenzhen
Qianhai Shenzhen-Hong Kong Cooperation Zone, the PRC,
Shenzhen, China, 518054
HSBC Building 7267 Olaya - Al Murrooj , Riyadh, Kingdom of
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
Mareva House, 4 George Street, Nassau, Bahamas
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
Room 3102, L31 HSBC Building, Shanghai ifc, 8 Century Avenue,
China (Shanghai) Free Trade Zone, Shanghai, China, 200120
16 Boulevard d'Avranches, Luxembourg, L-1160
3 Hansaallee, Düsseldorf, Nordrhein-Westfalen, Germany, 40549
P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,
KY1-1104
HSBC Holdings plc Annual Report and Accounts 2023
433
Financial statements Notes on the financial statements
Registered offices
146
c/o Teneo Financial Advisory Limited The Colmore Building, 20
Colmore Circus, Queensway, Birmingham, United Kingdom, B4
6AT
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
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
Craigmuir Chambers, Road Town, Tortola, British Virgin Islands,
VG1110
Kings Meadow Chester Business Park, Chester, United
Kingdom, CH99 9FB
De Entree, 236 , Amsterdam, Netherlands, 1101 EE
10 Marina Boulevard, #48-01 Marina Bay Financial Centre,
Singapore, 018983
5th Floor, World Trade Center 1, Jl. Jend. Sudirman Kav. 29-31,
Jakarta, Indonesia, 12920
Room 667, 6/F, Tower A, No. 8 Century Avenue, Pudong District,
Shanghai, China
No.198-2 Chengshan Avenue (E), Rongcheng, China, 264300
Room 1303-13062 Marine Center Main Tower, 59 Linhai Rd,
Nanshan District, Shenzhen, China
Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.
Box 3162
RM 2112, HSBC Building, Shanghai ifc No. 8 Century Road,
Pudong, Shanghai, China, 200120
3 More London Riverside, London, United Kingdom, SE1 2AQ
296, Floor 18, Office A Paseo de la Reforma, Mexico City,
Mexico, 06600
35 Ballards Lane, London, United Kingdom, N3 1XW
1 Raffles Quay #23-01, Singapore, 048583
c/o MUFG Fund Services (Bermuda) Limited, Cedar House, 4th
Floor North, 41 Cedar Avenue, Hamilton, Bermuda, HM12
27 Old Gloucester Street, London, United Kingdom, WC1N 3AX
All Saints Triangle Caledonian Road, London, United Kingdom,
N1 9UT
Registered offices
168
188 Yin Cheng Zhong Lu (Shanghai) Pilot Free Trade Zone, China
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
50/F, Lee Garden One, 33 Hysan Avenue, Hong Kong
13-15 York Buildings, London, United Kingdom, WC2N 6JU
167-169 Great Portland Street, 5th Floor, London, United
Kingdom, W1W 5PF
Unit No. 208, 2nd Floor, Kanchenjunga Building, 18 Barakhamba
Road, New Delhi, India, 110001
1 Harbourfront Avenue, #14-07 Keppel Bay Tower, Singapore,
098632
Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M
7JN
251 Little Falls Drive, New Castle, Wilmington, United States of
America, 19808
3 Avenue de l'Opera , Paris, France, 75001
17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong,
Shanghai, China
10th Floor 5 Churchill Place, London, United Kingdom, E14 5HU
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
Unit 705, Level 7, Currency House-Tower 2, Dubai International
Financial Centre, P.O. BOX 506553, Dubai, United Arab Emirates
Eagle House, 163 City Road, London, United Kingdom, EC1V
1NR
Hill House, 1 Little New Street, London, United Kingdom, EC4A
3TR
4482 Deer Ridge Road, Danville, CA, Delaware, United States of
America, 94506
9004 Al Ulaya - Al Olaya Dis. Unit no. 1, Riyadh, Kingdom of
Saudi Arabia, 12214-2652
7206 Prince Abdul Aziz Bin Musaid Bin Jalawi, 4065 Al Murabba
District, 12613 Riyadh, Kingdom of Saudi Arabia
32 Rue du Champ de Tir, Nantes, France, 44300
c/o Hackwood Secretaries Limited, One Silk Street, London,
United Kingdom, EC2Y 8HQ
2nd Floor, Regis House, 45 King William Street, London, United
Kingdom, EC4R 9AN
10 Earlsfort Terrace, Dublin, Ireland, D02 T380
Meeting Room 18.R005, 18/F Fortune Financial Center, No. 5
Dongsanhuan Zhong Road, Chaoyang District, Beijing, 100020,
China
P.O. Box, 309 Ugland House, Grand Cayman, Cayman Islands,
KY1-1104
434
HSBC Holdings plc Annual Report and Accounts 2023
Shareholder information
Contents
435
435
435
435
436
436
437
Fourth interim dividend for 2023
Interim dividends for 2024
Other equity instruments
2023 Annual General Meeting
Earnings releases and interim results
Shareholder enquiries and communications
Stock symbols
Investor relations
437
437 Where more information about HSBC is available
438
Taxation of shares and dividends
439
441
443
444
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.
Fourth interim dividend for 2023
The Directors have approved a fourth interim dividend for 2023 of $0.31 per ordinary share. Information on the currencies in which shareholders
may elect to have the cash dividend paid can be viewed at www.hsbc.com/investors. 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 2023 and/or Strategic Report 2023
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 pounds sterling and Hong Kong dollars
Payment date
21 February 2024
7 March 2024
8 March 2024
22 March 2024
11 April 2024
15 April 2024
25 April 2024
1 Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.
Interim dividends for 2024
For the financial year 2023, the Group reverted to paying quarterly dividends, and achieved a dividend payout ratio of 50% of reported earnings
per ordinary share (’EPS’), in line with our published target for 2023 and 2024. EPS for this purpose excludes material notable items and related
impacts (including those associated with the sale of our retail banking operations in France, the agreed sale of our banking business in Canada
and our acquisition of SVB UK). The Board has 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.
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, see Note 33 on the financial statements.
HSBC issued $2,000m 8.000% perpetual contingent convertible securities on 7 March 2023.
2023 Annual General Meeting
With the exception of the shareholder requisitioned Resolutions 16, 17 and 18, which the Board recommended that shareholders vote against,
all resolutions considered at the 2023 AGM held at 11:00am on 5 May 2023 at The Eastside Rooms, 2 Woodcock Street, Birmingham, B7 4BL,
UK, were passed on a poll.
HSBC Holdings plc Annual Report and Accounts 2023
435
Additional information
Additional information
Earnings releases and interim results
First and third quarter results for 2024 will be released on 30 April 2024 and 29 October 2024, respectively. The interim results for the six
months to 30 June 2024 will be issued on 31 July 2024.
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:
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ,
United Kingdom
Telephone: +44 (0) 370 702 0137
www.investorcentre.co.uk/contactus
Investor Centre: www.investorcentre.co.uk
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
hsbc.ecom@computershare.com.hk
Investor Centre: www.investorcentre.com/hk
Bermuda Overseas Branch Register:
Investor Relations Team
HSBC Bank Bermuda Limited, 37 Front Street,
Hamilton, HM 11, Bermuda
hbbm.shareholder.services@hsbc.bm
Investor Centre: www.investorcentre.com/bm
ADS 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
shrrelations@cpushareownerservices.com
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 2023 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
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.
436
HSBC Holdings plc Annual Report and Accounts 2023
Chinese translation
A Chinese translation of the Annual Report and Accounts 2023 will be available upon request after 22 March 2024 from the Registrars (contact
details above). 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.
《2023 年報及賬目》備有中譯本，各界人士可於2024年3月22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:
Neil Sankoff, Global Head of Investor Relations
HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: +44 (0) 20 7991 5072
Email: investorrelations@hsbc.com
Yafei Tian, Head of Investor Relations, Asia-Pacific
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Telephone: +852 2899 8909
Email: investorrelations@hsbc.com.hk
Where more information about HSBC is available
The Annual Report and Accounts 2023 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 2023 by
31 December 2024. This information will be available on HSBC’s website: www.hsbc.com/tax.
HSBC Holdings plc Annual Report and Accounts 2023
437
Additional information Additional information
Taxation of shares and dividends
Taxation – UK residents
The following is a summary, under current law (unless otherwise
noted) 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 2023 is £1,000. 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
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HSBC Holdings plc Annual Report and Accounts 2023
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. Until 31 December
2023, 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 as retained in the UK following the UK’s departure from the
European Union, and was not imposed by HMRC. If the UK Finance
Bill 2023-24 is enacted in the form it stands as at the date hereof, that
1.5% charge will be repealed with retrospective effect from 1 January
2024.
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
2023 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.
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 2023 taxable year and does
not anticipate becoming a passive foreign investment company in
2024 or the foreseeable future. Accordingly, dividends paid on the
shares or ADSs generally should be eligible for qualified dividends
treatment.
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) UK stamp duty and/or stamp duty reserve
tax will be payable unless the UK Finance Bill 2023-24 is enacted in
the form it stands as at the date hereof and the transfer is, or is
treated as being, in the course of a capital raising arrangement. 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
persons (as defined in the US Internal Revenue Code of 1986, as
amended) 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
persons 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.
Approach to ESG reporting
The information set out in the ESG review on pages 41 to 98, taken
together with other information relating to ESG issues included in this
Annual Report and Accounts 2023, aims to provide key ESG
information and data relevant to our operations for the year ended
31 December 2023. The data is compiled for the financial year
1 January to 31 December 2023 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 C2 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, and on emissions: 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 our operations. Nevertheless, we are fully
compliant with our publication of information regarding scope 1
and 2 carbon emissions, while we only partially publish information
on scope 3 carbon emissions, as the data required for that
publication is not yet fully available.
– 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 continuing to seek to identify key opportunities
where we can lessen our wider environmental impact, including
waste management. For further details, please see our ESG
review on page 63.
– 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 43
HSBC Holdings plc Annual Report and Accounts 2023
439
Additional information Additional information
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 both the UK’s Financial Conduct Authority’s Listing
Rules and Sections 414 CA and 414CB of the UK Companies Act
2006, and confirm that we have made disclosures consistent with the
TCFD Recommendations and Recommended Disclosures, including
its annexes and supplemental guidance, save for certain items, which
we summarise 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. In 2023, we disclose
interim 2030 financed emissions targets for seven sectors comprising
five on-balance sheet and two combined financed emissions targets,
as we outline on page 18. For the shipping sector, we have taken a
decision not to set a standalone financed emissions target. The
decision follows a reduction in our exposure to the sector after the
strategic sale of part of our European shipping portfolio. This aligns
with NZBA guidelines on sector inclusion for target setting. We have
now set combined on-balance sheet financed emissions and
facilitated emissions targets for two emissions-intensive sectors: oil
and gas, and power and utilities, and report the combined progress
for both sectors. We intend to review the financed emissions
baselines and targets annually and restate where relevant, to help
ensure that they are aligned with market practice and current climate
science. For further details on the restatements and targets and
progress of financed emissions, see section ’Our approach to
financed emissions recalculations’ and ’Targets and Progress’ on page
56 and 57.
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 2023, we
further progressed our internal review and enhancement of the green
bond framework, with further refinement including internal and
external review to be undertaken in 2024. This will be subject to
continuous review and monitoring to ensure that they remain up to
date and reflect updated standards, taxonomies and best practices.
Any such developments in standards, taxonomies and best practices
over time could result in revisions in our reporting going forward and
lead to differences year-on-year as compared to prior years. See the
HSBC Green Bond Report for further information.
Metrics and targets (c) relating to internal carbon pricing target: We do
not currently disclose internal carbon pricing target 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 2023, we continued to incorporate certain
aspects of sustainable finance and financed emissions within our
financial planning process. We do not fully disclose impacts from
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, although nascent work is
ongoing in these areas. We expect these data limitations to be
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HSBC Holdings plc Annual Report and Accounts 2023
addressed in the medium term as more reliable data becomes
available and technology solutions are implemented.
Strategy (b) related to transition plan: We published our Group-wide
net zero transition plan in January 2024. In this plan, we provided an
overview of our approach to net zero and the actions we are taking to
help meet our ambitions. We want to be clear about our approach,
the change underway today and what we plan to do in the future. We
also want to be transparent about where there are still unresolved
issues and uncertainties. We are still developing our disclosures,
including considerations of possible additional data in relation to our
financial plans, budgets, and related financial approach for the
implementation of the transition plan in the medium term (e.g.
amount of capital and other expenditures supporting our
decarbonisation strategy).
Metrics and targets (a) relating to internal carbon prices and climate-
related opportunities metrics: We do not currently disclose internal
carbon prices 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 this 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 2023, 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 two 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 and 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 and average tenor). We are aiming to
develop the appropriate systems, data and processes to provide
these disclosures in future years. We disclose the exposure to six
high transition risk wholesale sectors and the flood risk exposure and
Energy Performance Certificate breakdown for the UK portfolio.
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, we do not use targets to measure and
manage physical risk. In 2023 we introduced internally a global ‘soft
trigger’ monitoring and review process for physical risk exposure
where a market reaches or exceeds a set threshold, as this ensures
markets are actively considering their balance sheet risk exposure to
peril events. We also consider physical and transition risk as an input
for our climate scenario analysis exercise.
We expect to further enhance our disclosures as our data,
quantitative scenario analysis, risk metrics and physical risk targets
evolve, and technology solutions are implemented in the medium
term.
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. We currently
disclose four out of 15 categories of scope 3 greenhouse gas
emissions including business travel, supply chain and financed
emissions. In relation to financed emissions, we publish on-balance
sheet financed emissions for a number of sectors as detailed on page
18. We also publish facilitated emissions for the oil and gas, and
power and utilities sectors. Future disclosures on financed emissions
and related risks are reliant on our customers publicly disclosing their
greenhouse gas emissions, targets and plans, and related risks. We
recognise the need to provide early transparency on climate
disclosures but balance this with the recognition that existing data
and reporting processes require significant enhancements.
Other matters
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 43 for further information.
Cautionary statement regarding
forward-looking statements
This Annual Report and Accounts 2023 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:
– 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
levels and the creditworthiness of customers beyond those
factored into consensus forecasts; the Russia-Ukraine war and the
Israel-Hamas war 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
and the Israel-Hamas war, inflationary pressures, commodity price
changes, and ongoing developments in the commercial real estate
sector in mainland China); potential changes in HSBC’s dividend
policy; changes and volatility in foreign exchange rates and interest
rates levels, 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 or the Israel-Hamas 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
commodity prices, 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 transition of the
remaining legacy Ibor contracts to near risk-free benchmark rates,
which continues to expose HSBC to 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); 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
HSBC Holdings plc Annual Report and Accounts 2023
441
Additional information Additional information
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, despite
the signing of the Trade and Cooperation Agreement between the
UK and the EU, particularly with respect to the potential
divergence of UK and EU law on the regulation of financial
services; 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;
changes in UK macroeconomic and fiscal policy, 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 the positions set forth in our thermal coal
phase-out policy and our energy policy and our targets to reduce
our on-balance sheet financed emissions and, where applicable,
facilitated 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; evolving regulatory
requirements and the development of new technologies, including
artificial intelligence, affecting how we manage model risk; model
limitations or failure, including, without limitation, the impact that
high inflationary pressures and rising interest rates 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 our reporting
frameworks and accounting standards, which have had and may
continue to have a material impact on the way we prepare our
financial statements; our ability to successfully execute planned
strategic acquisitions and disposals; our success in adequately
integrating acquired businesses into our business, including the
integration of SVB UK into our CMB business; changes in our
ability to manage third-party, fraud, financial crime 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 ESG-related products
consistent with the evolving expectations of our regulators, and
our capacity to measure the environmental and social impacts
from our financing activity (including as a result of data limitations
and changes in methodologies), which may affect our ability to
achieve our ESG ambitions, targets and commitments, including
our net zero ambition, our targets to reduce on-balance sheet
financed emissions and, where applicable, facilitated emissions in
442
HSBC Holdings plc Annual Report and Accounts 2023
our portfolio of selected high-emitting sectors and the positions
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 140 to 144.
This Annual Report and Accounts 2023 contains a number of images,
graphics, infographics, text boxes and illustrative case studies and
credentials which aim to give a high-level overview of certain
elements of our disclosures and to improve accessibility for readers.
These images, graphics, infographics, text boxes and illustrative case
studies and credentials are designed to be read within the context of
the Annual Report and Accounts 2023 as a whole.
Additional cautionary statement
regarding ESG data, metrics and
forward-looking statements
The Annual Report and Accounts 2023 contains a number of forward-
looking statements (as defined above) with respect to HSBC’s ESG
targets, commitments, ambitions, climate-related pathways,
processes and plans, and the methodologies and scenarios we use,
or intend to 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 2023, HSBC has made a number of key
judgements, estimations and assumptions, and the processes and
issues involved are complex. We have used ESG (including 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 often 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.
We also face challenges in relation to our ability to access data on a
timely basis, lack of consistency and comparability between data that
is available and our ability to collect and process relevant data.
Consequently, the ESG-related forward-looking statements and ESG
metrics disclosed in the Annual Report and Accounts 2023 carry an
additional degree of inherent risk and uncertainty.
Due to the unpredictable evolution of climate change and its future
impact and the uncertainty of future policy and market response to
ESG-related issues and the effectiveness of any such response,
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 (including 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 develop.
No assurance can be given by or on behalf of HSBC 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 statement
or metric 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;
– ESG projection risk: ESG metrics are complex and are still subject
to development. In addition, the scenarios employed in relation to
them, 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;
– 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 in
some areas and our own ability to timely collect and process such
data as required. Where data is not available for all sectors or
consistently year on year, there may be an impact to our data
quality scores. 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 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, or our
ability to collect and process such data, 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 and scenarios: the methodologies and
scenarios 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. Such
developments could result in revisions to reported data, 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; and
– Risk management capabilities: global actions, including HSBC’s
own actions, may not be effective in transitioning to net zero and
in managing relevant ESG risks, including in particular climate,
nature-related 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 positions set forth in our
thermal coal phase-out policy and our energy policy, and our
targets to reduce our on-balance sheet financed emissions and,
where applicable, facilitated emissions in our portfolio of selected
high-emitting sectors), which may result in our failure to achieve
some or all of the expected benefits of our strategic priorities; and
– we may not be able to develop sustainable finance and ESG-
related products consistent with the evolving expectations of our
regulators, and our capacity to measure the environmental and
social impacts 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 ESG
targets, commitments and ambitions, including our net zero
ambition, our targets to reduce our on-balance sheet financed
emissions and, where applicable, facilitated emissions in our
portfolio of selected high-emitting sectors and the positions set
forth in our thermal coal phase-out policy and energy policy, and
increase the risk of greenwashing.
Any forward-looking statements made by or on behalf of HSBC speak
only as of the date they are made. HSBC expressly disclaims any
obligation to revise or update these ESG forward-looking statements,
other than as expressly required by applicable law.
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-
reporting-centre.
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.
HSBC Holdings plc Annual Report and Accounts 2023
443
Additional information Additional information
Abbreviations
Currencies
£
CA$
€
HK$
MXN
RMB
SGD
$
A
ABS¹
ADR
ADS
AGM
AI
AIEA
ALCO
AML
AML DPA
ANP
ASEAN
AT1
B
Basel
Committee
Basel II¹
Basel III¹
Basel 3.1
BEPS
BGF
BoCom
BoE
Bps¹
BVI
C
CAPM
CDS¹
CEA
CET1¹
CGUs
CMB
CMC
CODM
COSO
Corporate
Centre
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
Annualised new business premium
Association of Southeast Asian Nations
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
Base Erosion and Profit Shifting
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)
Corporate Centre comprises Central Treasury, our legacy
businesses, interests in our associates and joint ventures,
central stewardship costs and consolidation adjustments
Commercial paper
Capital Requirements Regulation and Directive
Customer risk rating
The regulatory requirements of the Capital Requirements
Regulation and Directive, the CRR II regulation and the PRA
Rulebook
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
444
HSBC Holdings plc Annual Report and Accounts 2023
DPD
DPF
DVA¹
E
EAD¹
EBA
EC
ECB
ECL
EEA
Eonia
EPC
EPS
ESG
EU
Euribor
EVE
F
FAST-Infra
FCA
FDIC
FFVA
FPA
FRB
FRC
FSCS
FTE
FTSE
FVOCI¹
FX
G
GAAP
GAC
GBM
GDP
GEC
GFANZ
GMP
GPS
GPSP
GRC
Group
GTRF
H
Days past due
Discretionary participation feature of insurance and
investment contracts
Debit valuation adjustment
Exposure at default
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
Finance to Accelerate the Sustainable Transition-
Infrastructure
Financial Conduct Authority (UK)
Federal Deposit Insurance Corporation
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
Glasgow Financial Alliance for Net Zero
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
HMRC
HM Revenue and Customs
Holdings ALCO HSBC Holdings Asset and Liability Management Committee
Hong Kong
Hong Kong Special Administrative Region of the People’s
Republic of China
High-quality liquid assets
HQLA
HSBC
HSBC Holdings together with its subsidiary undertakings
HSBC Bank plc HSBC Bank plc, also known as the non-ring-fenced bank
HSBC Bank
Middle East
HSBC Bank
USA
HSBC Canada
HSBC Bank USA, N.A., HSBC’s retail bank in the US
HSBC Bank Middle East Limited
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
Continental
Europe
HSBC Finance
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 USA
HSBC Private Bank (Suisse) SA, HSBC’s private bank in
Switzerland
HSBC UK Bank plc, also known as the ring-fenced bank
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)
HSI
HSSL
I
IAS
IASB
IBE
Ibor
ICAAP
ICMA
IEA
IFRS Accounting
Standards
International Accounting Standards
International Accounting Standards Board
Independent Board Evaluation
Interbank offered rate
Internal capital adequacy assessment process
International Capital Market Association
International Energy Agency
International Financial Reporting Standards as issued by the
International Accounting Standards Board
ILAAP
IMA
IMM
IRB¹
ISDA
ISSB
JV
K
KMP
L
LCR
LGBTQ+
LGD¹
Libor
Long term
LTI
LTV¹
M
Mainland China
Medium term
MENAT
MREL
MRT¹
MSS
N
Internal liquidity adequacy assessment process
Internal model approach
Internal model method
Internal ratings-based
International Swaps and Derivatives Association
International Sustainability Standard Board
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 financial targets, we define long term as five to six
years, commencing 1 January 2024
Long-term incentive
Loan to value
People’s Republic of China excluding Hong Kong and
Macau
For our financial targets, we define medium term as three
to four years, commencing 1 January 2024
Middle East, North Africa and Türkiye
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
Net operating income before change in expected credit
losses and other credit impairment charges
NGO
NII
NIM
NPS
NSFR
NYSE
NZBA
Non-governmental organisation
Net interest income
Net interest margin
Net promoter score
Net stable funding ratio
New York Stock Exchange
Net-Zero Banking Alliance
O
OCI
OECD
OTC¹
P
PBT
PCAF
PD¹
Performance
shares¹
Ping An
POCI
PRA
PRC
Principal plan
PVIF
PwC
R
RAS
Repo¹
Revenue
Reverse repo
RNIV
RoE
RoTE
RWA¹
S
SAB
SAPS
SASB
SBTi
SDG
SEC
ServCo group
Sibor
SIC
SME
Solitaire
SPE¹
SVB UK
T
TCFD¹
THBFIX
TNFD
TSR¹
U
UAE
UK
UN
US
V
VaR¹
VIU
W
WEF
WPB
Other comprehensive income
Organisation of Economic Co-operation and Development
Over-the-counter
Profit before tax
Partnership for Carbon Accounting Financials
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
Net operating income before ECL
Security purchased under commitments to sell
Risk not in VaR
Return on average ordinary shareholders’ equity
Return on average tangible equity
Risk-weighted asset
Saudi Awwal 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
Small and medium-sized enterprise
Solitaire Funding Limited, a special purpose entity managed
by HSBC
Special purpose entity
Silicon Valley Bank UK Limited, now HSBC Innovation Bank
Limited
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 2023 which is available at www.hsbc.com/investors.
HSBC Holdings plc Annual Report and Accounts 2023
445
Additional information Additional information
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
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
446
HSBC Holdings plc Annual Report and Accounts 2023
© Copyright HSBC Holdings plc 2024
All rights reserved
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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
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HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
T: +44 (0)20 7991 8888
www.hsbc.com