HSBC Holdings plc - Pillar 3 at 31 Dec 2018-Part 2

RNS Number : 4551Q

HSBC Holdings PLC

19 February 2019

 

HSBC Holdings plc

Pillar 3 Disclosures at 31 December 2018

Market risk

Overview of market risk in global businesses

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.

Exposure to market risk

Exposure to market risk is separated into two portfolios:

•     Trading portfolios: these comprise positions arising from market-making.

•     Non-trading portfolios: these 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.

Where appropriate, we apply similar risk management policies and measurement techniques to both trading and non-trading portfolios. Our objective is to manage and control market risk exposures in order to optimise return on risk while maintaining a market profile consistent within our established risk appetite.

The nature of the hedging and risk mitigation strategies performed across the Group corresponds to the market risk management instruments available within each operating jurisdiction. These strategies range from the use of traditional market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk factors arising at portfolio level.

For a discussion on hedging risk and monitoring the continuing effectiveness of hedges, refer to page 229 of the Annual Report and Accounts 2018.

The tables below reflect the components of capital requirement under the standardised approach, table 41 and the internal model approach, table 42 for market risk.

Table 41: Market risk under standardised approach (MR1)
		At 31 Dec
		2018		2017		2018
		RWAs		RWAs		Capital requirements
		$bn		$bn		$bn
	Outright products
1	Interest rate risk (general and specific)	2.5		2.2		0.2
2	Equity risk (general and specific)	0.1		0.1		-
3	Foreign exchange risk	1.4		0.2		0.1
4	Commodity risk	-		0.1		-
	Options
6	Delta-plus method	0.1		-		-
7	Scenario approach	-		-		-
8	Securitisation	1.6		1.8		0.1
9	Total	5.7		4.4		0.4

Table 42: Market risk under IMA (MR2-A)
		2018				2017
		RWAs		Capital required		RWAs		Capital required
		$bn		$bn		$bn		$bn
1	VaR (higher of values a and b)	7.1		0.6		8.3		0.7
(a)	Previous day's VaR			0.1				-
(b)	Average daily VaR			0.6				0.7
2	Stressed VaR (higher of values a and b)	12.1		1.0		14.3		1.1
(a)	Latest SVaR			0.2				-
(b)	Average SVaR			1.0				1.1
3	Incremental risk charge (higher of values a and b)	6.4		0.5		10.0		0.8
(a)	Most recent IRC value			0.4				0.1
(b)	Average IRC value			0.5				0.8
5	Other	4.5		0.3		1.9		0.2
6	Total at 31 Dec	30.1		2.4		34.5		2.8

Market risk RWAs under the standardised approach increased in the current year mainly due to an increase in Hong Kong dollar denominated exposure. Under the IMA approach, the decrease in IRC is mainly due to lower sovereign and corporate exposure.

Market risk governance

The majority of the total VaR, stressed VaR ('SVaR') and incremental risk charge ('IRC') of HSBC (excluding insurance) and almost all trading VaR resides in GB&M. GB&M manages the Group's market risk, using risk limits approved by the GMB.

For a discussion on market risk governance refer to page 81 of the Annual Report and Accounts 2018.

Market risk measures

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.

Sensitivity analysis

We use sensitivity measures to monitor the market risk positions within each risk type. Sensitivity limits are set for portfolios, products and risk types, with the depth of the market being one of the principal factors in determining the level of limits set.

Value at risk

Value at risk ('VaR') is a technique that estimates the potential losses on risk positions in the trading portfolio 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 is calculated for all trading positions regardless of how we capitalise those exposures.

Where there is not an approved internal model, we use the appropriate local rules to capitalise exposures locally.

In addition, we calculate VaR for non-trading portfolios to have a complete picture of risk. Our models are predominantly based on historical simulation. VaR is calculated at a 99% confidence level for a one-day holding period. Where we do not calculate VaR explicitly, we use alternative tools as described in the stress testing section below.

Our VaR models derive plausible future scenarios from past series of recorded market rates and prices, taking into account inter-relationships between different markets and rates such as interest rates and foreign exchange rates. Our models use a mixed approach when applying changes in market rates and prices:

•     For equity, credit and foreign exchange risk factors, the potential movements are typically represented on a relative return basis.

•     For interest rates, a mixed approach is used. Curve movements are typically absolute, whereas volatilities are on a relative return basis.

We use the past two years as the data set in our VaR models, which is updated on a fortnightly basis, and these scenarios are then applied to the market baselines and trading positions on a daily basis. The models also incorporate the effect of option features on the underlying exposures.

The valuation approach used in our models values:

•     non-linear instruments using a full revaluation approach; and

•     linear instruments, such as bonds and swaps, using a sensitivity-based approach.

The nature of the VaR models means that an increase in observed market volatility will lead to an increase in VaR even without any changes in the underlying positions.

VaR model limitations

Although a valuable guide to risk, VaR should always be viewed in the context of its limitations, for example:

•	The use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature.
•	The use of a holding period assumes that all positions can be liquidated or the risks offset during that period. This may not fully reflect the market risk arising at times of severe illiquidity, when the holding period may be insufficient to liquidate or hedge all positions fully.
•	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 close of business and therefore does not necessarily reflect intra-day exposures.

Risk not in VaR framework

The risks not in VaR ('RNIV') framework captures risks from exposures in the HSBC trading book that are not captured well by the VaR model. Our VaR model is designed to capture significant basis risk such as CDS versus bond, asset swap spreads and cross-currency basis. Other basis risks that are not completely covered in VaR, such as CCP swap basis risks, are complemented by our RNIV calculations and are integrated into our capital framework.

Risk factors are reviewed on a regular basis and are either incorporated directly in the VaR models, where possible, or quantified through the VaR-based RNIV approach or a stress test approach within the RNIV framework. The severity of the scenarios 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 measures used for regulatory back-testing. In addition, a stressed VaR RNIV is also computed for the risk factors considered in the VaR-based RNIV approach.

Stress-type RNIVs include a gap risk exposure measure to capture risk on non-recourse margin loans and a de-peg risk measure to capture risk to pegged and heavily managed currencies.

Back-testing

We routinely validate the accuracy of our VaR models by back-testing them against both actual and hypothetical profit and loss. Hypothetical profit and loss excludes non-modelled items such as fees, commissions and revenues of intra-day transactions.

The actual number of profits or losses in excess of VaR over this period can therefore be used to gauge how well the models are performing.

We back-test our VaR at various levels of our Group entity hierarchy. Back-testing using the regulatory hierarchy includes entities which have approval to use VaR in the calculation of market risk regulatory capital requirement.

HSBC submits separate back-testing results to regulators, including the PRA and the European Central Bank, based on applicable frequencies ranging from two business days after an exception occurs, to quarterly submissions.

In terms of the CRD IV rules, VaR back-testing loss, and not profit, exceptions count towards the multiplier determined by the PRA for the purposes of the capital requirement calculation for market risk. The multiplier does not get increased if there are less than five loss exceptions.

The following graphs show a one-year history for VaR back-testing exceptions against both actual and hypothetical profit and loss.

In 2018, the Group experienced three back-testing exceptions against actual profit and loss: a profit exception in February,  driven by gains on short positions on falling index and stock exposures; a profit exception in August, driven by volatility in Turkish lira spot; and a loss exception in December, driven by month end adjustments that are not in scope of the market risk model.

The Group also experienced one back-testing profit exception against hypothetical profit and loss in August based on the same driver described above in exceptions against actual profit and loss.

There was no evidence of model errors or control failures.

The back-testing result excludes exceptions due from changes in fair value adjustments.

Comparison of VaR estimates with gains/losses

VaR back-testing exceptions against actual profit and loss ($m)

http://www.rns-pdf.londonstockexchange.com/rns/4551Q_1-2019-2-19.pdf

	Actual profit and loss		VaR	w	Back-testing profit exception

VaR back-testing exceptions against hypothetical profit and loss ($m)

http://www.rns-pdf.londonstockexchange.com/rns/4551Q_1-2019-2-19.pdf

	Hypothetical profit and loss		VaR	w	Back-testing profit exception

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 greater than those predicted by VaR modelling.

Stress testing is implemented at legal entity, regional and overall Group levels. A set of scenarios is used consistently across all regions within the Group. Scenarios are tailored to capture the relevant events or market movements at each level. The risk appetite around potential stress losses for the Group is set and monitored against referral limits.

Market risk reverse stress tests are designed to identify vulnerabilities in our portfolios by looking for scenarios that lead to loss levels considered severe for the relevant portfolio. These scenarios may be quite local or idiosyncratic in nature, and complement the systematic top-down stress testing.

Stressed VaR and stress testing, together with reverse stress testing and the management of gap risk, provide management with insights regarding the 'tail risk' beyond VaR, for which HSBC's appetite is limited.

The market risk stress testing incorporates the historical and hypothetical events. During 2018 we ran stress hypothetical scenarios for specific geopolitical and economic events including several Brexit scenarios, Emerging Markets decoupling, Global Trade war, Italian Elections and NAFTA renegotiation. These new scenarios were run in addition to existing scenarios that capture potential events of concern.

Market risk capital models

There are a number of measures that HSBC has permission to use in calculating regulatory capital which are listed in the table below. For regulatory purposes, the trading book comprises all positions in CRD financial instruments and commodities held with trading intent, and taken with the intention of benefiting from short-term gains or positions where it can be demonstrated that they hedge positions in the trading book. Trading book positions must either be free of any restrictive covenants on their tradability or be capable of being hedged.

A CRD financial instrument is defined as any contract that gives rise to both a financial asset to one party and a financial liability or equity instrument to another party.

HSBC maintains a trading book policy, which defines the minimum requirements for trading book positions and the process for classifying positions as trading or non-trading book. Positions in the trading book are subject to market risk-based rules, i.e. market risk capital, computed using regulatory approved models. Otherwise, the market risk capital is calculated using the standardised approach.

If any of the policy criteria are not met, then the position is categorised as a non-trading book exposure.

VaR	99%	10 day	Uses most recent two years' history of daily returns to determine a loss distribution. The result is scaled, using the square root of 10, to provide an equivalent 10-day loss.
Stressed VaR	99%	10 day	Stressed VaR is calibrated to a one-year period of stress observed in history.
IRC	99.9%	1 year	Uses a multi-factor Gaussian Monte-Carlo simulation, which includes product basis, concentration, hedge mismatch, recovery rate and liquidity as part of the simulation process. A minimum liquidity horizon of three months is applied and is based on a combination of factors, including issuer type, currency and size of exposure.
Options	n/a	n/a	Uses a standard charge scenario approach based on a spot volatility grid where, for each point on the grid, there is a full revaluation of the portfolio. The regulators prescribe the ranges, therefore there is no equivalence with confidence level and liquidity horizon.

Non-proprietary details of these models are available in the Financial Services Register on the PRA website.

Table 43: IMA values for trading portfolios (MR3)
		At 31 Dec
		2018		2017
		$m		$m
VaR (10 day 99%)
1	Maximum value	249.0		319.1
2	Average value	178.5		197.0
3	Minimum value	160.8		163.7
4	Period end	193.5		228.2
Stressed VaR (10 day 99%)
5	Maximum value	408.3		439.7
6	Average value	304.6		284.7
7	Minimum value	191.2		193.3
8	Period end	408.3		251.3
Incremental risk charge (99.9%)
9	Maximum value	945.5		1,042.7
10	Average value	516.5		828.5
11	Minimum value	424.3		673.4
12	Period end	491.9		803.4

 

VaR

VaR used for regulatory purposes differs from VaR used for management purposes with key differences listed below.

Scope	Regulatory approval (PRA)	Broader population of trading and non-trading book positions
Confidence interval	99%	99%
Liquidity horizon	10 day	1 day
Data set	Past 2 years	Past 2 years

The trading books that received approval from the regulator to be covered via an internal model are used to calculate VaR for regulatory purposes. Regulatory VaR levels contribute to the calculation of market risk RWAs.

The regulatory VaR table is based on the regulatory permissions received, plus aggregated sites. This differs from the daily VaR reported in the Annual Report and Accounts 2018, which shows a fully diversified view used for internal risk management.

There were no material changes in the VaR used for regulatory purposes; this is in line with expectation.

Stressed VaR

Stressed VaR is primarily used for regulatory capital purposes and is integrated into the risk management process to ensure prudent capital management. Stressed VaR complements other risk measures by providing the potential losses under stressed market conditions.

Stressed VaR modelling follows the same approach as our VaR risk measure except that:

•     potential market movements employed for stressed VaR calculations are based on a continuous one-year period of stress for the trading portfolio;

•     the choice of period is based on the assessment at the Group level of the most volatile period  in recent history. This is assessed quarterly and changed during 2018 as follows:

-     to (November 2007 to November 2008) in March 2018; and

-     to (January 2010 to December 2010) in September 2018.

•     it is calculated to a 99% confidence using a 10-day holding period; and

•     it is based on an actual 10-day holding period, whereas regulatory VaR is based on a one-day holding period scaled to 10 days.

The increase in stressed VaR was primarily due to the change of scenario window, recalibrated quarterly, under the new January 2010 to December 2010 window.

Incremental risk charge

The incremental risk charge ('IRC') measures the default and migration risk of issuers of traded instruments.

IRC risk factors include credit migration, default, product basis, concentration, hedge mismatch, recovery rate and liquidity. The PDs are floored to reflect the lack of historical data on defaults and a period of stress is used to calibrate the spread changes for the relevant ratings. The IRC model is validated quarterly by stressing key model parameters and reviewing the response of the model.

The IRC is a stand-alone charge generating no diversification benefit with other charges. We do not use weighted averages for calculating the liquidity horizon for the IRC measure. IRC relies on a range of liquidity horizons from three months, corresponding to the regulatory floor, to one year. A wide range of criteria can indicate the liquidity of a position. The liquidity horizon for the IRC measure depends on a set of factors such as issuer features, including rating, sector, geography and size of positions, including product, maturity and concentration.

The IRC transition matrices are calibrated using transition and default data published by three rating agencies (Standard & Poor's, Moody's and Fitch) as the starting point, in combination with internal rules for flooring. The average of the three matrices is computed for each sector, ignoring zero transition probabilities. The PDs are then floored: sovereign PDs are consistent with IRB, while a 3 basis point floor is applied to corporates' and banks' PDs.

The IRC correlation matrix is derived from historical CDS spreads data, covering the latest two-year VaR period. The returns estimation window is set equal to either three or 12 months, depending on the liquidity horizon of each obligor. First, each obligor is mapped to six sector/rating categories; then the correlation matrix is obtained by computing the arithmetic mean of correlations for each category.

The decrease in the period end IRC measure was driven from lower contribution from a number of issuers, including Brazil, Indonesia, UK, Mexico and Argentina sovereigns.

Prudent valuation adjustment

HSBC has documented policies and maintains systems and controls for the calculation of prudent valuation adjustment ('PVA'). Prudent value represents a conservative estimate with a 90% degree of certainty of a price that would be received to sell an asset or paid to transfer a liability in orderly transactions occurring between market participants at the balance sheet date. HSBC's methodology addresses fair value uncertainties arising from a number of sources; market price uncertainty, bid offer, uncertainty, model risk, concentration, administrative cost, unearned credit spreads and investing and funding costs.

Table 44: Prudential valuation adjustments (PV1)
	Equity		Interest rates		FX		Credit		Commodities		Total		Of which: in the trading book		Of which: in the banking book
	$m		$m		$m		$m		$m		$m		$m		$m
Closeout uncertainty	196		360		29		149		2		736		470		266
-  of which:
mid-market value	127		98		4		54		-		283		127		156
closeout cost	21		94		10		9		2		136		123		13
concentration	48		168		15		86		-		317		220		97
Early termination	-		-		-		5		-		5		5		-
Model risk	21		116		4		5		-		146		146		-
Operational risk	15		29		2		11		-		57		39		18
Investing and funding costs	-		95		1		2		-		98		98		-
Unearned credit spreads	1		90		7		19		3		120		120		-
Future administrative costs	-		5		-		4		-		9		9		-
Other	-		-		-		-		-		-		-		-
Total adjustment at 31 Dec 2018	233		695		43		195		5		1,171		887		284
Closeout uncertainty	200		391		32		182		4		809		486		323
-  of which:
mid-market value	111		95		7		83		3		299		135		164
closeout cost	19		79		7		8		1		114		101		13
concentration	70		217		18		91		-		396		250		146
Early termination	-		-		-		6		-		6		6		-
Model risk	30		73		5		13		-		121		118		3
Operational risk	13		24		2		13		1		53		33		20
Investing and funding costs	-		72		-		1		1		74		74		-
Unearned credit spreads	-		62		4		7		1		74		74		-
Future administrative costs	-		5		-		4		-		9		9		-
Other	-		-		-		-		-		-		-		-
Total adjustment at 31 Dec 2017	243		627		43		226		7		1,146		800		346

The PVA charge has increased by 2% over 2018. PVA movements were primarily driven by:

•     a $79m decrease in concentration reflecting exposure reduction and improved liquidity conditions;

•     a $46m increase related to unearned credit spreads uncertainty including close out costs, arising from an increase in accounting CVA and changes in recovery assumptions.

The types of financial instruments for which the highest PVA is observed include (i) multi callable interest rate derivatives, (ii) asset backed securities and valuation adjustments related to non-collateralised derivatives.

Structural foreign exchange exposures

Structural foreign exchange exposures represent net investments in subsidiaries, branches and associates whose functional currency is not the US dollar. An entity's functional currency is normally that of the primary economic environment in which it operates.

Exchange differences on structural exposures are recognised in 'Other comprehensive income'. 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.

Our consolidated balance sheet is, therefore, affected by exchange differences between the US dollar and all the non-US dollar functional currencies of underlying subsidiaries.

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 exposures only in limited circumstances.

Details of our structural foreign exchange exposures are provided in the Market risk section, on page 138 of the Annual Report and Accounts 2018.

Interest rate risk in the banking book

Interest rate risk in the banking book ('IRRBB') is the potential adverse impact of changes in interest rates on earnings and capital. The component of IRRBB that can be economically neutralised in the market is transferred to BSM to manage, in accordance with internal transfer pricing rules. In its management of IRRBB, the Group aims to balance mitigating the effect of future interest rate movements, which could reduce net interest income against the cost of hedging. The monitoring of the projected net interest income and economic value of equity ('EVE') sensitivity under varying interest rate scenarios is a key part of this.

More details on our IRRBB may be found on page 83 of the Annual Report and Accounts 2018.

Operational risk

Overview and objectives

Operational risk is the risk to achieving our strategy or objectives as a result of inadequate or failed internal processes, people and systems, or from external events.

Operational risk is relevant to every aspect of our business. It covers a wide spectrum of issues, such as compliance, operational resilience, legal, security and fraud. Losses arising from breaches of regulation and law, unauthorised activities, error, omission, inefficiency, fraud, systems failure or external events all fall within the definition of operational risk.

We have historically experienced operational risk losses in the following major categories:

•     mis-selling of payment protection insurance;

•     external criminal activities, including fraud;

•     breakdowns in processes/procedures due to human error, misjudgement or malice;

•     system failure or non-availability;

•     breach of regulatory and/or legislative requirements; and

•     information and cyber security.

Table 45: Operational risk RWAs
		2018				2017
		RWAs		Capital required		RWAs		Capital required
		$bn		$bn		$bn		$bn
By global business
Retail Banking and Wealth Management		27.3		2.2		27.2		2.2
Commercial Banking		24.3		1.9		23.7		1.9
Global Banking and Markets		31.5		2.5		30.9		2.5
Global Private Banking		2.8		0.2		2.8		0.2
Corporate Centre		5.2		0.5		8.1		0.6
At 31 Dec		91.1		7.3		92.7		7.4
By geographical region
Europe		27.3		2.2		29.0		2.3
Asia		39.5		3.2		37.1		3.0
Middle East and North Africa		6.8		0.5		7.0		0.5
North America		11.7		0.9		12.1		1.0
Latin America		5.8		0.5		7.5		0.6
At 31 Dec		91.1		7.3		92.7		7.4

Requirements under CRD IV include a capital requirement for operational risk, utilising three levels of sophistication as explained  on page 17; we use the standardised approach. Table 45 reports our operational risk capital requirements by region and global business. RWAs decreased by $1.6bn primarily due to reduced contributions from the retail banking and payment and settlement business lines, partly offset by growth in commercial banking.

Developments during 2018

During 2018, our operational risk profile continued to be driven by compliance risks. Operational risk losses in 2018 are higher than in 2017, reflecting an increase in losses incurred relating to legacy conduct-related events.

Conduct-related costs included in significant items are outlined on page 66 of the Annual Report and Accounts 2018.

In 2018 we continued our ongoing work to strengthen those controls that manage our most material risks. We further developed controls to help ensure that we know our customers, ask the right questions, monitor transactions and escalate concerns to detect, prevent and deter financial crime risk.

Refer also to the 'Top and emerging risks' section on page 69 of the Annual Report and Accounts 2018 and to the 'Regulatory compliance risk management' section on page 84 of the Annual Report and Accounts 2018.

We recognise that operational risk losses can be incurred for a wide variety of reasons, including rare but extreme events.

The objective of our operational risk management is to manage and control operational risk in a cost-effective manner and within our risk appetite, as defined by GMB.

Organisation and responsibilities

Responsibility for managing operational risk lies with HSBC's employees. During 2018 we continued to strengthen our  approach to managing operational risk as set out in the operational risk management framework ('ORMF'). The approach sets out governance, appetite and provides a single view of non-financial risks that matter the most, and associated controls. It incorporates a risk management system to enable active risk management. The enhancement and embedding of the risk appetite framework for non-financial risk, and the improvement of  the consistency of the adoption of the end-to-end risk and control assessment processes were a particular focus in 2018. While there remains more to do, we made progress in strengthening the control environment and the management of non-financial risk. Activity to strengthen the three lines of defence model, continued to be a key focus in 2018.

The first line of defence owns the risk and is responsible for identifying, recording, reporting, managing the risks and ensuring that the right controls and assessments are in place to mitigate these risks. The second line of defence sets the policy and guidelines for managing the risks and provides advice, guidance and challenge to the first line of defence on effective risk management. The third line of defence is Internal Audit, which independently ensures we are managing risk effectively.

More details on our ORMF may be found on page 84 of the Annual Report and Accounts 2018.

The Global Operational Risk Committee, which is a sub-committee of the GRMM, meets to discuss key risk issues and review the effective implementation of the ORMF.

Operational risk is organised as a specific risk discipline within Global Risk. The Group Head of Operational Risk is responsible for establishing and maintaining the ORMF, monitoring the level of operational losses and the effectiveness of the internal control environment supported by their second line of defence functions. The Group Head of Operational Risk is accountable to the Group Chief Risk Officer in respect of this element of the overall enterprise-wide risk management framework.

Measurement and monitoring

We have codified our ORMF in a high level standard, supplemented by detailed policies. These policies explain our approach to identifying, assessing, monitoring and controlling operational risk, and give guidance on mitigating actions to be taken when weaknesses are identified.

Monitoring operational risk exposure against risk appetite on a regular basis, and setting out our risk acceptance process, drives risk awareness in a more forward-looking manner. It assists management in determining whether further action is required.

Risk scenario analysis across material legal entities provides a top down, forward-looking assessment of risks to help determine whether they are being effectively managed within our risk appetite or whether further management action is required.

In each of our subsidiaries, business managers are responsible for maintaining an appropriate level of internal control, commensurate with the scale and nature of operations. They are responsible for identifying and assessing risks, designing controls and monitoring the effectiveness of these controls. The ORMF helps managers to fulfil these responsibilities by defining a standard risk assessment methodology and providing a tool for the systematic reporting of operational loss data.

Operational risk and control assessment approach

Operational risk and control assessments are performed by individual business units and functions. The risk and control assessment process is designed to provide business areas and functions with a forward-looking view of operational risks, an assessment of the effectiveness of controls, and a tracking mechanism for action plans so that they can proactively manage operational risks within acceptable levels.

Appropriate means of mitigation and controls are considered. These include:

•     making specific changes to strengthen the internal control environment; and

•     investigating whether cost-effective insurance cover is available to mitigate the risk.

Recording

We use a Group-wide risk management system to record the results of our operational risk management process. Operational risk and control assessments, as described above, are input and maintained by business units. Business management monitors and follow up the progress of documented action plans.

Operational risk loss reporting

To ensure that operational risk losses are consistently reported and monitored at Group level, all Group companies are required to report individual losses when the net loss is expected to exceed $10,000 and to aggregate all other operational risk losses under $10,000. Losses are entered into the group-wide risk management system and are reported to governance on a monthly basis.

Other risks

Pension risk

We operate a number of pension plans throughout the world for our employees. Our plans are either defined benefit or defined

contribution plans, which expose the Group to different types of risks. We have a global pension risk management framework and accompanying global policies on the management of these risks, which is overseen by the Global Pensions Oversight Forum.

Details of our management of pension risk may be found in 'Pension risk management' on page 87 of the Annual Report and Accounts 2018.

Table 46: Non-trading book equity investments
		2018						2017
		Fair value through other comprehensive income (FVOCI)		Mandatorily measured at fair value through profit and loss		Total		Available for sale		Designated at fair value		Total
	Footnotes	$bn		$bn		$bn		$bn		$bn		$bn
Private equity holdings		-		1.9		1.9		1.0		0.3		1.3
Investment to facilitate ongoing business	1	1.7		1.1		2.8		1.6		-		1.6
Other strategic investments		-		0.3		0.3		1.3		-		1.3
At 31 Dec		1.7		3.3		5.0		3.9		0.3		4.2

1     Includes holdings in government-sponsored enterprises and local stock exchanges.

Non-trading book exposures in equities

At 31 December

2018

, we had equity investments in the non-trading book of $

5.0

bn (

2017

: $4.2bn). These consist of investments held for the purposes shown in table

46

.

We make investments in private equity primarily through managed funds that are subject to limits on the amount of investment. We risk-assess these commitments to ensure that industry and geographical concentrations remain within acceptable levels for the portfolio as a whole, and perform regular reviews to substantiate the valuation of the investments within the portfolio.

Exchange traded investments amounted to $0.7bn (2017: $0.7bn), with the remainder being unlisted. These investments are held at fair value in line with market prices and are mainly strategic in nature. The implementation of IFRS 9 resulted in the removal of the available-for-sale category; the majority of equity exposures therein have been classified as mandatorily measured at fair value through profit and loss, as have equities formerly classified within designated at fair value through profit and loss. A number of exposures formerly reported as other strategic investments have been reassessed as investments to facilitate ongoing business in the process.

Unrealised gains on FVOCI equities of $0.4bn at 31 December 2018 were fully recognised in CET1.

Details of our accounting policy for equity investments measured at FVOCI and the valuation of financial instruments may be found on page 228 of the Annual Report and Accounts 2018. A detailed description of the valuation techniques applied to private equity may be found on page 253 of the Annual Report and Accounts 2018.

Risk management of insurance operations

We operate an integrated bancassurance model that provides insurance products principally for customers with whom we have a banking relationship.

The insurance contracts we sell relate to the underlying needs of our banking customers, which we can identify from our point-of-sale contacts and customer knowledge. The majority of sales are of savings and investment products and term and credit life contracts.

By focusing largely on personal and small- and medium-sized enterprises ('SMEs') lines of business, we are able to optimise volumes and diversify individual insurance risks.

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 Argentina, mainland China, France, Hong Kong, Malaysia, Malta, Mexico, Singapore and the UK. We also have a life insurance manufacturing associate in India.

Where we do not have the risk appetite or operational scale to be an effective insurance manufacturer, we engage with a handful of leading external insurance companies in order to provide insurance products to our customers through our banking network and direct channels. 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.

Insurance products are sold through all global businesses, but predominantly by RBWM and CMB through our branches and direct channels worldwide.

The risk profile of our insurance manufacturing businesses is measured using an economic capital approach. Assets and liabilities are measured on a market value basis, and a capital requirement is defined to ensure that there is a less than one-in-200 chance of insolvency over a one-year time horizon, given the risks to which the businesses are exposed. The methodology for the economic capital calculation is largely aligned to the pan-European Solvency II insurance capital regulations.

Subsidiaries engaged in insurance activities are excluded from the regulatory consolidation by excluding assets, liabilities and post-acquisition reserves, leaving the investment of these insurance subsidiaries to be recorded at cost and deducted from CET1 subject to thresholds (amounts below the thresholds are risk-weighted).

Further details of the management of financial risks and insurance risk arising from the insurance operations are provided on page 86 of the Annual Report and Accounts 2018.

Liquidity and funding risk

Strategies and processes in the management of liquidity risk

HSBC has an internal liquidity and funding risk management framework ('LFRF'), which aims to allow it to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations. The management of liquidity and funding is primarily undertaken locally (by country) in our operating entities in compliance with the Group's LFRF, and with practices and limits set by the GMB through the RMM and approved by the Board. Our general policy is that each defined operating entity should be self-sufficient in funding its own activities.

Structure and organisation of the liquidity risk management function

The Group Treasurer, who reports to the Group Chief Financial Officer, has responsibility for the oversight of the LFRF. Asset, Liability and Capital Management ('ALCM') teams are responsible for the application of the LFRF at a local operating entity level.

The elements of the LFRF are underpinned by a robust governance framework, the two major elements of which are:

•     Group, regional and entity level asset and liability management committees ('ALCOs'); and

•     annual internal liquidity adequacy assessment process ('ILAAP') used to validate risk tolerance and set risk appetite.

Liquidity and funding are predominantly managed at a country level. Where appropriate, management may be expanded to cover a consolidated group of legal entities or narrowed to a principal office (branch) of a wider legal entity to reflect the management under internal or regulatory definitions.

The RMM reviews and agrees annually the list of countries, legal entities or consolidated groups it directly oversees and the composition of these entities ('principal operating entities'). This list forms the basis of liquidity and funding risk disclosures.

Asset, Liability and Capital Management

Asset, Liability and Capital Management ('ALCM') teams provide oversight at both an individual entity and Group level. Regional and local ALCM teams are responsible for the implementation of Group-wide and local regulatory policy at a legal entity level.

Liquidity Risk Assurance

Liquidity risk assurance is provided by Risk in HSBC Bank plc, HSBC UK Bank plc, HSBC North America Holdings and Hongkong and Shanghai Banking Corporation. For all other operating entities, it is provided by the local Finance and ALCM teams. Second line liquidity risk assurance performs the following activities:

•     reviews and challenges assumptions of current liquidity and funding risk management framework;

•     reviews and challenges methods and calculation processes of all aspects of liquidity and funding risk;

•     reviews results of liquidity and funding metrics against limits and proposed limit changes prior to approval at governance forums; and

•     reviews risk items that require escalation.

There are plans in place to broaden Risk's assurance role across more operating entities in 2019.

Scope and nature of liquidity risk reporting and measurement

Where possible, the Group maintains standardised platforms utilising common data feeds in order to ensure consistency of standard internal and regulatory reporting and flexibility to deliver ad hoc requests.

Hedging and mitigating liquidity risk at HSBC

Management of liquidity and funding risk

Liquidity coverage ratio

The liquidity coverage ratio ('LCR') aims to ensure that a bank has sufficient unencumbered high-quality liquid assets ('HQLA') to meet its liquidity needs in a 30 calendar day liquidity stress scenario. For the calculation of the LCR, HSBC follows the guidelines set by the European Commission.

Net stable funding ratio

HSBC uses the net stable funding ratio ('NSFR') as a basis for establishing stable funding around the Group. The NSFR requires institutions to maintain sufficient stable funding and reflects a bank's long-term funding profile (funding with a term of more than one year).

Liquid assets of HSBC's principal operating entities

Liquid assets are held and managed on a stand-alone operating entity basis. Most are held directly by each operating entity's BSM department, primarily for the purpose of managing liquidity risk in line with the LFRF.

The liquid asset buffer may also include securities in held-to- maturity portfolios. To qualify as part of the liquid asset buffer, held-to-maturity portfolios must have a deep and liquid repo market in the underlying security. Liquid assets also include any unencumbered liquid assets held outside BSM departments for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.

Overall adequacy of liquidity risk management at HSBC

All operating entities are required to prepare an internal liquidity adequacy assessment ('ILAA') document, in order to ensure that:

•     liquidity resources are adequate, both as to the amount and quality;

•     there is no significant risk that liabilities cannot be met as they fall due;

•     a prudent structural funding profile is maintained;

•     adequate liquidity resources continue to be maintained; and

•     the operating entity's liquidity risk framework is adequate and robust.

The key objectives of the ILAAP are to:

•     demonstrate that all material liquidity and funding risks are captured within the internal framework;

•     validate the operating entity's risk tolerance/appetite by demonstrating that reverse stress testing scenarios are acceptably remote and vulnerabilities have been assessed through the use of severe stress scenarios; and

•     provide review and challenge of the operating entity's ILAA document.

The final conclusion of the Group ILAAP, approved by the Board of Directors, is that each operating entity:

•     maintains liquidity resources, which are adequate in both amount and quality at all times, and ensures that there is no significant risk that its liabilities cannot be met as they fall due; and

•     ensures its liquidity resources contain an adequate amount of HQLA and maintains a prudent funding profile.

HSBC's business strategy and overall liquidity risk profile

The key aspects of the internal LFRF which is used to ensure that HSBC maintains an appropriate overall liquidity risk profile are:

•     stand-alone management of liquidity and funding by operating entity;

•     minimum LCR requirement;

•     minimum NSFR requirement;

•     legal entity depositor concentration limit;

•     three-month and 12-month cumulative rolling term contractual maturity limits covering deposits from banks, deposits from non-bank financial institutions and securities issued;

•     annual individual liquidity adequacy assessment by principal operating entity;

•     minimum LCR requirement by currency;

•     intra-day liquidity;

•     liquidity funds transfer pricing; and

•     forward-looking funding assessments.

The internal LFRF and the risk tolerance limits were approved by the RMM and the Board on the basis of recommendations made by the Group Risk Committee.

Concentration of funding and liquidity sources

Depositor concentration and term funding maturity concentration

The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within retail, corporate and financial deposit segments. The validity of these assumptions is challenged if the portfolio of depositors is not large enough to avoid depositor concentration.

Operating entities are exposed to term re-financing concentration risk if the current maturity profile results in future maturities being overly concentrated in any defined period.

At 31 December 2018, all principal operating entities were within the risk tolerance levels set for depositor concentration and term funding maturity concentration. These risk tolerances were established by the Board and are applicable under the LFRF.

Currency mismatch in the LCR

In times of stress it cannot automatically be assumed that one currency can always be converted for another, even if those currencies are 'hard' currencies. LCR must therefore be assessed by currency, if the currency is material.

In some currencies, convertibility is restricted by regulators and central banks and this restriction results in local currency not being convertible offshore or even onshore.

In the vast majority of cases, the only way to convert currencies for funding purposes is via deliverable foreign exchange swaps and, to a lesser extent, cross-currency repo. Access to foreign exchange swaps markets can be impacted by both market wide stress and idiosyncratic stress. Idiosyncratic stress arises from the fact that settlement of the two currency legs occurs at different times during the day, exposing the counterparty who has to settle (pay) first to intra-day credit risk on the entire principal amount, until the other counterparty pays the other currency; this is often referred to as 'Herstatt Risk'.

The Group's internal liquidity and funding risk management framework requires all operating entities to monitor single currency LCR. Limits are set in consultation with Group Treasury and approved by Group Treasury before being approved by 
local ALCO.

Liquidity management across HSBC

The structure of the Group means that liquidity and funding risk cannot practically be managed on a consolidated Group basis and can only be managed by entity on a standalone basis. The Group's LFRF requires all operating entities to manage liquidity and funding risk on a standalone basis in accordance with the Group's LFRF and the liquidity and funding risk tolerances set out in the Group RAS.

The Group's internal LFRF does not therefore seek to manage liquidity and funding risk on a consolidated basis, other than to ensure that the position of the consolidated group meets the minimum regulatory requirements.

Liquid assets of HSBC's principal operating entities

The unweighted liquidity value of assets categorised as liquid for HSBC's principal operating entities is shown on page 133 of the Annual Report and Accounts 2018. This information is used for the purposes of calculating the LCR metric for the Group for which the weighted value of assets is shown in the table on the following page. This reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets. The amount recognised by entity at the Group level is different from the amount recognised at a solo entity level, reflecting where liquidity cannot be freely transferred across HSBC.

Table 47: Level and components of HSBC Group consolidated liquidity coverage ratio (LIQ1)
	Quarter ended 31 Dec 2018				Quarter ended 30 Sep 2018				Quarter ended 30 Jun 2018				Quarter ended 31 Mar 2018
	Total unweighted value		Total weighted value		Total unweighted value		Total weighted value		Total unweighted value		Total weighted value		Total unweighted value		Total weighted value
	$m		$m		$m		$m		$m		$m		$m		$m
Number of data points used in the calculation of averages	12				12				12				12
High quality liquid assets
Total high quality liquid assets ('HQLA')			534,179				524,596				511,709				495,669
Cash outflows
Retail deposits and small business funding	741,411		76,615		741,913		76,674		740,245		77,213		731,827		77,117
-  of which:
stable deposits	287,536		14,242		287,497		14,213		274,684		13,571		260,992		12,888
less stable deposits	453,229		62,193		453,929		62,330		465,196		63,541		470,590		64,156
Unsecured wholesale funding	607,166		284,286		600,879		282,783		597,418		283,398		580,629		277,055
-  operational deposits (all counterparties) and deposits in networks of cooperative banks	193,015		46,773		188,451		45,473		184,319		44,496		175,839		42,504
-  non-operational deposits (all counterparties)	404,498		227,860		402,004		226,886		402,288		228,091		393,154		222,915
-  unsecured debt	9,653		9,653		10,424		10,424		10,811		10,811		11,636		11,636
Secured wholesale funding			13,715				13,891				13,232				12,459
Additional requirements	310,452		92,082		307,886		92,078		305,162		92,292		298,534		89,956
-  outflows related to derivative exposures and other collateral requirements	42,877		41,792		44,036		42,700		44,778		43,549		43,395		42,381
-  outflows related to loss of funding on debt products	-		-		-		-		-		-		-		-
-  credit and liquidity facilities	267,575		50,290		263,849		49,378		260,385		48,743		255,140		47,575
Other contractual funding obligations	91,238		34,808		90,509		35,833		87,183		36,916		81,249		36,266
Other contingent funding obligations	353,187		12,663		356,545		12,750		356,876		12,725		346,555		12,349
Total cash outflows			514,169				514,009				515,776				505,202
Cash inflows
Secured lending transactions (including reverse repos)	286,098		42,100		274,982		43,404		265,368		41,443		252,539		37,666
Inflows from fully performing exposures	116,612		85,698		116,346		85,452		112,998		83,420		107,814		79,999
Other cash inflows	86,832		46,413		79,620		46,530		81,346		48,566		79,168		47,273
(Difference between total weighted inflows and total weighted outflows arising from transactions in third countries where there are transfer restrictions or which are denominated in non-convertible currencies)			-				-				-				-
(Excess inflows from a related specialised credit institution)			-				-				-				-
Total cash inflows	489,542		174,211		470,948		175,386		459,712		173,429		439,521		164,938
Fully exempt inflows	-		-		-		-		-		-		-		-
Inflows Subject to 90% Cap	-		-		-		-		-		-		-		-
Inflows Subject to 75% Cap	455,505		174,211		436,698		175,386		431,838		173,429		421,442		164,938
Liquidity coverage ratio (Adjusted value)
Liquidity Buffer			534,179				524,596				511,709				495,669
Total net cash outflows			339,959				338,623				342,347				340,264
Liquidity coverage ratio (%)			157.1%				155.0%				150.0%				146.0%

Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral

On-balance sheet encumbered and unencumbered assets

Thetable on the following page summarises the total on-balance sheet assets capable of supporting future funding and collateral needs, and shows the extent to which they are currently pledged for this purpose. This disclosure aims to facilitate an understanding of available and unrestricted assets that could be used to support potential future funding and collateral needs.

Off-balance sheet collateral

The fair value of assets accepted as collateral that we are permitted to sell or repledge in the absence of default was $483bn at 31 December 2018 (2017: $409bn). The fair value of any such collateral actually sold or repledged was $329bn (2017: $242bn). We are obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard reverse repo, stock borrowing and derivative transactions.

The fair value of collateral received and re-pledged in relation to reverse repos, stock borrowing and derivatives is reported on a gross basis. The related balance sheet receivables and payables are reported on a net basis where required under IFRS offset criteria. As a consequence of reverse repo, stock borrowing and derivative transactions where the collateral received could be sold or re-pledged but had not been, we held $154bn (2017: $166bn) of unencumbered collateral available to support potential future funding and collateral needs at 31 December 2018.

Under the terms of our current collateral obligations under derivative contracts (which are ISDA compliant CSA contracts and contracts entered into for pension obligations), and based on an estimate of the positions at 31 December 2018, we calculate that we could be required to post additional collateral of up to $0.2bn (2017: $0.3bn) in the event of a one-notch downgrade in third-

party agencies' credit rating of HSBC's debt. This would increase to $0.4bn (2017: $0.5bn) in the event of a two-notch downgrade.

For further details on liquidity and funding risk management, see page 80 onwards of the Annual Report and Accounts 2018.

Table 48: Analysis of on-balance sheet encumbered and unencumbered assets
	Assets encumbered as a result of transactions with counterparties other than central banks						Assets positioned  at central banks  (i.e. pre-positioned plus encumbered)		Unencumbered assets not positioned at central banks								Total
	As a result of covered bonds		As a result of securitisations		Other				Assets readily available for encumbrance		Other assets capable  of being encumbered		Reverse repos/stock  borrowing  receivables  and derivative  assets		Assets that cannot be encumbered
	$m		$m		$m		$m		$m		$m		$m		$m		$m
Cash and balances at central banks	-		-		-		493		155,813		24		-		6,513		162,843
Items in the course of collection from other banks	-		-		-		-		-		-		-		5,787		5,787
Hong Kong Government certificates of indebtedness	-		-		-		-		-		-		-		35,859		35,859
Trading assets	-		-		68,877		3,221		137,589		8,493		18,279		1,671		238,130
-  treasury and other eligible bills	-		-		2,367		2,357		17,707		209		-		34		22,674
-  debt securities	-		-		44,000		864		83,640		1,803		-		232		130,539
-  equity securities	-		-		22,510		-		36,242		2,070		-		74		60,896
-  loans and advances to banks	-		-		-		-		-		2,768		6,753		904		10,425
-  loans and advances to customers	-		-		-		-		-		1,643		11,526		427		13,596
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	-		-		1,177		-		2,135		7,601		605		29,593		41,111
-  treasury and other eligible bills	-		-		627		-		-		-		-		43		670
-  debt securities	-		-		-		-		297		4		-		6,246		6,547
-  equity securities	-		-		-		-		1,676		1,035		-		22,638		25,349
-  loans and advances to banks and customers	-		-		-		-		162		6,331		605		619		7,717
-  other assets	-		-		550		-		-		231		-		47		828
Derivatives	-		-		-		-		-		-		207,825		-		207,825
Loans and advances to banks	-		-		170		2,367		1,947		45,992		-		21,691		72,167
Loans and advances to customers	6,621		7,653		4,036		58,737		15,867		847,301		28		41,453		981,696
Reverse repurchase agreements - non-trading	-		-		-		-		-		-		242,804		-		242,804
Financial investments	-		670		28,723		21,310		285,374		5,157		-		66,199		407,433
-  treasury and other eligible bills	-		276		1,079		5,377		88,556		1,235		-		798		97,321
-  debt securities	-		394		27,644		15,933		196,436		3,466		-		64,485		308,358
-  equity securities	-		-		-		-		382		456		-		819		1,657
-  other investments	-		-		-		-		-		-		-		97		97
Prepayments, accrued income and other assets	-		3		35,407		88		3,609		33,060		-		38,404		110,571
Current tax assets	-		-		-		-		-		-		-		684		684
Interest in associates and joint ventures	-		-		-		-		15		21,994		-		398		22,407
Goodwill and intangible assets	-		-		-		-		-		-		-		24,357		24,357
Deferred tax	-		-		-		-		-		-		-		4,450		4,450
At 31 Dec 2018	6,621		8,326		138,390		86,216		602,349		969,622		469,541		277,059		2,558,124

Table 48: Analysis of on-balance sheet encumbered and unencumbered assets (continued)
	Assets encumbered as a result of transactions with counterparties other than central banks						Assets positioned at central banks (i.e. pre- positioned plus encumbered)		Unencumbered assets not positioned at central banks								Total
	As a result of covered bonds		As a result of securitisations		Other				Assets readily available for encumbrance		Other assets capable of being encumbered		Reverse repos/stock  borrowing  receivables  and derivative  assets		Assets that cannot be encumbered
	$m		$m		$m		$m		$m		$m		$m		$m		$m
Cash and balances at central banks	-		-		7		128		172,567		206		-		7,716		180,624
Items in the course of collection from other banks	-		-		-		-		-		-		-		6,628		6,628
Hong Kong Government certificates of indebtedness	-		-		-		-		-		-		-		34,186		34,186
Trading assets	-		-		93,867		4,630		143,811		10,234		17,120		18,333		287,995
-  treasury and other eligible bills	-		-		2,017		4,210		11,233		71		-		2		17,533
-  debt securities	-		-		36,367		420		69,934		657		-		108		107,486
-  equity securities	-		-		33,209		-		62,644		3,407		-		-		99,260
-  loans and advances to banks	-		-		8,215		-		-		2,430		7,611		7,799		26,055
-  loans and advances to customers	-		-		14,059		-		-		3,669		9,509		10,424		37,661
Financial assets designated at fair value	-		-		-		-		1,331		64		-		28,069		29,464
-  treasury and other eligible bills	-		-		-		-		540		-		-		65		605
-  debt securities	-		-		-		-		447		-		-		3,644		4,091
-  equity securities	-		-		-		-		344		64		-		24,352		24,760
-  loans and advances to banks and customers	-		-		-		-		-		-		-		8		8
Derivatives	-		-		-		-		-		-		219,818		-		219,818
Loans and advances to banks	-		-		3,599		5,699		1,906		56,542		1,160		21,487		90,393
Loans and advances to customers	4,990		8,296		7,851		69,768		11,923		834,177		3,719		22,240		962,964
Reverse repurchase agreements - non-trading	-		-		-		-		-		-		201,553		-		201,553
Financial investments	-		44		26,772		22,285		264,587		8,815		-		66,573		389,076
-  treasury and other eligible bills	-		-		315		3,848		73,098		1,297		-		292		78,850
-  debt securities	-		44		26,457		18,437		190,119		5,951		-		65,300		306,308
-  equity securities	-		-		-		-		1,370		1,567		-		981		3,918
Prepayments, accrued income and other assets	-		-		2,876		-		5,527		25,647		-		33,141		67,191
Current tax assets	-		-		-		-		-		-		-		1,006		1,006
Interest in associates and joint ventures	-		-		310		-		55		22,101		-		278		22,744
Goodwill and intangible assets	-		-		-		-		-		-		-		23,453		23,453
Deferred tax	-		-		-		-		-		-		-		4,676		4,676
At 31 Dec 2017	4,990		8,340		135,282		102,510		601,707		957,786		443,370		267,786		2,521,771

Reputational risk

Reputational risk is the risk of failing to meet stakeholder expectations as a result of any event, behaviour, action or inaction, either by HSBC, our employees or those with whom we are associated. Any material lapse in standards of integrity, compliance, customer service or operating efficiency may represent a potential reputational risk. Stakeholder expectations constantly evolve, and so reputational risk is dynamic and varies between geographical regions, groups and individuals. We have an unwavering commitment to operate at the high standards we set for ourselves in every jurisdiction.

For further details of our reputational risk management, see page 86 of the Annual Report and Accounts 2018.

Sustainability risk

Sustainability risk arises from the provision of financial services to companies or projects which indirectly result in unacceptable impacts on people or on the environment.

Sustainability risk is:

•     measured by assessing the potential sustainability effect of a customer's activities and assigning a sustainability risk rating to all high-risk transactions;

•     monitored quarterly by the RMM and monthly by the Group's Sustainability Risk function; and

•     managed using sustainability risk policies covering project finance lending and sector-based sustainability policies for sectors and themes with potentially large environmental or social impacts.

For further details on sustainability risk management, see page 87 of the Annual Report and Accounts 2018.

Business risk

The PRA specifies that banks, as part of their ICAAP, should review their exposure to business risk.

Business risk is the potential negative effect on profits and capital from the Group not meeting our strategic objectives, as a result of unforeseen changes in the business and regulatory environment, exposure to economic cycles and technological changes.

We manage and mitigate business risk through our risk appetite, business planning and stress testing processes, so that our business model and planned activities are monitored, resourced and capitalised in a way that is consistent with the commercial, economic and risk environment in which the Group operates. This also means that any potential vulnerabilities of our business plans can be identified at an early stage so that mitigating actions can be taken.

Dilution risk

Dilution risk is the risk that an amount receivable is reduced through cash or non-cash credit to the obligor, and arises mainly from factoring and invoice discounting transactions.

Where there is recourse to the seller, we treat these transactions as loans secured by the collateral of the debts purchased and do not report dilution risk for them. For our non-recourse portfolio we obtain an indemnity from the seller that indemnifies us against this risk. Moreover, factoring transactions involve lending at a discount to the face-value of the receivables, which provides protection against dilution risk.

Remuneration

The Group's remuneration policy, including the remuneration committee membership and activities, remuneration strategy and remuneration details of HSBC's Identified Staff and Material Risk Takers, is set out in the Directors' Remuneration Report on page

172

 of the

Annual Report and Accounts

2018

. An overview of our Group approach to remuneration is available on our website (http://www.hsbc.com/our-approach/corporate-governance/remuneration).

Appendix I

Additional tables

Table 49 sets out IRB exposures by obligor grade for central governments and central banks, institutions and corporates, all of which are assessed using our 23-grade CRR master scale. We benchmark the master scale against the ratings of external rating agencies. 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.

The correspondence between the agency long-run default rates and the PD ranges of our master scale is obtained by matching a smoothed curve based on those default rates with our master scale reference PDs. This association between internal and external ratings is indicative and may vary over time. In these tables, the ratings of S&P are cited for illustration purposes, although we also benchmark against other agencies' ratings in an equivalent manner.

Table 49: Wholesale IRB exposure - by obligor grade
					Central governments and central banks					Institutions					Corporates2
Default risk	CRR		PD range		Average net carrying values1		Undrawn commit- ments		Mapped external rating	Average net carrying values1		Undrawn commit- ments		Mapped external rating	Average net carrying values1		Undrawn commit- ments		Mapped external rating
			%		$bn		$bn			$bn		$bn			$bn		$bn
Minimal	0.1		0.000 to 0.010		182.6		1.0		AAA	2.4		-		AAA	-		-
	1.1		0.011 to 0.028		77.4		0.9		AA+ to AA	32.1		2.1		AA+ to AA	28.7		12.6		AAA to AA
	1.2		0.029 to 0.053		22.5		0.4		AA- to A+	17.6		1.4		AA-	64.6		39.1		AA-
Low	2.1		0.054 to 0.095		8.1		0.3		A	13.1		2.8		A+ to A	89.9		50.3		A+ to A
	2.2		0.096 to 0.169		10.6		-		A-	11.9		3.3		A-	106.9		73.1		A-
Satisfactory	3.1		0.170 to 0.285		2.6		-		BBB+	3.1		0.7		BBB+	125.2		68.9		BBB+
	3.2		0.286 to 0.483		1.9		-		BBB	3.7		0.3		BBB	113.8		59.8		BBB
	3.3		0.484 to 0.740		2.8		0.2		BBB-	2.4		0.2		BBB-	104.4		47.5		BBB-
Fair	4.1		0.741 to 1.022		1.8		0.1		BB+	0.9		0.2		BB+	75.9		33.7		BB+
	4.2		1.023 to 1.407		0.3		0.1		BB	0.4		0.2		BB	54.2		28.8		BB
	4.3		1.408 to 1.927		1.5		0.1		BB-	0.3		0.1		BB-	49.4		19.8		BB-
Moderate	5.1		1.928 to 2.620		2.6		-		BB-	0.1		-		BB-	82.2		30.8		BB-
	5.2		2.621 to 3.579		-		-		B+	0.2		-		B+	24.0		10.1		B+
	5.3		3.580 to 4.914		0.2		-		B	-		-		B	19.6		8.5		B
Significant	6.1		4.915 to 6.718		0.1		-		B	-		-		B-	11.7		4.8		B-
	6.2		6.719 to 8.860		0.3		0.1		B-	-		-		B-	6.0		1.9		B-
High	7.1		8.861 to 11.402		0.1		-		CCC+	-		-		CCC+	3.1		1.0		CCC+
	7.2		11.403 to 15.000		-		-		CCC+	0.1		0.1		CCC+	2.0		0.6		CCC+
Special Management	8.1		15.001 to 22.000		-		-		CCC+	-		-		CCC	2.5		1.5		CCC
	8.2		22.001 to 50.000		-		-		CCC+	-		-		CCC- to CC	1.0		0.4		CCC- to CC
	8.3		50.001 to 99.999		-		-		CCC to C	-		-		C	0.4		0.2		C
Default	9/10		100.000		-		-		Default	-		-		Default	4.3		1.2		Default
At 31 Dec 2018					315.4		3.2			88.3		11.4			969.8		494.6
Minimal	0.1		0.000 to 0.010		195.2		0.7		AAA	2.4		-		AAA	-		-
	1.1		0.011 to 0.028		70.6		0.8		AA+ to AA	20.7		1.6		AA+ to AA	27.7		10.4		AAA to AA
	1.2		0.029 to 0.053		23.3		0.5		AA- to A+	29.3		2.5		AA-	61.3		39.3		AA-
Low	2.1		0.054 to 0.095		9.3		0.1		A	17.2		2.6		A+ to A	82.2		53.1		A+ to A
	2.2		0.096 to 0.169		10.1		-		A-	10.8		3.9		A-	101.5		65.6		A-
Satisfactory	3.1		0.170 to 0.285		2.4		-		BBB+	4.2		1.0		BBB+	112.8		70.9		BBB+
	3.2		0.286 to 0.483		2.3		-		BBB	3.5		0.5		BBB	105.8		57.6		BBB
	3.3		0.484 to 0.740		1.4		-		BBB-	1.7		0.7		BBB-	91.1		46.5		BBB-
Fair	4.1		0.741 to 1.022		1.0		-		BB+	1.3		0.4		BB+	75.0		34.4		BB+
	4.2		1.023 to 1.407		1.0		-		BB	0.5		0.2		BB	49.0		23.6		BB
	4.3		1.408 to 1.927		1.5		-		BB-	0.2		0.1		BB-	48.0		22.2		BB-
Moderate	5.1		1.928 to 2.620		0.7		-		BB-	0.2		-		BB-	71.5		28.9		BB-
	5.2		2.621 to 3.579		1.8		-		B+	0.1		-		B+	23.6		10.2		B+
	5.3		3.580 to 4.914		0.2		0.1		B	-		-		B	19.0		8.8		B
Significant	6.1		4.915 to 6.718		0.1		0.1		B	-		-		B-	14.2		6.6		B-
	6.2		6.719 to 8.860		-		-		B-	-		-		B-	7.6		2.8		B-
High	7.1		8.861 to 11.402		-		-		CCC+	-		-		CCC+	3.2		1.0		CCC+
	7.2		11.403 to 15.000		-		-		CCC+	0.1		0.1		CCC+	1.8		0.5		CCC+
Special Management	8.1		15.001 to 22.000		-		-		CCC+	-		-		CCC	3.4		1.8		CCC
	8.2		22.001 to 50.000		-		-		CCC+	0.1		-		CCC- to CC	1.3		0.5		CCC- to CC
	8.3		50.001 to 99.999		-		-		CCC to C	-		-		C	0.3		0.1		C
Default	9/10		100.000		-		-		Default	-		-		Default	4.7		1.4		Default
At 31 Dec 2017					320.9		2.3			92.3		13.6			905.0		486.2

1     Average net carrying value are calculated by aggregating the net carrying values of the last five quarters and dividing by five.

2     Corporates excludes specialised lending exposures subject to supervisory slotting approach.

PD, LGD, RWA and exposure by country/territory

The following tables 50. a-n analyse the exposure-weighted average PD, exposure-weighted average LGD, RWAs and exposure by location of the lending subsidiary or branch for the Group's IRB exposures. The tables exclude specialised lending exposures subject to the supervisory slotting approach, securitisation exposures and non-credit obligations.

Table 50.a: PD, LGD, RWA and exposure by country/territory - wholesale IRB advanced approach all asset classes
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	1.87		35.6		90.4		188.0			2.15		36.0		91.8		181.0
France	1.99		29.0		16.7		36.1			1.88		30.2		15.2		34.7
Germany	0.11		39.5		0.3		1.3			0.16		41.6		0.3		1.5
Switzerland	0.03		42.3		0.5		5.4			0.02		43.6		0.5		8.1
Asia
Hong Kong	0.68		40.2		91.8		315.8			0.67		40.3		86.0		291.8
Australia	0.57		43.8		8.0		24.9			0.67		43.6		9.1		24.9
India	0.91		54.3		9.1		19.0			0.75		54.3		8.4		18.3
Indonesia	4.28		58.7		5.0		6.3			4.40		58.5		5.5		6.4
Mainland China	0.61		48.8		26.2		72.2			0.70		48.8		28.5		76.9
Malaysia	1.50		46.7		6.4		16.1			1.00		47.4		6.9		15.6
Singapore	0.44		42.9		10.9		40.5			0.49		42.0		10.2		40.5
Taiwan	0.18		48.3		3.5		17.4			0.16		47.8		3.0		15.9
Middle East and North Africa
Egypt	2.57		44.7		2.7		3.6			2.78		44.9		2.8		3.5
Turkey	0.72		39.7		0.6		1.0			0.40		45.1		0.5		1.1
UAE	0.17		40.5		1.8		9.0			0.09		38.7		1.5		9.1
North America
US	0.71		34.8		47.6		134.4			1.27		34.5		44.7		130.1
Canada	1.07		34.5		21.2		53.8			1.38		34.5		21.6		53.7
Latin America
Argentina	2.24		45.0		2.7		2.5			1.66		45.1		1.5		1.5
Mexico	0.19		44.6		5.0		10.4			0.19		44.5		4.3		9.0

Table 50.b: PD, LGD, RWA and exposure by country/territory - wholesale IRB advanced approach central governments and central banks
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	0.03		44.7		3.0		26.9			0.03		44.1		2.0		18.0
France	0.02		45.0		0.1		0.9			0.02		45.0		0.2		1.7
Germany	0.03		45.0		0.1		0.4			0.04		45.0		0.1		0.5
Switzerland	0.01		45.0		0.3		4.2			0.01		45.0		0.3		6.8
Asia
Hong Kong	0.01		43.4		5.2		101.4			0.01		44.5		4.6		89.8
Australia	0.01		45.0		0.4		7.9			0.01		45.0		0.4		6.6
India	0.07		45.0		1.6		7.5			0.07		45.0		1.4		6.8
Indonesia	0.18		45.0		0.5		1.6			0.20		45.0		0.6		1.9
Mainland China	0.02		45.0		2.0		28.4			0.02		45.0		2.1		29.0
Malaysia	0.04		45.0		0.7		5.1			0.04		45.0		0.7		4.9
Singapore	0.01		44.2		0.7		14.8			0.01		45.0		0.7		15.8
Taiwan	0.02		45.0		0.6		9.9			0.02		45.0		0.6		10.1
Middle East and North Africa
Egypt	1.65		45.0		2.3		2.4			2.25		45.0		2.3		2.2
Turkey	0.76		40.2		0.6		0.9			0.42		45.0		0.5		0.9
UAE	0.03		45.0		0.6		5.9			0.04		44.6		0.7		6.0
North America
US	0.01		35.1		3.2		47.9			0.01		33.4		3.2		42.8
Canada	0.02		33.4		2.0		15.6			0.02		33.2		1.8		15.9
Latin America
Argentina	2.25		45.0		2.7		2.5			1.65		45.0		1.4		1.4
Mexico	0.17		45.0		4.4		9.3			0.16		45.0		3.8		8.1

Table 50.c: PD, LGD, RWA and exposure by country/territory - wholesale IRB advanced approach institutions
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	0.22		35.4		3.1		11.9			0.21		37.4		3.5		12.1
France	0.18		42.9		0.4		1.2			0.17		38.9		0.5		1.7
Germany	0.12		36.7		0.2		0.9			0.13		39.4		0.2		0.9
Switzerland	0.10		32.9		0.2		1.2			0.06		35.1		0.2		1.2
Asia
Hong Kong	0.05		40.8		4.5		32.0			0.06		42.1		5.4		36.1
Australia	0.06		39.8		0.5		2.2			0.07		41.8		0.5		2.6
India	0.20		45.0		0.5		1.4			0.17		45.0		0.3		1.1
Indonesia	0.26		45.0		-		0.1			0.43		49.7		-		0.1
Mainland China	0.13		46.1		1.0		4.4			0.14		46.4		2.0		8.0
Malaysia	0.09		47.5		0.3		1.8			0.18		47.5		0.5		1.8
Singapore	0.08		41.2		0.5		4.3			0.12		42.0		0.6		3.6
Taiwan	0.08		45.0		-		0.2			0.06		45.0		-		0.2
Middle East and North Africa
Egypt	0.07		45.0		0.2		0.9			0.08		45.0		0.2		0.9
Turkey	0.25		32.9		-		0.1			0.11		45.2		-		0.2
UAE	0.18		45.4		0.2		0.8			0.18		45.3		0.3		0.8
North America
US	0.23		47.1		0.7		1.6			0.11		44.6		1.4		6.9
Canada	0.04		22.1		0.2		3.1			0.04		22.8		0.3		3.5
Latin America
Argentina	0.09		45.0		-		-			-		-		-		-
Mexico	0.41		45.0		0.5		0.8			0.45		45.0		0.3		0.6

Table 50.d: PD, LGD, RWA and exposure by country/territory - wholesale IRB advanced approach corporates
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	2.34		33.9		84.3		149.2			2.56		34.9		86.3		150.9
France	2.10		28.1		16.2		34.0			2.07		28.9		14.5		31.3
Germany	-		-		-		-			1.82		45.0		-		0.1
Switzerland	-		-		-		-			0.04		45.0		-		0.1
Asia
Hong Kong	1.16		38.3		82.1		182.4			1.15		37.6		76.0		165.9
Australia	0.95		43.7		7.1		14.8			1.06		43.3		8.2		15.7
India	1.64		62.6		7.0		10.1			1.25		61.4		6.7		10.4
Indonesia	5.82		63.8		4.5		4.6			6.33		64.6		4.9		4.4
Mainland China	1.09		51.9		23.2		39.4			1.30		52.0		24.4		39.9
Malaysia	2.59		47.5		5.4		9.2			1.69		48.7		5.7		8.9
Singapore	0.81		42.3		9.7		21.4			0.92		39.7		8.9		21.1
Taiwan	0.41		52.8		2.9		7.3			0.42		53.0		2.4		5.6
Middle East and North Africa
Egypt	17.29		41.5		0.2		0.3			11.63		44.5		0.3		0.4
Turkey	-		-		-		-			-		-		-		-
UAE	0.52		27.2		1.0		2.3			0.21		20.9		0.5		2.3
North America
US	1.11		34.5		43.7		84.9			2.04		34.1		40.1		80.4
Canada	1.62		36.1		19.0		35.1			2.15		36.3		19.5		34.3
Latin America
Argentina	-		-		-		-			1.95		46.7		0.1		0.1
Mexico	0.44		28.9		0.1		0.3			0.65		29.2		0.2		0.3

Table 50.e: PD, LGD, RWA and exposure by country/territory - wholesale IRB foundation approach all asset classes
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	2.49		41.1		7.1		10.9			2.90		40.8		5.8		9.8
France	2.48		45.0		0.4		0.4			3.22		45.0		0.4		0.4
Germany	1.82		46.8		12.5		21.3			1.37		44.9		11.1		18.4
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	-		-		-		-			-		-		-		-
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	4.37		42.9		7.7		12.4			4.50		44.8		7.9		12.3
North America
US	-		-		-		-			-		-		-		-
Canada	-		-		-		-			-		-		-		-
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.f: PD, LGD, RWA and exposure by country/territory - wholesale IRB foundation approach central governments and central banks
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	-		-		-		-			-		-		-		-
France	-		-		-		-			-		-		-		-
Germany	-		-		-		-			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	-		-		-		-			-		-		-		-
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	0.03		45.0		-		0.1			0.05		45.0		-		0.1
North America
US	-		-		-		-			-		-		-		-
Canada	-		-		-		-			-		-		-		-
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.g: PD, LGD, RWA and exposure by country/territory - wholesale IRB foundation approach institutions
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	-		-		-		-			-		-		-		-
France	-		-		-		-			-		-		-		-
Germany	0.18		45.0		0.1		0.1			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	-		-		-		-			-		-		-		-
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	0.11		45.0		0.2		0.6			0.11		45.0		0.1		0.2
North America
US	-		-		-		-			-		-		-		-
Canada	-		-		-		-			-		-		-		-
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.h: PD, LGD, RWA and exposure by country/territory - wholesale IRB foundation approach corporates
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	2.49		41.1		7.1		10.9			2.90		40.8		5.8		9.8
France	2.48		45.0		0.4		0.4			3.22		45.0		0.4		0.4
Germany	1.83		46.8		12.4		21.2			1.37		44.9		11.1		18.4
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	-		-		-		-			-		-		-		-
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	4.62		42.7		7.5		11.7			4.60		44.8		7.8		12.0
North America
US	-		-		-		-			-		-		-		-
Canada	-		-		-		-			-		-		-		-
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.i: PD, LGD, RWA and exposure by country/territory - retail IRB approach all asset classes
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	1.31		31.5		24.8		186.0			1.48		30.9		23.8		180.7
France	3.96		13.6		3.5		25.2			4.35		14.0		3.5		26.3
Germany	-		-		-		-			-		-		-		-
Switzerland	1.25		2.3		0.1		6.0			0.74		2.0		0.1		6.7
Asia
Hong Kong	0.74		38.4		27.2		121.6			0.79		38.5		22.7		111.8
Australia	0.85		10.3		0.9		15.5			0.91		10.4		0.9		14.1
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	4.88		11.8		1.3		4.6			4.56		11.8		1.3		5.0
Singapore	0.92		20.1		1.1		6.7			0.91		21.8		1.1		6.3
Taiwan	1.31		11.9		0.7		5.2			1.33		11.7		0.7		4.9
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	5.26		62.9		9.5		22.4			5.33		63.3		9.1		21.9
Canada	0.77		19.5		2.5		21.3			0.80		19.4		2.4		22.0
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.j: PD, LGD, RWA and exposure by country/territory - retail IRB approach - retail secured by mortgages on immovable property non-SME
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	1.04		14.5		6.3		137.3			1.20		13.2		6.5		134.4
France	6.21		14.0		0.7		3.5			6.27		14.0		0.7		3.7
Germany	-		-		-		-			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	0.59		10.1		16.3		76.1			0.65		10.0		12.7		69.2
Australia	0.85		10.3		0.9		15.5			0.91		10.4		0.9		14.1
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	4.88		11.8		1.3		4.6			4.56		11.8		1.3		5.0
Singapore	0.92		20.1		1.1		6.7			0.91		21.8		1.1		6.3
Taiwan	1.31		11.9		0.7		5.2			1.33		11.7		0.7		4.9
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	6.08		53.6		7.6		17.2			6.16		54.7		7.5		17.1
Canada	0.68		17.8		2.1		19.7			0.69		17.6		1.9		20.1
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.k: PD, LGD, RWA and exposure by country/territory - retail IRB approach retail secured by mortgages on immovable property SME
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	4.74		37.2		1.3		2.0			-		-		-		-
France	14.26		26.3		0.4		0.6			7.71		25.8		0.4		0.6
Germany	-		-		-		-			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	0.91		15.6		-		0.5			0.77		11.4		-		0.6
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	-		-		-		-			-		-		-		-
Canada	1.25		18.4		-		0.2			2.10		28.5		0.1		0.3
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.l: PD, LGD, RWA and exposure by country/territory - retail IRB approach retail QRRE
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	1.31		81.6		7.2		34.1			1.26		85.8		6.8		31.4
France	-		-		-		-			-		-		-		-
Germany	-		-		-		-			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	0.96		100.3		8.6		36.5			1.01		100.2		8.1		34.0
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	1.80		93.6		1.4		4.2			1.39		93.6		0.9		3.5
Canada	2.38		64.2		0.1		0.3			2.51		64.4		0.1		0.3
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.m: PD, LGD, RWA and exposure by country/territory - retail IRB approach other SME
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	6.43		81.1		4.0		4.1			6.82		67.7		5.0		6.8
France	16.18		30.6		0.7		1.8			19.77		30.4		0.8		2.3
Germany	-		-		-		-			-		-		-		-
Switzerland	-		-		-		-			-		-		-		-
Asia
Hong Kong	0.30		25.6		-		0.1			0.17		15.9		-		0.1
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	-		-		-		-			-		-		-		-
Canada	4.06		47.6		0.1		0.2			5.44		45.5		0.1		0.2
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 50.n: PD, LGD, RWA and exposure by country/territory - retail IRB approach other non-SME
	At 31 Dec 2018									At 31 Dec 2017
	Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value			Exposure- weighted average PD		Exposure- weighted average LGD		RWAs		Exposure value
	%		%		$bn		$bn			%		%		$bn		$bn
Europe
UK	2.54		79.7		6.0		8.5			2.44		80.6		5.5		8.1
France	2.07		11.5		1.7		19.3			2.09		11.8		1.6		19.7
Germany	-		-		-		-			-		-		-		-
Switzerland	1.25		2.3		0.1		6.0			0.74		2.0		0.1		6.7
Asia
Hong Kong	1.18		27.7		2.3		8.4			1.15		24.2		1.9		7.9
Australia	-		-		-		-			-		-		-		-
India	-		-		-		-			-		-		-		-
Indonesia	-		-		-		-			-		-		-		-
Mainland China	-		-		-		-			-		-		-		-
Malaysia	-		-		-		-			-		-		-		-
Singapore	-		-		-		-			-		-		-		-
Taiwan	-		-		-		-			-		-		-		-
Middle East and North Africa
Egypt	-		-		-		-			-		-		-		-
Turkey	-		-		-		-			-		-		-		-
UAE	-		-		-		-			-		-		-		-
North America
US	5.65		96.7		0.5		1.0			4.88		96.6		0.7		1.3
Canada	1.21		33.3		0.2		0.9			1.06		30.8		0.2		1.1
Latin America
Argentina	-		-		-		-			-		-		-		-
Mexico	-		-		-		-			-		-		-		-

Table 51: Retail IRB exposure - by internal PD band
		At 31 Dec 2018				At 31 Dec 2017
	PD range	Average net carrying values1		Undrawn commitments		Average net  carrying values1		Undrawn commitments
	%	$bn		$bn		$bn		$bn
Retail SME exposure secured by mortgages on immovable property		3.2		0.3		1.5		-
Band 1	0.000 to 0.483	1.0		0.1		0.6		-
Band 2	0.484 to 1.022	0.6		0.1		0.2		-
Band 3	1.023 to 4.914	1.2		0.1		0.4		-
Band 4	4.915 to 8.860	0.2		-		0.2		-
Band 5	8.861 to 15.000	0.1		-		0.1		-
Band 6	15.001 to 50.000	-		-		-		-
Band 7	50.001 to 100.000	0.1		-		-		-
Retail non-SME exposure secured by mortgages on immovable property		280.9		17.3		260.5		18.6
Band 1	0.000 to 0.483	234.9		15.5		213.0		16.9
Band 2	0.484 to 1.022	21.4		1.0		21.2		0.9
Band 3	1.023 to 4.914	17.7		0.7		18.2		0.7
Band 4	4.915 to 8.860	2.4		-		3.0		-
Band 5	8.861 to 15.000	0.5		-		0.5		-
Band 6	15.001 to 50.000	1.6		0.1		1.5		0.1
Band 7	50.001 to 100.000	2.4		-		3.1		-
Qualifying revolving retail exposure		129.1		111.6		120.2		104.7
Band 1	0.000 to 0.483	102.7		95.0		96.2		91.2
Band 2	0.484 to 1.022	11.5		8.1		10.3		7.1
Band 3	1.023 to 4.914	12.3		7.5		11.1		5.6
Band 4	4.915 to 8.860	1.4		0.6		1.4		0.5
Band 5	8.861 to 15.000	0.5		0.2		0.4		0.1
Band 6	15.001 to 50.000	0.5		0.2		0.5		0.1
Band 7	50.001 to 100.000	0.2		-		0.3		0.1
Other retail SME exposure		8.7		3.8		10.2		4.2
Band 1	0.000 to 0.483	1.2		0.9		1.3		0.8
Band 2	0.484 to 1.022	1.4		0.9		1.8		0.9
Band 3	1.023 to 4.914	4.3		1.6		4.9		1.9
Band 4	4.915 to 8.860	1.0		0.2		1.1		0.3
Band 5	8.861 to 15.000	0.3		0.1		0.5		0.1
Band 6	15.001 to 50.000	0.3		0.1		0.2		0.1
Band 7	50.001 to 100.000	0.2		-		0.4		0.1
Other retail non-SME exposure		54.8		15.9		53.1		16.0
Band 1	0.000 to 0.483	34.1		12.4		33.5		12.8
Band 2	0.484 to 1.022	9.1		1.6		8.2		1.6
Band 3	1.023 to 4.914	9.6		1.7		9.6		1.4
Band 4	4.915 to 8.860	1.1		0.1		0.9		0.1
Band 5	8.861 to 15.000	0.4		-		0.3		-
Band 6	15.001 to 50.000	0.2		-		0.2		-
Band 7	50.001 to 100.000	0.3		0.1		0.4		0.1
Total retail exposure		476.7		149.0		445.5		143.5
Band 1	0.000 to 0.483	373.9		124.0		344.6		121.7
Band 2	0.484 to 1.022	44.0		11.7		41.7		10.5
Band 3	1.023 to 4.914	45.1		11.6		44.2		9.6
Band 4	4.915 to 8.860	6.1		0.9		6.6		0.9
Band 5	8.861 to 15.000	1.8		0.3		1.8		0.2
Band 6	15.001 to 50.000	2.6		0.4		2.4		0.3
Band 7	50.001 to 100.000	3.2		0.1		4.2		0.3

1     Average net carrying values are calculated by aggregating the net carrying values of the last five quarters and dividing by five.

Table 52: IRB expected loss and CRAs - by exposure class
				CRA
		Expected loss		Balances		Charge for the year
		$bn		$bn		$bn
1	Total IRB approach
2	Central governments and central banks	0.1		0.1		-
3	Institutions	-		-		-
4	Corporates	5.0		4.1		0.5
5	Retail	2.4		1.8		0.9
	-  secured by mortgages on immovable property SME	0.1		0.1		0.1
	-  secured by mortgages on immovable property non-SME	0.8		0.3		-
	-  qualifying revolving retail	0.7		0.7		0.4
	-  other SME	0.4		0.3		0.2
	-  other non-SME	0.4		0.4		0.2
6	Total at 31 Dec 2018	7.5		6.0		1.4
1	Total IRB approach
2	Central governments and central banks	0.1		-		-
3	Institutions	-		-		-
4	Corporates	5.3		4.2		0.7
5	Retail	2.5		1.0		0.3
	-  secured by mortgages on immovable property non-SME	0.8		0.3		-
	-  qualifying revolving retail	0.8		0.2		0.2
	-  other SME	0.5		0.3		-
	-  other non-SME	0.4		0.2		0.1
6	Total at 31 Dec 2017	7.9		5.2		1.0
1	Total IRB approach
2	Central governments and central banks	0.1		-		-
3	Institutions	-		-		-
4	Corporates	5.7		4.3		1.1
5	Retail	3.6		1.2		0.5
	-  secured by mortgages on immovable property non-SME	1.9		0.4		0.1
	-  qualifying revolving retail	0.6		0.2		0.2
	-  other SME	0.6		0.3		-
	-  other non-SME	0.5		0.3		0.2
6	Total at 31 Dec 2016	9.4		5.5		1.6
1	Total IRB approach
2	Central governments and central banks	0.2		-		-
3	Institutions	0.1		-		-
4	Corporates	5.5		4.5		1.0
5	Retail	5.5		2.1		0.4
	-  secured by mortgages on immovable property non-SME	3.5		1.2		-
	-  qualifying revolving retail	0.7		0.2		0.2
	-  other SME	0.7		0.3		-
	-  other non-SME	0.6		0.4		0.2
6	Total at 31 Dec 2015	11.3		6.6		1.4
1	Total IRB approach
2	Central governments and central banks	0.3		-		-
3	Institutions	0.3		-		-
4	Corporates	5.2		4.2		1.1
5	Retail	7.2		3.1		0.2
	-  secured by mortgages on immovable property non-SME	5.1		1.9		(0.1	)
	-  qualifying revolving retail	0.7		0.3		0.1
	-  other SME	0.7		0.4		-
	-  other non-SME	0.7		0.5		0.2
6	Total at 31 Dec 2014	13.0		7.3		1.3

Table 53: Credit risk RWAs - by geographical region
	RWAs
	Europe		Asia		MENA		North America		Latin America		Total
	$bn		$bn		$bn		$bn		$bn		$bn
IRB advanced approach	150.3		216.2		7.3		86.5		7.9		468.2
-  central governments and central banks	4.2		15.1		5.0		5.4		7.2		36.9
-  institutions	4.5		7.6		0.5		1.1		0.5		14.2
-  corporates	113.2		162.0		1.8		67.9		0.2		345.1
-  total retail	28.4		31.5		-		12.1		-		72.0
Secured by mortgages on immovable property SME	1.7		0.1		-		-		-		1.8
Secured by mortgages on immovable property non-SME	7.1		20.5		-		9.6		-		37.2
Qualifying revolving retail	7.2		8.6		-		1.5		-		17.3
Other SME	4.6		-		-		0.2		-		4.8
Other non-SME	7.8		2.3		-		0.8		-		10.9
IRB securitisation positions	5.6		0.2		-		0.5		-		6.3
IRB non-credit obligation assets	3.5		4.7		0.6		1.3		0.7		10.8
IRB foundation approach	21.0		-		9.5		-		-		30.5
-  institutions	-		-		0.2		-		-		0.2
-  corporates	21.0		-		9.3		-		-		30.3
Standardised approach	39.0		70.8		29.6		14.8		21.1		175.3
-  central governments and central banks1	3.6		1.7		0.6		5.4		1.2		12.5
-  institutions	0.2		0.2		0.8		-		-		1.2
-  corporates	18.4		20.3		20.4		5.9		14.2		79.2
-  retail	0.9		6.3		3.7		0.9		3.0		14.8
-  secured by mortgages on immovable property	2.4		6.3		1.2		0.5		0.9		11.3
-  exposures in default	1.0		0.5		1.4		0.3		0.6		3.8
-  regional governments or local authorities1	-		-		0.8		-		0.5		1.3
-  public sector entities1	-		-		-		-		-		-
-  equity	2.8		30.6		0.2		1.1		0.3		35.0
-  items associated with particularly high risk	6.3		-		0.1		0.4		0.1		6.9
-  securitisation positions	0.6		1.4		-		-		0.1		2.1
-  claims in the form of CIU	0.6		-		-		-		-		0.6
-  other items	2.2		3.5		0.4		0.3		0.2		6.6
Total at 31 Dec 2018	219.4		291.9		47.0		103.1		29.7		691.1

IRB advanced approach	149.9		208.8		7.1		83.7		5.9		455.4
-  central governments and central banks	3.4		14.8		5.1		5.3		5.3		33.9
-  institutions	4.9		9.9		0.6		1.9		0.3		17.6
-  corporates	114.2		157.3		1.4		65.0		0.3		338.2
-  total retail	27.4		26.8		-		11.5		-		65.7
Secured by mortgages on immovable property SME	0.4		-		-		0.1		-		0.5
Secured by mortgages on immovable property non-SME	7.1		16.8		-		9.3		-		33.2
Qualifying revolving retail	6.8		8.1		-		1.1		-		16.0
Other SME	5.8		-		-		0.1		-		5.9
Other non-SME	7.3		1.9		-		0.9		-		10.1
IRB securitisation positions	13.0		0.2		-		0.5		-		13.7
IRB non-credit obligation assets	5.3		5.4		0.4		1.3		0.8		13.2
IRB foundation approach	18.8		-		9.6		-		-		28.4
-  institutions	-		-		0.1		-		-		0.1
-  corporates	18.8		-		9.5		-		-		28.3
Standardised approach	38.9		69.8		30.6		15.7		19.5		174.5
-  central governments and central banks1	3.2		1.5		0.7		5.9		1.4		12.7
-  institutions	0.2		0.1		0.8		-		0.1		1.2
-  corporates	20.0		19.3		21.0		5.8		12.2		78.3
-  retail	1.0		6.5		4.3		1.3		3.4		16.5
-  secured by mortgages on immovable property	2.6		5.5		1.2		0.4		0.7		10.4
-  exposures in default	1.3		0.6		1.3		0.3		0.4		3.9
-  regional governments or local authorities1	-		-		0.7		-		0.3		1.0
-  public sector entities1	-		-		-		-		0.1		0.1
-  equity	2.6		31.8		0.2		1.0		0.5		36.1
-  items associated with particularly high risk	5.1		-		0.1		0.4		0.1		5.7
-  securitisation positions	0.3		1.1		-		-		0.2		1.6
-  claims in the form of CIU	0.6		-		-		-		-		0.6
-  other items	2.0		3.4		0.3		0.6		0.1		6.4
Total at 31 Dec 2017	225.9		284.2		47.7		101.2		26.2		685.2

1     Standardised exposures to EEA 'regional governments and local authorities' and 'public sector entities' are reported separately in 2018. In previous years, these exposures were grouped with 'central governments and central banks'. Prior reporting has not been restated.

Table 54: IRB exposure - credit risk mitigation
		At 31 Dec 2018										At 31 Dec 2017
		Exposures unsecured: carrying amount		Exposures secured: carrying amount		Exposures secured by collateral		Exposures secured by financial guarantees		Exposures secured by credit derivatives		Exposures unsecured: carrying amount		Exposures secured: carrying amount		Exposures secured by collateral		Exposures secured by financial guarantees		Exposures secured by credit derivatives
	Footnote	$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn
Exposures under the advanced approach	1
Central governments and central banks		303.4		28.3		26.8		1.5		-		289.2		18.9		18.1		0.8		-
Institutions	2	74.5		6.1		4.4		1.7		-		82.0		12.3		5.9		1.5		-
Corporates	2	560.9		388.0		272.4		104.7		10.9		539.5		378.7		273.5		97.2		12.9
Retail		192.0		291.3		267.9		23.4		-		188.3		279.3		256.6		22.7		-
Total		1,130.8		713.7		571.5		131.3		10.9		1,099.0		689.2		554.1		122.2		12.9
Exposures under the foundation approach	1
Institutions		0.5		-		-		-		-		0.2		-		-		-		-
Corporates		57.1		20.8		15.2		5.6		-		64.4		8.8		6.4		2.4		-
Total		57.6		20.8		15.2		5.6		-		64.6		8.8		6.4		2.4		-

1     This table includes both on- and off-balance sheet exposures.

2     Previously $4.9bn of corporate exposure secured by credit derivatives at 31 December 2017 was reported in the institutions exposure class. This exposure is now reported in the corporates exposure class.

Table 55: Standardised exposure - credit risk mitigation
		At 31 Dec 2018										At 31 Dec 2017
		Exposures unsecured: carrying amount		Exposures secured: carrying amount		Exposures secured by collateral		Exposures secured by financial guarantees		Exposures secured by credit derivatives		Exposures unsecured: carrying amount		Exposures secured: carrying amount		Exposures secured by collateral		Exposures secured by financial guarantees		Exposures secured by credit derivatives
	Footnotes	$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn
Exposure classes	1
Central governments and central banks	2,4	157.9		0.8		-		0.8		-		187.8		5.3		0.3		5.0		-
Institutions		2.3		1.1		-		1.1		-		2.4		1.1		-		1.1		-
Corporates		125.6		53.8		43.0		10.8		-		130.8		41.5		32.0		9.5		-
Retail		62.3		1.5		1.3		0.2		-		68.0		2.6		1.4		1.2		-
Secured by mortgages on immovable property		9.8		22.2		22.1		0.1		-		9.4		19.6		19.6		-		-
Exposures in default		2.4		0.6		0.5		0.1		-		2.9		0.5		0.5		-		-
Items associated with particularly high risk	3	1.7		0.1		-		0.1		-		1.3		0.1		-		0.1		-
Regional governments or local authorities	4	7.1		0.2		0.2		-		-		-		-		-		-		-
Public sector entities	4	8.2		4.0		-		4.0		-		-		-		-		-		-
Total		377.3		84.3		67.1		17.2		-		402.6		70.7		53.8		16.9		-

1     This table includes both on and off balance sheet exposures.

2     Deferred tax assets are excluded from the exposure.

3     Equities are excluded from the exposure.

4    Standardised exposures to EEA 'regional governments and local authorities' and 'public sector entities' are reported separately in 2018. In previous years, these exposures were grouped with 'central governments and central banks'.

Table 56: Standardised exposure - by credit quality step
	At 31 Dec 2018						At 31 Dec 2017
	Original exposure1		Exposure value		RWAs^		Original exposure1		Exposure value		RWAs
	$bn		$bn		$bn		$bn		$bn		$bn
Central governments and central banks2
Credit quality step 1	158.0		166.3				190.6		196.3
Credit quality step 2	0.3		0.2				0.8		1.2
Credit quality step 3	0.4		0.5				0.9		1.1
Credit quality step 4	-		-				0.2		-
Credit quality step 5	-		-				0.4		0.4
Credit quality step unrated	5.0		5.0				5.2		5.2
	163.7		172.0		12.5		198.1		204.2		12.7
Institutions
Credit quality step 1	0.4		0.4				0.4		0.4
Credit quality step 2	2.5		1.5				2.8		1.8
Credit quality step 4	0.1		0.1				-		-
Credit quality step 5	-		-				-		-
Credit quality step unrated	0.2		0.2				0.3		0.3
	3.2		2.2		1.2		3.5		2.5		1.2
Corporates
Credit quality step 1	1.9		3.6				3.4		3.7
Credit quality step 2	5.2		3.4				5.2		3.7
Credit quality step 3	5.4		3.6				1.9		1.9
Credit quality step 4	2.2		1.6				1.7		1.4
Credit quality step 5	1.2		0.7				0.3		0.2
Credit quality step 6	0.2		0.1				0.3		0.3
Credit quality step unrated	163.9		71.1				160.0		72.4
	180.0		84.1		79.2		172.8		83.6		78.3

1     Figures presented on an 'obligor basis'.

2     Standardised exposures to EEA 'regional governments and local authorities' and 'public sector entities' are reported separately in 2018. In previous years, these exposures were grouped with 'central governments and central banks'.

Table 57: Changes in stock of general and specific credit risk adjustments (CR2-A)
			Twelve months to 31 Dec
			2018				2017
			Accumulated specific credit risk adjustments		Accumulated general credit risk adjustments		Accumulated specific credit risk adjustments		Accumulated general credit risk adjustments
		Footnotes	$bn		$bn		$bn		$bn
1	Opening balance at the beginning of the period	1	10.4		-		8.6		-
2	Increases due to amounts set aside for estimated loan losses during the period	2	2.3		-		2.0		-
4	Decreases due to amounts taken against accumulated credit risk adjustments		(2.5	)	-		(3.2	)	-
	Recoveries on credit risk adjustments written off in previous years		-		-		0.6		-
6	Impact of exchange rate differences		(0.4	)	-		-		-
8	Other adjustments		-		-		0.1		-
9	Closing balance at the end of the period		9.8		-		8.1		-
10	Recoveries on credit risk adjustments recorded directly to the statement of profit or loss		0.4		-		-		-

1     Includes a day one increase of $2.2bn arising from the adoption of IFRS 9 'Financial Instruments'.

2     Following adoption of IFRS 9 'Financial instruments', the movement due to amounts set aside for estimated loan losses during the period has been reported net.

Table 58: Changes in stock of defaulted loans and debt securities (CR2-B)
			Twelve months to 31 Dec
			2018		2017
			Gross carrying value		Gross  carrying value
		Footnote	$bn		$bn
1	Defaulted loans and debt securities at the beginning of the period		15.1		17.9
2	Loans and debt securities that have defaulted since the last reporting period		5.7		6.4
3	Returned to non-defaulted status		(1.3	)	(2.0	)
4	Amounts written off		(2.5	)	(2.6	)
5	Other changes	1	(0.8	)	(0.8	)
7	Repayments		(2.5	)	(3.8	)
6	Defaulted loans and debt securities at the end of the period		13.7		15.1

1     Other changes include foreign exchange movements and changes in assets held for sale in default.

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF		EAD post-CRM and post-CCF		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density		Expected loss		Value adjustments and provisions^
PD scale	$bn		$bn		%		$bn		%				%		years		$bn		%		$bn		$bn
AIRB - Central government and central banks
0.00 to <0.15	313.5		2.7		52.6		315.6		0.02		258		42.4		2.10		26.0		8		-
0.15 to <0.25	2.5		-		18.2		2.5		0.22		10		45.0		1.80		1.1		42		-
0.25 to <0.50	2.1		-		98.9		2.3		0.37		14		45.1		1.30		1.1		50		-
0.50 to <0.75	3.3		0.2		78.3		3.4		0.63		16		45.0		1.10		2.2		64		-
0.75 to <2.50	6.8		0.2		70.8		6.6		1.72		22		45.0		1.20		6.4		97		0.1
2.50 to <10.00	0.4		0.1		41.0		-		7.49		9		45.1		4.60		0.1		210		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	328.6		3.2		55.0		330.4		0.06		329		42.5		2.10		36.9		11		0.1		0.1
AIRB - Institutions
0.00 to <0.15	60.7		9.7		39.3		65.0		0.05		2,574		39.5		1.40		9.3		14		-
0.15 to <0.25	3.1		0.7		22.0		3.3		0.22		323		44.7		0.90		1.2		37		-
0.25 to <0.50	2.6		0.3		59.1		2.2		0.37		182		41.5		1.20		1.1		52		-
0.50 to <0.75	1.4		0.2		45.8		1.4		0.63		140		41.5		1.30		1.1		74		-
0.75 to <2.50	1.2		0.5		50.6		1.5		1.10		242		45.1		1.20		1.4		96		-
2.50 to <10.00	0.1		-		24.7		-		6.19		22		46.4		0.80		-		169		-
10.00 to <100.00	-		0.1		25.6		-		13.00		17		55.0		1.00		0.1		253		-
100.00 (Default)	-		-		-		-		100.00		1		64.8		1.00		-		807		-
Sub-total	69.1		11.5		39.2		73.4		0.11		3,501		39.9		1.40		14.2		19		-		-
AIRB - Corporate - Specialised Lending (excluding Slotting)1
0.00 to <0.15	1.8		1.3		38.0		2.1		0.10		409		30.4		3.40		0.6		27		-
0.15 to <0.25	1.9		0.4		33.4		2.0		0.22		418		28.6		3.40		0.7		37		-
0.25 to <0.50	0.6		0.3		35.8		0.7		0.37		188		28.9		4.40		0.4		55		-
0.50 to <0.75	1.3		0.2		34.4		1.0		0.63		261		24.5		3.50		0.5		51		-
0.75 to <2.50	1.2		0.5		49.7		1.5		1.38		397		32.1		3.80		1.3		91		-
2.50 to <10.00	0.6		0.1		51.1		0.5		5.34		136		27.4		3.20		0.5		101		-
10.00 to <100.00	0.3		0.1		48.1		0.3		24.05		73		23.2		3.40		0.4		130		-
100.00 (Default)	0.1		0.1		87.5		0.2		100.00		105		37.9		4.80		0.5		258		0.1
Sub-total	7.8		3.0		41.3		8.3		3.68		1,987		29.1		3.60		4.9		59		0.1		0.1
AIRB - Corporate - Other
0.00 to <0.15	109.3		160.4		38.0		212.4		0.08		10,036		41.1		2.20		48.2		23		0.1
0.15 to <0.25	49.8		62.5		37.6		81.1		0.22		10,191		39.1		2.00		31.2		38		0.1
0.25 to <0.50	51.1		54.7		33.9		73.3		0.37		10,304		37.3		2.10		35.4		48		0.1
0.50 to <0.75	56.9		42.1		33.8		69.9		0.63		10,348		34.3		1.90		39.5		57		0.2
0.75 to <2.50	146.2		102.1		32.2		137.6		1.37		42,602		37.6		2.00		111.3		81		0.7
2.50 to <10.00	30.5		23.2		35.7		29.8		4.10		11,510		38.0		2.00		34.3		115		0.5
10.00 to <100.00	5.1		3.3		43.0		4.5		19.20		1,967		38.6		2.00		8.3		185		0.3
100.00 (Default)	4.2		0.9		46.6		4.5		100.00		2,473		46.0		1.90		9.9		221		1.9
Sub-total	453.1		449.2		35.9		613.1		1.55		99,431		38.7		2.10		318.1		52		3.9		3.1
Wholesale AIRB - Total at 31 Dec 20182	915.5		466.9		36.1		1,082.1		0.98		105,248		39.9		2.00		384.9		37		4.1		3.3

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6) (continued)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF		EAD post-CRM and post-CCF		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density		Expected loss		Value adjustments and provisions^
PD scale	$bn		$bn		%		$bn		%				%		years		$bn		%		$bn		$bn
AIRB - Secured by mortgages on immovable property SME
0.00 to <0.15	0.3		-		31.4		0.3		0.08		1,321		16.2		-		-		4		-
0.15 to <0.25	0.2		-		39.8		0.2		0.21		2,557		29.5		-		-		12		-
0.25 to <0.50	0.4		0.1		35.2		0.4		0.36		6,478		28.8		-		0.1		16		-
0.50 to <0.75	0.3		0.1		44.5		0.3		0.61		5,000		32.2		-		0.1		27		-
0.75 to <2.50	0.9		0.2		33.8		1.0		1.47		13,728		35.2		-		0.5		51		-
2.50 to <10.00	0.8		0.1		40.2		0.9		4.57		7,963		31.2		-		0.7		82		-
10.00 to <100.00	0.1		-		39.8		0.1		17.19		1,312		31.6		-		0.1		138		-
100.00 (Default)	0.1		-		55.7		0.1		100.00		1,266		33.9		-		0.3		227		0.1
Sub-total	3.1		0.5		37.5		3.3		5.78		39,625		30.8		-		1.8		54		0.1		0.1
AIRB - Secured by mortgages on immovable property non-SME
0.00 to <0.15	172.1		11.4		89.8		185.9		0.06		1,066,724		15.4		-		12.4		7		-
0.15 to <0.25	27.7		1.3		81.6		28.9		0.20		122,304		15.7		-		3.6		13		-
0.25 to <0.50	24.5		2.9		43.8		25.8		0.35		117,856		17.4		-		4.6		18		-
0.50 to <0.75	10.5		0.3		92.3		10.9		0.58		51,235		11.2		-		1.8		16		-
0.75 to <2.50	23.8		1.2		79.7		24.9		1.26		105,656		18.1		-		7.5		30		0.1
2.50 to <10.00	5.8		0.2		96.7		6.0		4.51		27,556		11.7		-		2.3		39		-
10.00 to <100.00	2.1		0.1		97.4		2.2		25.15		18,895		21.1		-		3.0		138		0.1
100.00 (Default)	2.3		-		76.1		2.3		100.00		18,777		24.6		-		2.0		89		0.6
Sub-total	268.8		17.4		81.0		286.9		1.31		1,529,003		15.7		-		37.2		13		0.8		0.3
AIRB - Qualifying revolving retail exposures
0.00 to <0.15	5.4		70.8		49.3		40.1		0.07		13,591,739		91.3		-		1.8		4		-
0.15 to <0.25	1.4		12.5		47.9		7.3		0.21		2,415,087		93.5		-		0.8		11		-
0.25 to <0.50	2.2		12.1		43.1		7.4		0.36		1,989,811		92.3		-		1.3		18		-
0.50 to <0.75	2.2		5.0		48.8		4.6		0.61		987,590		92.1		-		1.2		26		-
0.75 to <2.50	5.9		9.0		46.5		10.1		1.42		2,052,818		90.0		-		4.8		48		0.1
2.50 to <10.00	3.2		1.8		62.0		4.3		4.74		890,646		89.0		-		4.8		112		0.2
10.00 to <100.00	0.9		0.3		66.5		1.1		28.46		294,570		89.4		-		2.4		216		0.3
100.00 (Default)	0.1		-		22.8		0.1		100.00		72,485		79.6		-		0.2		160		0.1
Sub-total	21.3		111.5		48.5		75.0		1.17		22,294,746		91.3		-		17.3		23		0.7		0.7
AIRB - Other SME
0.00 to <0.15	0.1		0.3		35.0		0.2		0.09		98,383		75.0		-		-		14		-
0.15 to <0.25	-		0.2		38.3		0.1		0.22		72,510		80.8		-		-		29		-
0.25 to <0.50	0.1		0.4		48.7		0.3		0.38		124,508		74.4		-		0.1		39		-
0.50 to <0.75	0.2		0.5		63.4		0.5		0.63		155,864		68.4		-		0.2		46		-
0.75 to <2.50	1.1		1.2		58.7		1.8		1.60		358,362		66.9		-		1.3		67		-
2.50 to <10.00	1.8		1.0		69.1		2.6		4.87		181,027		59.5		-		2.1		80		0.1
10.00 to <100.00	0.4		0.2		48.6		0.5		19.39		79,791		73.9		-		0.6		133		0.1
100.00 (Default)	0.3		-		96.8		0.3		100.00		15,015		38.7		-		0.5		160		0.2
Sub-total	4.0		3.8		57.8		6.3		9.05		1,085,460		64.1		-		4.8		76		0.4		0.3
AIRB - Other non-SME
0.00 to <0.15	8.1		6.3		30.7		10.6		0.08		574,137		18.7		-		0.6		5		-
0.15 to <0.25	6.5		3.5		36.4		8.1		0.21		491,674		27.8		-		1.1		13		-
0.25 to <0.50	6.6		2.6		28.4		7.5		0.37		386,099		30.4		-		1.5		20		-
0.50 to <0.75	4.9		1.4		24.9		5.3		0.60		196,811		28.2		-		1.2		24		-
0.75 to <2.50	7.9		0.9		17.1		8.2		1.35		421,600		35.4		-		3.5		43		-
2.50 to <10.00	3.8		1.1		23.0		4.1		4.39		246,174		32.8		-		2.1		51		0.1
10.00 to <100.00	0.6		0.1		15.7		0.7		25.06		92,869		45.5		-		0.6		92		0.1
100.00 (Default)	0.3		0.1		7.7		0.3		100.00		40,274		43.9		-		0.3		103		0.2
Sub-total	38.7		16.0		29.6		44.8		1.91		2,449,638		28.3		-		10.9		24		0.4		0.4
Retail AIRB - Total at 31 Dec 2018	335.9		149.2		50.5		416.3		1.50		27,398,472		31.5		-		72.0		17		2.4		1.8

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6) (continued)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF		EAD post-CRM and post-CCF		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density		Expected loss		Value adjustments and provisions^
PD scale	$bn		$bn		%		$bn		%				%		years		$bn		%		$bn		$bn
FIRB - Central government and central banks
0.00 to <0.15	-		-		-		0.1		0.03		1		45.0		4.60		-		25		-
0.15 to <0.25	-		-		-		-		-		-		-		-		-		-		-
0.25 to <0.50	-		-		-		-		-		-		-		-		-		-		-
0.50 to <0.75	-		-		-		-		-		-		-		-		-		-		-
0.75 to <2.50	-		-		-		-		-		-		-		-		-		-		-
2.50 to <10.00	-		-		-		-		-		-		-		-		-		-		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	-		-		-		0.1		0.03		1		45.0		4.60		-		25		-		-
FIRB - Institutions
0.00 to <0.15	0.5		-		23.5		0.6		0.10		2		45.0		2.70		0.2		33		-
0.15 to <0.25	-		-		63.3		0.1		0.22		1		45.0		3.60		-		60		-
0.25 to <0.50	-		-		1.1		-		0.37		1		45.0		0.10		-		36		-
0.50 to <0.75	-		-		-		-		-		-		-		-		-		-		-
0.75 to <2.50	-		-		-		-		-		-		-		-		-		-		-
2.50 to <10.00	-		-		-		-		-		-		-		-		-		-		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	0.5		-		40.6		0.7		0.12		4		45.0		2.80		0.2		35		-		-
FIRB - Corporate - Other
0.00 to <0.15	9.9		13.5		46.4		16.3		0.08		1,186		44.5		2.20		4.0		24		-
0.15 to <0.25	3.5		5.9		33.5		5.4		0.22		1,269		44.4		2.30		2.5		47		-
0.25 to <0.50	4.0		4.8		33.1		5.4		0.37		1,594		44.1		1.70		3.0		55		-
0.50 to <0.75	4.8		5.6		29.9		6.0		0.63		1,573		45.5		1.80		4.4		74		-
0.75 to <2.50	9.5		10.1		22.5		11.5		1.37		4,387		43.9		1.70		10.8		93		0.1
2.50 to <10.00	3.0		2.1		22.8		3.2		4.59		1,050		43.4		1.80		4.4		140		0.1
10.00 to <100.00	0.5		0.2		37.3		0.6		17.09		166		44.3		1.70		1.2		207		-
100.00 (Default)	0.8		0.2		23.3		0.9		100.00		348		44.4		1.90		-		-		0.4
Sub-total	36.0		42.4		33.9		49.3		2.72		11,573		44.4		1.90		30.3		61		0.6		0.5
FIRB - Total at 31 Dec 2018	36.5		42.4		33.9		50.1		2.67		11,578		44.4		1.90		30.5		61		0.6		0.5

1     Slotting exposures are disclosed in Table 60: Specialised lending on slotting approach (CR10).

2     The Wholesale AIRB Total includes non-credit obligation assets amounting to $56.9bn of original exposure and EAD, and $10.8bn of RWAs.

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6) (continued)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF		EAD post-CRM and post-CCF		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density		Expected loss		Value adjustments and provisions
PD scale	$bn		$bn		%		$bn		%				%		years		$bn		%		$bn		$bn
AIRB - Central government and central banks
0.00 to <0.15	292.5		2.1		39.8		294.3		0.02		255		42.5		2.07		24.8		8		-
0.15 to <0.25	2.2		-		43.0		2.3		0.22		8		42.8		1.71		0.9		39		-
0.25 to <0.50	2.2		-		74.3		2.3		0.37		11		45.0		1.15		1.1		48		-
0.50 to <0.75	2.5		-		-		2.6		0.63		11		45.0		1.40		1.7		68		-
0.75 to <2.50	5.9		-		28.5		5.7		1.62		54		45.0		1.11		5.3		93		0.1
2.50 to <10.00	0.5		0.2		1.5		-		4.35		12		45.1		4.70		0.1		180		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	305.8		2.3		38.1		307.2		0.06		351		42.6		2.04		33.9		11		0.1		-
AIRB - Institutions
0.00 to <0.15	71.5		10.6		45.9		76.9		0.05		2,857		40.9		1.35		11.2		15		-
0.15 to <0.25	2.2		1.0		40.9		2.6		0.22		344		45.3		1.20		1.1		41		-
0.25 to <0.50	3.3		0.5		47.1		3.5		0.37		270		44.7		0.82		1.9		55		-
0.50 to <0.75	2.2		0.7		44.3		2.5		0.63		192		41.8		1.32		1.8		69		-
0.75 to <2.50	1.2		0.7		47.6		1.5		1.15		282		46.1		1.52		1.5		98		-
2.50 to <10.00	0.4		-		19.2		-		4.35		54		45.8		0.55		-		145		-
10.00 to <100.00	-		0.1		23.2		-		12.61		32		50.0		1.29		0.1		239		-
100.00 (Default)	-		-		-		-		100.00		2		76.7		1.00		-		81		-
Sub-total	80.8		13.6		45.4		87.0		0.11		4,033		41.3		1.33		17.6		20		-		-
AIRB - Corporate - Specialised Lending (excluding Slotting)1
0.00 to <0.15	1.4		1.1		34.3		1.8		0.10		409		30.1		3.31		0.5		26		-
0.15 to <0.25	1.5		0.8		30.9		1.6		0.22		431		32.3		3.91		0.7		44		-
0.25 to <0.50	0.9		0.3		43.4		1.0		0.37		232		32.4		3.55		0.6		54		-
0.50 to <0.75	0.9		0.2		51.8		1.0		0.63		254		23.3		4.18		0.5		52		-
0.75 to <2.50	1.9		0.8		47.4		2.3		1.33		487		30.1		3.55		1.7		79		-
2.50 to <10.00	0.4		0.1		36.2		0.5		4.85		232		23.8		3.24		0.4		87		-
10.00 to <100.00	0.3		0.1		46.0		0.3		24.77		88		22.1		3.02		0.4		127		-
100.00 (Default)	0.1		0.2		70.7		0.3		100.00		133		30.6		4.49		0.3		127		0.1
Sub-total	7.4		3.6		40.2		8.8		4.46		2,266		29.4		3.63		5.1		59		0.1		-
AIRB - Corporate - Other
0.00 to <0.15	105.1		155.2		38.2		202.5		0.08		9,655		40.3		2.20		45.6		23		0.1
0.15 to <0.25	50.9		63.9		36.3		82.0		0.22		9,463		36.5		1.92		29.6		36		0.1
0.25 to <0.50	47.0		51.2		36.3		72.7		0.37		10,194		38.0		2.07		35.5		49		0.1
0.50 to <0.75	45.4		41.6		32.4		57.0		0.63		9,375		37.4		1.97		34.7		61		0.1
0.75 to <2.50	140.5		97.9		31.9		133.5		1.37		44,281		37.7		2.05		109.3		82		0.7
2.50 to <10.00	33.5		26.2		33.7		30.8		4.17		11,455		38.8		1.97		36.4		118		0.5
10.00 to <100.00	5.0		3.6		39.8		4.8		21.79		2,202		37.8		1.90		8.6		179		0.4
100.00 (Default)	5.0		1.0		33.5		5.2		100.00		2,429		46.1		2.11		9.8		190		2.1
Sub-total	432.4		440.6		35.8		588.5		1.75		99,054		38.6		2.07		309.5		53		4.1		3.4
Wholesale AIRB - Total at 31 Dec 20172	882.5		460.1		36.1		1,047.6		1.11		105,704		40.0		2.01		379.3		37		4.3		3.4

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6) (continued)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF	EAD post-CRM and post-CCF		Average PD	Number of obligors		Average LGD	Average maturity		RWAs		RWA density	Expected loss		Value adjustments and provisions
PD scale	$bn		$bn		%	$bn		%			%	years		$bn		%	$bn		$bn
AIRB - Secured by mortgages on immovable property SME
0.00 to <0.15	0.4		-		100.0	0.4		0.06	1,291		10.6	-		-		2	-
0.15 to <0.25	-		-		100.0	-		0.18	1,741		17.0	-		-		7	-
0.25 to <0.50	0.2		-		100.0	0.2		0.32	5,164		16.1	-		-		7	-
0.50 to <0.75	0.1		-		117.1	0.1		0.60	3,884		26.2	-		-		19	-
0.75 to <2.50	0.3		-		149.6	0.3		1.60	11,459		27.4	-		0.1		33	-
2.50 to <10.00	0.4		-		102.0	0.4		5.06	5,183		24.3	-		0.2		60	-
10.00 to <100.00	0.1		-		249.6	0.1		17.72	858		26.3	-		0.1		104	-
100.00 (Default)	-		-		78.2	-		100.00	1,215		24.2	-		0.1		216	-
Sub-total	1.5		-		122.5	1.5		4.26	30,795		20.8	-		0.5		35	-		-
AIRB - Secured by mortgages on immovable property non-SME
0.00 to <0.15	161.7		12.9		91.2	177.0		0.06	1,007,985		14.6	-		9.9		6	-
0.15 to <0.25	26.9		1.2		81.9	28.1		0.21	121,136		16.0	-		3.1		11	-
0.25 to <0.50	24.6		2.9		43.9	25.9		0.37	110,580		17.4	-		4.3		17	-
0.50 to <0.75	11.2		0.4		100.2	11.7		0.63	51,845		15.7	-		2.2		19	-
0.75 to <2.50	21.8		1.0		72.4	22.6		1.31	98,817		17.0	-		6.5		29	-
2.50 to <10.00	5.9		0.2		96.6	6.1		4.53	27,756		11.3	-		2.3		38	-
10.00 to <100.00	2.1		0.1		98.8	2.3		26.58	21,434		18.5	-		2.8		120	0.1
100.00 (Default)	2.4		-		69.5	2.4		100.00	20,590		24.7	-		2.1		86	0.7
Sub-total	256.6		18.7		82.5	276.1		1.44	1,460,143		15.3	-		33.2		12	0.8		0.3
AIRB - Qualifying revolving retail exposures
0.00 to <0.15	5.5		68.1		47.1	37.4		0.07	12,974,761		93.5	-		1.7		5	-
0.15 to <0.25	1.4		13.2		44.0	7.2		0.21	2,294,812		94.9	-		0.8		11	-
0.25 to <0.50	2.2		10.2		42.5	6.4		0.37	1,829,719		93.6	-		1.2		19	-
0.50 to <0.75	2.1		4.3		49.8	4.2		0.60	1,104,290		93.4	-		1.1		27	-
0.75 to <2.50	5.8		7.1		47.9	9.0		1.39	2,143,093		91.5	-		4.4		48	0.1
2.50 to <10.00	3.0		1.5		59.4	3.9		4.79	773,854		89.9	-		4.4		114	0.3
10.00 to <100.00	0.8		0.3		58.1	1.0		30.07	281,160		91.6	-		2.2		225	0.3
100.00 (Default)	0.1		-		12.2	0.1		100.00	33,075		83.7	-		0.2		161	0.1
Sub-total	20.9		104.7		46.6	69.2		1.15	21,434,764		93.1	-		16.0		23	0.8		0.2
AIRB - Other SME
0.00 to <0.15	0.1		0.2		44.9	0.2		0.09	92,804		62.2	-		-		12	-
0.15 to <0.25	0.2		0.2		51.1	0.3		0.22	70,783		60.6	-		0.1		23	-
0.25 to <0.50	0.4		0.4		51.4	0.6		0.38	130,411		62.9	-		0.2		33	-
0.50 to <0.75	0.5		0.6		67.7	0.9		0.63	164,640		61.0	-		0.4		42	-
0.75 to <2.50	2.2		1.4		59.1	3.0		1.55	384,599		59.0	-		1.7		57	-
2.50 to <10.00	2.5		1.2		57.3	3.2		4.80	195,235		55.4	-		2.1		67	0.1
10.00 to <100.00	0.5		0.2		53.6	0.6		18.36	80,752		69.8	-		0.7		112	0.1
100.00 (Default)	0.5		0.1		90.6	0.6		100.00	18,209		39.2	-		0.7		116	0.3
Sub-total	6.9		4.3		58.2	9.4		9.84	1,137,433		57.7	-		5.9		63	0.5		0.3
AIRB - Other non-SME
0.00 to <0.15	9.2		6.5		32.2	11.9		0.08	453,740		21.9	-		0.7		6	-
0.15 to <0.25	6.5		3.6		35.6	8.1		0.21	359,875		28.2	-		1.1		13	-
0.25 to <0.50	6.3		2.7		29.4	7.3		0.37	318,434		30.5	-		1.5		21	-
0.50 to <0.75	4.8		1.4		28.4	5.3		0.61	178,341		27.3	-		1.2		24	-
0.75 to <2.50	8.5		0.7		27.9	8.9		1.34	332,213		26.5	-		3.0		33	-
2.50 to <10.00	2.9		0.9		26.1	3.2		4.24	194,512		34.4	-		1.8		57	0.1
10.00 to <100.00	0.6		-		21.2	0.6		24.44	84,817		49.3	-		0.6		107	0.1
100.00 (Default)	0.3		0.1		11.3	0.4		100.00	40,604		46.2	-		0.2		49	0.2
Sub-total	39.1		15.9		31.5	45.7		1.83	1,962,536		27.3	-		10.1		22	0.4		0.2
Retail AIRB - Total at 31 Dec 2017	325.0		143.6		50.0	401.9		1.64	26,025,671		31.1	-		65.7		16	2.5		1.0

Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6) (continued)
	Original on-balance sheet gross exposure		Off-balance sheet exposures pre-CCF		Average CCF		EAD post-CRM and post-CCF		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density		Expected loss		Value adjustments and provisions
PD scale	$bn		$bn		%		$bn		%				%		years		$bn		%		$bn		$bn
FIRB - Central government and central banks
0.00 to <0.15	-		-		-		0.1		0.05		1		45.0		4.48		-		31		-
0.15 to <0.25	-		-		-		-		-		-		-		-		-		-		-
0.25 to <0.50	-		-		-		-		-		-		-		-		-		-		-
0.50 to <0.75	-		-		-		-		-		-		-		-		-		-		-
0.75 to <2.50	-		-		-		-		-		-		-		-		-		-		-
2.50 to <10.00	-		-		-		-		-		-		-		-		-		-		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	-		-		-		0.1		0.05		1		45.0		4.48		-		31		-		-
FIRB - Institutions
0.00 to <0.15	0.2		-		0.8		0.2		0.11		4		45.0		2.13		0.1		29		-
0.15 to <0.25	-		-		-		-		-		-		-		-		-		-		-
0.25 to <0.50	-		-		-		-		-		-		-		-		-		-		-
0.50 to <0.75	-		-		-		-		-		-		-		-		-		-		-
0.75 to <2.50	-		-		-		-		-		-		-		-		-		-		-
2.50 to <10.00	-		-		-		-		-		-		-		-		-		-		-
10.00 to <100.00	-		-		-		-		-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-		-		-		-		-
Sub-total	0.2		-		0.8		0.2		0.11		4		45.0		2.13		0.1		29		-		-
FIRB - Corporate - Other
0.00 to <0.15	9.5		12.7		44.3		14.9		0.08		1,144		45.0		2.47		4.1		27		-
0.15 to <0.25	3.0		6.1		42.1		5.6		0.22		1,259		44.1		2.33		2.7		47		-
0.25 to <0.50	4.4		6.1		32.7		6.3		0.37		1,319		44.1		1.88		3.6		56		-
0.50 to <0.75	3.0		4.6		24.0		4.2		0.63		1,091		42.9		2.19		3.1		75		-
0.75 to <2.50	8.5		10.0		25.8		10.7		1.36		3,663		43.1		1.75		9.7		92		0.1
2.50 to <10.00	2.5		2.0		30.9		3.0		4.67		1,059		43.7		2.03		4.4		144		0.1
10.00 to <100.00	0.3		0.3		30.3		0.4		21.37		184		41.4		1.10		0.7		192		-
100.00 (Default)	0.6		0.2		38.6		0.7		100.00		279		43.8		1.68		-		-		0.3
Sub-total	31.8		42.0		34.9		45.8		2.52		9,998		44.0		2.13		28.3		62		0.5		0.5
FIRB - Total at 31 Dec 2017	32.0		42.0		34.9		46.1		2.51		10,003		44.0		2.13		28.4		62		0.5		0.5

1     Slotting exposures are disclosed in Table 60: Specialised lending on slotting approach (CR10).

2     The Wholesale AIRB Total includes non-credit obligation assets amounting to $51.9bn of original exposure and EAD, and $12.1bn of RWAs.

Table 60: Specialised lending on slotting approach (CR10)
		On-balance sheet amount		Off-balance sheet amount		Risk weight		Exposure amount		RWAs		Expected loss
Regulatory categories	Remaining maturity
		$bn		$bn		%		$bn		$bn		$bn
Category 1	Less than 2.5 years	14.8		2.7		50		15.9		8.0		-
	Equal to or more than 2.5 years	11.7		2.6		70		12.7		8.8		0.1
Category 2	Less than 2.5 years	2.7		0.4		70		2.9		2.0		-
	Equal to or more than 2.5 years	2.0		0.5		90		2.2		2.0		-
Category 3	Less than 2.5 years	0.4		-		115		0.4		0.5		-
	Equal to or more than 2.5 years	0.5		0.1		115		0.5		0.6		-
Category 4	Less than 2.5 years	0.1		-		250		0.1		0.1		-
	Equal to or more than 2.5 years	-		-		250		-		0.1		-
Category 5	Less than 2.5 years	0.3		-		-		0.5		-		0.2
	Equal to or more than 2.5 years	0.1		-		-		0.1		-		0.1
Total at 31 Dec 2018	Less than 2.5 years	18.3		3.1				19.8		10.6		0.2
	Equal to or more than 2.5 years	14.3		3.2				15.5		11.5		0.2

 

Table 60: Specialised lending on slotting approach (CR10) (continued)
		On-balance sheet amount		Off-balance sheet amount		Risk weight		Exposure amount		RWAs		Expected loss
Regulatory categories	Remaining maturity
		$bn		$bn		%		$bn		$bn		$bn
Category 1	Less than 2.5 years	12.2		1.6		50		13.2		6.7		-
	Equal to or more than 2.5 years	12.9		2.0		70		14.3		10.0		0.1
Category 2	Less than 2.5 years	3.3		0.2		70		3.3		2.4		-
	Equal to or more than 2.5 years	2.8		0.4		90		3.0		2.7		-
Category 3	Less than 2.5 years	0.4		-		115		0.4		0.4		-
	Equal to or more than 2.5 years	0.9		0.1		115		0.8		0.9		-
Category 4	Less than 2.5 years	0.1		-		250		0.1		0.2		-
	Equal to or more than 2.5 years	0.1		-		250		0.1		0.3		-
Category 5	Less than 2.5 years	0.3		-		-		0.6		-		0.3
	Equal to or more than 2.5 years	0.3		-		-		0.3		-		0.2
Total at 31 Dec 2017	Less than 2.5 years	16.3		1.8				17.6		9.7		0.3
	Equal to or more than 2.5 years	17.0		2.5				18.5		13.9		0.3

Table 61: Analysis of counterparty credit risk exposure by approach (excluding centrally cleared exposures)¹ (CCR1)
		Replacement cost		Potential future exposure		Effective expected positive exposure		Multiplier		EAD post-CRM		RWAs
		$bn		$bn		$bn		$bn		$bn		$bn
1	Mark to market	12.6		21.5		-		-		34.1		13.9
4	Internal Model Method	-		-		29.9		1.4		41.8		16.2
6	-  of which: derivatives and long settlement transactions2	-		-		29.9		1.4		41.8		16.2
9	Financial collateral comprehensive method (for SFTs)	-		-		-		-		49.3		10.2
11	Total at 31 Dec 2018	12.6		21.5		29.9		1.4		125.2		40.3
1	Mark to market	17.2		44.5		-		-		61.7		25.2
4	Internal Model Method	-		-		15.9		1.4		22.2		9.7
	-  of which:
6	-  of which: derivatives and long settlement transactions2	-		-		15.9		1.4		22.2		9.7
9	Financial collateral comprehensive method (for SFTs)	-		-		-		-		47.6		8.7
11	Total at 31 Dec 2017	17.2		44.5		15.9		1.4		131.5		43.6

1       As the Group does not use the original exposure method, notional values are not reported.

2       Prior to the implementation of SA-CCR exposures reported here will be those under the mark-to-market method.

The changes in exposures under the mark-to-market and IMM approaches in table 61 and the movements between the standardised and advanced CVA within table 62 principally reflect the implementation of IMM in Asia and the US.

Table 62: Credit valuation adjustment (CVA) capital charge (CCR2)
		At 31 Dec 2018				At 31 Dec 2017
		EAD post-CRM		RWAs		EAD post-CRM		RWAs
		$bn		$bn		$bn		$bn
1	Total portfolios subject to the Advanced CVA capital charge	21.4		4.9		9.4		2.8
2	-  VaR component (including the 3 × multiplier)			0.9				0.7
3	-  stressed VaR component (including the 3 × multiplier)			4.0				2.1
4	All portfolios subject to the Standardised CVA capital charge	13.6		1.0		36.6		6.7
5	Total subject to the CVA capital charge	35.0		5.9		46.0		9.5

Table 63: Standardised approach - CCR exposures by regulatory portfolio and risk weights (CCR3)
	Risk weight	0%		10%		20%		50%		75%		100%		150%		Others		Total credit exposure		Of which unrated
1	Central governments and central banks1	7.4		-		0.1		-		-		-		-		-		7.5		-
2	Regional government or local authorities1	1.0		-		-		-		-		-		-		-		1.0		0.1
3	Public sector entities1	-		-		-		-		-		-		-		-		-		-
6	Institutions	-		-		-		-		-		0.1		-		-		0.1		-
7	Corporates	-		-		-		-		-		1.9		-		-		1.9		1.6
	Total at 31 Dec 2018	8.4		-		0.1		-		-		2.0		-		-		10.5		1.7
1	Central governments and central banks1	7.5		-		-		-		-		-		-		-		7.5		6.3
2	Regional government or local authorities1	-		-		-		-		-		-		-		-		-		-
3	Public sector entities1	-		-		-		-		-		-		-		-		-		-
6	Institutions	-		-		-		0.1		-		-		-		-		0.1		0.1
7	Corporates	-		-		-		-		-		1.9		-		-		1.9		1.7
	Total at 31 Dec 2017	7.5		-		-		0.1		-		1.9		-		-		9.5		8.1

1     Standardised exposures to EEA 'regional governments and local authorities' and 'public sector entities' are reported separately in 2018. In previous years, these exposures were grouped with 'central governments and central banks'.

Table 64: IRB - CCR exposures by portfolio and PD scale (CCR4)
	EAD post-CRM		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density
PD scale	$bn		%				%		years		$bn		%
AIRB - Central Government and Central Banks
0.00 to <0.15	10.1		0.02		90		44.9		0.95		0.5		5
0.15 to <0.25	0.1		0.22		12		45.0		3.07		0.1		54
0.25 to <0.50	0.1		0.37		6		44.8		3.36		0.1		74
0.50 to <0.75	0.1		0.63		1		45.0		1.00		-		60
0.75 to <2.50	1.2		2.25		7		45.0		1.29		1.2		100
2.50 to <10.00	-		7.85		1		45.0		5.00		-		218
10.00 to <100.00	-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-
Sub-total	11.6		0.22		117		45.0		1.02		1.9		17
AIRB - Institutions
0.00 to <0.15	40.5		0.06		4,629		44.3		1.17		7.9		19
0.15 to <0.25	3.5		0.22		477		43.9		1.40		1.6		46
0.25 to <0.50	1.7		0.37		75		45.0		1.19		0.9		50
0.50 to <0.75	0.7		0.63		64		44.9		1.06		0.4		67
0.75 to <2.50	0.4		1.37		106		46.2		2.08		0.5		117
2.50 to <10.00	0.1		4.94		20		44.9		1.60		0.1		149
10.00 to <100.00	0.4		12.98		12		55.0		1.20		0.8		241
100.00 (Default)	-		100.00		1		45.0		1.00		-		-
Sub-total	47.3		0.21		5,384		44.7		1.18		12.2		26
AIRB - Corporates
0.00 to <0.15	30.2		0.07		4,934		43.5		1.71		6.4		21
0.15 to <0.25	6.7		0.22		1,796		46.9		1.75		3.2		48
0.25 to <0.50	3.8		0.37		1,029		44.6		1.69		2.1		56
0.50 to <0.75	3.8		0.63		1,018		43.8		1.23		2.8		73
0.75 to <2.50	6.3		1.34		7,375		46.1		1.38		6.6		104
2.50 to <10.00	0.7		3.92		569		46.9		1.62		1.1		150
10.00 to <100.00	0.1		21.77		61		43.6		1.34		0.1		237
100.00 (Default)	-		100.00		17		41.1		2.60		-		-
Sub-total	51.6		0.42		16,799		44.4		1.64		22.3		43
AIRB - Total at 31 Dec 2018	110.5		0.28		22,300		49.2		1.38		36.4		33
FIRB - Corporates
0.00 to <0.15	2.5		0.07		522		37.9		1.73		0.6		24
0.15 to <0.25	0.4		0.22		146		45.0		1.78		0.2		42
0.25 to <0.50	0.2		0.37		130		45.0		1.66		0.1		59
0.50 to <0.75	0.2		0.63		84		45.0		0.82		0.1		74
0.75 to <2.50	0.7		1.59		533		45.0		1.56		0.8		105
2.50 to <10.00	0.1		5.00		82		45.0		2.20		0.1		155
10.00 to <100.00	-		11.95		11		45.0		1.03		-		192
100.00 (Default)	-		100.00		7		45.0		1.02		-		-
FIRB - Total at 31 Dec 2018	4.1		0.54		1,515		45.0		1.82		1.9		45
Total (all portfolios) at 31 Dec 2018	114.6		0.32		23,815		44.6		1.40		38.3		33

Table 64: IRB - CCR exposures by portfolio and PD scale (CCR4) (continued)
	EAD post-CRM		Average PD		Number of obligors		Average LGD		Average maturity		RWAs		RWA density
PD scale	$bn		%				%		years		$bn		%
AIRB - Central Government and Central Banks
0.00 to <0.15	10.9		0.03		92		45.0		0.96		0.7		6
0.15 to <0.25	0.2		0.22		9		45.0		2.83		0.1		49
0.25 to <0.50	0.1		0.37		5		45.0		1.96		-		58
0.50 to <0.75	-		0.63		6		45.0		1.01		-		63
0.75 to <2.50	0.3		1.72		9		45.0		1.42		0.4		102
2.50 to <10.00	1.0		3.59		2		45.0		0.46		1.2		123
10.00 to <100.00	-		-		-		-		-		-		-
100.00 (Default)	-		-		-		-		-		-		-
Sub-total	12.5		0.42		123		45.0		1.00		2.4		19
AIRB - Institutions
0.00 to <0.15	46.8		0.06		3,973		45.3		1.34		9.8		21
0.15 to <0.25	3.9		0.22		331		46.1		1.55		2.0		50
0.25 to <0.50	2.1		0.37		93		45.0		1.13		1.3		59
0.50 to <0.75	0.7		0.63		91		46.3		1.24		0.5		76
0.75 to <2.50	0.7		1.23		164		45.4		1.41		0.7		107
2.50 to <10.00	-		6.00		22		25.7		1.75		0.1		187
10.00 to <100.00	-		12.67		13		54.7		2.57		-		279
100.00 (Default)	-		100.00		1		45.0		1.00		-		-
Sub-total	54.2		0.12		4,688		45.4		1.34		14.4		27
AIRB - Corporates
0.00 to <0.15	31.4		0.07		5,025		44.2		1.84		7.2		23
0.15 to <0.25	5.8		0.22		1,726		47.9		1.40		2.7		46
0.25 to <0.50	3.8		0.37		1,053		45.3		2.09		2.4		62
0.50 to <0.75	2.9		0.63		936		46.0		1.38		2.1		76
0.75 to <2.50	6.8		1.36		3,065		45.8		1.48		6.9		102
2.50 to <10.00	0.6		4.53		566		46.3		1.99		1.0		152
10.00 to <100.00	0.1		20.58		86		47.3		1.20		0.2		263
100.00 (Default)	0.1		100.00		22		43.4		4.41		-		-
Sub-total	51.5		0.65		12,479		45.0		1.74		22.5		44
AIRB - Total at 31 Dec 2017	118.2		0.45		17,290		53.4		1.30		39.3		33
FIRB - Corporates
0.00 to <0.15	2.3		0.07		520		40.3		1.98		0.6		25
0.15 to <0.25	0.3		0.22		159		45.0		1.78		0.1		44
0.25 to <0.50	0.2		0.37		151		45.0		1.75		0.1		59
0.50 to <0.75	0.1		0.63		97		45.0		1.93		0.1		75
0.75 to <2.50	0.7		1.55		516		45.0		1.61		0.8		114
2.50 to <10.00	0.1		4.38		82		45.0		1.64		0.1		142
10.00 to <100.00	-		10.22		9		45.0		1.00		-		187
100.00 (Default)	-		100.00		5		45.0		1.10		-		-
FIRB - Total at 31 Dec 2017	3.7		0.54		1,539		45.0		1.99		1.8		50
Total (all portfolios) at 31 Dec 2017	121.9		0.38		18,829		45.0		1.50		41.1		34

Table 65: Impact of netting and collateral held on exposure values (CCR5-A)
		Gross positive fair value or net carrying amount		Netting benefits		Netted current credit exposure		Collateral held		Net credit exposure
		$bn		$bn		$bn		$bn		$bn
1	Derivatives	579.7		431.8		147.9		42.4		105.5
2	SFTs	983.8		-		983.8		933.1		50.7
4	Total at 31 Dec 2018	1,563.5		431.8		1,131.7		975.5		156.2
1	Derivatives	628.3		469.0		159.3		41.8		117.5
2	SFTs	679.3		-		679.3		633.2		46.1
4	Total at 31 Dec 2017	1,307.6		469.0		838.6		675.0		163.6

Table 66: Composition of collateral for CCR exposure (CCR5-B)
		Collateral used in derivative transactions								Collateral used in SFTs
		Fair value of collateral received				Fair value of posted collateral				Fair value of collateral received		Fair value of posted collateral
		Segregated		Unsegregated		Segregated		Unsegregated
		$bn		$bn		$bn		$bn		$bn		$bn
1	Cash - domestic currency	-		5.6		1.6		4.9		75.9		118.9
2	Cash - other currencies	-		37.6		5.5		32.6		344.1		402.0
3	Domestic sovereign debt	-		5.5		-		5.2		107.7		84.6
4	Other sovereign debt	-		5.8		-		9.5		352.4		323.8
5	Government agency debt	-		0.1		-		0.2		13.4		4.4
6	Corporate bonds	-		0.7		-		0.3		36.4		16.5
7	Equity securities	-		-		-		-		36.8		32.3
8	Other collateral	-		0.3		-		1.2		1.4		0.5
9	Total at 31 Dec 2018	-		55.6		7.1		53.9		968.1		983.0
1	Cash - domestic currency	-		5.9		1.4		3.5		72.6		96.3
2	Cash - other currencies	-		34.7		4.9		28.7		186.1		269.6
3	Domestic sovereign debt	-		5.4		-		5.3		83.3		77.1
4	Other sovereign debt	-		7.6		-		11.2		219.9		166.6
5	Government agency debt	-		0.2		-		1.1		12.0		4.6
6	Corporate bonds	-		0.6		-		0.4		39.2		17.1
7	Equity securities	-		0.4		-		-		46.3		45.0
8	Other collateral	-		0.2		-		0.3		1.6		1.2
9	Total at 31 Dec 2017	-		55.0		6.3		50.5		661.0		677.5

Table 67: Exposures to central counterparties (CCR8)
		At 31 Dec 2018				At 31 Dec 2017
		EAD post-CRM		RWAs		EAD post- CRM		RWAs
		$bn		$bn		$bn		$bn
1	Exposures to QCCPs (total)	42.3		1.1		42.3		1.4
2	Exposures for trades at QCCPs (excluding initial margin and default fund contributions)	24.8		0.5		28.5		0.6
3	-  OTC derivatives	9.8		0.2		18.0		0.4
4	-  exchange-traded derivatives	9.2		0.2		8.1		0.2
5	-  securities financing transactions	5.8		0.1		2.4		-
7	Segregated initial margin	7.1		-		6.3		-
8	Non-segregated initial margin	10.4		0.2		7.5		0.1
9	Pre-funded default fund contributions	-		0.4		-		0.7

Table 68: Securitisation exposures in the non-trading book (SEC1)
		Bank acts as originator							Bank acts as sponsor							Bank acts as investor
		Traditional		Synthetic		Sub-total			Traditional		Synthetic		Sub-total			Traditional		Synthetic		Sub-total
		$bn		$bn		$bn			$bn		$bn		$bn			$bn		$bn		$bn
1	Retail (total)	0.4		-		0.4			13.6		-		13.6			6.8		-		6.8
2	-  residential mortgage	-		-		-			4.3		-		4.3			3.8		-		3.8
3	-  credit card	-		-		-			0.7		-		0.7			0.5		-		0.5
4	-  other retail exposures1	0.4		-		0.4			8.6		-		8.6			2.5		-		2.5
5	-  re-securitisation	-		-		-			-		-		-			-		-		-
6	Wholesale (total)	-		3.2		3.2			6.3		-		6.3			2.1		-		2.1
7	-  loans to corporates	-		3.2		3.2			-		-		-			0.1		-		0.1
8	-  commercial mortgage	-		-		-			0.1		-		0.1			1.5		-		1.5
9	-  lease and receivables	-		-		-			5.6		-		5.6			0.4		-		0.4
10	-  other wholesale	-		-		-			0.2		-		0.2			0.1		-		0.1
11	-  re-securitisation	-		-		-			0.4		-		0.4			-		-		-
	Total at 31 Dec 2018	0.4		3.2		3.6			19.9		-		19.9			8.9		-		8.9
1	Retail (total)	0.8		-		0.8			18.2		-		18.2			6.0		-		6.0
2	-  residential mortgage	-		-		-			0.3		-		0.3			2.6		-		2.6
3	-  credit card	-		-		-			-		-		-			1.0		-		1.0
4	-  other retail exposures	-		-		-			17.9		-		17.9			2.4		-		2.4
5	-  re-securitisation1	0.8		-		0.8			-		-		-			-		-		-
6	Wholesale (total)	-		4.7		4.7			2.7		-		2.7			2.8		-		2.8
7	-  loans to corporates	-		4.7		4.7			0.4		-		0.4			0.1		-		0.1
8	-  commercial mortgage	-		-		-			0.1		-		0.1			2.0		-		2.0
9	-  lease and receivables	-		-		-			0.8		-		0.8			0.4		-		0.4
10	-  other wholesale	-		-		-			0.4		-		0.4			0.3		-		0.3
11	-  re-securitisation	-		-		-			1.0		-		1.0			-		-		-
	Total at 31 Dec 2017	0.8		4.7		5.5			20.9		-		20.9			8.8		-		8.8

1     Following internal review, exposures previously presented as 'other retail exposures' have been represented in 'credit card', 'residential mortgage' and 'other retail' exposures at 31 December 2018 to provide more relevant information on the composition of the Group's securitisation exposures.

Table 69: Securitisation exposures in the trading book (SEC2)
		At
		31 Dec 2018						31 Dec 2017
		Bank acts as investor1						Bank acts as investor1
		Traditional		Synthetic		Sub-total		Traditional		Synthetic		Sub-total
		$bn		$bn		$bn		$bn		$bn		$bn
1	Retail (total)	2.0		-		2.0		1.6		-		1.6
2	-  residential mortgage	1.1		-		1.1		0.9		-		0.9
3	-  credit card	0.2		-		0.2		0.2		-		0.2
4	-  other retail exposures	0.7		-		0.7		0.5		-		0.5
6	Wholesale (total)	0.9		-		0.9		0.9		-		0.9
7	-  loans to corporates	-		-		-		-		-		-
8	-  commercial mortgage	0.7		-		0.7		0.6		-		0.6
9	-  lease and receivables	-		-		-		-		-		-
10	-  other wholesale	0.2		-		0.2		0.3		-		0.3
	Total (all portfolios)	2.9		-		2.9		2.5		-		2.5

1     HSBC does not act as originator or sponsor for securitisation exposures in the trading book.

Table 70: Securitisation exposures in the non-trading book and associated capital requirements - bank acting as originator or sponsor (SEC3)
		Exposure values (by risk weight bands)											Exposure values (by regulatory approach)
		≤20% RW		>20% to 50% RW		>50% to 100% RW		>100% to 1,250% RW		1,250% RW			IRB RBM (including IAA)		IRB SFA		SA		1,250%
		$bn		$bn		$bn		$bn		$bn			$bn		$bn		$bn		$bn
2	Traditional securitisation	19.0		0.2		0.8		0.2		0.1			19.5		-		0.7		0.1
3	Securitisation	19.0		-		0.8		0.1		-			19.2		-		0.7		-
4	-  retail underlying	13.2		-		0.7		0.1		-			13.3		-		0.7		-
5	-  wholesale	5.8		-		0.1		-		-			5.9		-		-		-
6	Re-securitisation	-		0.2		-		0.1		0.1			0.3		-		-		0.1
7	-  senior	-		-		-		-		-			-		-		-		-
8	-  non-senior	-		0.2		-		0.1		0.1			0.3		-		-		0.1
9	Synthetic securitisation	2.9		-		-		0.3		-			3.2		-		-		-
10	Securitisation	2.9		-		-		0.3		-			3.2		-		-		-
11	-  retail underlying	-		-		-		-		-			-		-		-		-
12	-  wholesale	2.9		-		-		0.3		-			3.2		-		-		-
1	Total at 31 Dec 2018	21.9		0.2		0.8		0.5		0.1			22.7		-		0.7		0.1
2	Traditional securitisation	18.6		1.4		0.2		0.5		0.8			20.2		-		0.6		0.8
3	Securitisation	18.4		0.7		0.2		0.3		0.2			19.1		-		0.6		0.2
4	-  retail underlying	17.4		0.3		0.1		0.3		0.1			17.8		-		0.3		0.1
5	-  wholesale	1.0		0.4		0.1		-		0.1			1.3		-		0.3		0.1
6	Re-securitisation	0.2		0.7		-		0.2		0.6			1.1		-		-		0.6
7	-  senior	0.2		-		-		-		-			0.1		-		-		-
8	-  non-senior	-		0.7		-		0.2		0.6			1.0		-		-		0.6
9	Synthetic securitisation	4.3		-		0.4		-		-			4.7		-		-		-
10	Securitisation	4.3		-		0.4		-		-			4.7		-		-		-
11	-  retail underlying	-		-		-		-		-			-		-		-		-
12	-  wholesale	4.3		-		0.4		-		-			4.7		-		-		-
1	Total at 31 Dec 2017	22.9		1.4		0.6		0.5		0.8			24.9		-		0.6		0.8

		RWAs (by regulatory approach)									Capital charge after cap
		IRB RBM (including IAA)		IRB SFA		SA		1,250%			IRB RBM (including IAA)		IRB SFA		SA		1,250%
		$bn		$bn		$bn		$bn			$bn		$bn		$bn		$bn
2	Traditional securitisation	2.5		-		0.7		1.4			0.2		-		0.1		0.1
3	Securitisation	2.0		-		0.7		0.6			0.2		-		0.1		-
4	-  retail underlying	1.5		-		0.7		0.5			0.2		-		0.1		-
5	-  wholesale	0.5		-		-		0.1			-		-		-		-
6	Re-securitisation	0.5		-		-		0.8			-		-		-		0.1
7	-  senior	-		-		-		-			-		-		-		-
8	-  non-senior	0.5		-		-		0.8			-		-		-		0.1
9	Synthetic securitisation	0.8		-		-		0.2			0.1		-		-		-
10	Securitisation	0.8		-		-		0.2			0.1		-		-		-
11	-  retail underlying	-		-		-		-			-		-		-		-
12	-  wholesale	0.8		-		-		0.2			0.1		-		-		-
1	Total at 31 Dec 2018	3.3		-		0.7		1.6			0.3		-		0.1		0.1
2	Traditional securitisation	3.3		-		0.4		7.1			0.2		-		-		0.6
3	Securitisation	2.3		-		0.4		1.4			0.1		-		-		0.2
4	-  retail underlying	2.1		-		0.3		0.7			0.1		-		-		0.1
5	-  wholesale	0.2		-		0.1		0.7			-		-		-		0.1
6	Re-securitisation	1.0		-		-		5.7			0.1		-		-		0.4
7	-  senior	-		-		-		-			-		-		-		-
8	-  non-senior	1.0		-		-		5.7			0.1		-		-		0.4
9	Synthetic securitisation	0.8		-		-		0.3			0.1		-		-		-
10	Securitisation	0.8		-		-		0.3			0.1		-		-		-
11	-  retail underlying	-		-		-		-			-		-		-		-
12	-  wholesale	0.8		-		-		0.3			0.1		-		-		-
1	Total at 31 Dec 2017	4.1		-		0.4		7.4			0.3		-		-		0.6

The reduction in RWA is principally driven by the disposal of non-senior, resecuritisation exposure in the legacy book.

Table 71: Securitisation exposures in the non-trading book and associated capital requirements - bank acting as investor (SEC4)
		Exposure values (by risk weight bands)											Exposure values (by regulatory approach)
		≤20% RW		>20% to 50% RW		>50% to 100% RW		>100% to 1,250% RW		1,250% RW			IRB RBM (including IAA)		IRB SFA		SA		1,250%
		$bn		$bn		$bn		$bn		$bn			$bn		$bn		$bn		$bn
2	Traditional securitisation	7.0		0.6		1.3		-		-			6.9		-		2.0		-
3	Securitisation	7.0		0.6		1.3		-		-			6.9		-		2.0		-
4	-  retail underlying	5.0		0.6		1.2		-		-			4.8		-		2.0		-
5	-  wholesale	2.0		-		0.1		-		-			2.1		-		-		-
1	Total at 31 Dec 2018	7.0		0.6		1.3		-		-			6.9		-		2.0		-
2	Traditional securitisation	6.7		0.5		1.6		-		0.1			7.2		-		1.4		0.1
3	Securitisation	6.7		0.5		1.6		-		0.1			7.2		-		1.4		0.1
4	-  retail underlying	4.5		0.4		1.1		-		0.1			4.5		-		1.4		0.1
5	-  wholesale	2.2		0.1		0.5		-		-			2.7		-		-		-
1	Total at 31 Dec 2017	6.7		0.5		1.6		-		0.1			7.2		-		1.4		0.1

		RWAs (by regulatory approach)									Capital charge after cap
		IRB RBM (including IAA)		IRB SFA		SA		1,250%			IRB RBM (including IAA)		IRB SFA		SA		1,250%
		$bn		$bn		$bn		$bn			$bn		$bn		$bn		$bn
2	Traditional securitisation	0.9		-		1.5		0.4			0.1		-		0.1		-
3	Securitisation	0.9		-		1.5		0.4			0.1		-		0.1		-
4	-  retail underlying	0.5		-		1.5		0.3			-		-		0.1		-
5	-  wholesale	0.4		-		-		0.1			0.1		-		-		-
1	Total at 31 Dec 2018	0.9		-		1.5		0.4			0.1		-		0.1		-
2	Traditional securitisation	1.9		-		1.2		0.9			0.1		-		0.1		0.1
3	Securitisation	1.9		-		1.2		0.9			0.1		-		0.1		0.1
4	-  retail underlying	1.0		-		1.2		0.7			-		-		0.1		0.1
5	-  wholesale	0.9		-		-		0.2			0.1		-		-		-
1	Total at 31 Dec 2017	1.9		-		1.2		0.9			0.1		-		0.1		0.1

Appendix II

Asset encumbrance

The following tables disclose on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral (represented by median values of monthly data points in

2018

), as required by Part Eight of CRD IV.

Table 72: A - Assets
		Carrying amount of encumbered assets		Fair value of encumbered assets		Carrying amount of unencumbered assets		Fair value of unencumbered assets
		$m		$m		$m		$m
010	Assets of the reporting institution	166,440				2,348,406
030	Equity instruments	24,875		25,050		53,562		52,855
040	Debt securities	82,785		82,733		399,875		391,140
120	Other assets	33,687				364,907

Table 72: B - Collateral received
		Fair value of encumbered collateral received or own debt securities issued		Fair value of collateral received or own debt securities issued available for encumbrance
		$m		$m
130	Assets of the reporting institution	241,588		208,467
150	Equity instruments	26,698		20,300
160	Debt securities	213,693		169,526
230	Other collateral received	330		4,783

Table 72: C - Encumbered assets/collateral received and associated liabilities
		Matching liabilities, contingent liabilities or securities lent	Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
		$m	$m
010	Carrying amount of selected financial liabilities	251,279	341,717

Importance of encumbrance

We are a deposit-led bank and hence the majority of our funding is from customer current accounts and customer savings deposits payable on demand or at short notice. Given this structural unsecured funding position, we have little requirement to fund ourselves in secured markets, and therefore our overall low level of encumbrance reflects this position. However, we do provide collateralised financing services to clients as part of our GB&M business model, providing cash financing or specific securities, and these result in off-balance sheet encumbrance. The other sources that contribute to encumbrance are securities pledged in derivative transactions, mostly for hedging purposes, issuance of asset-backed securities, and covered bond programmes in France and Australia. HSBC Holdings ALCO reviews the asset encumbrance of the institution as a whole quarterly and any events changing the asset encumbrance level are examined.

For details on balance sheet encumbered and unencumbered assets, please refer to table 48.

Appendix III

Summary of disclosures withheld

448(a)	Key assumptions (including assumptions regarding loan prepayments and behaviour of non-maturity deposits) on their exposure to interest rate risk on positions not included in the trading book.	Assumptions regarding fixed term loan repayments and term behaviouralisation of non-maturity deposits and capital drive HSBC's structural interest rates positioning and market hedging requirements. These assumptions are proprietary and their disclosure could give key business strategy information to our competitors.

Other Information

Abbreviations

The following abbreviated terms are used throughout this document.

Currencies
$	United States dollar
A
ABCP	Asset-backed commercial paper
ABS1	Asset-backed security
AIRB1	Advanced internal ratings based approach
ALCM	Asset, Liability and Capital Management
ALCO	Asset and Liability Management Committee
AT1 capital	Additional tier 1 capital
AVA	Additional value adjustment
B
BCBS	Basel Committee on Banking Supervision
BoE	Bank of England
BSM	Balance Sheet Management
C
CCB1	Capital conservation buffer
CCF	Credit conversion factor
CCP	Central counterparty
CCR1	Counterparty credit risk
CCyB1	Countercyclical capital buffer
CDS1	Credit default swap
CET11	Common equity tier 1
CIU	Collective investment undertakings
CML1	Consumer and Mortgage Lending (US)
CRA	Credit risk adjustment
CRD IV1	Capital Requirements Regulation and Directive
CRE1	Commercial real estate
CRM	Credit risk mitigation/mitigant
CRR1	Customer risk rating
CRR2	Revisions to the Capital Requirements Regulation and Directive
CSA1	Credit Support Annex
CVA	Credit valuation adjustment
CVC	Conduct and Values Committee
D
D-SIB	Domestic systemically important bank
DPA	Deferred prosecution agreement
E
EAD1	Exposure at default
EBA	European Banking Authority
EC	European Commission
ECA	Export Credit Agency
ECAI	External Credit Assessment Institution
ECL	Expected credit losses
EEA	European Economic Area
EL1	Expected loss
EU	European Union
EVE	Economic value of equity
F
FFVA	Funding Fair Value Adjustment
FIRB1	Foundation internal ratings based approach
Fitch	Fitch Ratings
FPC1	Financial Policy Committee (UK)
FRTB	Fundamental Review of the Trading book
FSB	Financial Stability Board
FSVC	Financial System Vulnerabilities Committee
FVOCI	Fair value through other comprehensive income
G
GAC	Group Audit Committee
GB&M	Global Banking and Markets, a global business
GMB	Group Management Board
GPB	Global Private Banking, a global business
GRC	Group Risk Committee
Group	HSBC Holdings together with its subsidiary undertakings
G-SIB1	Global systemically important bank
G-SII	Global systemically important institution
H
HKMA	Hong Kong Monetary Authority
Hong Kong	The Hong Kong Special Administrative Region of the People's Republic of China
HQLA	High-quality liquid assets
HSBC	HSBC Holdings together with its subsidiary undertakings
HVCRE	High volatility commercial real estate
I
IAA	Internal Assessment Approach
ICAAP1	Internal Capital Adequacy Assessment Process
ICG	Individual capital guidance
ICR	Individual capital requirement
IFRSs	International Financial Reporting Standards
ILAA	Individual Liquidity Adequacy Assessment
ILR	Inherent Liquidity Risk
IMA1	Internal Models Approach
IMM1	Internal Model Method
IMR	Independent Model Review
IRB1	Internal ratings based approach
IRC	Incremental risk charge
IRRBB	Interest rate risk in the banking book
L
LCR	Liquidity Coverage Ratio
LFRF	Liquidity and Funding Risk Framework
LGD1	Loss given default
Libor	London interbank offered rate
M
MDB	Multilateral Development Bank
MENA	Middle East and North Africa
MOC	Model Oversight Committee
Moody's	Moody's Investor Service
MPE	Multiple point of entry
MREL	Minimum requirements for own funds and eligible liabilities
N
NCOA	Non-credit obligation asset
NSFR	Net Stable Funding Ratio
O
ORMF	Operational risk management framework
OTC1	Over-the-counter
P
PD1	Probability of default
PFE	Potential future exposure
PIT	Point-in-time
PRA1	Prudential Regulation Authority (UK)
PVA	Prudent valuation adjustment
Q
QCCP	Qualifying Central Counterparty
R
RAS	Risk appetite statement
RBM1	Ratings Based Method
RBWM	Retail Bank and Wealth Management, a global business
Retail IRB1	Retail internal ratings based approach
RMM	Risk Management Meeting of the GMB
RNIV	Risks not in VaR
ROU	Right of use
RWA1	Risk-weighted asset
S
SA/STD1	Standardised approach
SA-CCR	Standardised approach for counterparty credit risk
S&P	Standard and Poor's rating agency
SFM	Supervisory Formula Method
SFT	Securities Financing Transactions
SIC	Securities Investment Conduit
SME	Small- and medium-sized enterprise
SPE1	Special Purpose Entity
SRB1	Systemic Risk Buffer
SREP	Supervisory Review and Evaluation Process
SSFA/SFA	Simplified supervisory formula approach
SVaR	Stressed Value at risk
T
TLAC1	Total Loss Absorbing Capacity
TTC	Through-the-cycle
T1 capital	Tier 1 capital
T2 capital	Tier 2 capital
U
UK	United Kingdom
US	United States
V
VaR1	Value at risk

1     Full definition included in the Glossary published on HSBC website www.hsbc.com

Cautionary statement regarding forward- looking statements

The

Pillar 3 Disclosures at 31 December

2018

 contain certain forward-looking statements with respect to HSBC's financial

 condition, results of operations, capital position and business.

Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC 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 continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding markets; 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; and consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements;

•     Changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; 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; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for our products and services; the costs, effects and outcomes of product 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, including securities firms; 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). 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; and 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 69 to 73 of the Annual Report and Accounts 2018.

Contacts

Enquiries relating to HSBC's strategy or operations may be directed to:

Richard O'Connor Global Head of Investor Relations HSBC Holdings plc 8 Canada Square London E14 5HQ United Kingdom	Hugh Pye Head of Asia Pacific Investor Relations The Hongkong and Shanghai Banking Corporation Limited 1 Queen's Road Central Hong Kong
Telephone: [phone]	Telephone: [phone]
Email: [e-mail]	Email: [e-mail]

 

END

 

 

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