Annual Report and Accounts 2023 1 of 5
21 February 2024
HSBC Bank plc
Annual Report and Accounts
In fulfilment of its obligations under sections 4.1.3 and 6.3.5(1) of the Disclosure Guidance and Transparency Rules, HSBC Bank plc (the "Company") hereby releases the unedited full text of its 2023 Annual Report and Accounts for the year ended 31 December 2023.
The document is now available on the Company's website:
http://www.hsbc.com/investor-relations/subsidiary-company-reporting
The document has also been submitted to the National Storage Mechanism (NSM) and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
HSBC Bank plc
Annual Report and Accounts 2023
Registered number - 00014259
|
Contents |
|
|
Strategic Report |
|
4 |
Key themes of 2023 |
|
5 |
Key financial metrics |
|
6 |
About HSBC Group |
|
6 |
Purpose and strategy |
|
8 |
Our Global Businesses |
|
9 |
ESG Overview |
|
13 |
Key Performance Indicators |
|
14 |
Economic background and outlook |
|
15 |
Financial summary |
|
20 |
Risk overview |
|
|
Risk review |
|
22 |
Our approach to risk |
|
23 |
Top and emerging risks |
|
28 |
Our material banking and insurance risks |
|
|
Corporate governance report |
|
87 |
Biographies of Directors and senior management |
|
89 |
Directors' emoluments |
|
89 |
Board committees |
|
|
Financial Statements |
|
99 |
Independent auditors' report to the members of HSBC Bank plc |
|
106 |
Financial Statements |
|
118 |
Notes on the financial statements |
Presentation of Information
This document comprises the Annual Report and Accounts 2023 for HSBC Bank plc ('the bank' or 'the company') and its subsidiaries (together 'the group'). 'We', 'us' and 'our' refer to HSBC Bank plc together with its subsidiaries. It contains the Strategic Report, the Report of the Directors, the Statement of Directors' Responsibilities and Financial Statements, together with the Independent Auditors' Report, as required by the UK Companies Act 2006. References to 'HSBC', 'HSBC Group' or 'Group' within this document mean HSBC Holdings plc together with its subsidiaries.
HSBC Bank plc is exempt from publishing information required by The Capital Requirements Country-by-Country Reporting Regulations 2013, as this information is published by its parent, HSBC Holdings plc. This information is available on HSBC's website: www.hsbc.com.
Pillar 3 disclosures for the group are also available on www.hsbc.com, under Investors.
Contents of the linked websites are not incorporated into this document.
All narrative disclosures, tables and graphs within the Strategic Report and Report of the Directors are unaudited unless otherwise stated.
Our reporting currency is £ sterling.
Unless otherwise specified, all $ symbols represent US dollars.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report and Accounts 2023 contains certain forward-looking statements with respect to the company's financial condition; results of operations and business, including the strategic priorities; financial, investment and capital targets; and the company's ability to contribute to the HSBC Group's environmental, social and governance ('ESG') targets, commitments and ambitions described herein.
Statements that are not historical facts, including statements about the company's beliefs and expectations, are forward-looking statements. Words such as 'may', 'will', 'should', 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', or the negative thereof, other variations thereon or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, information, data, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. The company 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, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by the company'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 the company operates, such as new, continuing or deepening recessions, prolonged inflationary pressures and fluctuations in employment levels and the creditworthiness of customers beyond those factored into consensus forecasts; the Russia-Ukraine war and the Israel-Hamas war and their impact on global economies and the markets where the company operates, which could have a material adverse effect on (among other things) the company's financial condition, results of operations, prospects, liquidity, capital position and credit ratings; deviations from the market and economic assumptions that form the basis for the company's ECL measurements (including, without limitation, as a result of the Russia-Ukraine war and the Israel-Hamas war and inflationary pressures and commodity price changes); changes and volatility in foreign exchange rates and interest rates levels; volatility in equity markets; lack of liquidity in wholesale funding or capital markets, which may affect the company's ability to meet its obligations under financing facilities or to fund new loans, investments and businesses; geopolitical tensions or diplomatic developments, both in Europe and in other regions such as Asia, producing social instability or legal uncertainty, such as the Russia-Ukraine war or the Israel-Hamas war (including the continuation and escalation thereof) and the related imposition of sanctions and trade restrictions, supply chain restrictions and disruptions, sustained increases in energy prices and key commodity prices, claims of human rights violations and diplomatic tensions between China and the US, extending to the UK and the EU, alongside other potential areas of tension, which may adversely affect the group by creating regulatory, reputational and market risks; the efficacy of government, customer, and the company's and the HSBC Group's actions in managing and mitigating ESG risks, in particular climate risk, nature-related risks and human rights risks, and in supporting the global transition to net zero carbon emissions, each of which can impact the company both directly and indirectly through its customers and which may result in potential financial and non-financial impacts; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks' policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; societal shifts in customer financing and investment needs, including consumer perception as to the continuing availability of credit; exposure to counterparty risk, including third parties using the company as a conduit for illegal activities without the company's knowledge; the discontinuation of certain key Ibors and the transition of the remaining legacy Ibor contracts to near risk-free benchmark rates, which continues to expose the company to some financial and non-financial risks; and price competition in the market segments that the company serves;
changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which the company operates and the consequences thereof (including, without limitation, actions taken as a result of the impact of the Russia-Ukraine war on inflation); initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; changes to tax laws and tax rates applicable to the company, including the imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; the UK's relationship with the EU, which continues to be characterised by uncertainty and political disagreement, despite the signing of the Trade and Cooperation Agreement between the UK and the EU, particularly with respect to the potential divergence of UK and EU law on the regulation of financial services; changes in government approach and regulatory treatment in relation to ESG disclosures and reporting requirements, and the current lack of a single standardised regulatory approach to ESG across all sectors and markets; changes in UK macroeconomic and fiscal policy, which may result in fluctuations in the value of the pound sterling; general changes in government policy that may significantly influence investor decisions; the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where the company operates, including increased competition from non-bank financial services companies; and
- factors specific to the company and the HSBC Group, including the company's success in adequately identifying the risks it faces, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques); the company's ability to achieve its financial, investment, capital targets and the HSBC Group's ESG targets, commitments and ambitions, which may result in the company's failure to achieve any of the expected benefits of its strategic priorities; evolving regulatory requirements and the development of new technologies, including artificial intelligence, affecting how the company manages model risk; model limitations or failure, including, without limitation, the impact that high inflationary pressures and rising interest rates have had on the performance and usage of financial models, which may require the company to hold additional capital, incur losses and/or use compensating controls, such as judgemental post-model adjustments, to address
model limitations; changes to the judgements, estimates and assumptions the company bases its financial statements on; changes in the company's ability to meet the requirements of regulatory stress tests; a reduction in the credit ratings assigned to the company or any of its subsidiaries, which could increase the cost or decrease the availability of the company's funding and affect its liquidity position and net interest margin; changes to the reliability and security of the company's data management, data privacy, information and technology infrastructure, including threats from cyber-attacks, which may impact its ability to service clients and may result in financial loss, business disruption and/or loss of customer services and data; the accuracy and effective use of data, including internal management information that may not have been independently verified; changes in insurance customer behaviour and insurance claim rates; the company's dependence on loan payments and dividends from subsidiaries to meet its obligations; changes in the HSBC Group's reporting framework and accounting standards, which have had and may continue to have a material impact on the way the company prepares its financial statements; the company's ability to successfully execute planned strategic acquisitions and disposals; the company's success in adequately integrating acquired businesses into its business; changes in the company's ability to manage third-party, fraud, financial crime and reputational risks inherent in its operations; employee misconduct, which may result in regulatory sanctions and/or reputational or financial harm; changes in skill requirements, ways of working and talent shortages, which may affect the company's ability to recruit and retain senior management and diverse and skilled personnel; and changes in the company's ability to develop sustainable finance and ESG-related products consistent with the evolving expectations of its regulators, and the company's capacity to measure the environmental and social impacts from its financing activity (including as a result of data limitations and changes in methodologies), which may affect HSBC Group's ability to achieve its ESG targets, commitments and ambitions, and increase the risk of greenwashing. Effective risk management depends on, among other things, the company's ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; the company's success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties that the company identifies in 'Top and emerging risks' on pages 23 to 28 of the Annual Report and Accounts 2023.
This Annual Report and Accounts 2023 contains a number of graphics and credentials which aim to give a high-level overview of certain elements of the company's disclosures and to improve accessibility for readers. These graphics and credentials are designed to be read within the context of the Annual Report and Accounts 2023 as a whole.
|
Key themes of 2023 |
HSBC Bank plc continued to support the HSBC Group and make progress on its strategic aims, although challenges in the geopolitical and economic environment remain.
Financial Performance
Our financial performance in 2023 included a year-on-year favourable impact associated with the sale of our retail banking operations in France and the benefit of a higher interest rate environment. Expected Credit Losses decreased, reflecting a more stable view of the economic outlook. Costs decreased driven by the impact of lower restructuring and other related costs following the completion of the HSBC Group's cost-saving programme at the end of 2022. Read more on pages 14 to 19.
Strategic Transformation
We have continued to progress in our areas of strength and to simplify our operating model in order to improve returns. During the course of 2023, we prepared for the sale of our French retail banking operations, which was successfully completed on 1st January 2024. We also executed the sale of the assets in our HSBC Continental Europe ('HBCE') Greece branch.
As the final step to implement the Intermediate Parent Undertaking ('IPU') structure, in line with European Union ('EU') Capital Requirements Directive V ('CRD V'), HBCE acquired HSBC Private Bank (Luxembourg) SA ('PBLU') from HSBC Private Bank (Suisse) SA in November 2023. More information can be found on pages 5 and 6.
Transition to net zero
In 2020, the HSBC Group set an ambition to become a net zero bank by 2050. Since 2020, HSBC Bank plc has provided and facilitated $137.3bn of sustainable finance and investment1. This financing and investment contributes towards the HSBC Group's ambition to provide and facilitate $750bn to $1tn of sustainable finance and investment by 2030.
1 The detailed definitions of the contributing activities for sustainable finance and investment are available in the HSBC Group's revised Sustainable Finance and Investment Data Dictionary 2023. For this, together with the HSBC Group's ESG Data Pack and third-party limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
|
Key financial metrics |
|
|
2023 |
20221 |
20211 |
|
For the year (£m) |
|
|
|
|
Profit/(loss) before tax |
2,152 |
(1,199) |
1,023 |
|
Net operating income before change in expected credit losses and other credit impairment charges2 |
7,506 |
4,304 |
6,120 |
|
Profit/(loss) attributable to the parent company |
1,703 |
(563) |
1,041 |
|
At 31 December (£m) |
|
|
|
|
Total equity attributable to the parent company |
24,359 |
23,102 |
23,584 |
|
Total assets |
702,970 |
716,646 |
596,611 |
|
Risk-weighted assets3,7,8 |
107,449 |
113,241 |
106,868 |
|
Loans and advances to customers (net of impairment allowances) |
75,491 |
72,614 |
91,177 |
|
Customer accounts |
222,941 |
215,948 |
205,241 |
|
Capital ratios (%)3,7,8 |
|
|
|
|
Common equity tier 1 |
17.9 |
16.3 |
17.7 |
|
Tier 1 |
21.5 |
19.7 |
21.4 |
|
Total capital |
34.6 |
31.3 |
31.8 |
|
Leverage ratio (%)4,7 |
5.1 |
5.4 |
4.2 |
|
Performance, efficiency and other ratios (%) |
|
|
|
|
Return on average ordinary shareholders' equity5,9 |
7.4 |
(4.0) |
4.3 |
|
Return on tangible equity9 |
7.3 |
(3.9) |
3.6 |
|
Return on average tangible equity excluding strategic transactions9 |
6.7 |
2.6 |
6.1 |
|
Cost efficiency ratio6 |
68.5 |
122.0 |
89.2 |
|
Ratio of customer advances to customer accounts |
33.9 |
33.6 |
44.4 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data of the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 is prepared on an IFRS 4 basis.
2 Net operating income before change in expected credit losses and other credit impairment charges is also referred to as revenue.
3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. These include the regulatory transitional arrangements for IFRS 9 'Financial Instruments', which are explained further on page 72. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.
4 The leverage ratio is calculated using the end point definition of capital and the IFRS 9 regulatory transitional arrangements, in line with the UK leverage rules that were implemented on 1 January 2022, and excludes central bank claims and cash pooling netting. Comparatives for 2021 are reported based on the disclosure rules in force at that time, and include claims on central banks.
5 The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by the average total shareholders' equity.
6 Reported cost efficiency ratio is defined as total operating expenses (reported) divided by net operating income before change in expected credit losses and other credit impairment charges (reported).
7 From 30 September 2022, investments in non-financial institution subsidiaries or participations have been measured on an equity accounting basis in compliance with UK regulatory requirements. Comparatives for prior periods have been represented on a consistent basis with the current year.
8 From November 2023, we reverted to the on-shored UK version of closely correlated currency list (CIR(EU) 2019/2091) from the previously applied EBA list (CIR(EU) 2021/249). Comparative data have been represented.
9 Definitions and calculations of alternative performance measures are included in our 'Reconciliation of alternative performance measures' on page 19.
|
About HSBC Group |
With assets of $3.0tn and operations in 62 countries and territories at 31 December 2023, HSBC is one of the largest banking and financial services organisations in the world. Approximately 42 million
customers bank with the HSBC Group and the HSBC Group employs around 221,000 full-time equivalent staff. The HSBC Group has around 172,000 shareholders.
|
Purpose and strategy |
HSBC's purpose and ambition
The HSBC Group's purpose is 'Opening up a world of opportunity' and the HSBC Group's ambition is to be the preferred international financial partner for the HSBC Group's clients.
HSBC values
HSBC values help define who we are as an organisation and are key to our long-term success.
We value difference
Seeking out different perspectives.
We succeed together
Collaborating across boundaries.
We take responsibility
Holding ourselves accountable and taking the long view.
We get it done
Moving at pace and making things happen.
HSBC Group strategy
The HSBC Group is implementing its strategy across the four strategic pillars aligned to its purpose, values and ambition. The HSBC Group's strategy remains anchored around its four strategic pillars: 'Focus', 'Digitise', 'Energise' and 'Transition'.
Focus: Maintain leadership in scale markets; double-down on international connectivity; diversify our revenue; maintain cost discipline and reshape our portfolio.
Digitise: Deliver seamless customer experiences; ensure resilience and security; embrace disruptive technologies and partner with innovators; automate and simplify at scale.
Energise: Inspire leaders to drive performance and delivery; unlock our edge to enable success; deliver a unique and exceptional colleague experience; prepare our workforce for the future.
Transition: Support our customers; embed net zero into the way we operate; partner for systemic change; become net zero in our own operations and supply chain by 2030, and our financed emissions by 2050.
HSBC in Europe
Europe is an important part of the global economy, accounting for roughly 40% of global trade and one-quarter of global Gross Domestic Product (UNCTAD, IMF 2023). In addition, Europe is the world's top exporter of services and second largest exporter of manufactured goods (UNCTAD, IMF 2023). HSBC Bank plc facilitates trade within Europe and between Europe and other jurisdictions where the HSBC Group has a presence.
With assets of £703bn at 31 December 2023, HSBC Bank plc is one of Europe's largest banking and financial services organisations. We employ around 14,050 people across our locations. HSBC Bank plc is responsible for HSBC's European business, apart from UK retail and most UK commercial banking activity which, post ring-fencing, is managed by HSBC UK Bank plc.
HSBC Bank plc operates as one integrated business with two main hubs in London and Paris.
HSBC Bank plc is present in 20 markets1. We are organised around the principal operating units detailed below, which represent the region to customers, regulators, employees and other stakeholders.
The London hub consists of the UK non-ring fenced bank, which provides overall governance and management for the Europe region as a whole and is a global centre of excellence for wholesale banking for the HSBC Group.
HSBC Continental Europe comprises our Paris hub, its EU branches (Belgium, Czech Republic, Germany, Ireland, Italy, Luxembourg, Netherlands, Poland, Spain and Sweden) and its subsidiaries in Malta and Luxembourg (PBLU). We are creating an integrated Continental European bank anchored in Paris to better serve our clients and simplify our organisation.
1 Full list of markets where HSBC Bank plc has a presence: Armenia, Belgium, Bermuda, Channel Islands and Isle of Man, Czech Republic, France, Germany, Ireland, Italy, Israel, Luxembourg, Malta, Netherlands, Poland, Russia, South Africa, Spain, Sweden, Switzerland and the UK.
HSBC Bank plc's strategy and progress on our 2023 commitments
Our ambition is to be the leading international wholesale bank in Europe, complemented by a targeted Wealth and Personal Banking business, an efficient operating model and a robust control framework (see our global businesses on page 7).
HSBC Bank plc exists to open up a world of opportunity for our customers by connecting them to international markets. Europe is the largest trading region in the world and Asia is Europe's biggest and fastest growing external trading partner (UNCTAD, IMF 2023). We are well positioned to capitalise on this opportunity and play a pivotal role for the HSBC Group.
The transformation we announced in 2020 is essentially complete (see 'Focus on our strengths' for more information). We are repositioning for growth and are well placed to seek to deliver strong financial performance. Further detail can be found below.
In 2023, Europe faced significant inflationary pressure, resulting in rapid central bank interest rate rises. Inflationary pressures have started to ease which may lead to central bank interest rate cuts in 2024.
Further information regarding how we support and engage with our stakeholders can be found on page 8.
Below we provide a progress update on our commitments and strategic initiatives for 2023.
Focus
Through our transformation programme we have built a leaner, simpler bank with a sharper strategic focus and have redesigned our franchise around the needs of our international clients.
Regulation in the EU has provided an opportunity to continue simplifying our structure. HBCE has completed its conversion into an EU Intermediate Parent Undertaking in compliance with the
EU CRD V regulation following the acquisition of PBLU in November 2023, and in July 2023, we transferred the Guernsey Private Banking business from HSBC Bank plc to HSBC Private Bank (Suisse) SA ('PBRS').
HBCE continued to simplify its operating model in 2023. In June, the operations of its principal Germany subsidiary, HSBC Trinkaus & Burkhardt GmbH, were transferred into a new German branch of HBCE, a key step in the process to integrate our Continental
European business. We also completed the sale of the assets in our HBCE Greece branch in July 2023, following which the legal wind down process has been initiated.
Throughout 2023, HBCE continued to prepare for the sale of our French retail banking operations which was completed on 1 January 2024.
Following a strategic review, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc) has entered into an agreement to sell its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). While we remain committed to the sale of our business in Russia, the outcome of the sale became less certain and remains subject to regulatory approval.
HSBC Europe BV has also reached an agreement to sell HSBC Bank Armenia CJSC, a wholly-owned indirect subsidiary of HSBC Bank plc, to Ardshinbank CJSC. The agreement was signed on 6 February 2024 and is expected to complete within 12 months. The transaction is subject to regulatory approvals.
For further details on the disposal of our retail banking operations in France and the planned sale of our business in Russia please see Note 35: 'Assets held for sale and liabilities of disposal groups held for sale', for further financial information on the transaction on page 184.
In October 2023, HSBC Bank plc acquired HSBC Bank Bermuda Limited ('HBBM') from HSBC Overseas Holdings (UK) Limited ('HOHU'). Bermuda is now reported as part of HSBC Bank plc, better aligning management and investors' view of Europe.
HSBC Bank plc completed the acquisition of HSBC Private Bank (Suisse) SA ('PBRS') in February 2024.
Digitise
We continue to invest in the digitisation of our global businesses, which is central to our strategy. Within Europe, Wealth and Personal Banking ('WPB') is focused on enhancing our engagement between clients and relationship managers, and allowing clients to self-serve at a time that suits them. In the Channel Islands and Isle of Man, we serve local and international customers through our HSBC Expat proposition. For these customers we have enhanced our global payments solutions, offering a multi-currency proposition (Global Money), giving customers a virtual card to use with access to 19 currencies. We have also increased the speed of transfer for international payments in 58 currencies and 82 countries. We will seek to deploy secure and private communications via social media channels between clients and relationship managers in 2024.
We continue to be committed to maintaining our core strength in Global Payments Solutions ('GPS'). In 2023, self-serve improvements were made to direct channels such as HSBCnet. We additionally delivered digital enhancements in France to support self-serve options and functionality of additional products such as Letter de Change. We have rolled out SEPA ('Single Euro Payments Area') instant payments in Germany and improved tax payment management in Israel.
Our strategy within Global Trade and Receivables Finance ('GTRF') Europe is to help make trade easier, faster and safer, while seeking to deliver sustainable and profitable growth. During 2023, we deployed enhancements to our digital channel HSBCnet. We continue to support our clients opting to use bank agnostic platforms that provide trade finance solutions. In Germany and Israel, we rolled out third-party digital solutions for the issuance and storage of bank guarantees. At the end of 2023, 87% of trade transactions across all channels within HSBC Europe were conducted digitally and we continue to see an increase in clients adopting digital solutions.
We have achieved significant advancements in digital assets and currencies through the launch of our strategic tokenisation platform, HSBC Orion, within Global Banking and Markets ('GBM'). In February 2023, the HSBC Orion platform was used to launch the world's first Pound sterling tokenised bond. HSBC Orion enables registration and issuance of digital bonds, supports both primary and secondary market trading, and aligns with our ambition to promote wider adoption of digital assets. We expect the platform will be used for additional bond issuances and will be expanded to support other products. In 2023, HSBC also tokenised physical gold, allowing
customers to trade a 'digital twin' of gold custodied in HSBC's London vault.
Within Markets & Securities Services ('MSS'), HSBC AI Markets delivered an expanded range of market insights and continued to facilitate informed execution. HSBC's clients and staff are increasingly using AI Markets to access AI or Machine-Learning powered solutions, from finding optimal hedging strategies to providing cross-asset market colour and liquidity. Use of AI Markets in 2023 increased 65% compared with the prior year.
Energise
Empowering our organisation and energising our employees is critical to HSBC Bank plc's success and remains a key focus. We have made progress against our people strategy, including our diversity and inclusion agenda, and are committed to offering colleagues the opportunities to develop their skills while building our talent pipelines to support the achievement of our strategic priorities.
The 2023 annual employee Snapshot survey has shown notable improvement across all indices in Europe from 2022, with the largest increase in the Employee Engagement Index (EEI), Employee Focus Index (EFI) and Strategy indices, which all improved by 8 points.
We are committed to increasing diverse representation in Europe, especially at senior levels and we significantly increased sponsorship and accountability to achieve our goals. HR and our Diversity and Inclusion ('D&I') Council (which includes our European Executive Committee) define and drive specific actions across our D&I strands, supported by our Employee Resource Groups ('ERG'), including the pan-European ERG, 'Inclusive Europe'.
To support the HSBC Group's ambitions, the Group launched the Sustainability Academy in 2022. The academy continues to be available to all colleagues across the HSBC Group. It is a central point for colleagues to access learning plans and curated resources and develop practical skills. The HSBC Group has partnered with leading educational institutions such as Imperial College Business School. They will continue to update the academy with new research and content related to ESG issues, including those related to social and governance issues.
We continue to focus on the development of people managers who enrich the experience and the skills of our colleagues. In addition to our core People Manager Excellence curriculum, we developed content aimed at new people managers with complementary digital learning pathways. We have also developed a leadership programme aimed at our Managing Directors ('MDs') to build their strategic clarity, alignment, community and capability. In 2023, 124 MDs across Europe registered for the leadership programme. We also continued the Enterprise Leadership Programme, an annual forum focused on strategy and leadership.
Transition
Net zero in our own operations
The HSBC Group has an ambition to be net zero in its own operations and supply chain by 2030.
In 2020 the HSBC Group announced a target to reduce energy consumption by 50% by 2030, against a 2019 baseline. HSBC Bank plc met targeted reductions in 2023 by reducing energy and travel emissions by 48% from the 2019 baseline. Key measures that have been implemented to achieve this include:
- Optimising the use of our property portfolio - 11 data centres have been consolidated to five; a new branch building in Malta reduced its carbon footprint by 30% using low carbon cement; and the new Luxembourg office building is rated "Excellent" for Green Buildings and Sustainability by BREEAM (Building Research Establishment Environmental Assessment Method).
- Purchasing 72% of our energy from renewable sources in 2023.
- Managing employee business travel in line with the HSBC Group's aim to halve travel emissions by 2030, compared with pre-pandemic levels.
The HSBC Group plans to remove any remaining emissions in the Group's operations which cannot be reduced or replaced from 2030
onwards by procuring high-integrity carbon credits that have undergone third party verification.
The HSBC Group is also actively encouraging its suppliers to disclose their emissions through the Carbon Disclosure Programme and have a revised supplier code of conduct. For HSBC Bank plc, 89% of our contracted suppliers have signed the supplier code of conduct or have an accepted equivalent (compared with 84% in 2022). The supplier code of conduct sets out our ambitions, targets and commitments on the environment, diversity and human rights, and outlines the minimum standards we expect of our suppliers on these issues.
For further information on the transition to net zero, please see the ESG review in the HSBC Group's Annual Report and Accounts for the year ended 31 December 2023.
Supporting our Customers
The HSBC Group recognises that it has an important role to play in supporting the transition to a net zero global economy. Since 1 January 2020, HSBC Bank plc has provided and facilitated $110.7bn of sustainable finance and $26.6bn of ESG and sustainable investing, as defined in the HSBC Group's Sustainable Finance and Investment Data Dictionary 2023.
This financing and investment contributes towards the HSBC Group's ambition to provide and facilitate $750bn to $1tn of sustainable finance and investment by 2030.
In 2023, we continued to focus on providing our customers with products, services and initiatives to help enable emissions reduction in the real economy.
For example, HBCE is helping zolar, the German climate-tech scale-up, to accelerate the adoption of rooftop solar power.
To complement their capital strategy, zolar turned to us for venture debt financing, which is an alternative to equity capital and is available to scale-ups that would like to raise additional funds for growth initiatives.
Our financing aims to support zolar's ability to ramp up its operations and meet its ambitious goals of serving 10 million households in Europe with renewable energy by 2030.
|
Our Global Businesses |
The HSBC Group manages its products and services through its three global businesses: Global Banking and Markets ('GBM'); Commercial Banking ('CMB'); Wealth and Personal Banking ('WPB'); and the Corporate Centre (comprising: certain legacy assets, central stewardship costs, and interests in our associates and joint ventures).
Business segments
Our operating model has the following material segments: a GBM business which is further split into three reportable segments: MSS, GB and GBM Other (each as defined below), CMB, WPB and a Corporate Centre. These segments are supported by Digital Business Services and eleven global functions, including Risk, Finance, Compliance, Legal, Marketing and Human Resources.
Markets & Securities Services ('MSS')
(Loss)/profit before tax £(144)m (2022: £509m); (2021: £(12)m)
Markets & Securities Services is a products group that services customers of all Global Businesses across the financial sector globally. We offer our clients a range of services and capabilities including trading, financing and securities services across asset classes and geographies, supported by dedicated sales and research teams.
Our European business continues to support the increasing European needs of our global client base, providing access to the suite of Markets & Securities Services products, connecting emerging and developed markets, and collaborating with other global businesses to provide clients across the HSBC Group with commoditised and bespoke solutions that seek to support their growth ambitions.
Global Banking ('GB')
Profit before tax £988m (2022: £486m); (2021: £589m)
Global Banking delivers tailored financial solutions to corporate and institutional clients worldwide opening up opportunities through the strength of our global network and capabilities. We provide a comprehensive suite of services including capital markets, advisory, lending, trade services and global payments solutions.
Our European teams take a client-centric approach bringing together relationship and product expertise to deliver financial solutions customised to suit our clients' growth ambitions and financial objectives. We work closely with our business partners including MSS, WPB and CMB, to provide a range of tailored products and services that seek to meet the needs of international clients across
HSBC. Global Banking Europe operates as an integral part of the global business and contributes significant revenues to other regions, particularly Asia and the Middle East, through our European client base.
GBM Other
(Loss)/profit before tax £(266)m (2022: £(517)m; (2021: £(281)m)
GBM Other primarily comprises Principal Investments and GBM's share of HSBC's Markets Treasury function.
The Principal Investments portfolio selectively makes commitments to funds which align with HSBC's strategic priorities. The day-to-day management of the portfolio is undertaken by HSBC Asset Management on GBM's behalf.
Commercial Banking ('CMB')
Profit before tax £1,000m (2022: £716m); (2021: £492m)
We have a clear strategy to be the leading international corporate bank in Europe. We connect our European customers to our international network of relationship managers and product specialists to support their growth ambitions globally, and we support global multinationals with growing their European subsidiaries through our specialist subsidiary relationship managers and product specialists. Commercial Banking contributes significant revenues to other regions, particularly Asia, through our European client base, and draws benefit from the client network managed outside Europe.
Our products range from bespoke lending solutions to global treasury and trade solutions tailored to clients' requirements, supported by expertise in markets and investment banking products through our collaboration with Global Banking and Markets. Our Global Payments Services and Global Trade teams also provide treasury and trade finance solutions to Global Banking clients. HSBC has been awarded as the Best Bank for Trade Finance both by Euromoney and Global Trade Review (GTR) for the second consecutive year in 2023, a testament to how we are leading the industry with quality of service and innovative solutions.
HSBC has received the top global recognition in The Banker's Transaction Banking Awards 2023 in addition to winning the Asia Pacific category on the supply chain award which helps demonstrate how strategies in both GPS and GTRF are providing HSBC's clients with tools to operate their business more effectively.
Wealth and Personal Banking ('WPB')
On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'. As required by the standard, the group applied the requirements retrospectively with comparative data previously published under IFRS 4 'Insurance Contracts' restated from the 1 January 2022 transition date. Comparative data for 2021 has not been restated.
Profit/(loss) before tax £457m (2022: £(1,273)m); (2021: £319m)
In Europe, Wealth and Personal Banking serves customers through Private Banking, Retail Banking, Wealth Management, Insurance and Asset Management. Our core retail proposition offers personal banking, mortgages, loans, credit cards, savings, investments and insurance. WPB offers propositions in certain markets such as Premier; as well as wealth solutions, financial planning and
international services. In the Channel Islands and Isle of Man, we
serve local and international customers, the majority of whom are customers of HSBC in other markets, through our HSBC Expat proposition. Our Private Banking proposition serves high net worth and ultra-high net worth clients with a relationship balance greater
than $2m. Services available to Private Banking clients include investment management, Private Wealth Solutions and bespoke lending.
Private Banking hosts a 'Next Generation' programme of events to support our clients' next generation in building and retaining the wealth within the family. We continue to focus on meeting the needs of our customers, communities we serve, and our people, while working to build the bank of the future.
|
ESG Overview |
We conduct our business to support the sustained success of our customers, employees and other stakeholders.
Our approach
We are guided by HSBC Group's purpose: to open up a world of opportunity for our customers, colleagues, and communities. Our purpose is underpinned by the HSBC Group's values: we value difference; we succeed together; we take responsibility; and we get it done.
The HSBC Group's approach to ESG is shaped by its purpose and values and a desire to create sustainable long-term value for our stakeholders. As an international bank with significant breadth and scale, we understand that our economies, societies, supply chains and people's lives are interconnected. The HSBC Group recognises it can play an important role in helping to tackle ESG challenges. The HSBC Group focuses its efforts on three areas: the transition to net zero, building inclusion and resilience, and acting responsibly.
Good outcomes
We are focused on running a strong and sustainable business that puts the customer first, values good governance, and gives our stakeholders confidence in how we do what we do.
Since July 2023, FCA Consumer Duty rules and guidance have required firms to consider the needs, characteristics and objectives of their customers at every stage of the customer journey. Regular reporting will be made available to the HSBC Bank plc Executive Committee and Board to help ensure we operate in an environment in which good outcomes for customers are considered when doing business.
Our conduct approach helps to guide us to do the right thing and to focus on the impact we have on our customers and the financial markets in which we operate. Details on our Conduct Framework are available at www.hsbc.com/Conduct. Our section 172 statement, detailing our Directors' responsibility to stakeholders, can be found on page 10.
Our colleagues
We aspire to open up a world of opportunity for our colleagues and build an inspiring, dynamic culture where the best talent wants to work. We value difference and continue to build an inclusive workforce representative of the communities we serve. We set and report on progress made against the HSBC Group-wide gender and ethnic diversity goals. Understanding the experience of colleagues is central to our efforts. Through the HSBC Group employee Snapshot survey, we capture our colleagues' views on topics such as hybrid working and well-being. In 2023, over 9,000 colleagues responded to the survey across Europe, a participation rate of 62%. Developing the skills of colleagues is critical to energising our organisation. We foster a learning culture through various resources, providing colleagues with many educational materials and development opportunities.
Net zero ambition
The HSBC Group has continued to take steps to implement its ambition to become net zero in its operations and its supply chain by 2030, and align its financed emissions to net zero by 2050.
In January 2024, the HSBC Group published its first net zero transition plan, which is an important milestone in our journey to achieving our net zero ambition - helping our people, customers, investors and other stakeholders to understand our long-term vision, the challenges, uncertainties and dependencies that exist, the progress we are making and what we plan to do in the future.
Engaging with our stakeholders
Engaging with our stakeholders is core to being a responsible business. To determine material topics that our stakeholders are interested in, we conduct a number of activities throughout the year, including engagements outlined in the table below.
|
Our stakeholders |
How we engage |
Material topics highlighted by the engagement |
|
Customers |
Our customers' voices are heard through our interactions with them, surveys and by listening to their complaints |
- Customer advocacy - Cybersecurity |
|
Employees |
Our colleagues' voices are heard through the HSBC Group's employee Snapshot survey, exchange meetings, and our 'speak-up' channels, including our global whistleblowing platform, HSBC Confidential |
- Employee training - Diversity and inclusion - Employee engagement |
|
Investors |
Our ordinary shares are held by our parent HSBC Holdings plc, however external parties invest in our bond issuances. We engage with these investors via our investor relations programme which enables investor queries alongside a broader programme of management meetings and market engagement |
- Strategic progress - ESG metrics and targets - Risk management
|
|
Communities |
We engage with non-governmental organisations ('NGOs'), charities and other civil society groups. We engage directly on specific issues by taking part in working groups |
- Financial Inclusion and Community Investment |
|
Regulators and governments |
We proactively engage with regulators and governments to facilitate strong relationships via virtual and in-person meetings, responses to consultations individually and jointly via the industry bodies |
- Anti-bribery and Corruption |
|
Suppliers |
HSBC's code of conduct sets out our ambitions, targets and commitments on the environment, diversity and human rights, and outlines the minimum standards we expect of our suppliers |
- Supply Chain Management - Human Rights |
Supporting our stakeholders facing a rising cost of living
We know that many of our customers continue to face difficult financial circumstances due to the increasing cost of living pressures, and we are working to support them.
During 2023, proactive frontline contact was made by trained staff to customers in the Channel Islands & Isle of Man ('CIIOM') identified as being most at risk of being financially impacted by a rise in mortgage repayments. In CIIOM, HSBC offers differential mortgage pricing for existing customers due to the challenging cost of living environment, and we complete monthly analysis to identify customers most likely to experience mortgage rate shocks at the end of their current mortgage rate term.
Our ESG metrics and targets
The HSBC Group has established targets that guide how we do business, including how we operate and how we serve our customers. These include targets designed to track the progress against our environment and social sustainability goals.
They also help us to improve employee advocacy, the diversity of senior leadership and to strengthen our market conduct.
The targets for these measures are linked to the pillars of our ESG strategy: transitioning to net zero, building inclusion and resilience, and acting responsibly.
To help us achieve our ESG ambitions, measures are included in the annual incentive scorecards of the Europe Chief Executive and Executive Committee members.
Below we set out how we have made progress against the ESG-related ambitions and targets.
Environmental - Transition to net zero
Since 1 January 2020, HSBC Bank plc has provided and facilitated $110.7bn of sustainable finance and $26.6bn of ESG and sustainable investing, as defined in the HSBC's Group's Sustainable Finance and Investment Data Dictionary 2023.
At the end of 2023, we achieved a 48% reduction in emissions from our energy consumption and travel compared with a 2019 baseline in France, Germany, Switzerland, Malta and Bermuda. HSBC Bank plc continues to work to support the Group's ambition to achieve net zero in its own operations and supply chain by 2030.
Social - Build inclusion and resilience
- Our Snapshot Employee Engagement score was 54% at the end of 2023, an increase of 8 points compared with 2022;1
- Our current representation of black heritage colleagues in senior leadership roles is 2.8%, an increase of 0.4% from 2022. This includes all colleagues based in the UK;2,3 and
- In 2023, senior leadership roles held by women increased to 25.3%, an improvement of 0.2% from 2022.4
Governance - Acting responsibly
In 2023, 75% of HSBC Bank plc staff completed conduct training, which covers Conduct and Regulatory Compliance topics including market abuse, conflicts of interest and treating customers fairly. The current completion rate is lower than prior years (96% of staff completed conduct training in 2022) due to technical and translation issues which delayed the launch of the training, but is expected to rise in line with completion rates in prior years.5
1 The Employee Engagement Index is our headline measure of how employees feel about HSBC. HSBC Bank plc's score is lower than the HSBC Group's, with a key contributing factor being our ongoing regional transformation. However, the relatively low engagement is consistent with findings in Gallup's 2023 State of the Global Workplace Report, which showed significant regional variations in Employee Engagement across all sectors and industries globally. Europe scored lower relative to other regions on employee engagement. Nevertheless, we are seeing year-on-year improvements and will continue to embed a positive and inclusive culture where our colleagues can thrive.
2 Senior leadership is classified as those at band 3 and above in the HSBC Group's global career band structure.
3 Our 2023 ethnicity goal of 2.9% black heritage colleagues in senior leadership roles is set at the UK level, and includes all colleagues based in the UK including those in the ringfenced bank (HBUK).
4 Our 2023 gender diversity target of 26.8% is cascaded by HSBC Group and inclusive of our operations in Bermuda; with HSBC Bank plc achieving 25.3% by end of 2023 at the regional level. We missed our 2023 target, therefore our focus on improving gender balance in senior leadership across Europe remains a priority for the HSBC Bank plc executive committee for 2024.
5 The completion rate shown relates to the 2023 'Taking Responsibility' Compliance training module which is categorised as 'required' learning for Global employees. Unlike with mandatory training, a formal target is not established for 'required' learning modules and non-completion is performance managed.
Responsible Business Culture
We have a responsibility to help protect our customers, our communities and the integrity of the financial system.
Employee matters
We are opening up a world of opportunity for our colleagues through building an inclusive organisation that values difference, takes responsibility and seeks different perspectives for the overall benefit of our customers.
We promote an environment where our colleagues can expect to be treated with dignity and respect. We are an organisation that acts where we find behaviours that fall short. The employee Snapshot index measuring colleagues' confidence in speaking up is at 70% in 2023.
At times, our colleagues may need to speak up about behaviours in the workplace. We encourage colleagues to speak to their line manager in the first instance, and the annual employee Snapshot survey showed 76% feel able to speak up when they see behaviour that is wrong. We recognise that at times people may not feel comfortable speaking up through the usual channels. HSBC Confidential is a global whistleblowing channel, allowing our colleagues past and present to raise concerns confidentially and, if preferred, anonymously (subject to local laws).
We aspire to be an organisation that is representative of the communities which we serve. To achieve this, we set goals that will build sustainable lasting change. We are focused on increasing women and Black heritage colleagues in senior leadership roles and while we have made progress, we know there is more to be done.
To support our ambition, we encourage our colleagues to self-identify their ethnicity data where legally permissible. At a European level, we are limited in our collection of ethnicity data and can only report in: UK, Channel Islands, Bermuda, the Isle of Man, and South Africa. However, we are continuing to drive open dialogue and action to strengthen our employee networks and improved our diversity data where possible.
In 2024, HSBC in France, Germany, Italy, Luxembourg, Poland and Spain was recognised as a Top Employer by the Top Employers Institute, recognising excellence in Human Resources practices.
Social matters
The HSBC Group has a long-standing commitment to help support the communities in which it operates. It aims to empower people and communities to develop the skills and knowledge needed to thrive in the future.
We work with charity partners to initiate programmes that help people and communities respond to opportunities and challenges as economies transition towards a low-carbon future. We also work with our charity partners to strengthen the resilience of disadvantaged communities. For HSBC Bank plc, in 2023, these included:
- In France, HSBC Continental Europe partnered with Article 1 to help young people from deprived communities succeed in higher education through mentoring programmes and workshop facilitation.
- HSBC Continental Europe also supported 'Rewilding Europe' through the Together Challenge, which involved more than 2,000 employees, to strengthen our commitment to sustainability.
- In Bermuda, we are the lead sponsor for the Ignite Young Adult Entrepreneurship programme. The programme offers participants first-hand experience and insight into how to structure and develop early-stage companies.
- In Malta, the HSBC Malta Foundation continued to support the Prince's Trust International Achieve Programme which surpassed its targeted reach this year with 299 newly enrolled students.
HSBC Bank plc's charitable giving in 2023 was £2.8m and was further supported by our employees' contribution of over 2,000 volunteer hours to community activities during work hours.
Human rights
As set out in the HSBC Group's Human Rights Statement, we recognise the role of business in respecting human rights. The HSBC Group's approach is guided by the UN Guiding Principles on Business and Human Rights ('UNGPs') and the Organisation for Economic Co-operation and Development ('OECD') Guidelines for Multinational Enterprises on Responsible Business Conduct. The HSBC Group's Human Rights Statement and annual statements under the UK Modern Slavery Act are available on https://www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre
Anti-corruption and anti-bribery
We require compliance with all applicable anti-bribery and corruption laws in every market and jurisdiction in which we operate, including the UK Bribery Act and France's 'Sapin II' law, while focusing on the spirit of relevant laws and regulations to demonstrate our commitment to ethical behaviours and conduct as part of our approach to ESG.
HSBC provides annual mandatory training on the prevention of money laundering, bribery and corruption and tax evasion to all staff and carries out regular risk assessments, monitoring and testing of its programmes incorporating applicable findings within the annual policy refresh. HSBC also maintains clear whistleblowing policies and processes, to ensure that individuals can confidentially report concerns.
Environmental matters
More information about the HSBC Group's assessment of climate risk can be found in the HSBC Holdings plc Annual Report and Accounts 2023.
Non-Financial Information Statement
Disclosures required pursuant to the Companies, Partnerships and HSBC Group's (Accounts and Non-Financial Reporting) Regulations 2016 can be found on the following pages:
|
Environmental matters (including the impact of the company's business on the environment) |
Page 10 |
|
The company's employees |
Pages 8 to 11 and 94 to 95 |
|
Social matters |
Pages 9 to 10 |
|
Respect for human rights |
Page 10 |
|
Anti-corruption and anti-bribery matters |
Page 10 |
|
Business Segments |
Page 7 |
|
Principal risks |
Page 20 |
HSBC creates value by providing products and services to meet our customers' needs. We aim to do so in a way that fits seamlessly into their lives. This helps us to build long-lasting relationships with our customers. HSBC maintains trust by striving to protect our customers' data and information, and delivering fair outcomes for them and if things go wrong, we need to address complaints in a timely manner.
Operating with high standards of conduct is central to our long-term success and underpins our ability to serve our customers. Our Conduct Framework guides activities to strengthen our business and increases our understanding of how the decisions we make affect
customers and other stakeholders. Details on our Conduct Framework are available at www.hsbc.com/Conduct.
Section 172 statement
This section, from pages 10 to 11 forms our section 172 statement and addresses the requirements of the Companies (Miscellaneous Reporting) Regulations 2018. It describes how the Directors have performed their duty to promote the success of the bank, including how they have considered and engaged with stakeholders and, in particular, how they have taken account of the matters set out in section 172(1)(a) to (f) of the Companies Act 2006 (the 'Act').
The Board considered a range of factors when making decisions and is supported in the discharge of its responsibilities by:
- an induction programme and ongoing training for Directors to provide an understanding of our business and financial performance and prospects;
- management processes which help ensure that proposals presented to Board and committee meetings for decision include information relevant to determine the action that would most likely promote the success of the bank and involve engagement with stakeholders where relevant, to support appropriate decision making;
- agenda planning for Board and committee meetings to provide sufficient time for the consideration and discussion of key matters: and
- engagement with key stakeholders which allows the Board to gain valuable insight on various perspectives, and in turn, inform their deliberations and decision making in Board and committee meetings.
Stakeholder Engagement
The Board understands the importance of effective engagement with its six key stakeholders, namely customers, employees, shareholders and investors, regulators and governments, suppliers, and communities and is committed to open and constructive dialogue with such stakeholders. Engagement with stakeholders takes place at the holding company level and at the operational level. On certain issues, the Board may engage directly with stakeholders. The outcomes from such stakeholder engagement feed into Board discussions and decision making. This approach allows the Board to better understand the impact of the bank's actions on its stakeholders and respond to the challenges facing the bank. The relevance of each stakeholder group to an issue considered by the Board,varies depending on the specific decision being taken by the Board. Not every decision the Board makes will necessarily result in a positive outcome for all stakeholders.
As a result of both its direct stakeholder interactions and the reporting and information on stakeholder engagement it receives about its stakeholders, the Board seeks to understand, and have regard to, the interests and priorities of these stakeholders.
The two examples provided below of principal discussions and decisions taken by the Board in 2023 show how the Directors and Board respectively discharged their individual and collective responsibility for promoting the long-term success of the bank and took different stakeholder considerations into account in reaching a decision or forming a view.
For further details regarding the role of the Board and the way in which it makes decisions, including key activities during 2023, please see page 89.
Customers
As one of Europe's largest banking and financial services organisations, our corporate and institutional customers are at the core of the bank's business model: without customers there would be no bank. We have a clear vision to be the leading international wholesale bank in Europe, complemented by a targeted wealth and personal banking business. The Board strives to ensure it has a broad understanding of HSBC Bank plc's customers, their needs and challenges, and to give full consideration to them when its approval is sought on matters such as material acquisitions, disposals,
investments, large scale change or transformation programmes. How we have served and supported our customers during 2023 is covered in the 'Purpose and Strategy' section on page 5 in the Strategic Report.
Throughout 2023, continued geopolitical and economic uncertainty has created additional challenges for our customers and senior management have engaged directly with customers to better understand their issues and difficulties and how the bank can respond to them. During this period, the Board has been provided with customer feedback and key performance indicators, such as net promoter scores, customer complaints, customer on-boarding times and satisfaction survey results.
The Board schedule also included Commercial Banking, Wealth and Personal Banking, Global Banking and Markets and Digital Business Services overview strategy sessions which incorporated discussions on customer interactions, customer surveys, complaints feedback and product developments to meet customers' needs.
Employee (Workforce Engagement)
Employees are critical to the success of the bank, its sustainability and long-term future. Understanding employee sentiment and how we are addressing feedback is a key area of Board focus. During the year, the Board received regular updates from senior management on the progression of our people priorities covering various employee-focused initiatives across culture, leadership, talent, skills, inclusion, wellbeing and colleague experience. Further information on people priorities can be found under Employees at pages 94 to 95.
Feedback from employees is gathered via various mechanisms including surveys, exchange meetings and 'speak up' channels and reported to the Board. The Board is also presented annually with the results of the Snapshot survey and a culture dashboard which has been developed to track progress in embedding a positive and inclusive culture across the business. Board focus on employees was heightened due to the ongoing transformation programme and the need for continuing consideration of the impact on employees when making Board decisions.
In 2023, the Board extended its engagement with colleagues in Europe and each non-executive Director met individually with a small group of the bank's 'rising star' top talent to deepen their understanding of and familiarity with those employees in the talent pool. Further details of the bank's engagement with employees can be found on pages 10 to 11 and 94 to 95.
Shareholders and Investors
The bank is a wholly-owned subsidiary of HSBC Holdings plc and, as such, the Board took into account the implications of its decisions with regard to its shareholder, HSBC Holdings plc, and its debt security investors. Examples of how it did this include:
- the Board Chair and Committee Chairs engaged with HSBC Group counterparts and attended Group forums and Group committee meetings, together with Executive Directors, to engage on common issues and strategic priorities;
- Board review and approval of HSBC Bank plc specific components of Group programmes;
- Board consideration of the strength of the balance sheet to ensure that the ability to pay principal or interest on its debt securities was not at risk; and
- engaging with HSBC Holdings plc Board members to showcase the business and its people.
Regulators and Governments
During the year, the Directors met regularly with regulators both in the UK and Europe. It is central to the success of the bank that it has constructive relationships with regulators and governments and that there is a mutual understanding of expectations and challenges and their impact on customers, the business model and the bank's strategy.
The Board receives regular updates on how HSBC interacts with regulators globally and at the European level. Understanding regulators' views and priorities shapes and influences Board discussions and decision making. Board engagement with regulators
during 2023 also included participation by Directors in industry and regulator forums and round table events.
Suppliers
Suppliers are critical to supporting the infrastructure and operations of the business and we work with suppliers to ensure mutually beneficial relationships. Board engagement with suppliers during 2023 included reviewing and overseeing management reporting on progress against the Operational Resiliency regulatory requirements, including how the bank oversees the health of the services provided by our critical third-party suppliers and how we work together with our suppliers to mitigate impacts to customers.
Communities
We have a long-standing commitment to support the communities in which we operate. The bank is conscious of the need to manage the societal and environmental impact of its business when making decisions. During the year the Board received regular updates on matters spanning human rights and environmental and climate issues.
Principal Decisions
Set out below are two of the principal decisions made by the Board during 2023. In each case, in taking such decisions, the Directors exercised their statutory duty under section 172(1) (a)-(f) of the Companies Act 2006.
Establishment of a new HSBC Private Bank (Suisse) SA, Guernsey Branch ('PBRSGSY') and transfer of existing Private Banking business in Guernsey
As a result of the Capital Requirements Directive (2013/36/EU) ('CRD V') non-EU headquartered banking groups like HSBC with significant EU operations were required to establish an EU Intermediate Parent Undertaking ('EU IPU') structure by the end of 2023 to hold its relevant EU-based credit institutions and investment firms to facilitate holistic supervision and resolution within the EU.
As a result, the HSBC Group has been restructuring its legal entity structure across Europe, including the designation of a subsidiary entity of the bank, HSBC Continental Europe, as the HSBC Group's EU IPU. The impact of these mandated transfers has created the need for funding solutions in some areas.
In support of finding a strategic funding solution for HSBC Private Bank (Suisse) SA ('PBRS') during 2023, management considered several options to address PBRS challenges and a proposal to transfer the existing Private Banking business in Guernsey from the bank's branch to a new PBRSGSY was considered by the Board.
Prior to approval, the Board reviewed and assessed options presented by management to achieve compliance with the CRD V requirements while also ensuring that PBRS remained a sustainable enterprise. The Board constructively engaged with management to consider the financial and regulatory implications and the likely consequence of the proposal on the bank's key stakeholders, as appropriate.
The implications of the transaction for several key stakeholders were considered. Management outlined engagement with customers impacted, noting that, as an intragroup exercise, client offering and the majority of contracts would not be impacted by the change in ownership. While impacts on employees were minimal, associated staff engagement was undertaken given the required novation of employment contracts to the new entity, PBRSGSY.
Associated engagement with regulators resulted in no objections being raised in respect of the proposal.
Mindful of longer-term consequences of decisions and the impact on operations, the Board also carefully considered the approach to valuation and purchaser protections in connection with the transaction. In reaching its decision the Board acknowledged the strategic rationale for the proposal in ensuring the financial sustainability of PBRS and the full mitigation of any financial impacts on the bank. Having taken all these and other factors into account, the Board approved the transaction.
Acquisition of HSBC Bank Bermuda Limited ('HBBM')
To simplify the structure of the HSBC Group, the Board considered a proposal for the bank to acquire the shares in HBBM that were held
by an unregulated holding company and direct subsidiary of HSBC Holdings plc. Oversight of Bermuda entities was already within the bank's management perimeter and therefore the Board considered the benefits of a transfer of the entity to the bank's legal perimeter.
The proposal was first endorsed at the Group Executive Committee for further consideration and decision making by the Board. Key to decision making was HBBM's strategic fit and profitability. HBBM serves both domestic and international clients, managing its activities through three Global businesses: Wholesale Banking, Wealth and Personal Banking and Markets and Securities Services.
The benefits of the proposal included simplifying the HSBC Group structure and improving the bank's diversification of business. Furthermore, the transaction would promote alignment of management and investors' views of the Europe business and its returns.
In reaching its decision, the Board constructively engaged with management to consider the financial and regulatory implications and any impacts on the bank's key stakeholders, as appropriate. While HBBM is one of two systematically important banks in Bermuda, with both retail and wholesale clients, the change in ownership would have no impact on customers with the client product offering remaining unchanged.
Similarly, the change in ownership did not create any employee impact or changes in functional reporting as the bank's management already had a delegation from HSBC Group to oversee the business. The Board recognised the complexity associated with the existing management arrangements which required preparing multiple views of financial and operational performance and how this would be overcome, post-acquisition, when management oversight would be aligned to legal ownership and deployment of capital.
Prior to the Board's approval, engagement with the relevant regulators was undertaken to secure approval of the change of control with no issues raised by the regulators. Having taken these factors into consideration, including an assessment of the financial merits and risks, regulatory engagement, and the absence of impact on employees and investors, the Board approved the proposal and the transaction completed on 1 October 2023.
Tax
Our approach to tax
We are committed to applying both the letter and the spirit of the law in all territories where we operate, and have adopted the UK Code of Practice for the Taxation of Banks. As a consequence, we seek to pay our fair share of tax in the countries in which we operate. We continue to strengthen our processes to help ensure our banking services are not associated with any arrangements known or suspected to facilitate tax evasion.
HSBC continues to apply global initiatives to improve tax transparency such as:
- the US Foreign Account Tax Compliance Act ('FATCA');
- the Organisation for Economic Co-operation and Development ('OECD') Standard for Automatic Exchange of Financial Account Information (also known as the Common Reporting Standard);
- the CRD IV Country by Country Reporting;
- the OECD Base Erosion and Profit Shifting ('BEPS') initiative; and
- the UK legislation on the corporate criminal offence ('CCO') of failing to prevent the facilitation of tax evasion.
-
|
Key Performance Indicators |
The Board of Directors tracks the group's progress in implementing its strategy with a range of financial and non-financial measures or key performance indicators ('KPIs'). Progress is assessed by comparison with the HSBC Group strategic priorities, operating plan targets and historical performance. The group reviews its KPIs regularly in light of its strategic objectives and may adopt new or refined measures to better align the KPIs to HSBC's strategy and strategic priorities.
Financial KPIs
|
|
2023 |
2022 |
2021 |
|
Profit/(Loss) before tax (£m) |
2,152 |
(1,199) |
1,023 |
|
Cost efficiency ratio (%) |
68.5 |
122.0 |
89.2 |
|
Return on tangible equity (%) |
7.3 |
(3.9) |
3.6 |
|
Common equity tier 1 capital ratio (%) |
17.9 |
16.3 |
17.7 |
|
|
|
|
|
Profit before tax in 2023 was £2,152m compared with a loss before tax of £(1,199)m in 2022, including the impact of a £1.9bn loss on reclassification as held for sale of our retail banking operations in France in 2022. This also included the impacts from the restructuring of our business in Europe, including the non-repeat of 2022 losses associated with the completed sale of our branch operations in Greece and lower losses and impairments related to the planned disposal of our business in Russia. Revenue also increased due to a gain from the transfer of our Guernsey Private Banking branch to PBRS and the non-repeat of 2022 restructuring and other related costs comprising disposal losses of £234m associated with RWA reduction commitments by the HSBC Group, which concluded at the end of 2022. In addition, revenue growth was supported by interest rate rises across Global Banking, CMB and WPB. In contrast, revenue in MSS was lower compared with a strong 2022 when market volatility was high.
Expected credit losses and other credit impairment charges ('ECL') were a net charge, largely reflecting stage 3 charges.
Operating expenses were lower, mainly driven by lower restructuring and other related costs following the completion of the Group's cost-saving programme at the end of 2022, partly offset by spend associated with ongoing strategic transformation initiatives. This was partly offset by a higher UK bank levy and higher technology costs reflecting ongoing strategic investments to support our growth initiatives.
Cost efficiency ratio was 53.5 percentage points lower compared with 2022 driven by higher revenue and lower operating expenses. Revenue increased by 74% and operating expenses decreased by 2%, mainly driven by the factors mentioned above.
Return on tangible equity ('RoTE') is computed by adjusting profit attributable to ordinary shareholders by excluding impairment of goodwill and other intangible assets, divided by average tangible shareholders' equity excluding goodwill and intangibles for the period. The adjustment to reported results and reported equity excludes amounts attributable to non-controlling interests.
We provide RoTE as a way of assessing our performance, which is closely aligned to our capital positions.
CET1 capital ratio represents the ratio of common equity tier 1 capital to total risk-weighted assets ('RWA'). CET1 capital is the highest quality form of capital comprising shareholders' equity and related non-controlling interests less regulatory deductions and adjustments.
The group seeks to maintain a strong capital base to support the development of its business and meet regulatory capital requirements at all times.
The CET1 capital ratio of 17.9% in 2023 increased by 1.6% from 2022, mainly due to a decrease in RWAs and an increase in capital due to capital generation through profits and share issuance.
Non-financial KPIs
We monitor a range of non-financial KPIs focusing on customers, people, culture and values, including customer service satisfaction, employee engagement and diversity and sustainability.
For details on customer service and satisfaction please refer below; for the remaining non-financial KPIs, refer to the Non-financial reporting section on page 10 and Corporate Governance section on pages 87 to 96.
Customer service, awards and satisfaction
MSS
Our customers are at the heart of what we do and we are committed to delivering services and capabilities that meet their needs and help them fulfil their ambitions.
In 2023, we won numerous awards and consistently ranked highly with our European clients, including winning Best Prime Broker in the Risk Awards, Currency Manager of the Year in the European Pension Awards, Best Prime Broker - Emerging Markets (for the 11th consecutive year) and Best Administrator - Alternative Credit in the HFM European Services Awards, Best FX Prime Broker in the Euromoney FX Awards, European Investment-Grade Corporate Bond House and EMEA Equity House of the Year in the International Financing Review ('IFR') Awards and ranking number one in 'UK Research' in Extel.
These accolades, coupled with multiple milestones and achievements in sustainable finance, demonstrate our leading capabilities to support clients locally and connect them to markets and expertise in the East, as well the key role Europe plays in supporting the HSBC Group's strategic priorities.
GB
Global Banking Europe remains committed to providing excellent customer experience and continues to strive towards improving our proposition to meet client needs.
In 2023, Global Banking Europe played a key role in receiving industry recognition at a global level across both our product and sector capabilities. This was showcased by being recognised as the World's Best Bank for Trade Finance and Public Sector clients by Euromoney Awards for Excellence, Best Global Transaction Bank and Best Bank for Supply Chain Finance by The Banker and EMEA Equity House of the Year by IFR.
In Western Europe, HSBC won the Market Leader award for Financial Institutions in the Euromoney Cash Management Survey and was awarded the Best Investment Bank in Spain by Euromoney Awards for Excellence.
Aligned with our purpose of opening up opportunities for our clients, GB Europe's contribution in HSBC Group winning ESG Financing House of the year by IFR was important. This award also highlights the continued strength and differentiation of our Sustainability capabilities globally as well as the role we can play in Europe helping our clients transition to net zero.
CMB
Customer experience and satisfaction are priorities for Commercial Banking in Europe. We measure several operational metrics on customer service levels and gather direct customer feedback to ensure our solutions and channels remain relevant and fit for our customers' digital needs today. Our centralised booking model in
Paris for our pan-European customers enables us to regionally cover and manage customers through a consistent and streamlined level of service. This also ensures our Relationship Managers can support and cover customers using a common toolkit. As a testament to our efforts in the industry through the development of solutions, technology provisions and customer service, HSBC has been awarded
as Market Leader for Trade Finance in four European markets and Best in Service in five markets, with Greenwich Excellence awards in Europe across six key client touchpoints including Quality of Advice, Catering to Client Needs, and International Network Breadth.
Looking ahead, we will continue to measure how we deploy resources to open a world of opportunity to European corporates looking to expand and grow internationally, while also supporting them with their transition plans to achieve net zero.
WPB
Enhancing customer experience and improving satisfaction remains integral to our strategy. This is monitored through a number of customer satisfaction metrics covering branch, contact centre and digital channels. One example is iNPS ('Interactions Net Promoter Score') which measures interactions with our customers. The Channel Islands and Isle of Man ('CIIOM') business receives separate scores for its domestic 'Islands' business and its international 'Expat' business. The 'Islands' business scored 35 for online, in line with target, and 35 for mobile, against a target of 38. The Expat proposition scored 13 against a target of 15 for Online. Additional Journey NPS ('jNPS') metrics highlighted a score of 39 for payments, 10 points ahead of target, and 59 for term deposit savings, 27 points ahead of target. We recognise the importance of customer feedback and continue to enhance our insights to gain a better understanding of our clients to provide a more personalised and relevant service.
In our Expat proposition, we have placed further efforts into reducing paper waste. We have transitioned all remaining customers opting for paper statements from a monthly to quarterly cycle and provided them access to monthly e-statements via mobile banking, with 189,000 bank statements viewed or downloaded via mobile banking. We continue to strive for a seamless, friction free Expat customer onboarding journey and have deployed a number of enhancements resulting in a 41% year-on-year growth in new to bank Expat customers onboarded.
Private Banking remains committed to enhancing our digital capabilities and offering, with improved internal platforms and software to support the delivery of excellent client service. Within Switzerland, Luxembourg and Channel Islands service improvements have been delivered within the E-Banking platform including client access to on-demand statements.
We recognise that enhancing customer satisfaction is an evolving process and are committed to ensure our investments and focus are prioritised to achieve this.
|
Economic background and outlook |
UK
Falling inflation raises prospects of interest rate cuts
UK consumer price inflation has fallen considerably. In January 2024, the annual inflation rate stood at 4.0%, compared with the 11.1% peak seen in October 2022 (Office for National Statistics, ONS). A large portion of that decline reflects the impact of past energy price increases 'dropping out' of the annual calculation. But there has also been a notable decline in price inflation in other categories, including food, non-energy goods and, to a lesser extent, services. These broader based declines partly reflect the easing of supply disruption following the Covid-19 pandemic, while the prospect of further inflation declines is likely to hinge on domestic cost pressures, particularly those stemming from the labour market.
And indeed, pressures in the UK labour market are abating. The number of unfilled job vacancies declined for 20 consecutive months between April 2022 and December 2023 (ONS). In turn, wage growth is starting to fall, with the annual rate of pay growth (excluding bonuses) reaching 6.2% in the three months to December 2023, versus 7.9% in July and August 2023 (ONS). However, this is still above levels which are usually consistent with reaching the Bank of England's (BoE's) 2% target over the medium term.
While the Bank of England's policy rate was raised from 0.10% to 5.25% since December 2021, policy rates have been on hold since August 2023. Market pricing implies the expectation that a number of rate cuts will take place through the course of 2024. But how soon, and how quickly, those cuts take place (if at all) will depend on the speed of the prospective further decline in underlying inflation.
Falling inflation and prospective reductions in policy rates could also raise the possibility of a gradual increase in economic growth. In 2023, GDP grew by 0.1% (ONS), but most economists expect a gradual pick-up in GDP growth over the coming quarters.
Eurozone
Falling inflation, but growth prospects remain subdued
Having peaked at an all-time high of 10.6% in October 2022, the annual rate of eurozone consumer price inflation stood at 2.8% in January 2024, according to the Eurostat 'flash' estimate. Falling energy and food price inflation have driven much of the decline, but the 'core' inflation rate - which excludes food and energy - stood at 3.3% in January 2024, versus 5.7% in March 2023 (Eurostat).
However, labour cost pressures remain elevated. In Q3 2023, annual growth in average employee compensation only edged down marginally, from 5.5% to 5.2% (Eurostat). To the extent that wage
growth might remain elevated, that could delay the prospect of inflation sustainably reaching the European Central Bank's (ECB's) 2% target. While lower headline inflation and easing labour market pressures should see wage growth decline further over the coming months, the outcome of negotiated pay deals over the first half of the year will be a key test of whether this is happening.
Meanwhile, the economic growth backdrop remains challenging. Eurozone GDP did not grow in Q4 2023, following a 0.1% contraction in Q3 2023 (Eurostat). While falling inflation is providing a stimulus to real household incomes, activity indicators remain weak in Germany,
which is more heavily reliant on exports and industrial production. Indeed, GDP in Germany fell by 0.3% in 2023 (Destatis).
With inflation falling against a soft demand backdrop, the ECB has stopped raising interest rates, having lifted the deposit rate from -0.50% in July 2022 to 4.00% in September 2023. Market expectations are for a number of ECB interest rate cuts this year, but the timing and pace of cuts will depend on the extent to which underlying inflation eases over the coming months.
|
Financial summary |
Use of alternative performance measures
Our reported results are prepared in accordance with International Financial Reporting Standards ('IFRS Accounting Standards'), as detailed in the Financial Statements starting on page 106.
In measuring our performance we use financial measures which eliminate factors that distort period-on-period comparisons. These are considered alternative performance measures. All alternative performance measures are described and reconciled to the closest reported financial measure when used. The global business segmental results are presented in accordance with IFRS 8 'Operating Segments', as detailed in 'Basis of preparation' in Note 9: 'Segmental analysis' on page 146.
IFRS 17 'Insurance Contracts'
On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'. As required by the standard, the group applied the requirements retrospectively with comparative data previously published under IFRS 4 'Insurance Contracts' restated from the 1 January 2022 transition date. Under IFRS 17 there is no present value of in-force
business ('PVIF') asset recognised up front. Instead the measurement of the insurance contract liability takes into account fulfilment cash flows and a contractual service margin ('CSM') representing the unearned profit. In contrast to the group's previous IFRS 4 accounting where profits are recognised up front, under IFRS 17 they are deferred and systematically recognised in revenue as services are provided over the life of the contract.
The CSM also includes attributable cost, which had previously been expensed as incurred and which is now incorporated within the insurance liability measurement and recognised over the life of the contract. The impact of the transition was a reduction of £341m on the group's FY22 reported revenue and an increase of £239m to reported loss before tax.
The group's total shareholders' equity at 1 January 2022 reduced by £570m to £23,014m on the transition.
Further details on our adoption of IFRS 17 are provided in Note 1: 'Basis of preparation and material accounting policies' on page 118 and Note 36: 'Effects of adoption of IFRS 17' on page 186.
|
Summary consolidated income statement for the year ended |
|||
|
|
2023 |
20221 |
20211 |
|
|
£m |
£m |
£m |
|
Net interest income |
2,151 |
1,904 |
1,754 |
|
Net fee income |
1,229 |
1,295 |
1,413 |
|
Net income from financial instruments measured at fair value |
4,784 |
1,750 |
3,432 |
|
Gains less losses from financial investments |
(84) |
(60) |
60 |
|
Net insurance premium income |
- |
- |
1,906 |
|
Gains/(losses) recognised on Assets held for sale2,3 |
296 |
(1,947) |
67 |
|
Insurance finance (expense)/income |
(1,184) |
1,106 |
- |
|
Insurance service result |
124 |
121 |
- |
|
Other operating income3 |
190 |
135 |
527 |
|
Total operating income |
7,506 |
4,304 |
9,159 |
|
Net insurance claims, benefits paid and movement in liabilities to policyholders |
- |
- |
(3,039) |
|
Net operating income before change in expected credit losses and other credit impairment charges4 |
7,506 |
4,304 |
6,120 |
|
Change in expected credit losses and other credit impairment charges |
(169) |
(222) |
174 |
|
Net operating income |
7,337 |
4,082 |
6,294 |
|
Total operating expenses |
(5,142) |
(5,251) |
(5,462) |
|
Operating profit/(loss) |
2,195 |
(1,169) |
832 |
|
Share of (loss)/profit in associates and joint ventures |
(43) |
(30) |
191 |
|
Profit/(loss) before tax |
2,152 |
(1,199) |
1,023 |
|
Tax (charge)/ credit |
(427) |
646 |
23 |
|
Profit/(loss) for the year |
1,725 |
(553) |
1,046 |
|
Profit/(loss) attributable to the parent company |
1,703 |
(563) |
1,041 |
|
Profit attributable to non-controlling interests |
22 |
10 |
5 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data of the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 In relation to the sale of our retail banking operations in France, we recognised a £1.7bn impairment loss in 3Q22 on initial classification of the business as held-for-sale. In 1Q23, we reversed the £1.7bn impairment loss as the sale became less certain. On subsequent re-classification of the business as held-for-sale in 4Q23, we recognised a £1.5bn impairment loss.
3 In 2022, a £0.2bn impairment loss on the planned sale of our business in Russia was recognised upon classification as held for sale in accordance with IFRS 5. As at 31 December 2023, the outcome of the planned sale became less certain. This resulted in the reversal of £0.2bn of the previously recognised loss, as the business was no longer classified as held for sale. However, owing to restrictions impacting the recoverability of assets in Russia, we recognised a charge of £0.2bn in other operating income.
4 Net operating income before change in expected credit losses and other credit impairment charges is also referred to as revenue.
4
Reported performance
Profit before tax was £2,152m, compared with a loss before tax in 2022 of £(1,199)m, an increase of £3,351m. The increase included the year-on-year £1.9bn favourable impact of the sale of our retail banking operations in France. This comprised an initial impairment loss of £1.7bn following the classification of these operations as held for sale in 2022, a reversal of £1.7bn in the first quarter of 2023 as the sale became less certain, and a subsequent impairment loss of £1.5bn as we classified these operations as held for sale in the fourth quarter of 2023.
Profit before tax in 2023 also included a £37m net favourable impact relating to the restructuring of our legal entities. This comprised the transfer of the Guernsey Private Banking business to PBRS, and the acquisitions of HBBM and PBLU.
Revenue was £3,202m higher in 2023 compared with 2022, which included the year-on-year £1.9bn favourable impact of the sale of our retail banking operations in France and the non-repeat of 2022 restructuring and other related costs comprising disposal losses of £234m associated with RWA reduction commitments by the HSBC Group, which concluded at the end of 2022. The increase also reflected the impacts from the restructuring of our business in Europe, including the non-repeat of 2022 losses associated with the completed sale of our branch operations in Greece and a £285m gain relating to the transfer of our Guernsey Private Banking business in 2023. Furthermore, there was a £47m net impact of the reversal of held for sale accounting for the planned sale of our Russia subsidiary and a provision reflecting restrictions impacting the recoverability of assets in Russia.
In addition, revenue increased, notably in Global Banking, CMB and WPB, primarily reflecting the impact of interest rate rises. This was partly offset by lower revenue in MSS.
ECL of £169m were down by £53m, primarily comprising stage 3 charges.
Operating expenses of £5,142m decreased by £109m, mainly driven by lower restructuring and other related costs following the completion of the HSBC Group's cost-saving programme at the end of 2022. This was partly offset by spend associated with ongoing strategic transformation and investments to support our growth initiatives and a higher UK bank levy.
Net interest income ('NII') increased by £247m or 13% compared with 2022. This included lower net interest income in Corporate Centre (down by £1,191m compared with 2022) mainly due to increased funding costs associated with the funding of our Markets business in MSS generating trading income. Excluding this, NII was up by £1,438m, including Global Banking (up £527m) and CMB (up £406m), notably in Global Payments Solutions ('GPS'), and in WPB (up £236m), from higher global interest rates. NII was also higher in MSS (up £266m), including in Securities Services (up £60m) driven by interest rate rises. Markets (up £206m) now reflects all of the funding cost of trading activities in Trading Income, where previously an element was reported in NII.
Net fee income decreased by £66m or 5% compared with the prior year, mainly in MSS, driven by higher brokerage and transaction costs and higher fee sharing in Global Foreign Exchange. This was partly offset by higher fee income in GPS, as volumes grew and we delivered on our strategic initiatives.
Net income from financial instruments measured at fair value increased by £3,034m or 73% compared with 2022, primarily in insurance manufacturing in WPB. This increase was driven by higher returns on financial assets supporting insurance contracts where the policyholder is subject to part or all of the investment risks.
This favourable movement resulted in a corresponding movement in liabilities to policyholders, reflecting the extent to which policyholders participate in the investment performance of the associated assets. The offsetting movements are recorded in 'Insurance finance income/(expense)'.
In MSS, revenue decreased by £553m, mainly in Equities and Global Foreign Exchange due to lower client volumes. This compared with a strong 2022 where market volatility was high, driven by the macroeconomic impacts from rising inflation and increasing interest rates.
Gains less losses from financial investments decreased by £24m, mainly driven by higher losses on the disposal of bonds held at fair value through other comprehensive income ('FVOCI') in Markets Treasury.
Gains/(losses) recognised on Assets held for sale of £296m increased by £2,243m from 2022, mainly driven by the year-on-year favourable impact associated with the sale of our retail banking operations in France (£1.9bn) and the non-repeat of 2022 losses associated with the sale of our branch operations in Greece (£87m). Gains in 2023 also included the reversal of held for sale accounting for the planned sale of our Russia subsidiary of £159m.
Insurance finance (expense)/income decreased by £2,290m in insurance manufacturing in WPB. This decrease was driven by lower returns on financial assets supporting contracts where the policyholder is subject to part or all of the investment risk. The losses recognised on the financial assets measured at fair value through profit and loss held to support these insurance contract liabilities are reported in 'Net income from financial instruments designated at fair value'.
Insurance service result remained broadly flat.
Other operating income increased by £55m or 41%, mainly due to a gain from the transfer of our Guernsey Private Banking business Guernsey branch to PBRS (£285m), partly offset by the provision to reflect restrictions impacting the recoverability of assets in Russia of £186m. There was also lower intercompany recharge recoveries from other entities in the HSBC Group, with an offsetting decrease in operating expenses.
ECL were a charge of £169m in 2023, £53m lower compared with 2022. ECL in 2023 primarily comprised stage 3 charges, and reflected a more stable outlook relative to 2022 where there was a heightened level of economic uncertainty.
Total operating expenses decreased by £109m or 2%, mainly driven by a number of non-recurring and volatile items in both periods. These included reductions in restructuring and other related costs of £458m following the completion of the HSBC Group's cost-saving programme at the end of 2022, a reversal of a historical value-in-use impairment (£52m) and a lower Single Resolution Fund ('SRF') levy (down £40m). These items were partly offset by spend associated with ongoing strategic transformation initiatives, a higher UK bank levy charge (£125m) and the non-recurrence of a recovery of historical VAT in the first half of 2022 (£66m). Excluding these items, operating expenses were £185m or 4% higher, mainly driven by higher technology costs reflecting ongoing strategic investments to support our growth initiatives.
Share of (loss)/profit in associates and joint ventures was a loss of £43m, an increase of £13m compared with 2022, largely due to an impairment of an investment in an associate of £18m.
Tax charge was £(427)m in 2023 compared with a tax credit of £646m in 2022. The effective tax rate of 19.8% for 2023 reflected the mix of profits and losses in different jurisdictions and is decreased by the release of provisions for uncertain tax positions, recognition of a deferred tax asset for prior period excess expenses in HSBC Life (UK) and the non-taxable gain arising on the transfer of the Guernsey branch to PBRS and increased by non-deductible UK and European bank levy expenses and charges in respect of prior periods.
The effective tax rate for 2022 of 53.9% represented a tax credit on a loss before tax and was increased by non-recurring items, including recognition of previously unrecognised deferred tax assets in France and a tax credit of £11m from the release of provisions for uncertain tax positions and reduced by charges in respect of prior periods and non-deductible UK and European bank levy expenses.
Analysis of reported results by global business
Markets and Securities Services
Loss before tax was £(144)m compared with a profit before tax of £509m in 2022, a decrease of £653m. This was driven by lower revenue and higher operating expenses.
Revenue decreased by £(450)m or 18%, mainly in Equities (down £270m) due to lower client activity as a result of reduced market volatility. Revenue was also lower in Global Foreign Exchange (down £199m) driven by lower market volatility. This compared with a strong performance in 2022 driven by elevated client activity as we benefited from market-wide volatility relating to interest rates and inflation rate rises. Revenue increased in Securities Services (up £26m) driven by higher net interest income reflecting interest rates rises.
Operating expenses increased by £195m or 10%, largely driven by continued investment in technology to support our growth initiatives. Costs were also higher driven by inflation and strategic investments.
Global Banking
Profit before tax was £988m, an increase of £502m compared with 2022, largely driven by strong revenue and lower ECL, partly offset by higher costs.
Revenue increased by £521m or 33%, mainly in GPS (up by £483m) driven by margin growth reflecting the higher interest rate environment supported by fee income growth of 12% compared with the prior year. Revenue in Capital Markets and Advisory was also higher (up £69m) mainly in Leveraged & Acquisition Finance following adverse valuation movements in 2022, and in Issuer Services from higher interest rates. This was partly offset by lower revenue in Advisory due to reduced market activity and in Credit & Lending due to lower demand.
ECL were £62m or 41% lower compared with 2022. The charge in 2023 reflected a relatively more stable outlook compared with 2022 where we saw heightened levels of economic uncertainty.
Operating expenses were £81m or 9% higher compared with 2022, mainly driven by legal and litigation provisions (£63m) booked in 2023. The remaining increase was primarily due to the impact of strategic investments and inflation, partly offset by the impact of our ongoing cost discipline.
Global Banking and Markets Other
Loss before tax was £(266)m, an improvement of £251m compared with 2022. This was largely driven by higher revenue and lower operating expenses.
Revenue increased by £121m, mainly driven by the non-recurrence of 2022 losses related to the buy-back of legacy securities (£84m) and the disposal of assets aligned with the HSBC Group RWA reduction commitments (£106m). The increase in revenue also included lower tax gross-up charges (down £123m), an adjustment between GBM Other, Global Banking and MSS (net nil impact), reflecting the tax impact of certain positions that are non-standard. This was partly offset by lower revenue allocated from Markets Treasury driven by disposal losses on repositioning activities as well as Principal Investments recognising valuation losses compared with gains in 2022 (down £58m). There were also lower intercompany recoveries of costs from other entities in the HSBC Group of £91m (offset in costs).
Operating expenses decreased by £124m or 31% compared with 2022, reflecting the move of certain GBM costs from the bank to other entities in the HSBC Group (offset by lower intercompany recoveries in revenue). There was also a reduction in restructuring and other related costs of £84m, lower staff costs and the impact of our ongoing cost discipline. This was partly offset by a higher UK bank levy in 2023 (up £113m).
Commercial Banking
CMB performed strongly in 2023 as we continued to implement our strategy to focus on serving our international customers. Profit before tax was £1,000m, up by £284m compared with 2022. This was mainly driven by higher revenue partly offset by higher ECL charges.
Revenue increased by £313m or 22% compared with 2022, primarily in GPS (up by £426m) driven by an increase in margins reflecting rising interest rates net of pass-through to customers. This was partly offset by a decrease in Credit & Lending revenue (down £45m) driven by margin compression and lower revenue from Markets Treasury. Revenue also reflected adverse fair value movements in preference shares holding in Visa (£36m).
ECL were £29m higher compared with 2022, mainly driven by higher stage 3 charges.
Operating expenses were in line with 2022.
Wealth and Personal Banking ('WPB')
Profit before tax was £457m in 2023 compared with a loss of £(1,273)m in 2022, mainly driven by the non-recurrence of the loss associated with the sale of our retail banking operations in France £1.7bn. The increase also reflected lower ECL, partly offset by higher operating expenses.
Revenue increased by £1,771m, mainly due to the impact of an impairment relating to the sale of our retail banking operations in France recognised in 2022. Revenue also increased driven by higher net interest income from retail, notably in the Channel Islands and Isle of Man and Malta, from the higher interest rate environment and deposit growth.
ECL were a net release of £12m as credit performance remained resilient, despite a rise in inflationary pressures. The net charge in 2022 mainly reflected heightened levels of economic uncertainty.
Operating expenses increased by £60m or 11%, mainly driven by the non-recurrence of a VAT recovery booked in France in 2022.
Corporate Centre
Profit before tax of £117m compared with a loss before tax of £(1,120)m in 2022. This was mainly driven by higher revenue and lower operating expenses.
Revenue increased by £926m, driven by the impacts of the restructuring of our business in Europe, including the non-repeat of 2022 losses associated with the completed sale of our branch operations in Greece £(87)m and lower losses and impairments related to the planned disposal of our business in Russia £(164)m. The increase also reflected the non-recurrence of disposal losses in 2022 associated with RWA reduction commitments by the HSBC Group, which concluded at the end of 2022 (£126m). In addition, there was a gain relating to the transfer of the Guernsey Private Banking business to PBRS in 2023 of £285m.
ECL were £5m lower compared with 2022, mainly driven by lower losses in Legacy Credit.
Operating expenses decreased by £321m, largely driven by a reduction in restructuring and other related costs of £485m following the completion of the HSBC Group's cost-saving programme, which concluded at the end of 2022.
Shares of loss in associates and joint ventures increased by £15m compared with 2022, largely due to an impairment of an investment in an associate of £18m.
Dividends
The consolidated reported profit for the year attributable to the shareholders of the bank was £1,703m.
A special dividend was paid on CET1 capital in 2023.
Further information about the results is given in the consolidated income statement on page 106.
Review of business position
|
Summary consolidated balance sheet at 31 December |
||
|
|
2023 |
20221 |
|
|
£m |
£m |
|
Total assets |
702,970 |
716,646 |
|
- cash and balances at central banks |
110,618 |
131,433 |
|
- trading assets |
100,696 |
79,878 |
|
- financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
19,068 |
15,881 |
|
- derivatives |
174,116 |
225,238 |
|
- loans and advances to banks |
14,371 |
17,109 |
|
- loans and advances to customers |
75,491 |
72,614 |
|
- reverse repurchase agreements - non-trading |
73,494 |
53,949 |
|
- financial investments |
46,368 |
32,604 |
|
- assets held for sale |
20,368 |
21,214 |
|
- other assets |
68,380 |
66,726 |
|
Total liabilities |
678,465 |
693,413 |
|
- deposits by banks |
22,943 |
20,836 |
|
- customer accounts |
222,941 |
215,948 |
|
- repurchase agreements - non-trading |
53,416 |
32,901 |
|
- trading liabilities |
42,276 |
41,265 |
|
- financial liabilities designated at fair value |
32,545 |
27,282 |
|
- derivatives |
171,474 |
218,867 |
|
- debt securities in issue |
13,443 |
7,268 |
|
- insurance contract liabilities |
20,595 |
20,004 |
|
- liabilities of disposal groups held for sale |
20,684 |
24,711 |
|
- other liabilities |
78,148 |
84,331 |
|
Total equity |
24,505 |
23,233 |
|
Total shareholders' equity |
24,359 |
23,102 |
|
Non-controlling interests |
146 |
131 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
Total assets were £13.5bn or 1.9% lower than at 31 December 2022. The group maintained a strong and liquid balance sheet with the ratio of customer advances to customer accounts remaining below 35%.
We have assessed the impact of climate risk on our balance sheet and have concluded that there is no material impact on the financial statements for the year ended 31 December 2023.
Assets
Cash and balances at central banks decreased by £20.8bn or 15.8% as a result of an increase in trading balances and preparation for the sale of our retail banking operations in France.
Trading assets (up £20.8bn or 26.0%) and financial assets designated at fair value (up £3.3bn or 20.5%) increased due to growth in Securities Financing (in the Prime business) in 2023.
Derivative assets decreased by £50.9bn or 22.7% due to market movements in interest rates and FX rates.
Non-trading reverse repos increased by £19.5bn or 36.2% primarily due to changes in market conditions.
Financial investments increased by £13.8bn or 42.2% as a result of our NII optimisation strategy.
Assets held for sale decreased by £0.9bn or 4.3% reflecting the disposal of our branch operations in Greece in July 2023 and the reclassification of our operations in Russia as no longer being held for sale. The remaining held for sale balance comprises assets associated with our retail operations in France.
Liabilities
Customer accounts increased by £7.0bn or 3.2%, which is consistent with our funding strategy to grow customer deposits and increase stable funding.
Total of trading liabilities and financial liabilities designated at fair value balances increased by £6.3bn or 9.2% due to increase in issuance of structured bonds.
Debt securities in issue increased by £6.2bn or 85.0% in line with the our funding strategy.
Non-trading repos increased by £20.5bn or 62.4% as a result of market activities.
Derivative liabilities decreased by £47.2bn or 21.7%. This is in line with derivative assets as the underlying risk is broadly matched.
Equity
Total shareholder's equity increased by £1.3bn or 5.4% from 2022, including an increase in called up share capital & share premium of £0.6bn to support the acquisition of HBBM in the third quarter of 2023.
Net interest margin
Net interest margin is calculated by dividing net interest income as reported in the income statement by the average balance of interest-earning assets. Average balances are based on daily averages for the principal areas of our banking activities with monthly or less frequent averages are used elsewhere.
|
Net interest income |
|||
|
|
2023 |
2022 |
2021 |
|
|
£m |
£m |
£m |
|
Interest income |
17,782 |
6,535 |
3,149 |
|
Interest expense1 |
(15,631) |
(4,631) |
(1,395) |
|
Net interest income |
2,151 |
1,904 |
1,754 |
|
Average interest-earning assets |
388,644 |
371,971 |
354,324 |
|
|
% |
% |
% |
|
Gross interest yield2 |
4.55 |
1.53 |
0.51 |
|
Less: gross interest payable2 |
(4.60) |
(1.23) |
(0.01) |
|
Net interest spread3 |
(0.05) |
0.30 |
0.50 |
|
Net interest margin4 |
0.55 |
0.51 |
0.50 |
1 Interest expense includes the funding cost of Market business which is reported in 'net insurance income' with an equal and offsetting income in 'net income from financial instruments held for trading or managed on a fair value basis'.
2 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). Gross interest payable is the average annualised interest cost as a percentage of average interest-bearing liabilities.
3 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing liabilities.
4 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
|
Summary of interest income by asset type |
|||||||||
|
|
2023 |
20221 |
20211 |
||||||
|
|
Average |
Interest |
Yield2 |
Average |
Interest |
Yield2 |
Average |
Interest |
Yield2 |
|
|
£m |
£m |
% |
£m |
£m |
% |
£m |
£m |
% |
|
Short term funds and loans and advances to banks |
139,997 |
4,993 |
3.57 |
144,826 |
1,115 |
0.77 |
119,025 |
(221) |
(0.19) |
|
Loans and advances to customers |
88,161 |
4,076 |
4.62 |
91,882 |
2,177 |
2.37 |
99,151 |
1,585 |
1.60 |
|
Reverse repurchase agreements - non-trading3 |
71,974 |
4,691 |
6.52 |
56,144 |
1,099 |
1.96 |
57,630 |
(132) |
(0.23) |
|
Financial investments |
41,178 |
1,509 |
3.66 |
37,875 |
633 |
1.67 |
45,142 |
497 |
1.10 |
|
Other interest-earning assets |
47,334 |
2,426 |
5.13 |
41,244 |
686 |
1.66 |
33,376 |
67 |
0.20 |
|
Total interest-earning assets |
388,644 |
17,695 |
4.55 |
371,971 |
5,710 |
1.54 |
354,324 |
1,796 |
0.51 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data of the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 is prepared on an IFRS 4 basis.
2 Interest yield calculations include negative interest on assets recognised as interest expense in the income statement.
3 The average balances for repurchase and reverse repurchase agreements include net amounts where the criteria for offsetting are met, resulting in a lower net balance reported with a higher yield and cost of funds.
|
Summary of interest expense by type of liability and equity |
|||||||||
|
|
2023 |
20221 |
20211 |
||||||
|
|
Average |
Interest |
Cost2 |
Average |
Interest |
Cost2 |
Average |
Interest |
Cost2 |
|
|
£m |
£m |
% |
£m |
£m |
% |
£m |
£m |
% |
|
Deposits by banks |
23,512 |
911 |
3.87 |
31,930 |
55 |
0.17 |
32,891 |
(186) |
(0.57) |
|
Customer accounts |
185,731 |
6,893 |
3.71 |
164,681 |
1,742 |
1.06 |
150,048 |
95 |
0.06 |
|
Repurchase agreements - non-trading3 |
45,337 |
3,518 |
7.76 |
31,898 |
680 |
2.13 |
32,916 |
(192) |
(0.58) |
|
Debt securities in issue - non-trading |
30,627 |
1,534 |
5.01 |
29,385 |
589 |
2.00 |
38,727 |
258 |
0.67 |
|
Other interest-bearing liabilities |
52,560 |
2,688 |
5.11 |
50,301 |
739 |
1.47 |
36,811 |
68 |
0.18 |
|
Total interest-bearing liabilities |
337,767 |
15,544 |
4.60 |
308,195 |
3,805 |
1.23 |
291,393 |
43 |
0.01 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data of the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 is prepared on an IFRS 4 basis.
2 Interest payable calculations include negative interest on liabilities recognised as interest income in the income statement.
3 The average balances for repurchase and reverse repurchase agreements include net amounts where the criteria for offsetting are met, resulting in a lower net balance reported with a higher yield and cost of funds.
Reconciliation of alternative performance measures
Return on average ordinary shareholders' equity and return on average tangible equity
Return on average ordinary shareholders' equity ('RoE') is computed by taking profit attributable to the ordinary shareholders of the parent company ('reported results'), divided by average ordinary shareholders' equity ('reported equity') for the period. The adjustment to reported results and reported equity excludes amounts attributable to non-controlling interests and holders of preference shares and other equity instruments.
Return on average tangible equity ('RoTE') is computed by adjusting reported results for impairment of goodwill and other intangible assets (net of tax), divided by average reported equity adjusted for goodwill and intangibles for the period.
We provide RoTE ratio in addition to RoE as a way of assessing our performance, which is closely aligned to our capital position.
|
Return on average ordinary shareholders' equity and return on average tangible equity |
|||
|
|
Year ended |
||
|
|
31 Dec |
31 Dec |
31 Dec |
|
|
2023 |
20221 |
20211 |
|
|
£m |
£m |
£m |
|
Profit/(loss) |
|
|
|
|
Profit/(loss) attributable to the ordinary shareholders of the parent company |
1,489 |
(753) |
847 |
|
Decrease/(increase) in PVIF (net of tax) |
N/A |
N/A |
(149) |
|
Profit/(loss) attributable to the ordinary shareholders, excluding other intangible assets impairment |
1,489 |
(753) |
698 |
|
Significant items (net of tax) |
N/A |
N/A |
468 |
|
Impact of strategic transactions2 |
(134) |
1,252 |
- |
|
Profit attributable to the ordinary shareholders, excluding other intangible assets impairment and strategic transactions |
1,355 |
499 |
1,166 |
|
Equity |
|
|
|
|
Average total shareholders' equity |
24,180 |
22,888 |
23,629 |
|
Effect of average preference shares and other equity instruments |
(3,930) |
(3,889) |
(3,722) |
|
Average ordinary shareholders' equity |
20,250 |
18,999 |
19,907 |
|
Effect of goodwill and other intangibles (net of deferred tax) |
N/A |
N/A |
(553) |
|
Other adjustments (net of tax) |
33 |
89 |
(92) |
|
Average tangible equity |
20,283 |
19,088 |
19,262 |
|
Average impact of strategic transactions |
(19) |
250 |
N/A |
|
Average tangible equity excluding strategic transactions |
20,264 |
19,338 |
N/A |
|
|
% |
% |
% |
|
Ratio |
|
|
|
|
Return on average ordinary shareholders' equity (annualised) |
7.4 |
(4.0) |
4.3 |
|
Return on average tangible equity (annualised) |
7.3 |
(3.9) |
3.6 |
|
Return on average tangible equity excluding strategic transactions (annualised) |
6.7 |
2.6 |
6.1 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data of the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 is prepared on an IFRS 4 basis.
2 Includes the impacts of the sale of our retail banking operations in France.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
Latest directors dealings
- 1 day ago Savannah Energy
- 1 day ago Buccaneer Energy PLC
- 1 day ago Savannah Energy
- 1 day ago Carclo
- 1 day ago Schroder Japan Growth Fund