Annual Report and Accounts 2023 2 of 5
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Risk overview |
The group continuously identifies, assesses, manages and monitors risks. This process, which is informed by its risk factors and the results of its stress testing programme, gives rise to the classification of certain financial and non-financial risks. Changes in the assessment of these risks may result in adjustments to the group's business strategy and, potentially, its risk appetite.
Our banking risks include credit risk, treasury risk, market risk, climate risk, resilience risk (including cybersecurity risk), regulatory compliance risk, financial crime and fraud risk and model risk. We also incur insurance risk.
In addition to these banking risks, we have identified top and emerging risks with the potential to have a material impact on our
financial results, our reputation and the sustainability of our long-term business model.
The exposure to our risks and risk management of these are explained in more detail in the Risk section on pages 22 to 86.
Our suite of top and emerging risks is subject to regular review by senior governance forums. During 2023, we removed Ibor transition as a top risk given the cessation of the publication of US dollar Libor in June 2023. We continue to monitor closely the identified risks and ensure management actions are in place, as required.
The risk from digitalisation and technological advances has been added reflecting their increasing impact on the banking sector.
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Externally driven |
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Geopolitical and macroeconomic risk |
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Our operations and portfolios are exposed to risks associated with political instability, civil unrest and military conflict, which could lead to disruption of our operations, physical risk to our staff and/or physical damage to our assets. Conflicts and geopolitical tensions, including the ongoing Russia-Ukraine and Israel-Hamas wars, are creating a more complicated business environment. Despite expected reductions, interest rates in Europe and the UK, are nevertheless likely to remain high in 2024, which could slow the growth of the economies in which the group operates and affect our credit portfolio. |
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Credit risk |
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We regularly undertake detailed reviews of our portfolios and proactively manage credit facilities to customers and sectors likely to come under stress as a result of current macroeconomic and geopolitical events, including UK recessionary pressures and impacts of the Russia-Ukraine and Israel-Hamas wars. We remain focused on assessing and managing the impacts of the cost of living crisis and higher interest rates on our customers as well as inflationary pressures across our major markets. Particular emphasis has been maintained on the Commodity Traders, Leverage, Construction and Building Materials, Automotives, Retail, 'Consumer Spend' and Commercial Real Estate sectors. We have increased the frequency and depth of our monitoring activities with stress tests and other sectoral reviews performed to identify portfolios or customers who are likely to experience financial difficulty through the slowdown in economic activity. |
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Cyber threat and unauthorised access to systems |
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The risk of service disruption or loss of data resulting from technology failures or malicious activities by internal or external threats remains heightened. We seek to continue to monitor changes to the threat landscape, including those arising from geopolitical events, and the impact this may have on third party risk management. We operate a continuous improvement programme to help protect our technology operations and to counter a fast-evolving cyber threat environment. |
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Evolving regulatory environment risk |
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The regulatory and compliance risk environment remains complex, in part due to the UK's Financial Conduct Authority's ('FCA') implementation of its Consumer Duty in July 2023. There continues to be an intense regulatory focus on ESG matters, including on 'green' products. Regulatory scrutiny of financial institutions, following banking failures in 2023, may result in new or additional regulatory requirements impacting the group in the short to medium term. |
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Financial crime and fraud risk |
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We are exposed to financial crime risk from our customers, staff and third-parties engaging in criminal activity. The financial crime risk environment continues to evolve, due to increasingly complex geopolitical challenges, the macroeconomic outlook, evolving financial crime regulations, rapid technological developments, an increasing number of national data privacy requirements and the increasing sophistication of fraud. As a result, we will continue to face the possibility of regulatory enforcement and reputational risk. |
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Environmental, social and governance risk |
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We are subject to ESG risks, including in relation to climate change, nature and human rights. These risks have increased owing to the pace and volume of regulatory developments globally, increasing frequency of severe weather events, and due to stakeholders placing more emphasis on financial institutions' actions and investment decisions in respect of ESG matters. Failure to meet these evolving expectations may result in financial and non-financial risks, including reputational, legal and regulatory compliance risks. |
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Digitalisation and technological advances |
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Developments in technology and changes in regulations continue to enable new entrants to the banking industry and new products and services offered by competitors. This challenges us to continue to innovate with new digital capabilities and adapt our products, to attract, retain and best serve our customers. Along with opportunities, new technology, including generative Artificial intelligence ('AI'), can introduce risks and we seek to ensure these are understood and managed with appropriate controls. |
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Internally driven |
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People risk |
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Our businesses, functions and countries in the region are exposed to risks associated with employee retention, talent availability, and compliance with employment laws and regulations. The group has undertaken notable transformation activities through 2023 and several structural changes were achieved. Elevated workloads while transitioning into new operating models have exposed the various businesses and functions to capacity and capability risks. Employment practices and relation risks across the region continue to be mitigated through continuous and transparent engagement with employees' representative bodies and regulators and are on a reducing trend. Strong oversight is maintained on all aspects of people risk management, including monitoring hiring activities and levels of employee attrition to ensure that effective workforce forecasting is supporting business demands. Failure to manage these risks may impact the delivery of our strategic objectives or lead to regulatory sanctions or legal claims. |
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Internally driven (continued) |
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IT systems infrastructure and resilience |
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We continue to monitor and improve our IT systems and network resilience, both on our premises and on the Cloud to minimise service disruption and improve customer experience. To support the business strategy, we remain focused on strengthening our end to end management, building and deploying controls and system monitoring capabilities. We continue to seek to reduce the complexity of our technology estate and consolidate our core banking systems onto a single strategic platform. |
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Execution risk |
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Failure to effectively prioritise, manage and/or deliver transformation across the group impacts our ability to achieve our strategic objectives. Given the complexity and volume of change planned throughout 2024, we aim to continue to monitor, manage and oversee change execution risk to ensure our change portfolio and initiatives continue to deliver the right outcomes for our customers, people, regulators, investors and communities. |
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Model risk |
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Model risk arises whenever business decision making includes reliance on models. We use models in both financial and non-financial contexts, as well as in a range of business applications. The model landscape continues to be impacted by regulatory requirements driving material changes to the way model risk is managed across the banking industry. The PRA's Supervisory Statement (SS 1/23) 'Model Risk Management Principles for Banks' issued in May 2023 requires increased oversight and controls on the management of model risks across the bank. We continue strengthening the dialogue with regulators within the region to ensure our deliverables meet their expectations. New technologies, including AI and generative AI, are driving a need for enhanced model risk controls. |
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Data risk |
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We use data to serve our customers and run our operations, often in real-time within digital experiences and processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet regulatory requirements could be impacted. We seek to ensure that non-public data is kept confidential, and that we comply with the regulations that govern data privacy and cross-border movement of data. |
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Third-party risk |
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We procure goods and services from a range of third parties. Due to the current macroeconomic and geopolitical climate, the risk of service disruption in our supply chain has heightened. We continue to strengthen our controls, oversight and risk management policies and processes to select and manage third parties, including our third parties' own supply chains, particularly for key activities that could affect our operational resilience. |
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New risk introduced in 2023 |
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Risk has heightened during 2023 |
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Risk remains at the same level as 2022 |
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Risk has decreased during 2023 |
On behalf of the Board
Kavita Mahtani
Director
20 February 2024
Registered number 00014259
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Risk |
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Contents |
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22 |
Our approach to risk |
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22 |
Our risk appetite |
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23 |
Risk management |
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23 |
Stress testing |
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24 |
Key developments and risk profile |
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Key developments in 2023 |
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Top and emerging risks |
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25 |
Externally driven |
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Internally driven |
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Our material banking and insurance risks |
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Credit risk |
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Treasury risk |
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81 |
Market risk |
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85 |
Climate risk |
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86 |
Resilience risk |
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87 |
Cybersecurity Risk |
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88 |
Regulatory compliance risk |
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Financial crime risk |
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Model risk |
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Insurance manufacturing operations risk Overview |
Our approach to risk
Our risk appetite
We recognise the importance of a strong risk culture, which refers to our shared attitudes, values and standards that shape behaviours related to risk awareness, risk taking and risk management. All our people are responsible for the management of risk, with the ultimate accountability residing with the Board. Our risk appetite defines the level and types of risk that we are willing to take, while informing the financial planning process and guiding strategic decision making.
The following principles guide the group's overarching appetite for risk and determine how our businesses and risks are managed.
Financial position
- Strong capital position, defined by regulatory and internal ratios.
- Liquidity and funding management for each entity on a stand-alone basis.
Operating model
- Ambition to generate returns in line with our risk appetite and strong risk management capability.
- Ambition to deliver sustainable earnings and consistent returns for shareholders.
Business practice
- Zero tolerance for knowingly engaging in any business, activity or association where foreseeable reputational risk or damage has not been considered and/or mitigated.
- No appetite for deliberately or knowingly causing detriment to consumers arising from our products and services or incurring a breach of the letter or spirit of regulatory requirements.
- No appetite for inappropriate market conduct by a member of staff or by any group business.
Enterprise-wide application
Our risk appetite encapsulates the consideration of financial and non-financial risks. We define financial risk as the risk of a financial loss as a result of business activities. We actively take these types of risks to maximise shareholder value and profits.
Non-financial risk is defined as the risk to achieving our strategy or objectives as a result of inadequate or failed internal processes, people and systems, or from external events.
Our Risk Management Framework
An established risk governance framework and ownership structure seeks to ensure oversight of, and accountability for, the effective management of risk within the group. HSBC's Risk Management Framework ('RMF') fosters the continuous monitoring of the risk environment and an integrated evaluation of risks and their interactions. Integral to the RMF are risk appetite, stress testing and the identification of emerging risks.
Our Risk Committee focuses on risk governance and seeks to ensure a forward-looking view of risks and their mitigation. The Risk Committee is a committee of the Board and has responsibility for oversight and advice to the Board on, amongst other things, the bank's risk appetite, tolerance and strategy, systems of risk management, internal control and compliance. Additionally, members of the Risk Committee attend meetings of the bank's Nomination, Remuneration and Governance Committee at which the alignment of the reward structures to risk appetite is considered.
In carrying out its responsibilities, the Risk Committee is closely supported by the Chief Risk Officer, the Chief Financial Officer, the Head of Internal Audit and the Head of Compliance, together with other business functions on risks within their respective areas of responsibility.
Responsibility for managing both financial and non-financial risk lies with our people. They are required to manage the risks of the business and operational activities for which they are responsible. We maintain oversight of our risks through our various specialist Risk Stewards, as well as the accountability held by the Chief Risk Officer.
Non-financial risk includes some of the most material risks HSBC faces, such as cyber-attacks, poor customer outcomes and loss of data and the current geopolitical risks. Actively managing non-financial risks is crucial to serving our customers effectively and having a positive impact on society. During 2023 we continued to strengthen the control environment and our approach to the management of non-financial risks, as is broadly set out in our Risk Management Framework. The management of non-financial risk focuses on governance and risk appetite, providing a single view of the non-financial risks that matter most, and associated controls. It incorporates a risk management system designed to enable the active management of non-financial risk. Our ongoing focus is on simplifying our approach to non-financial risk management, while driving more effective oversight and better end-to-end identification and management of non-financial risks. This is overseen by our Enterprise Risk Management function, headed by the group Head of Enterprise Risk Management.
Three lines of defence
All our people are responsible for identifying and managing risk within the scope of their roles. Roles are defined using the three lines of defence model, which takes into account our business and functional structures.
To create a robust control environment to manage risks, we use an activity-based three lines of defence model, whereby the activity a member of staff undertakes drives which line they reside within. This model delineates management accountabilities and responsibilities for risk management and the control environment.
The model underpins our approach to risk management by clarifying responsibility, encouraging collaboration and enabling efficient coordination of risk and control activities.
The three lines are summarised below:
- The first line of defence owns the risks and is responsible for identifying, recording, reporting and managing them in line with risk appetite, and ensuring that the right controls and assessments are in place to mitigate them.
- The second line of defence challenges the first line of defence on effective risk management, and provides advice and guidance in relation to the risk.
- The third line of defence is our Internal Audit function, which provides independent assurance that the group's risk management approach and processes are designed and operating effectively.
Risk appetite
We formally articulate our risk appetite through our risk appetite statement ('RAS'), which is approved by the Board on the recommendation of the Risk Committee. Setting out our risk appetite ensures that planned business activities provide an appropriate balance of return for the risk we are taking, and that we agree a suitable level of risk for our strategy. In this way, risk appetite informs our financial planning process and helps senior management to allocate capital to business activities, services and products.
The RAS consists of qualitative statements and quantitative metrics, covering financial and non-financial risks. It is fundamental to the development of business line strategies, strategic and business planning and senior management balanced scorecards. Performance against the RAS is reported to the Risk Management Meeting ('RMM') so that any actual performance that falls outside the approved risk appetite is discussed and appropriate mitigating actions are determined. This reporting allows risks to be promptly identified and mitigated, and informs risk-adjusted remuneration to drive a strong risk culture.
Risk management
Stress testing
Stress testing is an important tool that is used by banks, as part of their internal risk management, and by regulators to assess vulnerabilities in individual banks and/or the financial banking sector under hypothetical adverse scenarios. The results of stress testing are used to assess banks' resilience to a range of adverse shocks and to assess their capital and liquidity adequacy.
HSBC Bank plc is subject to regulatory stress testing in several jurisdictions. These requirements are increasing in frequency and granularity. They include the programmes of the BoE, Prudential Regulation Authority ('PRA') and the European Banking Authority ('EBA'). Assessment by regulators is on both a quantitative and qualitative basis, the latter focusing on our portfolio quality, data provision, stress testing capability and capital planning processes.
A number of internal macroeconomic and event-driven scenarios specific to the European region were considered and reported to senior management during the course of the year. The selection of stress scenarios is based upon the output of our top and emerging risks identified and our risk appetite. The results help the Board and senior management to set our risk appetite and confirm the strength of our strategic and financial plans. Our risk appetite is set at a level that enables the group to withstand future stress impacts.
The macroeconomic internal stress tests, conducted throughout 2023, considered combinations of various potential impacts as identified in our top and emerging risks, in particular the impact of the Russia-Ukraine war, geopolitical tensions and trade wars, interest rate shocks and a deep recession, supply chain disruption and operational risk.
We also conduct reverse stress tests each year for HSBC Bank plc and, where required, at subsidiary entity level to understand potential extreme conditions that would make our business model non-viable. Reverse stress testing identifies potential stresses and vulnerabilities we might face, and helps inform early warning triggers, management actions and contingency plans designed to mitigate risks.
Recovery and resolution plans
Recovery and resolution plans form part of the integral framework safeguarding HSBC Bank plc financial stability. The recovery plan, together with stress testing, help us understand the likely outcomes of adverse business or economic conditions and in the identification of appropriate risk mitigating actions.
Climate Risk
In 2023, we have considered four bespoke scenarios that were designed to articulate our view of the range of potential outcomes for global climate change. The scenarios explore a wide range of physical and transition risks that could materialise under certain technological, behavioural and political assumptions: the Net-Zero - Corporate Strategy scenario, which aligns with the HSBC Group's net zero strategy and is consistent with the Paris Agreement; the Baseline - Current Commitments scenario, which assumes that climate action is limited to the current governmental commitments and pledges; the Delayed Transition scenario, which assumes that climate action is delayed until 2030; and the Downside Physical Risk scenario, which assumes muted climate action limited to current governmental policies.
We consider our Current Commitments scenario as the most likely scenario to transpire over the next five years. Under the Current Commitments scenario, we expect moderate levels of losses relating to transition risks. Based on this scenario the potential impact on expected credit losses is not considered material over the next five years, as the impacts of climate risk will emerge later in the following decades.
Key developments and risk profile
Key developments in 2023
We actively managed the risks related to macroeconomic and geopolitical uncertainties, as well as other key risks described in this section. In addition, we sought to enhance our risk management in the following areas:
- We implemented two revised risk appetite frameworks to better manage and strengthen our controls with respect to concentration risks. These relate to concentration risks arising from exposures to countries and to single customer groups.
- Through our climate risk programme, we have continued to embed climate considerations throughout the firm, including updating the scope of our programme to cover all risk types, expanding the scope of climate related training and developing new climate risk metrics to monitor and manage exposures. We completed an Internal Scenario Analysis exercise which focused on generating more granular insights which we are using improve our understanding of our risk exposures for use in risk management, business decision making, and to meet ongoing regulatory expectations.
- We enhanced our processes, framework and capabilities to improve the control and oversight of our material third parties, and to help maintain our operational resilience and meet new and evolving regulatory requirements.
- We deployed industry leading technology and advanced analytics capabilities into new markets to improve our ability to identify suspicious activities and prevent financial crime.
- We are embedding our suite of regulatory management systems following the Group-wide roll-out of regulatory horizon scanning capabilities and enhanced regulation mapping tooling.
- We continued to increase the stabilisation of our net interest income ('NII') as interest rate expectations fluctuated, driven by central bank rate increases and a reassessment of the trajectory of inflation in major economies.
Top and emerging risks
We use a top and emerging risks process to provide a forward-looking view of issues with the potential to threaten the execution of our strategy or operations over the medium to long term.
We proactively assess the internal and external risk environment, as well as review the themes identified across the European region and the group's businesses, for any risks that may require escalation. We update our top and emerging risks as necessary.
Our current top and emerging risks are as follows.
Externally driven
Geopolitical and macroeconomic risk
The group faces elevated geopolitical risks, with the Russia-Ukraine war continuing to have global economic and political implications. The Israel-Hamas war is also increasing tensions in the Middle East, leading to recent attacks on shipping in the Red Sea and resulting counter-measures, which have begun to disrupt supply chains. The group is monitoring and assessing the impacts of these wars.
The Russia-Ukraine war has continued to elevate geopolitical instability which could have continued ramifications for the group and its customers. We continue to monitor and respond to financial sanctions and trade restrictions that have been adopted in response. These sanctions and trade restrictions are complex, novel and evolving. In particular, the US, the UK and the EU, as well as other countries, have imposed significant sanctions and trade restrictions against Russia. Such sanctions and restrictions target certain Russian government officials, politically exposed persons, business people, Russian oil imports, energy products, financial institutions and other major Russian companies and sanctions evasion networks. These countries have also enacted more generally applicable investment, export, and import bans and restrictions. In December 2023, the US established a new secondary sanctions regime, providing itself broad discretion to impose severe sanctions on non-US banks that are knowingly or even unknowingly engaged in certain transactions or services involving Russia's military-industrial base. This creates challenges associated with the detection or prevention of third-party activities beyond HSBC's control. The imposition of such sanctions against any non-US HSBC entity could result in significant adverse commercial, operational, and reputational consequences for HSBC, including the restriction or termination of the non-US HSBC entity's ability to access the US financial system and the freezing of the entity's assets that are subject to US jurisdiction. In response to such sanctions and trade restrictions, as well as asset flight, Russia has implemented certain countermeasures, including the expropriation of foreign assets.
Our business in Russia principally serves multinational corporate clients headquartered in other countries. 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.
Economic and financial risks also remain significant, and we continue to monitor our risk profile closely in the context of uncertainty over global macroeconomic policies.
A fall in global energy and food prices from the highs of 2022 facilitated a process of disinflation across key economies during 2023. Following the reduction in global inflation rates, central banks in most developed markets are expected to have concluded monetary policy tightening in the second half of 2023. A further fall in inflation is expected to enable interest rate reductions through 2024, although forecasts still assume that they remain materially higher than in recent years. Higher financing costs will raise interest payment burdens for many counterparties.
Fiscal deficits are also expected to remain large in both developed and emerging markets, as public spending on items including social welfare, defence and climate transition initiatives is expected to remain high. In many countries, the fiscal response to the Covid-19 pandemic has also left a very high public debt burden. Against a backdrop of slower economic growth and high interest rates, a rise in borrowing costs could increase the financial strains on highly indebted sovereigns.
Macroeconomic, financial and geopolitical risks have all impacted our macroeconomic scenarios. Our Central scenario, which has the highest probability weighting in our IFRS 9 'Financial Instruments' calculations of ECL, assumes that GDP growth across our key markets will remain low in 2024, followed by moderate recovery in 2025. It is anticipated that inflation will converge towards central banks' target rates by early 2025. Similarly, interest rates are expected to decline but remain materially higher than in recent years. We also consider scenarios where commodity prices are materially higher, inflation and interest rates rise and a global recession follows, although we assign these scenarios a lower probability of occurring.
Forecasts remain uncertain, and changing economic conditions and the materialisation of key risks could reduce the accuracy of the Central scenario forecast. In particular, forecasts in recent years have been sensitive to commodity price changes, changing supply chain conditions, monetary policy adjustments and inflation expectations. Uncertainty remains with respect to the relationship between the economic factors and historical loss experience, which has required adjustments to modelled ECL in cases where we determined that the model was unable to capture the material underlying risks.
For further details of our Central and other scenarios, see 'Measurement uncertainty and sensitivity analysis of ECL estimates' on page 41.
A Memorandum of Understanding ('MoU') was signed on 27 June 2023, setting out a framework for voluntary regulatory cooperation in financial services between the UK and the EU, including through the establishment of a Joint UK-EU Financial Regulatory Forum. This is expected to provide a platform on which both parties will be able to discuss financial services-related issues, including future equivalence determinations.
Negotiations between the UK and the EU over the operation of the Northern Ireland Protocol concluded in February 2023. In January 2024, an additional agreement titled, "Safeguarding the Union" was signed. Together, these agreements provide a greater degree of certainty over the regulatory arrangements governing the movement of goods between Great Britain, Northern Ireland and the EU. In February 2024, the Northern Ireland Executive was reinstated after a power-sharing agreement was reached by key political parties.
Challenges remain in the UK-EU relationship following the UK's withdrawal from the EU. Over the medium to long term, the UK's withdrawal from the EU may continue to adversely impact the terms of EU market access for our UK based clients. We are monitoring the situation closely, including the potential impacts on our customers.
Our business could also be adversely affected by economic or political developments in regions of the world outside Europe. This reflects our extensive business links, through members of the HSBC Group and other entities, in Asia and elsewhere. Tensions between China and the US, extending to the UK, the EU, India and other countries, and political developments in Hong Kong and Taiwan, may adversely affect the group.
The US, the UK, the EU and other countries have imposed various sanctions and trade restrictions on China. In response to foreign sanctions and trade restrictions, China has also announced sanctions, trade restrictions and laws that could impact the group and its customers.
Further sanctions, counter-sanctions and trade restrictions may adversely affect the group, its customers and the markets in which the group operates, by creating regulatory, reputational and market risks.
Mitigating actions
- We closely monitor geopolitical and economic developments in our key markets and sectors, and undertake scenario analysis where appropriate. This helps us to take actions to manage our portfolios where necessary, including through enhanced monitoring, amending our risk appetite and/or reducing limits and exposures.
- We continue to monitor the EU's relationship with the UK, and assess the potential impact on our people, operations and portfolios.
- We continue to monitor our risk profile closely in the context of the current geopolitical and macroeconomic situation, and given the significant uncertainties, additional mitigating actions may be required.
- We have taken steps, where necessary, to enhance physical security in geographical areas deemed to be at high risk from terrorism and military conflicts.
Credit risk
Despite ongoing macro economic and geopolitical challenges predominantly driven by the Russia-Ukraine war, prolonged high inflation and rising energy costs, our credit portfolio remains stable and resilient with no material concentration risk. Economic prospects for credit risk across our key markets will be driven by a number of factors including how inflationary pressures are managed across the EU and the UK, and whether a global recession develops, exacerbated by the ongoing Russia-Ukraine war. The Israel-Hamas war is also being monitored closely.
Mitigating actions
- Reviews of key credit portfolios are undertaken regularly to seek to ensure that individual customer or portfolio risks are understood and our management of the level of facilities offered through a period of low economic growth is appropriate.
- We continue to monitor high risk wholesale industry sectors closely via quarterly industry risk appetite reviews and in 2023 we also undertook specific reviews of portfolios showing vulnerability such as Commodity Traders, Leverage, Construction and Building Materials, Automotives, Retail, 'Consumer Spend' and Commercial Real Estate.
- Detailed performance monitoring is reviewed on a monthly basis, which includes early warning indicators and a view of concentration risks. Portfolio limits and exposures are re-assessed and reductions implemented where appropriate.
- We stress test portfolios of particular concern to identify sensitivity to loss under a range of scenarios, with management actions being taken to seek to rebalance exposures and to manage risk appetite where necessary.
Cyber threat and unauthorised access to systems
Together with other organisations, we continue to operate in an increasingly hostile cyber threat environment. These threats include potential unauthorised access to customer accounts, and attacks on our systems or those of our third-party suppliers. These threats require ongoing investment in business and technical controls to defend against them.
Mitigating actions
- Our cyber intelligence and threat analysis team continually evaluate threat levels for the most prevalent cyber-attack types and their potential outcomes (see page 80 - cross-reference to Cybersecurity). To further protect the group and our customers and to help ensure the safe expansion of our business lines, we continue to strengthen our controls to help reduce the likelihood and impact of advanced malware, data leakage, exposure through third parties and security vulnerabilities.
- We continue to seek to enhance our cybersecurity capabilities, including Cloud security, identity and access management, metrics and data analytics, and third-party security reviews. An important part of our defence strategy is conducting cybersecurity training and awareness campaigns so that our colleagues remain aware of cybersecurity issues and know how to report incidents.
- We regularly report and review cyber risk and control effectiveness at executive and non-executive Board level. We also report it across our businesses and functions to help ensure appropriate visibility and governance of the risk and its mitigating actions.
- We participate globally in industry bodies and working groups to collaborate on tactics employed by cyber-crime groups and to collaborate in helping to defend against, detect and prevent cyber-attacks on financial organisations.
- We experience numerous attempts to compromise our cybersecurity. We respond to cybersecurity attacks in accordance with our cybersecurity framework and applicable laws, rules and regulations. To date, none of these attacks have had a material impact on our business or operations.
Evolving regulatory environment risk
We aim to keep abreast of the emerging regulatory compliance and conduct risk agenda. Current focus areas include but are not limited to: ESG agenda developments, including in particular managing the risks of 'greenwashing'; ensuring good customer outcomes, including addressing customer vulnerabilities due to cost of living pressures; enhancements to regulatory reporting controls; and employee compliance, including the use of e-communication channels.
We monitor regulatory developments closely and engage with regulators, as appropriate, to help ensure new regulatory requirements are implemented effectively and in a timely way.
The competitive landscape in which the group operates may be impacted by future regulatory changes and government intervention.
Mitigating actions
- We monitor for regulatory developments to understand the evolving regulatory landscape and seek to respond with changes in a timely way.
- We continue to support work that is focused on the implementation of UK Consumer Duty requirements.
- We engage with governments and regulators to seek to make a contribution to regulations and to try and ensure that new requirements are considered properly and can be implemented effectively.
- We hold regular meetings with relevant authorities to discuss strategic contingency plans, including those arising from geopolitical issues.
- Our simplified conduct approach has been embedded to align to our purpose and values, in particular the value 'we take responsibility'.
Financial crime and fraud risk
Financial institutions remain under considerable regulatory scrutiny regarding their ability to detect and prevent financial crime. In 2023, these risks were exacerbated by rising geopolitical tensions and ongoing macroeconomic factors. These challenging developments require managing conflicting laws and approaches to legal and regulatory regimes, and implementing increasingly complex and less predictable sanctions and trade restrictions.
Amid high levels of inflation and increasing cost of living pressures, we face increasing regulatory expectations with respect to managing internal and external fraud and protecting vulnerable customers. In addition, the accessibility and increasing sophistication of generative AI brings financial crime risks. While there is potential for the technology to support financial crime detection, there is also a risk that criminals use generative AI to perpetrate fraud, particularly scams.
The digitisation of financial services continues to have an impact on the payments ecosystem, with an increasing number of new market entrants and payment mechanisms, not all of which are subject to the same level of regulatory scrutiny or regulations as banks. Developments around digital assets and currencies have continued at pace, with an increasing regulatory and enforcement focus on the financial crimes linked to these types of assets.
Expectations continue to increase with respect to the intersection of ESG issues and financial crime, as our organisation, customers and suppliers transition to net zero. These are particularly focused on potential 'greenwashing', human rights issues and environmental crimes. In addition, climate change itself could heighten risks linked to vulnerable migrant populations in countries where financial crime is already more prevalent.
We also continue to face increasing challenges presented by national data privacy requirements, which may affect our ability to manage financial crime risks across markets.
Mitigating actions
- We continue to seek to manage sanctions and trade restrictions through the use of reasonably designed policies, procedures and controls, which are subject to ongoing testing, auditing and enhancements.
- We continue to develop our fraud controls and invest in capabilities to fight financial crime through the application of
advanced analytics and AI, while monitoring technological developments and engaging with third parties.
- We are looking at the impact of a rapidly changing payments ecosystem, as well as risks associated with direct and indirect exposure to digital assets and currencies, in an effort to maintain appropriate financial crime controls.
- We regularly review our existing policies and control framework so that developments relating to ESG are considered and the financial crime risks are mitigated to the extent possible.
- We engage with regulators, policymakers and relevant international bodies, seeking to address data privacy challenges through international standards, guidance and legislation.
Environmental, social and governance ('ESG') risk
We are subject to financial and non-financial risks associated with ESG-related matters. Our current areas of focus include climate risk, nature-related risks and human rights risks. These can impact us both directly and indirectly through our business activities and relationships.
Our assessment of climate risks covers three distinct time periods, comprising: short term, which is up to 2025; medium term, which is between 2026 and 2035; and long term, which is between 2036 and 2050.
- We may face credit losses if our customers business models fail to align to a net zero economy or if our customers face disruption to their operations or deterioration to their assets as a result of extreme weather.
- We may face trading losses if climate change results in changes to macroeconomic and financial variables which negatively impact our trading book exposures.
- We may face impacts from physical risk on our own operations and premises, owing to the increase in frequency and severity of weather events and chronic shifts in weather patterns, which could affect our ability to conduct our day-to-day operations.
- We may face increased reputational, legal, and regulatory risks if we fail to make sufficient progress towards the HSBC Group's ESG ambitions, targets and commitments, if we fail to meet evolving regulatory expectations and requirements on the management of climate and broader ESG risks, or if we knowingly or unknowingly make inaccurate, unclear, misleading, or unsubstantiated claims regarding sustainability to our stakeholders.
- Requirements, policy objectives, expectations or views may vary by jurisdiction and stakeholder in relation to ESG related matters. We may be subject to potentially conflicting approaches to ESG matters in certain jurisdictions, which may impact our ability to conduct certain business within those jurisdictions or result in additional regulatory compliance, reputational, political or litigation risks. These risks may also arise from divergence in the implementation of ESG, climate policy and financial regulation in the many regions in which we operate, including initiatives to apply and enforce policy and regulation with extraterritorial effect.
- We may face financial reporting risk in relation to our climate-related and broader ESG disclosures, as any data, methodologies, scenarios and reporting standards we have used may evolve over time in line with market practice, regulation or developments in science. We may also face the risk of making reporting errors due to issues relating to the availability, accuracy and verifiability of data and system, process and control challenges. Any changes and reporting errors could result in revisions to our internal frameworks and reported data and could mean that reported figures are not reconcilable or comparable year-on-year. We may also have to re-evaluate our progress towards the HSBC Group's climate-related targets in the future and this could result in reputational, legal, and regulatory risks.
- We may face model risk, as the uncertain and evolving impacts of climate change and data and methodology limitations present challenges to creating reliable and accurate model outputs.
- We may face climate and broader ESG-related litigation and regulatory enforcement risks, either directly if stakeholders think
that we are not adequately managing climate and broader ESG-related risks or indirectly if our clients and customers are themselves the subject of litigation, potentially resulting in the revaluation of client assets.
We may also be exposed to nature-related risks beyond climate change. These risks arise when the provision of natural capital such as water availability, air quality and soil quality is compromised by human activity. Nature risk can manifest through macroeconomic, market, credit, reputational, legal and regulatory risks, for the group as well as our clients and customers.
Regulation and disclosure requirements in relation to human rights, and to modern slavery in particular, are increasing. Businesses are expected to be transparent about their efforts to identify and respond to the risk of negative human rights impacts arising from their business activities and relationships.
We remained aligned to the HSBC Group's materiality-based approach in developing our climate risk management capabilities across our businesses by prioritising sectors, portfolios and counterparties with the highest impacts.
Mitigating actions
- A dedicated Environmental Risk Oversight Forum is responsible for shaping and overseeing our approach and providing support in managing climate and sustainability risk.
- The Europe Reputational Risk Committee considers climate-related matters arising from customers, transactions and third parties that either present a serious potential reputational risk to HSBC Bank plc (or the HSBC Group) or merit a decision to ensure a consistent risk management approach across the regions, global businesses and global functions.
- Our climate risk programme continues to follow the HSBC Group's programme set to support the development of climate risk management capabilities across four key pillars: governance and risk appetite, risk management, stress testing and scenario analysis, and disclosures. We continue to enhance our approach and mitigation to the risk of greenwashing.
- We have supported the HSBC Group in the development and implementation of an enhanced transition engagement questionnaire, which is used by Relationship Managers to collect information through discussions with our clients in high transition risk sectors, to support their transition away from high carbon activities.
- We implement HSBC Group's sustainability risk policies as part of its broader reputational risk framework. We focus our policies on sensitive sectors which may have a high adverse impact on people or on the environment and in which we have a significant number of customers. In January 2024, the HSBC Group updated its energy policy covering the broader energy system including upstream oil and gas, oil and gas power generation, coal, hydrogen, renewables and hydropower, nuclear, biomass and energy from waste. The HSBC Group also updated its thermal coal phase-out policy, which aims to drive thermal coal phase-out aligned to science-based timeframes. The HSBC Group takes a risk-based approach in the way that it identifies transactions and clients to which its energy and thermal coal phase-out policies apply, and report on relevant exposures, adopting approaches proportionate to risk and materiality.
- In 2023, the HSBC Group conducted pilot exercises to assess nature risk exposures, focusing on our HSBC Continental Europe portfolios in line with regulatory expectations.
- In 2023, the HSBC Group provided practical guidance and training, where relevant, to our colleagues across the group on how to identify and manage human rights risks.
For further details of our approach to climate risk management, see 'Climate risk' on page 78.
Digitalisation and technological advances risk
Developments in technology and changes to regulations are enabling new entrants to the industry, particularly with respect to payments. This challenges us to continue innovating to address evolving customer requirements, drive efficiency and adapt our products to attract and retain customers. As a result, we may need to increase our investment in our business to adapt or develop products and services to respond to our customers' evolving needs. We also need to ensure that new digital capabilities do not weaken our resilience or wider risk management capabilities.
New technologies such as generative AI, large language models blockchain and quantum computing offer both business opportunities and potential risks for the group. As with the use of all technologies, we aim to maximise their potential while seeking to ensure a robust control environment is in place to help manage the inherent risks, such as the impact on encryption algorithms.
Mitigating actions
- We continue to monitor this emerging risk and advances in technology, as well as changes in customer behaviours, to understand how these may impact our business.
- We asses new technologies to help develop appropriate controls and maintain resilience.
- We closely monitor and assess financial crime risk and the impact on payment transparency and architecture.
Internally driven
People risk
While the overall trend in employee turnover has been improving, certain markets in the European region are still facing elevated inflation, higher turnover rates, and labour market complexities. Our success in delivering our strategic priorities and managing the regulatory and legislative environment depends on the development and retention of our leadership and high-performing employees.
Mitigating actions
The ability to continue to attract, develop and retain talent is primarily impacted by a competitive labour market alongside heightened inflationary pressures, coupled with business change impacts on employees. Compliance with employment laws and regulations remains a priority.
- We seek to promote a diverse and inclusive workforce, provide active support to employees, and continue to build the speak up culture.
- We monitor people risks that could arise from organisational restructuring. Improved capacity and enhanced workload management through demand planning review and strengthening is applied.
- Focus and emphasis is maintained on our strategy, values and purpose. We encourage our people leaders to focus on talent retention at all levels, with an empathetic mindset and approach, while ensuring the whole proposition of working in the group is well understood.
- Strong Senior management oversight is maintained on political, legislative, and regulatory challenges to help mitigate the effect of external factors which may impact our employment practices.
- We carefully monitor the impact of the rising cost of living across the region. Our fixed pay principles consider the impact of inflation on our employees across the region recognising the pay pressure.
- Focus is maintained on Future Skills development, with curriculums made available to all employees through the HSBC University.
- We develop succession plans for key management roles, with consistent oversight from the group's Executive Committee.
- We monitor hiring activities and levels of employee attrition, with each business and function putting in place plans to help ensure they have effective workforce forecasting to meet business demands.
IT systems infrastructure and operational resilience
We operate in an extensive and complex technology landscape, which needs to remain resilient in order to support customers, the group and markets where we operate. Risks arise where technology is not understood, maintained, or developed appropriately. We remain committed to investing in the reliability and resilience of our IT systems and critical services. The group does so in order to help protect its customers, affiliates and counterparties, and to help ensure they do not receive disruption to services that could result in reputational, legal and regulatory consequences. Increased pressure has been seen on our business operations and customer support centres as our people, processes and systems have responded to meet the current economic environment.
The group's strategy includes simplification of our technology estate to reduce complexity and costs; this includes consolidation of our core banking systems onto a single strategic platform. This platform will leverage existing and known technology, and will be simpler and easier to maintain. However, as with any strategic transformation programme risks associated with implementation must be managed continuously.
Mitigating actions
- We continue to invest in transforming how software solutions are developed, delivered and maintained to improve system resilience.
- We continue to upgrade many of our IT systems, simplify our service provision and replace older IT infrastructure and applications.
- We manage implementation risks arising from the simplification of our technology estate continuously via oversight of these risks at all levels of the programme and reporting up to our Risk Committee.
Execution risk
In order to deliver our Strategic objectives and meet mandatory regulatory requirements, it is important for the group to maintain a strong focus on change execution risk. Change execution risk remains elevated driven by the current scale, complexity and pace of the group's strategic and regulatory change initiatives. This requires robust management of significant resource and time sensitive programmes that are expected to be executed in 2024.
Mitigating actions
- Change execution risk is part of our risk taxonomy and control library so that it is defined, assessed, managed, reported and overseen in the same as our other material risks.
- Our change framework provides colleagues across all levels of the group who deliver on strategic and organisational initiatives with a common and consistent understanding of their role in achieving value and outcomes.
- The group's Change Oversight Governance function oversees the prioritisation, strategic alignment and management of change execution risk for our Change portfolios and initiatives.
Model risk
Model risk arises whenever business decision making includes reliance on models. We use models in both financial and non-financial contexts and in a range of business applications such as customer selection, product pricing, financial crime transaction monitoring, creditworthiness evaluation and financial reporting. Assessing model performance is a continuous undertaking. Models can need redevelopment as market conditions change.
We continued to prioritise the redevelopment of internal ratings-based ('IRB'), internal model approach ('IMA') and internal model methods ('IMM') models, as part of the IRB repair and Basel III programmes with a key focus on enhancing the quality of data used as model inputs. A new suite of IRB models for local corporates used in France is undergoing regulatory approval from the Prudential Regulation Authority ('PRA') and European Central Bank ('ECB'). A comprehensive development and application plan of key regulatory capital models has been submitted to both regulators and has been designed to help ensure that HSBC meets both the PRA and ECB increased expectations on model risk management. Climate risk
modelling is a key focus as our commitment to ESG has become a critical part of the group's strategy.
Model risk remains a key area of focus given the regulatory scrutiny in this area, with local regulatory exams taking place across the group and revised principles on model risk published by the PRA (SS1/23) and expected to come into force in 2024 and further developments in policy expected from other regulators.
Mitigating actions
- We have continued to embed the enhanced monitoring, review and challenge of IRB and expected credit loss model performance through our Model Risk Management function. The Model Risk Management team aims to provide strong and effective review and challenge of any future redevelopment of these models.
- Model Risk Management works closely with our lines of business to ensure that our models meet regulatory requirements as well as risk management, pricing, liquidity and capital management needs. Internal Audit provides assurance over the risk management framework for models.
- Additional assurance work is performed by the model risk governance teams, which act as second lines of defence. The teams test whether controls implemented by model users comply with model risk policy and if model risk standards are adequate.
- Models using AI or generative AI techniques are validated and monitored to help ensure that risks that are determined by the algorithms have adequate oversight and review. A framework to manage the range of risks that are generated by these advanced techniques, and to recognise the multidisciplinary nature of these risks, is being developed.
Data risk
We use multiple systems and growing quantities of data to support our customers. Risk arises if data is incorrect, unavailable, misused, or unprotected. We need to meet external regulatory obligations and laws that cover data, such as the Basel Committee on Banking Supervision's 239 guidelines and the General Data Protection Regulation ('GDPR').
Mitigating actions
- Through our global data management framework, we monitor the quality, availability and security of data that supports our customers and internal processes. We work towards resolving any identified data issues in a timely manner.
- We have made improvements to our data policies. We are implementing an updated control framework to help enhance the end-to-end management of data risk.
- We aim to protect customer data through our data privacy framework, which establishes practices, design principles and guidelines that enable us to demonstrate compliance with data privacy laws and regulations.
- We seek to continue to modernise our data and analytics infrastructure through investments in Cloud technology, data visualisation, machine learning and artificial intelligence.
- We educate our employees on data risk and data management. We deliver regular mandatory training on how to protect and manage data appropriately.
Third Party risk
We use third parties to provide a range of goods and services. It is critical that we ensure that we have appropriate risk management policies, processes and practices over the selection, governance and oversight of third parties and their supply chain, particularly for key activities that could affect our operational resilience.
Any deficiency in the management of risks associated with our third parties could affect our ability to support our customers and meet regulatory expectations.
Mitigating actions
- We continuously seek to improve our control framework for the use of third-party providers to seek to ensure risks associated with these arrangements are understood and managed effectively by our businesses and functions across the group.
- We continue to enhance the management of our intra-group arrangements and external third-party arrangements.
- We are implementing the changes required by new regulations as set by our regulators.
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Our material banking and insurance risks
The material risk types associated with our banking and insurance manufacturing operations are described in the following tables.
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Description of risks - banking operations (continued) |
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Credit risk (see page 30) |
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The risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. |
Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products such as guarantees and derivatives. |
Credit risk is: - measured as the amount that could be lost if a customer or counterparty fails to make repayments; - monitored using various internal risk management measures and within limits approved by individuals within a framework of delegated authorities; and - managed through a robust risk control framework that outlines clear and consistent policies, principles and guidance for risk managers; and by setting limits and appetite across geographical markets, portfolios or sectors. |
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Treasury risk (see page 68) |
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The risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, including the risk of adverse impact on earnings or capital due to structural foreign exchange exposures and changes in market interest rates, and including the financial risks arising from historic and current provision of pensions and other post employment benefits to staff and their dependants. |
Treasury risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment. |
Treasury risk is: - measured through appetites set as target and minimum ratios; - monitored and projected against appetites and using stress and scenario testing; and - managed through control of resources in conjunction with risk profiles and cashflows. |
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Market risk (see page 76) |
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The risk that movements in market factors such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices will reduce our income or the value of our portfolios. |
Exposure to market risk is separated into two portfolios: - trading portfolios; and - non-trading portfolios. Market risk exposures arising from our insurance operations are discussed on page 83. |
Market risk is: - measured using sensitivities, value at risk ('VaR') and stress testing, giving a detailed picture of potential gains and losses for a range of market movements and scenarios, as well as tail risks over specified time horizons; - monitored using VaR, stress testing and other measures, including the sensitivity of net interest income and the sensitivity of structural foreign exchange; and - managed using risk limits approved by the group's RMM and the RMM in various global businesses. |
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Climate risk (see page 78) |
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Climate risk relates to the financial and non-financial impacts that may arise as a result of climate change and the move to a net zero economy. |
Climate risk can materialise through: - physical risk, which arises from the increased frequency and severity of weather events; - transition risk, which arises from the process of moving to a low-carbon economy; - net zero alignment risk may arise, impacting HSBC Bank plc, where the HSBC Group fails to meet its net zero commitments or to meet external expectations related to net zero, because of inadequate ambition and/or plans, poor execution, or inability to adapt to changes in external environment; and - the risk of greenwashing, which arises from the act of knowingly or unknowingly making inaccurate, unclear, misleading or unsubstantiated claims regarding sustainability to stakeholders. |
Climate risk is: - measured using risk metrics and stress testing; - monitored using risk appetite statements; and - managed through adherence to risk appetite thresholds and through specific policies, enhancements to processes and the development of tools. |
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Resilience risk, including cybersecurity risk (see page 79) |
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Resilience risk is the risk that we are unable to provide critical services to our customers, affiliates, and counterparties as a result of sustained and significant operational disruption. |
Resilience risk arises from failures or inadequacies in processes, people, systems or external events. These may be driven by rapid technological innovation, changing behaviours of our consumers, cyber-threats and attacks, cross border dependencies, and third party relationships. |
Resilience risk is: - measured through a range of metrics with defined maximum acceptable impact tolerances, and against our agreed risk appetite; - monitored through oversight of enterprise processes, risks, controls and strategic change programmes; and - managed by continuous monitoring and thematic reviews. |
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Regulatory compliance risk (see page 80) |
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Regulatory compliance risk is the risk associated with breaching our duty to clients and other counterparties, inappropriate market conduct and breaching related financial services regulatory standards. |
Regulatory compliance risk arises from the failure to observe the letter and spirit of relevant laws, codes, rules, regulations and standards of good practice. This could result in poor market or customer outcomes leading to fines, penalties and reputational damage to our business. |
Regulatory compliance risk is: - measured by reference to risk appetite, identified metrics, incident assessments, regulatory feedback and the judgement and assessment of our regulatory compliance teams; - monitored against the first line of defence risk and control assessments, the results of the monitoring and control assurance activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and - managed by establishing and communicating appropriate policies and procedures, training employees in them and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required. |
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Financial crime risk (see page 81) |
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Financial crime risk is the risk of knowingly or unknowingly helping parties to commit or to further potentially illegal activity through HSBC, including money laundering, fraud, bribery and corruption, tax evasion, sanctions breaches, and terrorist and proliferation financing. |
Financial crime risk arises from day-to-day banking operations involving customers, third parties and employees. |
Financial crime risk is: - measured by reference to risk appetite, identified metrics, incident assessments, regulatory feedback and the judgement of, and assessment by, our regulatory compliance teams; - monitored against the first line of defence risk and control assessments, the results of the monitoring and control assurance activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and - managed by establishing and communicating appropriate policies and procedures, training employees in them and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required. |
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Model risk (see page 82) |
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Model risk is the potential for adverse consequences from business decisions informed by models, which can be exacerbated by errors in methodology, design or the way they are used.
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Model risk arises in both financial and non-financial contexts whenever business decision making includes reliance on models. |
Model risk is: - measured by reference to model performance tracking and the output of detailed technical reviews, with key metrics including model review statuses and findings; - monitored against model risk appetite statements, insight from the independent review function, feedback from internal and external audits, and regulatory reviews; and - managed by creating and communicating appropriate policies, procedures and guidance, training colleagues in their application, and supervising their adoption to ensure operational effectiveness. |
Our insurance manufacturing subsidiaries are regulated separately from our banking operations. Risks in our insurance entities are managed using methodologies and processes that are subject to group oversight. Our insurance operations are also subject to
some of the same risks as our banking operations, and these are covered by the group's risk management processes. There are though specific risks inherent to the insurance operations as noted below.
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Description of risks - insurance manufacturing operations |
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Financial risk (see page 82) |
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For insurance entities, Financial risk includes the risk of not being able to effectively match liabilities arising under insurance contracts with appropriate investments and that the expected sharing of financial performance with policyholders under certain contracts is not possible. |
Exposure to financial risks arises from: - market risk affecting the fair values of financial assets or their future cash flows; - credit risk; and - liquidity risk of entities not being able to make payments to policyholders as they fall due. |
Financial risk is: - measured (i) for credit risk, in terms of economic capital and the amount that could be lost if a counterparty fails to make repayments; (ii) for market risk, in terms of economic capital, internal metrics and fluctuations in key financial variables; and (iii) for liquidity risk, in terms of internal metrics, including stressed operational cash flow projections; - monitored through a framework of approved limits and delegated authorities; and - managed through a robust risk control framework that outlines clear and consistent policies, principles and guidance. This includes using product design and asset liability matching and bonus rates. |
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Insurance risk (see page 82) |
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The risk that, over time, the cost of the contract, including claims and benefits may exceed the total amount of premiums and investment income received. |
The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, as well as lapse and surrender rates. |
Insurance risk is: - measured in terms of life insurance liabilities and economic capital allocated to insurance underwriting risk; - monitored though a framework of approved limits and delegated authorities; and - managed through a robust risk control framework that outlines clear and consistent policies, principles and guidance. This includes using product design, underwriting, reinsurance and claims-handling procedures. |
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products, such as guarantees and derivatives.
Credit risk management
Key developments in 2023
There were no material changes to the policies and practices for the management of credit risk in 2023. We continued to apply the requirements of IFRS 9 'Financial Instruments' within the Credit Risk sub-function. For our wholesale portfolios, we introduced new policies for the management of country risk and subordinated debt assessments. Implementation of these polices did not have a material impact on our wholesale portfolios.
We actively managed the risks related to macroeconomic uncertainties, including interest rates, inflation, fiscal and monetary policy, broader geopolitical uncertainties and conflicts.
For further details, see 'Top and emerging risks' on page 23.
Governance and structure
We have established HSBC Group-wide credit risk management and related IFRS 9 processes. We continue to assess the impact of economic developments in key markets on specific customers, customer segments or portfolios. As credit conditions change, we take mitigating actions, including the revision of risk appetites or limits and tenors, as appropriate. In addition, we continue to evaluate the terms under which we provide credit facilities within the context of individual customer requirements, the quality of the relationship, local regulatory requirements, market practices and our local market position.
Credit risk sub-function
(Audited)
Credit approval authorities are delegated by the Board to the Chief Executive together with the authority to sub-delegate them. The Credit risk sub-function in Risk is responsible for the key policies and processes for managing credit risk, which include formulating credit policies and risk rating frameworks, guiding the appetite for credit risk exposures, undertaking independent reviews and objective assessment of credit risk, and monitoring performance and management of portfolios.
The principal objectives of our credit risk management are:
- to maintain across HSBC a strong culture of responsible lending and a robust risk policy and control framework;
- to both partner and challenge global businesses in defining, implementing and continually re-evaluating our risk appetite under actual and scenario conditions; and
- to ensure there is independent, expert scrutiny of credit risks, their costs and their mitigation.
Key risk management process
IFRS 9 'Financial Instruments' process
The IFRS 9 process comprises three main areas: modelling and data; implementation; and governance.
Modelling, data and forward economic guidance
The HSBC Group has established IFRS 9 modelling and data processes in various geographies, which are subject to internal model risk governance including independent review of significant model developments.
We have a centralised process for generating unbiased and independent global economic scenarios. Scenarios are subject to a process of review and challenge by a dedicated central team, and individually for each region. Each quarter, the scenarios and probability weights are reviewed and checked for consistency with the economic conjuncture and current economic and financial risks. These are subject to final review and approval by senior management in a Forward Economic Guidance Global Business Impairment Committee.
Implementation
A centralised impairment engine performs the expected credit losses calculation using data, which is subject to a number of validation checks and enhancements, from a variety of client, finance and risk systems. Where possible, these checks and processes are performed in a globally consistent and centralised manner.
Governance
Management review forums are established in order to review and approve the impairment results. Regional management review forums have representatives from Credit Risk and Finance. Required members of the forums are the heads of Wholesale Credit, Market Risk, and Wealth and Personal Banking Risk, as well as the global business Chief Financial Officers and the Chief Accounting Officer.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of counterparties or exposures have comparable economic characteristics, or such counterparties are engaged in similar activities or operate in the same geographical areas or industry sectors so that their collective ability to meet contractual obligations is uniformly affected by changes in economic, political or other conditions. The group uses a number of controls and measures to minimise undue concentration of exposure in the group's portfolios across industry, country and customer groups. These include portfolio and counterparty limits, approval and review controls, and stress testing.
Credit quality of financial instruments
(Audited)
Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the HSBC Group to support the calculation of our minimum credit regulatory capital requirement. The five credit quality classifications encompass a range of granular internal credit rating grades assigned to wholesale and retail customers, and the external ratings attributed by external agencies to debt securities.
For debt securities and certain other financial instruments, external ratings have been aligned to the five quality classifications based upon the mapping of related Customer Risk Rating ('CRR') to external credit rating.
Wholesale lending
The CRR 10-grade scale summarises a more granular underlying
23-grade scale of obligor PD. All corporate customers are rated using the 10- or 23-grade scale, depending on the degree of sophistication of the Basel approach adopted for the exposure.
Each CRR band is associated with an external rating grade by reference to long-run default rates for that grade, represented by the average of issuer-weighted historical default rates. This mapping between internal and external ratings is indicative and may vary over time.
Retail lending
Retail lending credit quality is based on a 12-month point-in-time probability-weighted PD.
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Credit quality classification |
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Sovereign debt securities and bills |
Other debt securities and bills |
Wholesale lending and derivatives |
Retail lending |
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External credit rating |
External credit rating |
Internal credit rating |
12-month probability of default % |
Internal credit rating |
12 month probability-weighted PD % |
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Quality classification1,2 |
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Strong |
BBB and above |
A- and above |
CRR1 to CRR21 |
0 - 0.169 |
Band 1 and 2 |
0.000 - 0.500 |
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Good |
BBB- to BB |
BBB+ to BBB- |
CRR3 |
0.170 - 0.740 |
Band 3 |
0.501 - 1.500 |
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Satisfactory |
BB- to B and unrated |
BB+ to B and unrated |
CRR4 to CRR5 |
0.741 - 4.914 |
Band 4 and 5 |
1.501 - 20.000 |
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Sub-standard |
B- to C |
B- to C |
CRR6 to CRR8 |
4.915 - 99.999 |
Band 6 |
20.001 - 99.999 |
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Credit impaired |
Default |
Default |
CRR9 to CRR10 |
100 |
Band 7 |
100 |
1 Customer risk rating ('CRR').
2 12-month point-in-time probability-weighted PD.
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Quality classification definitions - 'Strong' exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of expected loss. - 'Good' exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk. - 'Satisfactory' exposures require closer monitoring and demonstrate an average to fair capacity to meet financial commitments, with moderate default risk. - 'Sub-standard' exposures require varying degrees of special attention and default risk is of greater concern. - 'Credit-impaired' exposures have been assessed as described in Note 1.2(i) on the Financial Statements. |
Forborne loans and advances
(Audited)
Forbearance measures consist of concessions towards an obligor that is experiencing or about to experience difficulties in meeting its financial commitments.
We continue to class loans as forborne when we modify the contractual payment terms due to having significant concerns about the borrowers' ability to meet contractual payments when they were due. The group definition of forborne captures non-payment-related concessions, such as covenant waivers.
For details of our policy on forbearance, see Note 1.2(i) in the financial statements.
Credit quality of forborne loans
For wholesale lending, where payment related forbearance measures result in a diminished financial obligation, or if there are other indicators of impairment, the loan will be classified as credit impaired if it is not already so classified. All facilities with a customer, including loans that have not been modified, are considered credit impaired following the identification of a payment-related forborne loan. For retail lending, where a material payment-related concession has been granted, the loan will be classified as credit impaired.
In isolation, non-payment forbearance measures may not result in the loan being classified as credit impaired unless combined with other indicators of credit impairment. These are classed as performing forborne loans for both wholesale and retail lending.
Wholesale and retail lending forborne loans are classified as credit impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows, observed over a minimum one-year period, and there are no other indicators of impairment. Any forborne loans not considered credit impaired will remain forborne for a minimum of two years from the date that credit impairment no longer applies. For wholesale and retail lending, any forbearance measures granted on a loan already classed as forborne results in customer being classed as credit impaired.
Forborne loans and recognition of expected credit losses
(Audited)
Forborne loans expected credit loss assessments reflect the higher rates of losses typically experienced with these types of loans such that they are in stage 2 and stage 3. The higher rates are more pronounced in unsecured retail lending requiring further segmentation. For wholesale lending, forborne loans are typically assessed individually. Credit risk ratings are intrinsic to the impairment assessments. The individual impairment assessment takes into account the higher risk of the future non-payment inherent in forborne loans.
Impairment assessment
(Audited)
For details of our impairment policies on loans and advances and financial investments see Note 1.2(i) on the financial statements.
Write-off of loans and advances
(Audited)
Under the IFRS 9, write-off should occur when there is no reasonable expectation of recovering further cash flows from the financial asset.
This principle does not prohibit early write-off, which is defined in local policies to ensure effectiveness in the management of customers in the collections process.
Unsecured personal facilities, including credit cards, are generally written off at between 150 and 210 days past due. The standard period runs until the end of the month in which the account becomes 180 days contractually delinquent. However, in exceptional circumstances to avoid unfair customer outcomes, deliver customer duty or meet regulatory expectations, the period may be extended further.
For secured facilities, write-off should occur upon repossession of collateral, receipt of proceeds via settlement, or determination that recovery of the collateral will not be pursued.
Where these assets are maintained on the balance sheet beyond 60 months of consecutive delinquency-driven default, the prospect of recovery is reassessed.
Recovery activity, on both secured and unsecured assets, may continue after write-off.
Any unsecured exposures which are not written off at 180 days past due ('DPD'), and any secured exposures which are in 'default' status for 60 months or greater but are not written off, are subject to additional monitoring via the appropriate governance forums.
Credit risk in 2023
At 31 December 2023, gross loans and advances to customers and banks of £91bn increased by £0.1bn, compared with 31 December 2022. This included adverse foreign exchange movements of £1.5bn. Excluding foreign exchange movements, balance of personal loans and advances to customers increased by £7.4bn. This was mainly driven by an increase in France due to retention of a portfolio of home loans and other loans previously classified as assets held for sale, offset by decrease of £3.2bn in wholesale loans and advances to customers and decrease in loans and advances to banks by £2.6bn.
At 31 December 2023, the allowance for ECL excluding foreign exchange movements in relation to loans and advances to customers increased by £5m from 31 December 2022.
This was attributable to:
- a £51m decrease in wholesale loans and advances to customers, of which £6m was driven by stages 1 and 2, £51m by stage 3 offset by £6m increase in POCI.
- a £56m increase in personal loans and advances to customers, of which £14m was driven by stages 1 and 2 and £42m by stage 3. This is largely due to the inclusion of HBBM in HSBC Bank plc.
Stage 3 balances at 31 December 2023 remained broadly stable compared with 31 December 2022.
The ECL charge for 2023 was £169m, inclusive of recoveries due to the impact of continued economic uncertainty, rising interest rates and inflationary pressures.
Summary of credit risk
This Credit Risk section includes new and redesigned disclosures addressing the recommendations of the Disclosures on Expected Credit Losses ('DECL') Taskforce's third report published in September 2022.
Sections impacted:
- Stage 2 decomposition for loans and advances to customers and banks as at 31 December 2023;
- Alignment of management judgemental adjustments to the DECL definition with additional qualitative and quantitative granularity;
- Reconciliation of changes in gross carrying amount and allowances for loans and advances to banks and customers;
- Reconciliation of changes in nominal amount and allowances for loan commitments and financial guarantees.
Comparative information for the prior period has not been presented in the Annual Report and Accounts 2023 as we recognised and prioritised the importance of increasing the comparability of our external disclosures within the timeline recommended by the DECL Taskforce. While prior period information can be valuable in certain contexts, we believe the prospective expansion of the level of disclosures out-weights the benefits of presenting data from prior years.
The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied and the associated allowance for ECL. The allowance for ECL decreased from £1,370m at 31 December 2022 to £1,217m at 31 December 2023.
The allowance for ECL at 31 December 2023 comprised of £1,159m (2022: £1,283m) in respect of assets held at amortised cost, £58m (2022: £87m) in respect of loans and other credit related commitments, and financial guarantees, and £23m (2022: £24m) in respect of debt instruments measured at FVOCI.
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied |
||||
|
(Audited) |
|
|
|
|
|
|
31 Dec 2023 |
31 Dec 2022 |
||
|
|
Gross carrying/nominal amount |
Allowance for ECL1 |
Gross carrying/nominal amount |
Allowance for ECL1 |
|
The group |
£m |
£m |
£m |
£m |
|
Loans and advances to customers at amortised cost |
76,579 |
(1,088) |
73,717 |
(1,103) |
|
Loans and advances to banks at amortised cost |
14,372 |
(1) |
17,152 |
(43) |
|
Other financial assets measured at amortised cost |
273,728 |
(70) |
269,815 |
(137) |
|
- cash and balances at central banks |
110,618 |
- |
131,434 |
(1) |
|
- items in the course of collection from other banks |
2,114 |
- |
2,285 |
- |
|
- reverse repurchase agreements - non trading |
73,494 |
- |
53,949 |
- |
|
- financial investments |
8,861 |
- |
3,248 |
- |
|
- prepayments, accrued income and other assets2 |
56,845 |
(6) |
55,694 |
(3) |
|
- assets held for sale6 |
21,796 |
(64) |
23,205 |
(133) |
|
Total gross carrying amount on-balance sheet |
364,679 |
(1,159) |
360,684 |
(1,283) |
|
Loans and other credit-related commitments |
125,616 |
(42) |
126,457 |
(67) |
|
Financial guarantees3 |
2,401 |
(16) |
5,327 |
(20) |
|
Total nominal amount off-balance sheet4 |
128,017 |
(58) |
131,784 |
(87) |
|
|
492,696 |
(1,217) |
492,468 |
(1,370) |
|
|
|
|
|
|
|
|
Fair value |
Memorandum allowance for ECL5 |
Fair value |
Memorandum allowance for ECL5 |
|
|
£m |
£m |
£m |
£m |
|
Debt instruments measured at fair value through other comprehensive income ('FVOCI') |
37,427 |
(23) |
29,248 |
(24) |
1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.
2 Includes only those financial instruments which are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets' as presented within the consolidated balance sheet on page 108 includes both financial and non-financial assets, including cash collateral and settlement accounts.
3 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.
6 For further details on gross carrying amounts and allowances for ECL related to assets held for sale, see 'Assets held for sale' on page 38.
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied (continued) |
||||
|
(Audited) |
|
|
|
|
|
|
31 Dec 2023 |
31 Dec 2022 |
||
|
|
Gross carrying/nominal amount |
Allowance for ECL1 |
Gross carrying/nominal amount |
Allowance for ECL1 |
|
The bank |
£m |
£m |
£m |
£m |
|
Loans and advances to customers at amortised cost |
32,800 |
(357) |
37,370 |
(378) |
|
Loans and advances to banks at amortised cost |
11,670 |
- |
14,529 |
(43) |
|
Other financial assets measured at amortised cost |
174,304 |
(3) |
169,321 |
(3) |
|
- cash and balances at central banks |
61,128 |
- |
78,442 |
(1) |
|
- items in the course of collection from other banks |
1,877 |
- |
1,863 |
- |
|
- reverse repurchase agreements-non trading |
56,973 |
- |
43,055 |
- |
|
- financial investments |
12,029 |
- |
6,378 |
- |
|
- prepayments, accrued income and other assets2 |
42,206 |
(3) |
39,583 |
(2) |
|
- assets held for sale |
91 |
- |
- |
- |
|
Total gross carrying amount on-balance sheet |
218,774 |
(360) |
221,220 |
(424) |
|
Loans and other credit-related commitments |
34,799 |
(22) |
35,692 |
(31) |
|
Financial guarantees3 |
1,106 |
(9) |
1,363 |
(12) |
|
Total nominal amount off-balance sheet4 |
35,905 |
(31) |
37,055 |
(43) |
|
|
254,679 |
(391) |
258,275 |
(467) |
|
|
|
|
|
|
|
|
Fair value |
Memorandum allowance for ECL5 |
Fair value |
Memorandum allowance for ECL5 |
|
|
£m |
£m |
£m |
£m |
|
Debt instruments measured at FVOCI |
16,307 |
(5) |
12,206 |
(4) |
1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.
2 Includes only those financial instruments which are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets' as presented within the consolidated balance sheet on page 114 includes both financial and non-financial assets, including cash collateral and settlement accounts.
3 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.
The following table provides an overview of the group's and bank's credit risk by stage and industry, and the associated ECL coverage. The financial assets recorded in each stage have the following characteristics:
- Stage 1: These financial assets are unimpaired and without significant increase in credit risk on which a 12-month allowance for ECL is recognised.
- Stage 2: A significant increase in credit risk has been experienced since initial recognition on which a lifetime ECL is recognised.
- Stage 3: There is objective evidence of impairment and the financial assets are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.
- Purchased or originated credit-impaired ('POCI'): Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses on which a lifetime ECL is recognised.
|
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2023 |
|||||||||||||||
|
(Audited) |
|||||||||||||||
|
|
Gross carrying/nominal amount2 |
Allowance for ECL |
ECL coverage % |
||||||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Loans and advances to customers at amortised cost |
66,356 |
7,881 |
2,310 |
32 |
76,579 |
(75) |
(125) |
(882) |
(6) |
(1,088) |
0.1 |
1.6 |
38.2 |
18.8 |
1.4 |
|
- personal |
11,447 |
1,370 |
214 |
- |
13,031 |
(20) |
(17) |
(71) |
- |
(108) |
0.2 |
1.2 |
33.2 |
- |
0.8 |
|
- corporate and commercial |
42,982 |
5,981 |
1,773 |
32 |
50,768 |
(48) |
(98) |
(673) |
(6) |
(825) |
0.1 |
1.6 |
38.0 |
18.8 |
1.6 |
|
- non-bank financial institutions |
11,927 |
530 |
323 |
- |
12,780 |
(7) |
(10) |
(138) |
- |
(155) |
0.1 |
1.9 |
42.7 |
- |
1.2 |
|
Loans and advances to banks at amortised cost |
14,256 |
116 |
- |
- |
14,372 |
(1) |
- |
- |
- |
(1) |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
272,557 |
989 |
182 |
- |
273,728 |
(5) |
(8) |
(57) |
- |
(70) |
- |
0.8 |
31.3 |
- |
- |
|
Loan and other credit-related commitments |
118,242 |
7,197 |
174 |
3 |
125,616 |
(13) |
(21) |
(8) |
- |
(42) |
- |
0.3 |
4.6 |
- |
- |
|
- personal |
1,246 |
27 |
3 |
- |
1,276 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
58,225 |
4,815 |
155 |
3 |
63,198 |
(11) |
(17) |
(7) |
- |
(35) |
- |
0.4 |
4.5 |
- |
0.1 |
|
- financial |
58,771 |
2,355 |
16 |
- |
61,142 |
(2) |
(4) |
(1) |
- |
(7) |
- |
0.2 |
6.3 |
- |
- |
|
Financial guarantees1 |
2,078 |
251 |
72 |
- |
2,401 |
(2) |
(1) |
(13) |
- |
(16) |
0.1 |
0.4 |
18.1 |
- |
0.7 |
|
- personal |
32 |
2 |
- |
- |
34 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
1,057 |
68 |
71 |
- |
1,196 |
(1) |
(1) |
(13) |
- |
(15) |
0.1 |
1.5 |
18.3 |
- |
1.3 |
|
- financial |
989 |
181 |
1 |
- |
1,171 |
(1) |
- |
- |
- |
(1) |
0.1 |
- |
- |
- |
0.1 |
|
At 31 Dec 2023 |
473,489 |
16,434 |
2,738 |
35 |
492,696 |
(96) |
(155) |
(960) |
(6) |
(1,217) |
- |
0.9 |
35.1 |
17.1 |
0.2 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 DPD and are transferred from stage 1 to stage 2. The following disclosure presents the ageing of stage 2 financial assets by those
less than 30 DPD and greater than 30 DPD and therefore presents those financial assets classified as stage 2 due to ageing (30 DPD) and those identified at an earlier stage (less than 30 DPD).
|
Stage 2 days past due analysis at 31 December 2023 |
|||||||||
|
(Audited) |
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
Allowance for ECL |
ECL coverage % |
||||||
|
|
|
of which: |
of which: |
|
of which: |
of which: |
|
of which: |
of which: |
|
|
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
|
Loans and advances to customers at amortised cost: |
7,881 |
234 |
298 |
(125) |
(4) |
(1) |
1.6 |
1.7 |
0.3 |
|
- personal |
1,370 |
183 |
87 |
(17) |
(3) |
(1) |
1.2 |
1.6 |
1.1 |
|
- corporate and commercial |
5,981 |
51 |
207 |
(98) |
(1) |
- |
1.6 |
2.0 |
- |
|
- non-bank financial institutions |
530 |
- |
4 |
(10) |
- |
- |
1.9 |
- |
- |
|
Loans and advances to banks at amortised cost |
116 |
- |
10 |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
989 |
14 |
9 |
(8) |
- |
- |
0.8 |
- |
- |
1 Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual basis.
|
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2022 (continued) |
|||||||||||||||
|
(Audited) |
|||||||||||||||
|
|
Gross carrying/nominal amount2 |
Allowance for ECL |
ECL coverage % |
||||||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Loans and advances to customers at amortised cost |
63,673 |
7,817 |
2,224 |
3 |
73,717 |
(51) |
(145) |
(907) |
- |
(1,103) |
0.1 |
1.9 |
40.8 |
- |
1.5 |
|
- personal |
5,293 |
615 |
105 |
- |
6,013 |
(9) |
(15) |
(31) |
- |
(55) |
0.2 |
2.4 |
29.5 |
- |
0.9 |
|
- corporate and commercial |
46,671 |
6,479 |
1,851 |
3 |
55,004 |
(40) |
(123) |
(774) |
- |
(937) |
0.1 |
1.9 |
41.8 |
- |
1.7 |
|
- non-bank financial institutions |
11,709 |
723 |
268 |
- |
12,700 |
(2) |
(7) |
(102) |
- |
(111) |
- |
1.0 |
38.1 |
- |
0.9 |
|
Loans and advances to banks at amortised cost |
16,673 |
414 |
65 |
- |
17,152 |
(6) |
(21) |
(16) |
- |
(43) |
- |
5.1 |
24.6 |
- |
0.3 |
|
Other financial assets measured at amortised cost |
267,830 |
1,662 |
323 |
- |
269,815 |
(14) |
(17) |
(106) |
- |
(137) |
- |
1.0 |
32.8 |
- |
0.1 |
|
Loan and other credit-related commitments |
116,994 |
9,300 |
163 |
- |
126,457 |
(13) |
(32) |
(22) |
- |
(67) |
- |
0.3 |
13.5 |
- |
0.1 |
|
- personal |
2,004 |
107 |
5 |
- |
2,116 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
60,659 |
7,625 |
157 |
- |
68,441 |
(12) |
(28) |
(22) |
- |
(62) |
- |
0.4 |
14.0 |
- |
0.1 |
|
- financial |
54,331 |
1,568 |
1 |
- |
55,900 |
(1) |
(4) |
- |
- |
(5) |
- |
0.3 |
- |
- |
- |
|
Financial guarantees1 |
4,715 |
528 |
84 |
- |
5,327 |
(1) |
(2) |
(17) |
- |
(20) |
- |
0.4 |
20.2 |
- |
0.4 |
|
- personal |
20 |
2 |
1 |
- |
23 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
2,946 |
387 |
82 |
- |
3,415 |
(1) |
(1) |
(17) |
- |
(19) |
- |
0.3 |
20.7 |
- |
0.6 |
|
- financial |
1,749 |
139 |
1 |
- |
1,889 |
- |
(1) |
- |
- |
(1) |
- |
0.7 |
- |
- |
0.1 |
|
At 31 Dec 2022 |
469,885 |
19,721 |
2,859 |
3 |
492,468 |
(85) |
(217) |
(1,068) |
- |
(1,370) |
- |
1.1 |
37.4 |
- |
0.3 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
|
Stage 2 days past due analysis at 31 December 2022 (continued) |
|||||||||
|
(Audited) |
Gross carrying amount |
Allowance for ECL |
ECL coverage % |
||||||
|
|
|
of which: |
of which: |
|
of which: |
of which: |
|
of which: |
of which: |
|
|
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
|
Loans and advances to customers at amortised cost |
7,817 |
93 |
331 |
(145) |
(2) |
(2) |
1.9 |
2.2 |
0.6 |
|
- personal |
615 |
43 |
9 |
(15) |
(2) |
(1) |
2.4 |
4.7 |
11.1 |
|
- corporate and commercial |
6,479 |
50 |
296 |
(123) |
- |
(1) |
1.9 |
0.0 |
0.3 |
|
- non-bank financial institutions |
723 |
- |
26 |
(7) |
- |
- |
1.0 |
- |
- |
|
Loans and advances to banks at amortised cost |
414 |
- |
8 |
(21) |
- |
- |
5.1 |
- |
- |
|
Other financial assets measured at amortised cost |
1,662 |
25 |
12 |
(17) |
- |
(2) |
1.0 |
- |
16.7 |
1 Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual basis.
|
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2023 |
|||||||||||||||
|
(Audited) |
|||||||||||||||
|
|
Gross carrying/nominal amount2 |
Allowance for ECL |
ECL coverage % |
||||||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Loans and advances to customers at amortised cost |
28,806 |
3,229 |
740 |
25 |
32,800 |
(15) |
(47) |
(289) |
(6) |
(357) |
0.1 |
1.5 |
39.1 |
24.0 |
1.1 |
|
- personal |
1,809 |
817 |
13 |
- |
2,639 |
(2) |
(2) |
(2) |
- |
(6) |
0.1 |
0.2 |
15.4 |
- |
0.2 |
|
- corporate and commercial |
17,611 |
2,026 |
421 |
25 |
20,083 |
(10) |
(38) |
(151) |
(6) |
(205) |
0.1 |
1.9 |
35.9 |
24.0 |
1.0 |
|
- non-bank financial institutions |
9,386 |
386 |
306 |
- |
10,078 |
(3) |
(7) |
(136) |
- |
(146) |
- |
1.8 |
44.4 |
- |
1.4 |
|
Loans and advances to banks at amortised cost |
11,644 |
26 |
- |
- |
11,670 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
174,271 |
24 |
9 |
- |
174,304 |
- |
(1) |
(2) |
- |
(3) |
- |
4.2 |
22.2 |
- |
- |
|
Loan and other credit-related commitments |
30,672 |
4,109 |
15 |
3 |
34,799 |
(7) |
(14) |
(1) |
- |
(22) |
- |
0.3 |
6.7 |
- |
0.1 |
|
- personal |
330 |
1 |
2 |
- |
333 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
14,891 |
1,884 |
5 |
3 |
16,783 |
(5) |
(10) |
- |
- |
(15) |
- |
0.5 |
- |
- |
0.1 |
|
- financial |
15,451 |
2,224 |
8 |
- |
17,683 |
(2) |
(4) |
(1) |
- |
(7) |
- |
0.2 |
12.5 |
- |
- |
|
Financial guarantees1 |
896 |
184 |
26 |
- |
1,106 |
(1) |
- |
(8) |
- |
(9) |
0.1 |
- |
30.8 |
- |
0.8 |
|
- personal |
- |
1 |
- |
- |
1 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
518 |
9 |
25 |
- |
552 |
- |
- |
(8) |
- |
(8) |
- |
- |
32.0 |
- |
1.4 |
|
- financial |
378 |
174 |
1 |
- |
553 |
(1) |
- |
- |
- |
(1) |
0.3 |
- |
- |
- |
0.2 |
|
At 31 Dec 2023 |
246,289 |
7,572 |
790 |
28 |
254,679 |
(23) |
(62) |
(300) |
(6) |
(391) |
- |
0.8 |
38.0 |
21.4 |
0.2 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
|
Stage 2 days past due analysis at 31 December 2023 |
|||||||||
|
(Audited) |
Gross carrying amount |
Allowance for ECL |
ECL coverage % |
||||||
|
|
|
of which: |
of which: |
|
of which: |
of which: |
|
of which: |
of which: |
|
|
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
|
Loans and advances to customers at amortised cost: |
3,229 |
157 |
78 |
(47) |
(1) |
- |
1.5 |
0.6 |
- |
|
- personal |
817 |
157 |
78 |
(2) |
(1) |
- |
0.2 |
0.6 |
- |
|
- corporate and commercial |
2,026 |
- |
- |
(38) |
- |
- |
1.9 |
- |
- |
|
- non-bank financial institutions |
386 |
- |
- |
(7) |
- |
- |
1.8 |
- |
- |
|
Loans and advances to banks at amortised cost |
26 |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
24 |
- |
- |
(1) |
- |
- |
4.2 |
- |
- |
1 Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual basis.
|
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2022 (continued) |
|||||||||||||||
|
(Audited) |
|||||||||||||||
|
|
Gross carrying/nominal amount2 |
Allowance for ECL |
ECL coverage % |
||||||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Loans and advances to customers at amortised cost |
33,919 |
2,576 |
875 |
- |
37,370 |
(19) |
(35) |
(324) |
- |
(378) |
0.1 |
1.4 |
37.0 |
- |
1.0 |
|
- personal |
3,090 |
482 |
12 |
- |
3,584 |
(2) |
(7) |
(3) |
- |
(12) |
0.1 |
1.5 |
25.0 |
- |
0.3 |
|
- corporate and commercial |
20,314 |
1,547 |
595 |
- |
22,456 |
(16) |
(27) |
(204) |
- |
(247) |
0.1 |
1.7 |
34.3 |
- |
1.1 |
|
- non-bank financial institutions |
10,515 |
547 |
268 |
- |
11,330 |
(1) |
(1) |
(117) |
- |
(119) |
- |
0.2 |
43.7 |
- |
1.1 |
|
Loans and advances to banks at amortised cost |
14,299 |
165 |
65 |
- |
14,529 |
(5) |
(22) |
(16) |
- |
(43) |
- |
13.3 |
24.6 |
- |
0.3 |
|
Other financial assets measured at amortised cost |
169,276 |
24 |
21 |
- |
169,321 |
(2) |
(1) |
- |
- |
(3) |
- |
4.2 |
- |
- |
- |
|
Loan and other credit-related commitments |
32,427 |
3,225 |
40 |
- |
35,692 |
(9) |
(15) |
(7) |
- |
(31) |
- |
0.5 |
17.5 |
- |
0.1 |
|
- personal |
874 |
10 |
2 |
- |
886 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
16,565 |
2,297 |
38 |
- |
18,900 |
(8) |
(13) |
(7) |
- |
(28) |
- |
0.6 |
18.4 |
- |
0.1 |
|
- financial |
14,988 |
918 |
- |
- |
15,906 |
(1) |
(2) |
- |
- |
(3) |
- |
0.2 |
- |
- |
- |
|
Financial guarantees1 |
1,194 |
133 |
36 |
- |
1,363 |
- |
(1) |
(11) |
- |
(12) |
- |
0.8 |
30.6 |
- |
0.9 |
|
- personal |
2 |
1 |
- |
- |
3 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- corporate and commercial |
775 |
17 |
35 |
- |
827 |
- |
- |
(11) |
- |
(11) |
- |
- |
31.4 |
- |
1.3 |
|
- financial |
417 |
115 |
1 |
- |
533 |
- |
(1) |
- |
- |
(1) |
- |
0.9 |
- |
- |
0.2 |
|
At 31 Dec 2022 |
251,115 |
6,123 |
1,037 |
- |
258,275 |
(35) |
(74) |
(358) |
- |
(467) |
- |
1.2 |
34.5 |
- |
0.2 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
|
Stage 2 days past due analysis at 31 December 2022 (continued) |
|||||||||
|
(Audited) |
Gross carrying amount |
Allowance for ECL |
ECL coverage % |
||||||
|
|
|
of which: |
of which: |
|
of which: |
of which: |
|
of which: |
of which: |
|
|
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
Stage 2 |
1 to 29 DPD1,2 |
30 and > DPD1,2 |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
|
Loans and advances to customers at amortised cost: |
2,576 |
26 |
6 |
(35) |
(1) |
(1) |
1.4 |
3.8 |
16.7 |
|
- Personal |
482 |
26 |
6 |
(7) |
(1) |
(1) |
1.5 |
3.8 |
16.7 |
|
- Corporate and commercial |
1,547 |
- |
- |
(27) |
- |
- |
1.7 |
- |
- |
|
- Non-bank financial institutions |
547 |
- |
- |
(1) |
- |
- |
0.2 |
- |
- |
|
Loans and advances to banks at amortised cost |
165 |
- |
- |
(22) |
- |
- |
13.3 |
- |
- |
|
Other financial assets measured at amortised cost |
24 |
- |
- |
(1) |
(1) |
- |
4.2 |
- |
- |
1 Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual basis.
Stage 2 decomposition as at 31 December 2023
The following disclosure presents the stage 2 decomposition of gross carrying amount and allowances for ECL for loans and advances to customers and banks. It also sets out the reasons why an exposure is classified as stage 2 and therefore presented as a significant increase in credit risk at 31 December 2023.
The quantitative classification shows gross carrying amount and allowances for ECL for which the applicable reporting date PD measure exceeds defined quantitative thresholds for retail and wholesale exposures, as set out in Note1.2 'Summary of material accounting policies', on page 120.
The qualitative classification primarily accounts for customer risk rating ('CRR') deterioration, watch-and-worry and retail management judgemental adjustments.
A summary of our current policies and practices for the significant increase in credit risk is set out in 'Summary of material accounting policies' on page 120.
|
Loans and advances to customers and banks1,2 |
||||||||||
|
|
At 31 Dec 2023 |
|||||||||
|
|
Gross carrying amount |
Allowance for ECL |
||||||||
|
|
Loans and advances to customers |
|
|
Loans and advances to customers |
|
|
||||
|
|
Personal |
Corporate and commercial |
Non-bank financial institutions |
Loans and advances to banks at amortised cost |
Total Stage 2 |
Personal |
Corporate and commercial |
Non-bank financial institutions |
Loans and advances to banks at amortised cost |
Total Stage 2 |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Quantitative |
820 |
3,589 |
423 |
91 |
4,923 |
(12) |
(56) |
(8) |
- |
(76) |
|
Qualitative |
547 |
2,186 |
103 |
15 |
2,851 |
(5) |
(42) |
(2) |
- |
(49) |
|
of which: forbearance |
3 |
260 |
1 |
- |
264 |
- |
(2) |
- |
- |
(2) |
|
30 DPD backstop |
3 |
206 |
4 |
10 |
223 |
- |
- |
- |
- |
- |
|
Total stage 2 |
1,370 |
5,981 |
530 |
116 |
7,997 |
(17) |
(98) |
(10) |
- |
(125) |
|
ECL Coverage % |
1.2 |
1.6 |
1.9 |
- |
1.6 |
|
|
|
|
|
|
The bank |
|
|
|
|
|
|
|
|
|
|
|
Quantitative |
321 |
1,801 |
386 |
26 |
2,534 |
(1) |
(21) |
(7) |
- |
(29) |
|
Qualitative |
496 |
225 |
- |
- |
721 |
(1) |
(17) |
- |
- |
(18) |
|
of which: forbearance |
1 |
6 |
- |
- |
7 |
- |
- |
- |
- |
- |
|
30 DPD backstop |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total stage 2 |
817 |
2,026 |
386 |
26 |
3,255 |
(2) |
(38) |
(7) |
- |
(47) |
|
ECL Coverage % |
0.2 |
1.9 |
1.8 |
- |
1.4 |
|
|
|
|
|
|
Loans and advances to customers1 |
|||||||||
|
|
At 31 Dec 2022 |
||||||||
|
|
Gross carrying amount |
Allowance for ECL |
ECL Coverage % Total |
||||||
|
|
Personal |
Corporate and commercial |
Non-bank financial institutions |
Total |
Personal |
Corporate and commercial |
Non-bank financial institutions |
Total |
|
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
% |
|
Quantitative |
557 |
3,310 |
379 |
4,246 |
(12) |
(71) |
(2) |
(85) |
2.0 |
|
Qualitative |
56 |
2,874 |
319 |
3,249 |
(3) |
(51) |
(5) |
(59) |
1.8 |
|
30 DPD backstop |
2 |
295 |
25 |
322 |
- |
(1) |
- |
(1) |
0.3 |
|
Total stage 2 |
615 |
6,479 |
723 |
7,817 |
(15) |
(123) |
(7) |
(145) |
1.9 |
|
The bank |
|
|
|
|
|
|
|
|
|
|
Quantitative |
456 |
1,109 |
314 |
1,879 |
(6) |
(13) |
(1) |
(20) |
1.1 |
|
Qualitative |
26 |
438 |
233 |
697 |
(1) |
(14) |
- |
(15) |
2.2 |
|
30 DPD backstop |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total stage 2 |
482 |
1,547 |
547 |
2,576 |
(7) |
(27) |
(1) |
(35) |
1.4 |
1 Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross exposure and ECL have been assigned in order of categories presented.
2 Stage 2 decomposition for loans and advances to banks and Personal lending products have been reported for the first time at 31 December 2023 following the adoption of the recommendations of the DECL Taskforce's third report.
Assets held for sale
(Audited)
At 31 December 2023, the most material balances held for sale arose from our retail banking operations in France.
Disclosures relating to assets held for sale are provided in the following credit risk tables, primarily where the disclosure is relevant to the measurement of these financial assets:
- Maximum exposure to credit risk (page 40);
- Distribution of financial instruments by credit quality at 31 December (page 54);
Although there was a reclassification on the balance sheet, there was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'assets held for sale'.
'Loans and other credit-related commitments' and 'financial guarantees', as reported in credit disclosures, also include exposures and allowances relating to financial assets classified as 'assets held for sale'.
|
Loans and advances to customers and banks measured at amortised cost |
||
|
(Audited) |
|
|
|
|
Total gross loans and advances |
Impairment allowances on loans and advances |
|
|
£m |
£m |
|
As reported |
90,951 |
(1,089) |
|
Reported in 'Assets held for sale' |
21,512 |
(64) |
|
At 31 Dec 2023 |
112,463 |
(1,153) |
|
As reported |
90,869 |
(1,146) |
|
Reported in 'Assets held for sale' |
21,325 |
(131) |
|
At 31 Dec 2022 |
112,194 |
(1,277) |
At 31 December 2023, gross loans and advances of our retail banking operations in France were £21.4bn, and the related impairment allowance for ECL was £0.1bn.
Lending balances held for sale continue to be measured at amortised cost less allowances for impairment and, therefore, such carrying amounts may differ from fair value.
These lending balances are part of associated disposal groups that are measured in their entirety at the lower of carrying amount and fair
value less costs to sell. Any difference between the carrying amount of these assets and their sales price is part of the overall gain or loss on the associated disposal group as a whole.
For further details of the carrying amount and the fair value at 31 December 2023 of loans and advances to banks and customers classified as held for sale, see Note 35 on the financial statements.
|
Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale' |
|||
|
(Audited) |
|
|
|
|
|
Retail banking operations in France |
Other1 |
Total |
|
Gross Loans |
£m |
£m |
£m |
|
Loans and advances to customers at amortised cost: |
13,319 |
90 |
13,409 |
|
Personal |
10,916 |
- |
10,916 |
|
Corporate and Commercial |
2,362 |
- |
2,362 |
|
Non-bank financial institutions |
41 |
90 |
131 |
|
Loans and advances to banks at amortised cost |
8,103 |
- |
8,103 |
|
At 31 Dec 2023 |
21,422 |
90 |
21,512 |
|
Impairment allowance |
|
|
|
|
Loans and advances to customers at amortised cost: |
(64) |
- |
(64) |
|
Personal |
(61) |
- |
(61) |
|
Corporate and Commercial |
(3) |
- |
(3) |
|
Non-bank financial institutions |
- |
- |
- |
|
Loans and advances to banks at amortised cost |
- |
- |
- |
|
At 31 Dec 2023 |
(64) |
- |
(64) |
|
|
|
|
|
|
Loans and advances to customers at amortised cost: |
20,852 |
342 |
21,194 |
|
Personal |
18,835 |
253 |
19,088 |
|
Corporate and Commercial |
1,975 |
89 |
2,064 |
|
Non-bank financial institutions |
42 |
- |
42 |
|
Loans and advances to banks at amortised cost |
- |
131 |
131 |
|
At 31 Dec 2022 |
20,852 |
473 |
21,325 |
|
Impairment allowance |
|
|
|
|
Loans and advances to customers at amortised cost: |
(76) |
(51) |
(127) |
|
Personal |
(73) |
(38) |
(111) |
|
Corporate and Commercial |
(3) |
(13) |
(16) |
|
Non-bank financial institutions |
- |
- |
- |
|
Loans and advances to banks at amortised cost |
- |
(4) |
(4) |
|
At 31 Dec 2022 |
(76) |
(55) |
(131) |
1 2023 balances comprising assets held for sale relating to the planned transfer of hedge fund administration services.
The table below analyses the amount of ECL charges arising from assets held for sale and assets not held for sale. The charges arising from assets held for sale during the period primarily relate to the retail banking operations in France.
|
Changes in expected credit losses and other credit impairment |
||
|
(Audited) |
|
|
|
|
2023 |
2022 |
|
|
£m |
£m |
|
ECL charges arising from: |
|
|
|
- Asset held for sale |
5 |
4 |
|
- Asset not held for sale |
164 |
218 |
|
At 31 Dec |
169 |
222 |
Credit exposure
Maximum exposure to credit risk
(Audited)
This section provides information on balance sheet items and their offsets as well as loan and other credit-related commitments. The offset of derivatives remains in line with the movements in maximum exposure amounts.
|
'Maximum exposure to credit risk' table The following table presents our maximum exposure before taking account of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). The table excludes trading assets, financial assets designated and otherwise mandatorily measured at fair value trough profit and loss, and financial investments measured at fair value through other comprehensive income as their carrying amount best represents the net exposure to credit risk. Equity securities are also excluded as they are not subject to credit risk. For the financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying amount; for financial guarantees and other guarantees granted, it is the maximum amount that we would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, it is generally the full amount of the committed facilities. The offset in the table relates to amounts where there is a legally enforceable right of offset in the event of counterparty default and where, as a result, there is a net exposure for credit risk purposes. |
|
However, as there is no intention to settle these balances on a net basis under normal circumstances, they do not qualify for net presentation for accounting purposes. No offset has been applied to off-balance sheet collateral. In the case of derivatives the offset column also includes collateral received in cash and other financial assets. |
|
Other credit risk mitigants
While not disclosed as an offset in the following 'Maximum exposure to credit risk' table, other arrangements are in place which reduce our maximum exposure to credit risk. These include a charge over collateral on borrowers' specific assets such as residential properties, collateral held in the form of financial instruments that are not held on balance sheet and short positions in securities. In addition, for financial assets held as part of linked insurance/investment contracts the credit risk is predominantly borne by the policyholder. See Note 28 on the financial statements for further details of collateral in respect of certain loans and advances and derivatives.
Collateral available to mitigate credit risk is disclosed in the 'Collateral and other credit enhancement' section on page 63.
|
Maximum exposure to credit risk |
|
|
|
|||
|
(Audited) |
2023 |
2022 |
||||
|
|
Maximum exposure |
Offset |
Net |
Maximum exposure |
Offset |
Net |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans and advances to customers held at amortised cost |
75,491 |
(9,322) |
66,169 |
72,614 |
(8,149) |
64,465 |
|
- personal |
12,923 |
- |
12,923 |
5,958 |
(1) |
5,957 |
|
- corporate and commercial |
49,943 |
(8,570) |
41,373 |
54,067 |
(7,269) |
46,798 |
|
- non-bank financial institutions |
12,625 |
(752) |
11,873 |
12,589 |
(879) |
11,710 |
|
Loans and advances to banks at amortised cost |
14,371 |
(6) |
14,365 |
17,109 |
(145) |
16,964 |
|
Other financial assets held at amortised cost |
272,558 |
(15,283) |
257,275 |
268,083 |
(10,882) |
257,201 |
|
- cash and balances at central banks |
110,618 |
- |
110,618 |
131,433 |
- |
131,433 |
|
- items in the course of collection from other banks |
2,114 |
- |
2,114 |
2,285 |
- |
2,285 |
|
- reverse repurchase agreements - non trading |
73,494 |
(15,283) |
58,211 |
53,949 |
(10,882) |
43,067 |
|
- financial investments |
8,861 |
- |
8,861 |
3,248 |
- |
3,248 |
|
- assets held for sale |
20,368 |
- |
20,368 |
21,214 |
- |
21,214 |
|
- prepayments, accrued income and other assets |
57,103 |
- |
57,103 |
55,954 |
- |
55,954 |
|
Derivatives |
174,116 |
(173,718) |
398 |
225,238 |
(224,444) |
794 |
|
Total on-balance sheet exposure to credit risk |
536,536 |
(198,329) |
338,207 |
583,044 |
(243,620) |
339,424 |
|
Total off-balance sheet |
153,695 |
- |
153,695 |
150,270 |
- |
150,270 |
|
- financial and other guarantees1 |
21,908 |
- |
21,908 |
22,425 |
- |
22,425 |
|
- loan and other credit-related commitments |
131,787 |
- |
131,787 |
127,845 |
- |
127,845 |
|
At 31 Dec |
690,231 |
(198,329) |
491,902 |
733,314 |
(243,620) |
489,694 |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans and advances to customers held at amortised cost |
32,443 |
(9,310) |
23,133 |
36,992 |
(8,132) |
28,860 |
|
- personal |
2,633 |
- |
2,633 |
3,572 |
- |
3,572 |
|
- corporate and commercial |
19,878 |
(8,570) |
11,308 |
22,209 |
(7,264) |
14,945 |
|
- non-bank financial institutions |
9,932 |
(740) |
9,192 |
11,211 |
(868) |
10,343 |
|
Loans and advances to banks at amortised cost |
11,670 |
- |
11,670 |
14,486 |
- |
14,486 |
|
Other financial assets held at amortised cost |
174,413 |
(14,733) |
159,680 |
169,367 |
(10,427) |
158,940 |
|
- cash and balances at central banks |
61,128 |
- |
61,128 |
78,441 |
- |
78,441 |
|
- items in the course of collection from other banks |
1,877 |
- |
1,877 |
1,863 |
- |
1,863 |
|
- reverse repurchase agreements - non trading |
56,973 |
(14,733) |
42,240 |
43,055 |
(10,427) |
32,628 |
|
- financial investments |
12,029 |
- |
12,029 |
6,378 |
- |
6,378 |
|
- assets held for sale |
160 |
- |
160 |
- |
- |
- |
|
- prepayments, accrued income and other assets |
42,246 |
- |
42,246 |
39,630 |
- |
39,630 |
|
Derivatives |
153,765 |
(153,744) |
21 |
196,714 |
(196,505) |
209 |
|
Total on-balance sheet exposure to credit risk |
372,291 |
(177,787) |
194,504 |
417,559 |
(215,064) |
202,495 |
|
Total off-balance sheet |
43,740 |
- |
43,740 |
44,673 |
- |
44,673 |
|
- financial and other guarantees1 |
8,491 |
- |
8,491 |
8,231 |
- |
8,231 |
|
- loan and other credit-related commitments |
35,249 |
- |
35,249 |
36,442 |
- |
36,442 |
|
At 31 Dec |
416,031 |
(177,787) |
238,244 |
462,232 |
(215,064) |
247,168 |
1 'Financial and other guarantees' represents 'Financial guarantees' and 'Performance and other guarantees' as disclosed in Note 31, net of ECL.
Concentration of exposure
We have a number of businesses with a broad range of products. We operate in a number of markets with the majority of our exposures in UK and France.
For an analysis of:
- financial investments, see Note 15 on the financial statements;
- trading assets, see Note 10 on the financial statements;
- derivatives, see page 65 and Note 14 on the financial statements; and
- loans and advances by industry sector and by the location of the principal operations of the lending subsidiary or by the location of the lending branch, see page 61 for wholesale lending and page 66 for personal lending.
Credit deterioration of financial instruments
(Audited)
A summary of our current policies and practices regarding the identification, treatment and measurement of stage 1, stage 2 and stage 3 (credit impaired) and POCI financial instruments can be found in Note 1.2(i) on the financial statements.
Measurement uncertainty and sensitivity analysis of ECL estimates
(Audited)
The recognition and measurement of ECL involves the use of significant judgement and estimation. We form multiple economic scenarios based on economic forecasts, apply these assumptions to credit risk models to estimate future credit losses, and probability weight the results to determine an unbiased ECL estimate.
Management assessed the current economic environment, reviewed the latest economic forecasts and discussed key risks before selecting the economic scenarios and their weightings.
Scenarios were constructed to reflect the latest geopolitical risks and macroeconomic developments, including the Israel-Hamas war and subsequent disruptions in the Red Sea, and current inflation levels and monetary policy expectations.
Management judgemental adjustments are used where modelled ECL does not fully reflect the identified risks and related uncertainty, or to capture significant late-breaking events.
At 31 December 2023, there was an overall reduction in management judgemental adjustments compared with 31 December 2022 as modelled outcomes better reflected the key risks at 31 December 2023.
Methodology
At 31 December 2023, four scenarios are used to capture the latest economic expectations and to articulate management's view of the range of risks and potential outcomes. Each scenario is updated with the latest economic forecasts and estimates every quarter.
Three scenarios, the Upside, Central and Downside, are drawn from external consensus forecasts, market data and distributional estimates of the entire range of economic outcomes. The fourth scenario, the Downside 2, represents management's view of severe downside risks.
The Central scenario is deemed the 'most likely' scenario, and usually attracts the largest probability weighting. It is created using consensus forecasts, which is the average of a panel of external forecasts.
The outer scenarios represent the tails of the distribution and are less likely to occur. The consensus Upside and Downside scenarios are created with reference to distributions for select markets that capture forecasters' views of the entire range of economic outcomes. In the later years of those scenarios, projections revert to long-term consensus trend expectations. Reversion to trend is done with reference to historically observed quarterly changes in the values of macroeconomic variables.
The fourth scenario, Downside 2, is designed to represent management's view of severe downside risks. It is a globally consistent, narrative-driven scenario, that explores a more extreme economic outcomes than those captured by the consensus scenarios. In this scenario, variables do not, by design, revert to long-term trend expectations and may instead explore alternative states of equilibrium, where economic activity moves permanently away from past trends.
The consensus Downside and the consensus Upside scenarios are each constructed to be consistent with a 10% probability. The Downside 2 is calibrated to a 5% probability. The Central scenario is assigned the remaining 75%. This weighting scheme is deemed appropriate for the unbiased estimation of ECL in most circumstances. However, management may depart from this probability-based scenario weighting approach when the economic outlook and forecasts are determined to be particularly uncertain and risks are elevated.
In the fourth quarter of 2023, the weights were consistent with the calibrated scenario probabilities, as key risk metrics implied a decline in the uncertainty attached to the Central scenario, compared with the fourth quarter of 2022. Economic forecasts for the Central scenario remained stable and the dispersion within consensus forecast panels remained low, even as the Israel-Hamas war escalated. Risks, including the economic consequences of a broader war in the Middle East, were reflected in Downside scenarios. Scenarios produced to calculate ECL are aligned to HSBC's top and emerging risks.
Description of economic scenarios
The economic assumptions presented in this section have been formed by HSBC with reference to external forecasts and estimates, specifically for the purpose of calculating ECL.
Forecasts remain subject to uncertainty and variability. Outer scenarios are constructed so that they capture risks that could alter the trajectory of the economy and are designed to encompass the potential crystallisation of number of key macro-financial risks.
In our key markets, Central scenario forecasts remained broadly stable in the fourth quarter of 2023, compared with the third quarter of 2023. The key exception was with regard to monetary policy, where expectations for interest rate cuts were brought forward. There continue to be expectations that 2024 will be a period of below trend growth, with inflation remaining above central bank targets.
At the end of 2023, risks to the economic outlook included a number of significant geopolitical issues. Within our Downside scenarios, the economic consequences from the crystallisation of those risks were captured by higher commodity and goods prices, the re-acceleration of inflation, a further rise in interest rates and recession.
The scenarios used to calculate ECL in the Annual Report and Accounts 2023 are described below.
The consensus Central scenario
HSBC's Central scenario reflects expectations for a low growth and high interest rate environment across many of our key markets, where GDP growth is expected to be lower in 2024 than in the previous year.
Expectations of lower GDP growth in many markets in 2024 are driven by the assumed lagged effects of higher interest rates and inflation in Europe. In the scenario, household discretionary income remains under pressure and business margins deteriorate amid higher refinancing costs. Growth only returns to its long-term expected trend in later years, once inflation reverts back towards central bank targets and interest rates stabilise at lower levels.
Global GDP is expected to grow by 2.2% in 2024 in the Central scenario and the average rate of global GDP growth is forecast to be 2.6% over the five-year forecast period. This is below the average growth rate over the five-year period prior to the onset of the pandemic of 2.9%.
The key features of our Central scenario are:
- GDP growth rates in our main markets are expected to slow down in 2024, followed by a moderate recovery in 2025. The slowdown in the UK is particularly notable in this scenario, with growth close to zero through much of 2024. In the scenario, weaker growth is caused by high interest rates, which act to deter consumption and investment.
- In most markets, unemployment is expected to rise moderately as economic activity slows, although it remains low by historical standards.
- Inflation is expected to continue to fall as commodity prices decline, supply disruptions abate, and wage growth moderates. It is anticipated that inflation converges towards central banks' target rates by early 2025.
- Weak conditions in housing markets are expected to persist through 2024 and 2025 in many of our main markets, including the UK, as higher interest rates and, in many cases, declining prices, depress activity.
- Challenging conditions are also forecast to continue in the commercial property sector in a number of our key markets. Structural changes to demand in the office segment in particular have driven lower valuations.
- Policy interest rates in key markets are forecast to have peaked and are projected to decline in 2024. In the longer term, they are expected to remain at a higher level than in recent years.
- The Brent crude oil price is forecast to average around $75 per barrel over the projection period.
The Central scenario was created with forecasts available in late November, and reviewed continually until the end of December 2023. In accordance with HSBC's scenario framework, a probability weight of 75% has been assigned to the Central scenario for UK and France.
The following tables describe key macroeconomic variables in the consensus Central scenario.
|
Consensus Central scenario 2024-2028 (as at 4Q23) |
||
|
|
UK |
France |
|
GDP (annual average growth rate, %) |
|
|
|
2024 |
0.3 |
0.8 |
|
2025 |
1.2 |
1.5 |
|
2026 |
1.7 |
1.6 |
|
2027 |
1.6 |
1.5 |
|
2028 |
1.6 |
1.5 |
|
5-year average1 |
1.3 |
1.4 |
|
Unemployment rate (%) |
|
|
|
2024 |
4.7 |
7.5 |
|
2025 |
4.6 |
7.3 |
|
2026 |
4.3 |
7.0 |
|
2027 |
4.2 |
6.8 |
|
2028 |
4.2 |
6.8 |
|
5-year average1 |
4.4 |
7.1 |
|
House prices (annual average growth rate, %) |
|
|
|
2024 |
(5.5) |
(1.0) |
|
2025 |
0.1 |
2.4 |
|
2026 |
3.5 |
4.0 |
|
2027 |
3.0 |
4.4 |
|
2028 |
3.0 |
4.0 |
|
5-year average1 |
0.8 |
2.8 |
|
Inflation (annual average growth rate, %) |
|
|
|
2024 |
3.2 |
2.7 |
|
2025 |
2.2 |
1.8 |
|
2026 |
2.2 |
1.7 |
|
2027 |
2.3 |
1.9 |
|
2028 |
2.3 |
2.1 |
|
5-year average1 |
2.4 |
2.0 |
|
Central bank policy rate (annual average, %) |
|
|
|
2024 |
5.0 |
3.6 |
|
2025 |
4.3 |
2.8 |
|
2026 |
3.9 |
2.6 |
|
2027 |
3.8 |
2.6 |
|
2028 |
3.7 |
2.7 |
|
5-year average1 |
4.1 |
2.9 |
1 The five-year average is calculated over a projected period of 20 quarters from 1Q24 to 4Q28.
Consensus Central scenario 2023-2027 (as at 4Q22) |
||
|
|
UK |
France |
|
GDP (annual average growth rate, %) |
|
|
|
2023 |
(0.8) |
0.2 |
|
2024 |
1.3 |
1.6 |
|
2025 |
1.7 |
1.5 |
|
2026 |
1.7 |
1.4 |
|
2027 |
1.7 |
1.4 |
|
5-year average1 |
1.1 |
1.2 |
|
Unemployment rate (%) |
|
|
|
2023 |
4.4 |
7.6 |
|
2024 |
4.6 |
7.5 |
|
2025 |
4.3 |
7.3 |
|
2026 |
4.1 |
7.2 |
|
2027 |
4.1 |
7.2 |
|
5-year average1 |
4.3 |
7.3 |
|
House prices (annual average growth rate, %) |
|
|
|
2023 |
0.2 |
1.8 |
|
2024 |
(3.8) |
2.0 |
|
2025 |
0.7 |
3.1 |
|
2026 |
2.1 |
3.5 |
|
2027 |
2.7 |
3.6 |
|
5-year average1 |
0.4 |
2.8 |
|
Inflation (annual average growth rate, %) |
|
|
|
2023 |
6.9 |
4.6 |
|
2024 |
2.5 |
2.0 |
|
2025 |
2.1 |
1.8 |
|
2026 |
2.0 |
1.7 |
|
2027 |
2.0 |
1.7 |
|
5-year average1 |
3.1 |
2.4 |
|
Central bank policy rate (annual average, %) |
|
|
|
2023 |
4.4 |
2.7 |
|
2024 |
4.2 |
2.7 |
|
2025 |
3.7 |
2.4 |
|
2026 |
3.4 |
2.3 |
|
2027 |
3.1 |
2.3 |
|
5-year average1 |
3.8 |
2.5 |
1 The five-year average is calculated over a projected period of 20 quarters from 1Q23 to 4Q27.
The graphs compare the Central scenario at the end of 2022 with economic expectations at the end of 2023.
GDP growth: Comparison of Central scenarios
UK
Note: Real GDP shown as year-on-year percentage change.
France
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
Compared with the Central scenario, the consensus Upside scenario features stronger economic activity in the near term, before converging to long-run trend expectations. It also incorporates a faster fall in the rate of inflation than incorporated in the Central scenario.
The scenario is consistent with a number of key upside risk themes.
These include a faster fall in the rate of inflation that allows central banks to reduce interest rates more quickly, an easing in financial conditions, and a de-escalation in geopolitical tensions, as the Israel- Hamas and Russia-Ukraine wars move towards conclusions, and the US-China relationship improves.
The following tables describe key macroeconomic variables in the consensus Upside scenario.
|
Consensus Upside scenario 2024-2028 (as at 4Q23) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-peak)1 |
10.8 |
(4Q28) |
10.4 |
(4Q28) |
|
Unemployment rate (%, min)2 |
3.1 |
(4Q24) |
6.2 |
(4Q25) |
|
House price index (%, start-to-peak)1 |
13.0 |
(4Q28) |
19.6 |
(4Q28) |
|
Inflation rate (YoY % change, min)3 |
1.3 |
(2Q25) |
1.5 |
(3Q24) |
|
Central bank policy rate (%, min)2 |
3.7 |
(3Q28) |
2.6 |
(2Q26) |
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment or policy interest rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
|
Consensus Upside scenario 2023-2027 (as at 4Q22) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-peak)1 |
14.6 |
(4Q27) |
10.2 |
(4Q27) |
|
Unemployment rate (%, min)2 |
3.5 |
(4Q23) |
6.5 |
(4Q24) |
|
House price index (%, start-to-peak)1 |
7.8 |
(4Q27) |
17 |
(4Q27) |
|
Inflation rate (YoY % change, min)3 |
0.7 |
(1Q24) |
0.8 |
(4Q23) |
|
Central bank policy rate (%, min)2 |
3.1 |
(4Q27) |
2.3 |
(3Q26) |
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment or policy interest rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
Downside scenarios
Downside scenarios explore the intensification and crystallisation of a number of key economic and financial risks. These include an escalation of geopolitical tensions, which disrupt key commodity and goods markets, causing inflation and interest rates to rise, and creating a global recession.
As the geopolitical environment remains volatile and complex, risks include:
- a broader and more prolonged Israel-Hamas war that undermines confidence, drives an increase in global energy costs and reduces trade and investment;
- a potential escalation in the Russia-Ukraine war, which expands beyond Ukraine's borders; and further disrupts energy, fertiliser and food supplies; and
- continued differences between the US and China, which could affect economic confidence, the global goods trade and supply chains for critical technologies.
High inflation and higher interest rates also remain key risks. Should geopolitical tensions escalate, energy and food prices could rise and increase pressure on household budgets and firms' costs.
A wage-price spiral, triggered by higher inflation and labour supply shortages, could put sustained upward pressure on wages and services prices, aggravating cost pressures and increasing the squeeze on household real incomes and corporate margins. In turn, it raises the risk of a more forceful policy response from central banks, a steeper trajectory for interest rates, significantly higher defaults and, ultimately, a deep economic recession.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is weaker compared with the Central scenario. In this scenario, GDP declines, unemployment rates rise, and asset prices fall. The scenario features an escalation of geopolitical tensions, which causes a rise in inflation, as supply chain constraints intensify and energy prices rise. The scenario also features a temporary increase in interest rates above the Central scenario, before the effects of weaker consumption demand begin to dominate and commodity prices and inflation fall again.
The following tables describe key macroeconomic variables in the consensus Downside scenario.
|
Consensus Downside scenario 2024-2028 (as at 4Q23) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-trough)1 |
(1.0) |
(2Q25) |
(0.3) |
(2Q24) |
|
Unemployment rate (%, max)2 |
6.4 |
(1Q25) |
8.5 |
(4Q24) |
|
House price index (%, start-to-trough)1 |
(12.0) |
(2Q25) |
(1.2) |
(3Q24) |
|
Inflation rate (YoY % change, max)3 |
4.1 |
(1Q24) |
3.8 |
(2Q24) |
|
Central bank policy rate (%, max)2 |
5.7 |
(1Q24) |
4.2 |
(1Q24) |
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
|
Consensus Downside scenario 2023-2027 (as at 4Q22) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-trough)1 |
(3.0) |
(1Q25) |
(0.9) |
(2Q23) |
|
Unemployment rate (%, max)2 |
5.8 |
(2Q24) |
8.8 |
(4Q23) |
|
House price index (%, start-to-trough)1 |
(15.0) |
(4Q24) |
(0.7) |
(3Q23) |
|
Inflation rate (YoY % change, max)3 |
10.8 |
(1Q23) |
7.2 |
(1Q23) |
|
Central bank policy rate (%, max)2 |
5.1 |
(3Q23) |
3.4 |
(4Q23) |
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and reflects management's view of the tail of the economic distribution. It incorporates the crystallisation of a number of risks simultaneously, including a further escalation of geopolitical crises globally, which creates severe supply disruptions to goods and energy markets. In the scenario, as inflation surges and central banks tighten monetary policy further, confidence evaporates. However, this impulse is
expected to prove short lived, as recession takes hold, causing commodity prices to correct sharply and global price inflation to fall.
The following tables describe key macroeconomic variables in the Downside 2 scenario.
|
Downside 2 scenario 2024-2028 (as at 4Q23) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-trough)1 |
(8.8) |
(2Q25) |
(6.6) |
(1Q25) |
|
Unemployment rate (%, max)2 |
8.4 |
(2Q25) |
10.2 |
(4Q25) |
|
House price index (%, start-to-trough)1 |
(30.2) |
(4Q25) |
(14.5) |
(2Q26) |
|
Inflation rate (YoY % change, max)3 |
10.1 |
(2Q24) |
8.6 |
(2Q24) |
|
Central bank policy rate (%, max)2 |
6.0 |
(1Q24) |
5.2 |
(1Q24) |
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
|
Downside 2 scenario 2023-2027 (as at 4Q22) |
||||
|
|
UK |
France |
||
|
GDP level (%, start-to-trough)1 |
(7.5) |
(2Q24) |
(7.4) |
(2Q24) |
|
Unemployment rate (%, max)2 |
8.7 |
(2Q24) |
10.3 |
(4Q24) |
|
House price index (%, start-to-trough)1 |
(32.9) |
(1Q25) |
(11.4) |
(2Q25) |
|
Inflation rate (YoY % change, max)3 |
13.5 |
(2Q23) |
10.4 |
(2Q23) |
|
Central bank policy rate (%, max)2 |
5.6 |
(4Q23) |
4.1 |
(4Q23) |
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment or policy interest rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
The following graphs show the historical and forecasted GDP growth rate for the various economic scenarios in UK and France.
UK
France
Scenario weighting
In reviewing the economic environment and the level of risk and uncertainty, management has considered both global and country-specific factors.
In the fourth quarter of 2023, key considerations around uncertainty attached to the Central scenario projections focused on:
- the risks that the Israel-Hamas war escalates and affects economic expectations;
- the lagged impact of elevated interest rates on household finances and businesses, and the implications of recent changes to monetary policy expectations on growth and employment; and
- the outlook for real estate in our key markets, particularly in the UK.
Although these risk factors remain significant, management assessed that they were adequately reflected in scenarios at their calibrated probability. It was noted that despite the Israel-Hamas war, economic forecasts had remained stable, and dispersion of forecasts around the consensus were either stable, or have moved lower. Financial market measures of volatility also remained low through the fourth quarter of 2023.
This has led management to assign scenario probabilities that are aligned to the standard scenario probability calibration framework. This entailed assigning a 75% probability weighting to the Central scenario in our major markets. The consensus Upside scenario was awarded a 10% weighting, and the consensus Downside scenario was given 10%. The Downside 2 was assigned a 5% weighting.
In the UK, the Central scenario reflects a very weak growth environment in which recession risks remain high.
Management concluded that the consensus outlook for France was also consistent with its view of the economic outlook, while assessments of uncertainty were also aligned to historical averages.
In fourth quarter of 2022, management varied the applied scenario weights to reflect greater uncertainty around the inflation and interest rate outlook, amid supply disruption to energy and food commodity markets due to the Russia-Ukraine war.
Those factors were reflected in the measures of risk and uncertainty used to inform judgements around the Central scenario. In particular, large forecast changes were observed, alongside wide dispersion of forecasts around consensus estimates and heightened financial market volatility.
The following tables describe the probabilities assigned in each scenario.
|
Scenario weightings, % |
|||
|
|
Standard weights |
UK |
France |
|
4Q23 |
|
|
|
|
Upside scenario |
10 |
10 |
10 |
|
Central scenario |
75 |
75 |
75 |
|
Downside scenario |
10 |
10 |
10 |
|
Downside 2 scenario |
5 |
5 |
5 |
|
|
|
|
|
|
4Q22 |
|
|
|
|
Upside scenario |
10 |
5 |
5 |
|
Central scenario |
75 |
60 |
60 |
|
Downside scenario |
10 |
25 |
25 |
|
Downside 2 scenario |
5 |
10 |
10 |
At 31 December 2023, the consensus Upside and Central scenarios for all markets had a combined weighting of 85%. At 31 December 2022, the UK and France had a combined weighting of 65%.
Critical estimates and judgements
The calculation of ECL under IFRS 9 involves significant judgements, assumptions and estimates at 31 December 2023. These included:
- the selection of weights to apply to the economic scenarios given the rapidly changing economic conditions and the inherent uncertainty of the underlying forecast under each scenario;
- the selection of scenarios to consider given the changing nature of macroeconomic and geopolitical risks that HSBC Bank plc and the wider economy face; and
- estimating the economic effects of those scenarios on ECL, particularly sector and portfolio-specific risks and the uncertainty of default and recovery experience under all scenarios.
How economic scenarios are reflected in ECL calculations
Models are used to reflect economic scenarios on ECL estimates. As described above, modelled assumptions and linkages based on historical information could not alone produce relevant information under the conditions experienced in 2023, and management judgemental adjustments were still required to support modelled outcomes.
We have developed globally consistent methodologies for the application of forward economic guidance into the calculation of ECL for wholesale and retail credit risk. These standard approaches are described below, followed by the management judgemental adjustments made, including those to reflect the circumstances experienced in 2023.
For our wholesale portfolios, a global methodology is used for the estimation of the term structure of PD and loss given default ('LGD'). For PDs, we consider the correlation of forward economic guidance to default rates for a particular industry in a country. For LGD calculations, we consider the correlation of forward economic guidance to collateral values and realisation rates for a particular country and industry. PDs and LGDs are estimated for the entire term structure of each instrument.
For impaired loans, allowance for ECL estimates are derived based on discounted cash flow ('DCF') calculations for internal forward-looking scenarios specific to individual borrower circumstances (see page 123). Probability-weighted outcomes are applied, and depending on materiality and status of the borrower, the number of scenarios considered will change. Where relevant for the case being assessed, forward economic guidance is incorporated as part of these scenarios. LGD-driven proxy and modelled estimates are used for certain less material cases.
For our retail portfolios, the models are predominantly based on historical observations and correlations with default rates and collateral values.
For PD, the impact of economic scenarios is modelled for each portfolio, using historical relationships between default rates and macroeconomic variables. These are included within IFRS 9 ECL estimates using either economic response models or models that contain internal, external and macroeconomic variables. The macroeconomic impact on PD is modelled over the period equal to the remaining maturity of the underlying assets.
For LGD, the impact is modelled for mortgage portfolios by forecasting future loan-to-value profiles for the remaining maturity of the asset, using national level house price index forecasts and applying the corresponding LGD expectation relative to the updated forecast collateral values.
Management judgemental adjustments are described below.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are typically short-term increases or decreases to the modelled allowance for ECL at either a customer, segment or portfolio level where management believes allowances do not sufficiently reflect the credit risk/ expected credit losses at the reporting date. These can relate to risks or uncertainties that are not reflected in the models and/or to any late-breaking events with significant uncertainty, subject to management review and challenge.
This includes refining model inputs and outputs and using adjustments to ECL based on management judgement and quantitative analysis for impacts that are difficult to model.
The effects of management judgemental adjustments are considered for balances and allowance for ECL when determining whether or not a significant increase in credit risk has occurred and is allocated to a stage where appropriate. This is in accordance with the internal adjustments framework.
Management judgemental adjustments are reviewed under the governance process for IFRS 9 (as detailed in the section 'Credit risk management' on page 30). Review and challenge focuses on the
rationale and quantum of the adjustments with a further review carried out by the second line of defence where significant. For some management judgemental adjustments, internal frameworks establish the conditions under which these adjustments should no longer be required and as such are considered as part of the governance process. This internal governance process allows management judgemental adjustments to be reviewed regularly and, where possible, to reduce the reliance on these through model recalibration or redevelopment, as appropriate.
The drivers of management judgemental adjustments continue to evolve with the economic environment and as new risks emerge.
Management judgemental adjustments made in estimating the scenario-weighted reported allowance for ECL at 31 December 2023 are set out in the following table.
|
Management judgemental adjustments to ECL at 31 December 20231 |
|||
|
|
Retail |
Wholesale2 |
Total |
|
|
£m |
£m |
£m |
|
Banks, sovereigns, government entities and low-risk counterparties |
(14) |
(13) |
(27) |
|
Corporate lending adjustments |
- |
(36) |
(36) |
|
Retail lending Inflation-related adjustments |
8 |
- |
8 |
|
Other macroeconomic-related adjustments |
7 |
- |
7 |
|
Other retail lending adjustments |
2 |
- |
2 |
|
Total |
3 |
(49) |
(46) |
|
Management judgemental adjustments to ECL at 31 December 2022 |
|||
|
|
Retail |
Wholesale2 |
Total |
|
|
£m |
£m |
£m |
|
Banks, sovereigns, government entities and low-risk counterparties |
(16) |
(2) |
(18) |
|
Corporate lending adjustments |
- |
(100) |
(100) |
|
Retail lending Inflation-related adjustments |
8 |
- |
8 |
|
Other macroeconomic-related adjustments |
3 |
- |
3 |
|
Other retail lending adjustments |
7 |
- |
7 |
|
Total |
2 |
(102) |
(100) |
1 Management judgemental adjustments presented in the table reflect increases or (decreases) to allowance for ECL, respectively.
2 The wholesale portfolio corresponds to adjustments to the performing portfolio (stage 1 and stage 2).
Management judgemental adjustments at 31 December 2023 were a decrease to allowance for ECL of £49m for the wholesale portfolio and an increase to allowance for ECL of £3m for the retail portfolio.
During 2023, management judgemental adjustments reflected an evolving macroeconomic outlook and the relationship of the modelled allowance for ECL to this outlook and to late-breaking and sector-specific risks.
At 31 December 2023, wholesale management judgemental adjustments were a decrease to allowance for ECL of £49m (31 December 2022: £102m decrease).
- Adjustments relating to low credit-risk exposures decreased allowance for ECL by £13m at 31 December 2023 (31 December 2022: £2m decrease). The adjustments mainly relate to standard, monthly adjustments for bank and sovereign exposures secured by Export Credit Agency guarantees; the benefit from which is not recognised in the inbound data. Total net adjustments are broadly flat in comparison to 31 December 2022.
- Adjustments to corporate exposures decreased allowance for ECL by £36m at 31 December 2023 (31 December 2022: £100m decrease). The reduction in adjustment is mainly related to standard, monthly adjustments for corporate exposures secured by Export Credit Agency which is not recognised in the inbound data. The reduction in allowance for ECL for these exposures has
been partially offset by management overlay to reflect increased risk on exposures in France.
At 31 December 2023, retail management judgemental adjustments were an increase to allowance for ECL of £3m (31 December 2022: £2m increase).
- Retail lending inflation-related adjustments increased allowance for ECL by £8m (31 December 2022: £8m increase). These adjustments addressed where increasing inflation and interest rates results in affordability risks which were not fully captured by the modelled output.
- Other macroeconomic-related adjustments increased allowance for ECL by £7m (31 December 2022: £3m increase). These adjustments were primarily in relation to country-specific risks related to future macroeconomic conditions not fully captured by the modelled output.
- Banks, sovereigns, government entities and low-risk counterparties adjustments decreased allowance for ECL by £14m (31 December 2022: £16m decrease). These adjustments related to the re-alignment of PD between reporting and origination date for certain parts of the portfolio.
- Other retail lending adjustments increased allowance for ECL by £2m (31 December 2022: £7m increase), reflecting all other data, model and management judgemental adjustments.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against the economic forecasts as part of the ECL governance process by recalculating the allowance for ECL under each scenario described above for selected portfolios, applying a 100% weighting to each scenario in turn. The weighting is reflected in both the determination of a significant increase in credit risk and the measurement of the resulting allowances.
The allowance for ECL calculated for the Upside and Downside scenarios should not be taken to represent the upper and lower limits of possible ECL outcomes. The impact of defaults that might occur in the future under different economic scenarios is captured by recalculating allowances for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in numbers representing tail risk scenarios when assigned a 100% weighting.
For wholesale credit risk exposures, the sensitivity analysis excludes allowance for ECL and financial instruments related to defaulted (stage 3) obligors. The measurement of stage 3 ECL is relatively more sensitive to credit factors specific to the obligor than future economic scenarios, and therefore effect of macroeconomic factors are not necessarily the key consideration when performing individual assessment of allowances for obligors in default. Loans to defaulted obligors are a small portion of the overall wholesale lending exposure, even if representing the majority of the allowance for ECL. Due to the range and specificity of the credit factors to which the ECL is sensitive, it is not possible to provide a meaningful alternative sensitivity analysis for a consistent set of risks across all defaulted obligors.
For retail credit risk exposures the sensitivity analysis includes allowance for ECL for defaulted obligors of loans and advances. This is because the retail ECL for secured mortgage portfolios, including loans in all stages, is sensitive to macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity tables present the 100% weighted results. These exclude portfolios held by the insurance business and small portfolios, and as such cannot be directly compared with personal and wholesale lending presented in other credit risk tables. In both the wholesale and retail analysis, the comparative period results for Downside 2 scenarios are also not directly comparable with the current period, because they reflect different risks relative to the consensus scenarios for the period end.
The wholesale and retail sensitivity analysis is stated inclusive of management judgmental adjustments, as appropriate to each scenario.
For both retail and wholesale portfolios, the gross carrying amount of financial instruments are the same under each scenario. For exposures with similar risk profile and product characteristics, the sensitivity impact is therefore largely the result of changes in macroeconomic assumptions.
Wholesale analysis
|
IFRS 9 ECL sensitivity to future economic conditions1,2,3
|
||
|
|
UK |
France |
|
|
£m |
£m |
|
At 31 December 2023 |
|
|
|
Reported allowance for ECL |
67 |
78 |
|
Consensus Central scenario allowance for ECL |
55 |
81 |
|
Consensus Upside scenario allowance for ECL |
38 |
72 |
|
Consensus Downside scenario allowance for ECL |
87 |
99 |
|
Downside 2 scenario allowance for ECL |
276 |
112 |
|
Reported gross carrying amount2 |
144,215 |
142,389 |
|
IFRS 9 ECL sensitivity to future economic conditions |
||
|
|
UK |
France |
|
|
£m |
£m |
|
At 31 December 2022 |
|
|
|
Reported allowance for ECL |
84 |
94 |
|
Consensus Central scenario allowance for ECL |
64 |
87 |
|
Consensus Upside scenario allowance for ECL |
51 |
77 |
|
Consensus Downside scenario allowance for ECL |
91 |
104 |
|
Downside 2 scenario allowance for ECL |
271 |
124 |
|
Reported gross carrying amount2 |
143,037 |
148,417 |
1 Allowance for ECL sensitivity includes off-balance sheet financial instruments. These are subject to significant measurement uncertainty.
2 Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the above scenarios.
3 Excludes defaulted obligors. For a detailed breakdown of performing and non-performing wholesale portfolio exposures, see page 61.
Retail analysis
|
IFRS 9 ECL sensitivity to future economic conditions1 |
||
|
|
UK |
France2 |
|
|
£m |
£m |
|
At 31 December 2023 |
|
|
|
Reported allowance for ECL |
2 |
74 |
|
Consensus Central scenario allowance for ECL |
2 |
74 |
|
Consensus Upside scenario allowance for ECL |
2 |
72 |
|
Consensus Downside scenario allowance for ECL |
3 |
75 |
|
Downside 2 scenario allowance for ECL |
4 |
78 |
|
Reported gross carrying amount |
1,925 |
17,187 |
|
IFRS 9 ECL sensitivity to future economic conditions1 |
||
|
|
UK |
France2 |
|
|
£m |
£m |
|
At 31 December 2022 |
|
|
|
Reported allowance for ECL |
7 |
87 |
|
Consensus Central scenario allowance for ECL |
6 |
86 |
|
Consensus Upside scenario allowance for ECL |
6 |
84 |
|
Consensus Downside scenario allowance for ECL |
7 |
88 |
|
Downside 2 scenario allowance for ECL |
12 |
92 |
|
Reported gross carrying amount |
2,037 |
18,987 |
1 Allowance for ECL sensitivities exclude portfolios utilising less complex modelling approaches.
2 Includes balances and allowance for ECL which have been reclassified from 'loans and advances to customers' to 'assets held for sale' in the balance sheet at 31 December 2023. This also includes any balances and allowance for ECL which continue to be reported as personal lending in 'loans and advances to customers' that are in accordance with the basis of inclusion for retail sensitivity analysis.
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees
The following disclosure provides a reconciliation by stage of the group's gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees.
In addition, a reconciliation by stage of the group's gross carrying amount and allowances for loans and advances to banks and customers and a reconciliation by stage of the group's nominal amount and allowances for loan commitments and financial guarantees were included in this section following the adoption of the recommendations of the DECL Taskforce's third report.
Movements are calculated on a quarterly basis and therefore fully capture stage movements between quarters. If movements were calculated on a year-to-date basis they would only reflect the opening and closing position of the financial instrument.
The transfers of financial instruments represent the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers represents the increase or decrease due to these transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis. Net remeasurement excludes the underlying customer risk rating ('CRR')/PD movements of the financial instruments transferring stage. This is captured, along with other credit quality movements in the 'changes in risk parameters - credit quality' line item.
Changes in Net new and further lending/repayments represent the impact from volume movements within the group's lending portfolio and includes 'New financial assets originated or purchased', 'assets derecognised (including final repayments)' and 'changes to risk parameters - further lending/repayment'.
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Gross carrying/nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/nominal amount |
Allowance for ECL |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
168,371 |
(71) |
18,059 |
(200) |
2,536 |
(962) |
3 |
- |
188,969 |
(1,233) |
|
Transfers of financial instruments |
690 |
(56) |
(1,336) |
89 |
646 |
(33) |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(14,106) |
11 |
14,106 |
(11) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
15,023 |
(66) |
(15,023) |
66 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(247) |
- |
(551) |
39 |
798 |
(39) |
- |
- |
- |
- |
|
- transfers from stage 3 |
20 |
(1) |
132 |
(5) |
(152) |
6 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
48 |
- |
(26) |
- |
- |
- |
- |
- |
22 |
|
Net new and further lending/repayments |
4,626 |
(1) |
(1,916) |
22 |
(442) |
125 |
33 |
- |
2,301 |
146 |
|
Changes to risk parameters - credit quality |
- |
(1) |
- |
(28) |
- |
(305) |
- |
(6) |
- |
(340) |
|
Changes to model used for ECL calculation |
- |
(3) |
- |
18 |
- |
- |
- |
- |
- |
15 |
|
Assets written off |
- |
- |
- |
- |
(248) |
246 |
- |
- |
(248) |
246 |
|
Credit related modifications that resulted in derecognition |
- |
- |
- |
- |
(94) |
75 |
- |
- |
(94) |
75 |
|
Foreign exchange |
(2,398) |
2 |
(231) |
2 |
(49) |
17 |
- |
- |
(2,678) |
21 |
|
Others2 |
(9,061) |
(9) |
869 |
(24) |
207 |
(66) |
(1) |
- |
(7,986) |
(99) |
|
At 31 Dec 2023 |
162,228 |
(91) |
15,445 |
(147) |
2,556 |
(903) |
35 |
(6) |
180,264 |
(1,147) |
|
ECL income statement change for the period |
|
43 |
|
(14) |
|
(180) |
|
(6) |
|
(157) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
5 |
|
Others |
|
|
|
|
|
|
|
|
|
(12) |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
(164) |
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
|||
|
(Audited) |
|||
|
|
At 31 Dec 2023 |
12 months ended 31 Dec 2023 |
|
|
|
Gross carrying/ nominal amount |
Allowance for ECL |
ECL (charge)/release |
|
|
£m |
£m |
£m |
|
As above |
180,264 |
(1,147) |
(164) |
|
Other financial assets measured at amortised cost |
273,728 |
(70) |
- |
|
Non-trading reverse purchase agreement commitments |
38,704 |
- |
- |
|
Performance and other guarantees not considered for IFRS 9 |
|
|
(7) |
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement |
492,696 |
(1,217) |
(171) |
|
Debt instruments measured at FVOCI |
37,427 |
(23) |
2 |
|
Total allowance for ECL/total income statement ECL change for the period |
N/A |
(1,240) |
(169) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £(1.64)bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Gross carrying/nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/nominal amount |
Allowance for ECL |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2022 |
179,612 |
(118) |
17,471 |
(188) |
2,779 |
(923) |
2 |
(2) |
199,864 |
(1,231) |
|
Transfers of financial instruments: |
(14,449) |
(26) |
13,625 |
59 |
824 |
(33) |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(25,027) |
15 |
25,027 |
(15) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
10,847 |
(42) |
(10,847) |
42 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(340) |
2 |
(600) |
35 |
940 |
(37) |
- |
- |
- |
- |
|
- transfers from stage 3 |
71 |
(1) |
45 |
(3) |
(116) |
4 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
29 |
- |
(24) |
- |
(10) |
- |
- |
- |
(5) |
|
Net new and further lending/repayments |
9,912 |
7 |
(11,270) |
29 |
(703) |
90 |
1 |
- |
(2,060) |
126 |
|
Changes to risk parameters - credit quality |
- |
32 |
- |
(101) |
- |
(318) |
- |
2 |
- |
(385) |
|
Changes to model used for ECL calculation |
- |
4 |
- |
10 |
- |
- |
- |
- |
- |
14 |
|
Assets written off |
- |
- |
- |
- |
(165) |
165 |
- |
- |
(165) |
165 |
|
Credit related modifications that resulted in derecognition |
- |
- |
- |
- |
(1) |
1 |
- |
- |
(1) |
1 |
|
Foreign exchange |
5,764 |
(3) |
744 |
(11) |
88 |
(34) |
- |
- |
6,596 |
(48) |
|
Others2,3 |
(12,468) |
4 |
(2,511) |
26 |
(286) |
100 |
- |
- |
(15,265) |
130 |
|
At 31 Dec 2022 |
168,371 |
(71) |
18,059 |
(200) |
2,536 |
(962) |
3 |
- |
188,969 |
(1,233) |
|
ECL Income statement change for the period |
|
72 |
|
(86) |
|
(238) |
|
2 |
|
(250) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
2 |
|
Others |
|
|
|
|
|
|
|
|
|
28 |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
(220) |
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
|||
|
(Audited) |
|||
|
|
At 31 Dec 2022 |
12 months ended 31 Dec 2022 |
|
|
|
Gross carrying/ nominal amount |
Allowance for ECL |
ECL (charge)/ release |
|
|
£m |
£m |
£m |
|
As above |
188,969 |
(1,233) |
(220) |
|
Other financial assets measured at amortised cost |
269,815 |
(137) |
(3) |
|
Non-trading reverse purchase agreement commitments |
33,684 |
- |
- |
|
Performance and other guarantees not considered for IFRS 9 |
|
|
6 |
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement |
492,468 |
(1,370) |
(217) |
|
Debt instruments measured at FVOCI |
29,248 |
(24) |
(5) |
|
Total allowance for ECL/total income statement ECL change for the period |
N/A |
(1,394) |
(222) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2022, these amounted to £4bn and were classified as stage 1 with no ECL.
3 Total includes £21bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale and a corresponding allowance for ECL of £131m reflecting business disposals as disclosed in Note 35 'Assets held for sale and liabilities of disposal groups held for sale' on page 184.
|
Reconciliation of changes in gross carrying amount and allowances for loans and advances to banks and customers |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
80,347 |
(55) |
8,230 |
(166) |
2,289 |
(922) |
3 |
- |
90,869 |
(1,143) |
|
Transfers of financial instruments |
(98) |
(42) |
(500) |
78 |
598 |
(36) |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(7,192) |
10 |
7,192 |
(10) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
7,301 |
(51) |
(7,301) |
51 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(226) |
- |
(465) |
39 |
691 |
(39) |
- |
- |
- |
- |
|
- transfers from stage 3 |
19 |
(1) |
74 |
(2) |
(93) |
3 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
36 |
- |
(22) |
- |
- |
- |
- |
- |
14 |
|
Changes due to modifications not derecognised |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Net new and further lending/repayments |
3,230 |
(9) |
(923) |
15 |
(401) |
94 |
30 |
- |
1,936 |
100 |
|
Changes to risk parameters - credit quality |
- |
1 |
- |
(10) |
- |
(289) |
- |
(6) |
- |
(304) |
|
Changes to models used for ECL calculation |
- |
2 |
- |
4 |
- |
- |
- |
- |
- |
6 |
|
Assets written off |
- |
- |
- |
- |
(248) |
246 |
- |
- |
(248) |
246 |
|
Credit-related modifications that resulted in derecognition |
- |
- |
- |
- |
(94) |
75 |
- |
- |
(94) |
75 |
|
Foreign exchange |
(1,264) |
1 |
(148) |
1 |
(48) |
17 |
- |
- |
(1,460) |
19 |
|
Others1 |
(1,603) |
(10) |
1,338 |
(25) |
214 |
(67) |
(1) |
- |
(52) |
(102) |
|
At 31 Dec 2023 |
80,612 |
(76) |
7,997 |
(125) |
2,310 |
(882) |
32 |
(6) |
90,951 |
(1,089) |
|
ECL income statement change for the period |
- |
30 |
- |
(13) |
- |
(195) |
- |
(6) |
- |
(184) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
5 |
|
Others |
|
|
|
|
|
|
|
|
|
(20) |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
(199) |
1 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £(1.17)bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in nominal amount and allowances for loan commitments and financial guarantees1 |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
88,024 |
(16) |
9,829 |
(34) |
247 |
(40) |
- |
- |
98,100 |
(90) |
|
Transfers of financial instruments |
788 |
(14) |
(836) |
11 |
48 |
3 |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(6,914) |
1 |
6,914 |
(1) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
7,722 |
(15) |
(7,722) |
15 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(21) |
- |
(86) |
- |
107 |
- |
- |
- |
- |
- |
|
- transfers from stage 3 |
1 |
- |
58 |
(3) |
(59) |
3 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
12 |
- |
(4) |
- |
- |
- |
- |
- |
8 |
|
Net new and further lending/repayments |
1,396 |
8 |
(993) |
7 |
(41) |
31 |
3 |
- |
365 |
46 |
|
Changes to risk parameters - credit quality |
- |
(2) |
- |
(18) |
- |
(16) |
- |
- |
- |
(36) |
|
Changes to models used for ECL calculation |
- |
(5) |
- |
14 |
- |
- |
- |
- |
- |
9 |
|
Assets written off |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Credit-related modifications that resulted in derecognition |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Foreign exchange |
(1,134) |
1 |
(83) |
1 |
(1) |
- |
- |
- |
(1,218) |
2 |
|
Others2 |
(7,458) |
1 |
(469) |
1 |
(7) |
1 |
- |
- |
(7,934) |
3 |
|
At 31 Dec 2023 |
81,616 |
(15) |
7,448 |
(22) |
246 |
(21) |
3 |
- |
89,313 |
(58) |
|
ECL income statement change for the period |
- |
13 |
- |
(1) |
- |
15 |
- |
- |
- |
27 |
|
Recoveries |
|
|
|
|
|
|
|
|
|
- |
|
Others |
|
|
|
|
|
|
|
|
|
8 |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
35 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £(0.47)bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Gross carrying/nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/nominal amount |
Allowance for ECL |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
78,523 |
(33) |
6,099 |
(73) |
1,016 |
(358) |
- |
- |
85,638 |
(464) |
|
Transfers of financial instruments |
(171) |
(20) |
104 |
20 |
67 |
- |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(8,257) |
5 |
8,257 |
(5) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
8,085 |
(25) |
(8,085) |
25 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(1) |
- |
(137) |
3 |
138 |
(3) |
- |
- |
- |
- |
|
- transfers from stage 3 |
2 |
- |
69 |
(3) |
(71) |
3 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
19 |
- |
(15) |
- |
- |
- |
- |
- |
4 |
|
Net new and further lending/repayments |
(5,964) |
7 |
1,247 |
24 |
(178) |
54 |
28 |
- |
(4,867) |
85 |
|
Changes to risk parameters - credit quality |
- |
3 |
- |
(34) |
- |
(107) |
- |
(6) |
- |
(144) |
|
Changes to model used for ECL calculation |
- |
(3) |
- |
19 |
- |
- |
- |
- |
- |
16 |
|
Assets written off |
- |
- |
- |
- |
(37) |
37 |
- |
- |
(37) |
37 |
|
Credit related modifications that resulted in derecognition |
- |
- |
- |
- |
(89) |
75 |
- |
- |
(89) |
75 |
|
Foreign exchange |
(142) |
1 |
(9) |
- |
(1) |
- |
- |
- |
(152) |
1 |
|
Others2 |
(4,768) |
3 |
107 |
(2) |
3 |
1 |
- |
- |
(4,658) |
2 |
|
At 31 Dec 2023 |
67,478 |
(23) |
7,548 |
(61) |
781 |
(298) |
28 |
(6) |
75,835 |
(388) |
|
ECL income statement change for the period |
|
26 |
|
(6) |
|
(53) |
|
(6) |
|
(39) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
- |
|
Others |
|
|
|
|
|
|
|
|
|
(12) |
|
Total ECL income change for the period |
|
|
|
|
|
|
|
|
|
(51) |
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
|||
|
|
At 31 Dec 2023 |
12 months ended 31 Dec 2023 |
|
|
|
Gross carrying/ nominal amount |
Allowance for ECL |
ECL (charge)/release |
|
|
£m |
£m |
£m |
|
As above |
75,835 |
(388) |
(51) |
|
Other financial assets measured at amortised cost |
174,304 |
(3) |
- |
|
Non-trading reverse purchase agreement commitments |
4,540 |
- |
- |
|
Performance and other guarantees not considered for IFRS 9 |
|
|
4 |
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement |
254,679 |
(391) |
(47) |
|
Debt instruments measured at FVOCI |
16,307 |
(5) |
(2) |
|
Total allowance for ECL/total income statement ECL change for the period |
n/a |
(396) |
(49) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £(1.9)bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
||||||||||
|
(Audited) |
||||||||||
|
|
Non-credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Gross carrying/nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/ nominal amount |
Allowance for ECL |
Gross carrying/nominal amount |
Allowance for ECL |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
1 Jan 2022 |
65,710 |
(56) |
5,657 |
(58) |
1,088 |
(276) |
(1) |
- |
72,454 |
(390) |
|
Transfers of financial instruments: |
(959) |
(3) |
774 |
21 |
185 |
(18) |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(6,499) |
6 |
6,499 |
(6) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
5,554 |
(9) |
(5,554) |
9 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(53) |
- |
(172) |
18 |
225 |
(18) |
- |
- |
- |
- |
|
- transfers from stage 3 |
39 |
- |
1 |
- |
(40) |
- |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
6 |
- |
(11) |
- |
- |
- |
- |
- |
(5) |
|
Net new and further lending/repayments |
7,528 |
(3) |
(351) |
16 |
(203) |
7 |
- |
- |
6,974 |
20 |
|
Changes to risk parameters - credit quality |
- |
17 |
- |
(48) |
- |
(131) |
- |
- |
- |
(162) |
|
Changes to model used for ECL calculation |
- |
7 |
- |
10 |
- |
- |
- |
- |
- |
17 |
|
Assets written off |
- |
- |
- |
- |
(62) |
62 |
- |
- |
(62) |
62 |
|
Credit related modifications that resulted in derecognition |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Foreign exchange |
210 |
- |
19 |
(3) |
8 |
(2) |
1 |
- |
238 |
(5) |
|
Others2 |
6,034 |
(1) |
- |
- |
- |
- |
- |
- |
6,034 |
(1) |
|
At 31 Dec 2022 |
78,523 |
(33) |
6,099 |
(73) |
1,016 |
(358) |
- |
- |
85,638 |
(464) |
|
ECL income statement change for the period
|
|
27 |
|
(33) |
|
(124) |
|
- |
|
(130) |
|
Recoveries Recoveries |
|
|
|
|
|
|
|
|
|
- |
|
Others Others |
|
|
|
|
|
|
|
|
|
18 |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
(112) |
|
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued) |
|||
|
|
At 31 Dec 2022 |
12 months ended 31 Dec 2022 |
|
|
|
Gross carrying/nominal amount |
Allowance for ECL |
ECL (charge)/release |
|
|
£m |
£m |
£m |
|
As above |
85,638 |
(464) |
(112) |
|
Other financial assets measured at amortised cost |
169,321 |
(3) |
(1) |
|
Non-trading reverse purchase agreement commitments |
3,316 |
- |
- |
|
Performance and other guarantees not considered for IFRS 9 |
|
|
1 |
|
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement |
258,275 |
(467) |
(112) |
|
Debt instruments measured at FVOCI |
12,206 |
(4) |
2 |
|
Total allowance for ECL/total income statement ECL change for the period |
n/a |
(471) |
(110) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2022, these amounted to £3bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in gross carrying amount and allowances for loans and advances to banks and customers |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
Total |
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
||||||
|
|
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
Gross carrying amount |
Allowance for ECL |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
48,219 |
(23) |
2,741 |
(57) |
941 |
(340) |
- |
- |
51,901 |
(420) |
|
Transfers of financial instruments |
280 |
(9) |
(396) |
11 |
116 |
(2) |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(3,380) |
4 |
3,380 |
(4) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
3,659 |
(13) |
(3,659) |
13 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
(1) |
- |
(135) |
2 |
136 |
(2) |
- |
- |
- |
- |
|
- transfers from stage 3 |
2 |
- |
18 |
- |
(20) |
- |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
10 |
- |
(12) |
- |
- |
- |
- |
- |
(2) |
|
Net new and further lending/repayments |
(4,431) |
1 |
810 |
24 |
(192) |
51 |
25 |
- |
(3,788) |
76 |
|
Changes to risk parameters - credit quality |
- |
1 |
- |
(18) |
- |
(110) |
- |
(6) |
- |
(133) |
|
Changes to models used for ECL calculation |
- |
2 |
- |
5 |
- |
- |
- |
- |
- |
7 |
|
Assets written off |
- |
- |
- |
- |
(37) |
37 |
- |
- |
(37) |
37 |
|
Credit-related modifications that resulted in derecognition |
- |
- |
- |
- |
(89) |
75 |
- |
- |
(89) |
75 |
|
Foreign exchange |
(172) |
1 |
(7) |
- |
(3) |
- |
- |
- |
(182) |
1 |
|
Others1 |
(3,446) |
2 |
107 |
- |
4 |
- |
- |
- |
(3,335) |
2 |
|
At 31 Dec 2023 |
40,450 |
(15) |
3,255 |
(47) |
740 |
(289) |
25 |
(6) |
44,470 |
(357) |
|
ECL income statement change for the period |
|
14 |
|
(1) |
|
(59) |
|
(6) |
|
(52) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
- |
|
Others |
|
|
|
|
|
|
|
|
|
(12) |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
(64) |
1 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £(2.1)bn and were classified as stage 1 with no ECL.
|
Reconciliation of changes in nominal amount and allowances for loan commitments and financial guarantees1 |
||||||||||
|
(Audited) |
||||||||||
|
|
Non credit - impaired |
Credit - impaired |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|||||
|
|
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
Nominal amount |
Allowance for ECL |
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
30,304 |
(10) |
3,358 |
(16) |
75 |
(18) |
- |
- |
33,737 |
(44) |
|
Transfers of financial instruments |
(451) |
(11) |
500 |
9 |
(49) |
2 |
- |
- |
- |
- |
|
- transfers from stage 1 to stage 2 |
(4,877) |
1 |
4,877 |
(1) |
- |
- |
- |
- |
- |
- |
|
- transfers from stage 2 to stage 1 |
4,426 |
(12) |
(4,426) |
12 |
- |
- |
- |
- |
- |
- |
|
- transfers to stage 3 |
- |
- |
(2) |
1 |
2 |
(1) |
- |
- |
- |
- |
|
- transfers from stage 3 |
- |
- |
51 |
(3) |
(51) |
3 |
- |
- |
- |
- |
|
Net remeasurement of ECL arising from transfer of stage |
- |
9 |
- |
(3) |
- |
- |
- |
- |
- |
6 |
|
Net new and further lending/repayments |
(1,533) |
6 |
437 |
- |
14 |
3 |
3 |
- |
(1,079) |
9 |
|
Changes to risk parameters - credit quality |
- |
2 |
- |
(16) |
- |
3 |
- |
- |
- |
(11) |
|
Changes to models used for ECL calculation |
- |
(5) |
- |
14 |
- |
- |
- |
- |
- |
9 |
|
Assets written off |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Credit-related modifications that resulted in derecognition |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Foreign exchange |
30 |
- |
(2) |
- |
2 |
- |
- |
- |
30 |
- |
|
Others2 |
(1,322) |
1 |
- |
(2) |
(1) |
1 |
- |
- |
(1,323) |
- |
|
At 31 Dec 2023 |
27,028 |
(8) |
4,293 |
(14) |
41 |
(9) |
3 |
- |
31,365 |
(31) |
|
ECL income statement change for the period |
|
12 |
|
(5) |
|
6 |
|
- |
|
13 |
|
Recoveries |
|
|
|
|
|
|
|
|
|
- |
|
Others |
|
|
|
|
|
|
|
|
|
- |
|
Total ECL income statement change for the period |
|
|
|
|
|
|
|
|
|
13 |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2023, these amounted to £0.2bn and were classified as stage 1 with no ECL.
Credit quality
Credit quality of financial instruments
(Audited)
We assess the credit quality of all financial instruments that are subject to credit risk. The credit quality of financial instruments is a point-in-time assessment of the PD, whereas stages 1 and 2 are determined based on relative deterioration of credit quality since initial recognition for the majority of portfolios. Accordingly, for non-credit-impaired financial instruments, there is no direct relationship between
the credit quality assessment and stages 1 and 2, although typically the lower credit quality bands exhibit a higher proportion in stage 2.
The five credit quality classifications provided below each encompass a range of granular internal credit rating grades assigned to wholesale and personal lending businesses and the external ratings attributed by external agencies to debt securities, as shown in the table on
page 31.
|
Distribution of financial instruments by credit quality at 31 December 2023 |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/notional amount |
Allowance for ECL |
Net |
|||||
|
|
Strong |
Good |
Satisfactory |
Sub- standard |
Credit impaired |
Total |
||
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
In-scope for IFRS 9 ECL |
|
|
|
|
|
|
|
|
|
Loans and advances to customers held at amortised cost |
32,567 |
18,634 |
19,627 |
3,409 |
2,342 |
76,579 |
(1,088) |
75,491 |
|
- personal |
8,702 |
2,612 |
1,388 |
115 |
214 |
13,031 |
(108) |
12,923 |
|
- corporate and commercial |
18,044 |
12,815 |
14,876 |
3,228 |
1,805 |
50,768 |
(825) |
49,943 |
|
- non-bank financial institutions |
5,821 |
3,207 |
3,363 |
66 |
323 |
12,780 |
(155) |
12,625 |
|
Loans and advances to banks held at amortised cost |
13,247 |
415 |
710 |
- |
- |
14,372 |
(1) |
14,371 |
|
Cash and balances at central banks |
110,570 |
- |
48 |
- |
- |
110,618 |
- |
110,618 |
|
Items in the course of collection from other banks |
2,109 |
5 |
- |
- |
- |
2,114 |
- |
2,114 |
|
Reverse repurchase agreements - non-trading |
57,144 |
13,183 |
3,128 |
39 |
- |
73,494 |
- |
73,494 |
|
Financial investments |
8,840 |
- |
21 |
- |
- |
8,861 |
- |
8,861 |
|
Assets held for sale |
19,461 |
1,232 |
852 |
95 |
156 |
21,796 |
(64) |
21,732 |
|
Other assets |
54,903 |
647 |
1,225 |
44 |
26 |
56,845 |
(6) |
56,839 |
|
- endorsements and acceptances |
224 |
6 |
20 |
- |
- |
250 |
- |
250 |
|
- accrued income and other |
54,679 |
641 |
1,205 |
44 |
26 |
56,595 |
(6) |
56,589 |
|
Debt instruments measured at fair value through other comprehensive income1 |
35,513 |
2,241 |
760 |
82 |
- |
38,596 |
(23) |
38,573 |
|
Out-of-scope for IFRS 9 |
|
|
|
|
|
|
|
|
|
Trading assets |
34,923 |
8,555 |
6,378 |
820 |
- |
50,676 |
- |
50,676 |
|
Other financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
2,439 |
965 |
1,536 |
5 |
- |
4,945 |
- |
4,945 |
|
Derivatives |
155,106 |
15,499 |
3,457 |
46 |
8 |
174,116 |
- |
174,116 |
|
Assets held for sale |
101 |
- |
- |
- |
- |
101 |
- |
101 |
|
Total gross carrying amount on balance sheet |
526,923 |
61,376 |
37,742 |
4,540 |
2,532 |
633,113 |
(1,182) |
631,931 |
|
Percentage of total credit quality (%) |
83 |
10 |
6 |
1 |
0 |
100 |
|
|
|
Loans and other credit-related commitments |
83,907 |
27,038 |
13,012 |
1,482 |
177 |
125,616 |
(42) |
125,574 |
|
Financial guarantees |
1,270 |
530 |
503 |
26 |
72 |
2,401 |
(16) |
2,385 |
|
In-scope: Irrevocable loan commitments and financial guarantees |
85,177 |
27,568 |
13,515 |
1,508 |
249 |
128,017 |
(58) |
127,959 |
|
Loans and other credit-related commitments |
3,269 |
2,091 |
806 |
42 |
5 |
6,213 |
- |
6,213 |
|
Performance and other guarantees |
9,582 |
5,357 |
3,917 |
484 |
208 |
19,548 |
(25) |
19,523 |
|
Out-of-scope: Revocable loan commitments and non-financial guarantees |
12,851 |
7,448 |
4,723 |
526 |
213 |
25,761 |
(25) |
25,736 |
1 For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value gains and losses.
|
Distribution of financial instruments by credit quality at 31 December 2022 (continued) |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/notional amount |
Allowance for ECL |
Net |
|||||
|
|
Strong |
Good |
Satisfactory |
Sub- standard |
Credit impaired |
Total |
||
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
In-scope for IFRS 9 ECL |
|
|
|
|
|
|
|
|
|
Loans and advances to customers held at amortised cost |
27,997 |
19,618 |
19,612 |
4,263 |
2,227 |
73,717 |
(1,103) |
72,614 |
|
- personal |
2,019 |
2,928 |
858 |
103 |
105 |
6,013 |
(55) |
5,958 |
|
- corporate and commercial |
19,352 |
13,393 |
16,496 |
3,910 |
1,853 |
55,004 |
(937) |
54,067 |
|
- non-bank financial institutions |
6,626 |
3,297 |
2,258 |
250 |
269 |
12,700 |
(111) |
12,589 |
|
Loans and advances to banks held at amortised cost |
14,637 |
790 |
1,634 |
26 |
65 |
17,152 |
(43) |
17,109 |
|
Cash and balances at central banks |
131,379 |
- |
55 |
- |
- |
131,434 |
(1) |
131,433 |
|
Items in the course of collection from other banks |
2,281 |
- |
4 |
- |
- |
2,285 |
- |
2,285 |
|
Reverse repurchase agreements - non-trading |
43,777 |
7,953 |
2,219 |
- |
- |
53,949 |
- |
53,949 |
|
Financial investments |
3,028 |
- |
220 |
- |
- |
3,248 |
- |
3,248 |
|
Assets held for sale |
19,419 |
1,598 |
1,773 |
124 |
291 |
23,205 |
(133) |
23,072 |
|
Other assets |
53,967 |
708 |
948 |
39 |
32 |
55,694 |
(3) |
55,691 |
|
- endorsements and acceptances |
208 |
4 |
25 |
- |
6 |
243 |
- |
243 |
|
- accrued income and other |
53,759 |
704 |
923 |
39 |
26 |
55,451 |
(3) |
55,448 |
|
Debt instruments measured at fair value through other comprehensive income1 |
28,248 |
2,471 |
626 |
105 |
- |
31,450 |
(24) |
31,426 |
|
Out-of-scope for IFRS 9 |
|
|
|
|
|
|
|
|
|
Trading assets |
26,961 |
4,323 |
9,966 |
298 |
- |
41,548 |
- |
41,548 |
|
Other financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
1,945 |
331 |
669 |
1 |
- |
2,946 |
- |
2,946 |
|
Derivatives |
199,167 |
21,128 |
4,886 |
29 |
28 |
225,238 |
- |
225,238 |
|
Assets held for sale |
107 |
- |
- |
- |
- |
107 |
- |
107 |
|
Total gross carrying amount on balance sheet |
552,913 |
58,920 |
42,612 |
4,885 |
2,643 |
661,973 |
(1,307) |
660,666 |
|
Percentage of total credit quality (%) |
84 |
9 |
6 |
1 |
- |
100 |
|
|
|
Loans and other credit-related commitments |
82,801 |
23,578 |
17,523 |
2,392 |
163 |
126,457 |
(67) |
126,390 |
|
Financial guarantees |
2,924 |
1,171 |
995 |
153 |
84 |
5,327 |
(20) |
5,307 |
|
In-scope: Irrevocable loan commitments and financial guarantees |
85,725 |
24,749 |
18,518 |
2,545 |
247 |
131,784 |
(87) |
131,697 |
|
Loans and other credit-related commitments |
1,168 |
183 |
90 |
14 |
1 |
1,456 |
- |
1,456 |
|
Performance and other guarantees |
9,791 |
3,583 |
3,074 |
599 |
89 |
17,136 |
(18) |
17,118 |
|
Out-of-scope: Revocable loan commitments and non-financial guarantees |
10,959 |
3,766 |
3,164 |
613 |
90 |
18,592 |
(18) |
18,574 |
1 For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value gains and losses.
|
Distribution of financial instruments by credit quality at 31 December 2023 |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/notional amount |
Allowance for ECL |
Net |
|||||
|
|
Strong |
Good |
Satisfactory |
Sub- standard |
Credit impaired |
Total |
||
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
In-scope for IFRS 9 ECL |
|
|
|
|
|
|
|
|
|
Loans and advances to customers held at amortised cost |
20,450 |
6,782 |
4,140 |
663 |
765 |
32,800 |
(357) |
32,443 |
|
- personal |
1,782 |
179 |
658 |
7 |
13 |
2,639 |
(6) |
2,633 |
|
- corporate and commercial |
11,468 |
4,572 |
2,941 |
656 |
446 |
20,083 |
(205) |
19,878 |
|
- non-bank financial institutions |
7,200 |
2,031 |
541 |
- |
306 |
10,078 |
(146) |
9,932 |
|
Loans and advances to banks held at amortised cost |
11,275 |
339 |
56 |
- |
- |
11,670 |
- |
11,670 |
|
Cash and balances at central banks |
61,128 |
- |
- |
- |
- |
61,128 |
- |
61,128 |
|
Items in the course of collection from other banks |
1,877 |
- |
- |
- |
- |
1,877 |
- |
1,877 |
|
Reverse repurchase agreements - non-trading |
43,053 |
11,008 |
2,873 |
39 |
- |
56,973 |
- |
56,973 |
|
Financial investments |
12,029 |
- |
- |
- |
- |
12,029 |
- |
12,029 |
|
Assets held for sale |
91 |
- |
- |
- |
- |
91 |
- |
91 |
|
Other assets |
41,956 |
136 |
100 |
5 |
9 |
42,206 |
(3) |
42,203 |
|
- endorsements and acceptances |
221 |
6 |
- |
- |
- |
227 |
- |
227 |
|
- accrued income and other |
41,735 |
130 |
100 |
5 |
9 |
41,979 |
(3) |
41,976 |
|
Debt instruments measured at fair value through other comprehensive income1 |
16,094 |
56 |
504 |
- |
- |
16,654 |
(5) |
16,649 |
|
Out-of-scope for IFRS 9 |
|
|
|
|
|
|
|
|
|
Trading assets |
22,987 |
8,386 |
6,077 |
818 |
- |
38,268 |
- |
38,268 |
|
Other financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
473 |
908 |
1,505 |
2 |
- |
2,888 |
- |
2,888 |
|
Derivatives |
136,081 |
14,639 |
3,009 |
36 |
- |
153,765 |
- |
153,765 |
|
Total gross carrying amount on balance sheet |
367,494 |
42,254 |
18,264 |
1,563 |
774 |
430,349 |
(365) |
429,984 |
|
Percentage of total credit quality (%) |
85.4 |
9.8 |
4.2 |
0.4 |
0.2 |
100 |
|
|
|
Loans and other credit-related commitments |
24,980 |
6,929 |
2,394 |
478 |
18 |
34,799 |
(22) |
34,777 |
|
Financial guarantees |
649 |
218 |
209 |
4 |
26 |
1,106 |
(9) |
1,097 |
|
In-scope: Irrevocable loan commitments and financial guarantees |
25,629 |
7,147 |
2,603 |
482 |
44 |
35,905 |
(31) |
35,874 |
|
Loans and other credit-related commitments |
226 |
160 |
70 |
15 |
- |
471 |
- |
471 |
|
Performance and other guarantees |
5,669 |
1,157 |
517 |
49 |
3 |
7,395 |
(1) |
7,394 |
|
Out-of-scope: Revocable loan commitments and non-financial guarantees |
5,895 |
1,317 |
587 |
64 |
3 |
7,866 |
(1) |
7,865 |
|
Distribution of financial instruments by credit quality at 31 December 2022 |
||||||||
|
In-scope for IFRS 9 ECL |
|
|
|
|
|
|
|
|
|
Loans and advances to customers held at amortised cost |
21,601 |
9,291 |
4,838 |
765 |
875 |
37,370 |
(378) |
36,992 |
|
- personal |
1,837 |
927 |
797 |
10 |
13 |
3,584 |
(12) |
3,572 |
|
- corporate and commercial |
12,018 |
6,001 |
3,230 |
613 |
594 |
22,456 |
(247) |
22,209 |
|
- non-bank financial institutions |
7,746 |
2,363 |
811 |
142 |
268 |
11,330 |
(119) |
11,211 |
|
Loans and advances to banks held at amortised cost |
13,764 |
512 |
163 |
25 |
65 |
14,529 |
(43) |
14,486 |
|
Cash and balances at central banks |
78,442 |
- |
- |
- |
- |
78,442 |
(1) |
78,441 |
|
Items in the course of collection from other banks |
1,863 |
- |
- |
- |
- |
1,863 |
- |
1,863 |
|
Reverse repurchase agreements - non-trading |
33,159 |
7,763 |
2,133 |
- |
- |
43,055 |
- |
43,055 |
|
Financial investments |
6,190 |
- |
188 |
- |
- |
6,378 |
- |
6,378 |
|
Assets held for sale |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other assets |
39,376 |
95 |
81 |
10 |
21 |
39,583 |
(2) |
39,581 |
|
- endorsements and acceptances |
205 |
4 |
3 |
- |
6 |
218 |
- |
218 |
|
- accrued income and other |
39,171 |
91 |
78 |
10 |
15 |
39,365 |
(2) |
39,363 |
|
Debt instruments measured at fair value through other comprehensive income1 |
12,827 |
64 |
307 |
- |
- |
13,198 |
(4) |
13,194 |
|
Out-of-scope for IFRS 9 |
|
|
|
|
|
|
|
|
|
Trading assets |
18,479 |
4,226 |
9,213 |
298 |
- |
32,216 |
- |
32,216 |
|
Other financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
149 |
214 |
651 |
1 |
- |
1,015 |
- |
1,015 |
|
Derivatives |
174,548 |
18,118 |
4,031 |
17 |
- |
196,714 |
- |
196,714 |
|
Total gross carrying amount on balance sheet |
400,398 |
40,283 |
21,605 |
1,116 |
961 |
464,363 |
(428) |
463,935 |
|
Percentage of total credit quality (%) |
86.2 |
8.7 |
4.7 |
0.2 |
0.2 |
100 |
|
|
|
Loans and other credit-related commitments |
25,143 |
6,577 |
3,200 |
732 |
40 |
35,692 |
(31) |
35,661 |
|
Financial guarantees |
729 |
205 |
388 |
5 |
36 |
1,363 |
(12) |
1,351 |
|
In-scope: Irrevocable loan commitments and financial guarantees |
25,872 |
6,782 |
3,588 |
737 |
76 |
37,055 |
(43) |
37,012 |
|
Loans and other credit-related commitments |
493 |
183 |
91 |
14 |
1 |
782 |
- |
782 |
|
Performance and other guarantees |
5,338 |
1,083 |
417 |
42 |
6 |
6,886 |
(7) |
6,879 |
|
Out-of-scope: Revocable loan commitments and non-financial guarantees |
5,831 |
1,266 |
508 |
56 |
7 |
7,668 |
(7) |
7,661 |
1 For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value gains and losses.
|
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/notional amount |
Allowance for ECL |
Net |
|||||
|
|
Strong |
Good |
Satisfactory |
Sub- standard |
Credit impaired |
Total |
||
|
The group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans and advances to customers at amortised cost |
32,567 |
18,634 |
19,627 |
3,409 |
2,342 |
76,579 |
(1,088) |
75,491 |
|
- stage 1 |
31,644 |
17,295 |
16,071 |
1,346 |
- |
66,356 |
(75) |
66,281 |
|
- stage 2 |
923 |
1,339 |
3,556 |
2,063 |
- |
7,881 |
(125) |
7,756 |
|
- stage 3 |
- |
- |
- |
- |
2,310 |
2,310 |
(882) |
1,428 |
|
- POCI |
- |
- |
- |
- |
32 |
32 |
(6) |
26 |
|
Loans and advances to banks at amortised cost |
13,247 |
415 |
710 |
- |
- |
14,372 |
(1) |
14,371 |
|
- stage 1 |
13,220 |
414 |
622 |
- |
- |
14,256 |
(1) |
14,255 |
|
- stage 2 |
27 |
1 |
88 |
- |
- |
116 |
- |
116 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
253,027 |
15,067 |
5,274 |
178 |
182 |
273,728 |
(70) |
273,658 |
|
- stage 1 |
252,841 |
14,788 |
4,843 |
85 |
- |
272,557 |
(5) |
272,552 |
|
- stage 2 |
186 |
279 |
431 |
93 |
- |
989 |
(8) |
981 |
|
- stage 3 |
- |
- |
- |
- |
182 |
182 |
(57) |
125 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Loans and other credit-related commitments |
83,907 |
27,038 |
13,012 |
1,482 |
177 |
125,616 |
(42) |
125,574 |
|
- stage 1 |
81,341 |
25,083 |
10,962 |
856 |
- |
118,242 |
(13) |
118,229 |
|
- stage 2 |
2,566 |
1,955 |
2,050 |
626 |
- |
7,197 |
(21) |
7,176 |
|
- stage 3 |
- |
- |
- |
- |
174 |
174 |
(8) |
166 |
|
- POCI |
- |
- |
- |
- |
3 |
3 |
- |
3 |
|
Financial guarantees |
1,270 |
530 |
503 |
26 |
72 |
2,401 |
(16) |
2,385 |
|
- stage 1 |
1,269 |
483 |
322 |
4 |
- |
2,078 |
(2) |
2,076 |
|
- stage 2 |
1 |
47 |
181 |
22 |
- |
251 |
(1) |
250 |
|
- stage 3 |
- |
- |
- |
- |
72 |
72 |
(13) |
59 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2023 |
384,018 |
61,684 |
39,126 |
5,095 |
2,773 |
492,696 |
(1,217) |
491,479 |
|
Debt instruments at FVOCI1 |
|
|
|
|
|
|
|
|
|
- stage 1 |
35,473 |
2,241 |
722 |
- |
- |
38,436 |
(9) |
38,427 |
|
- stage 2 |
40 |
- |
38 |
82 |
- |
160 |
(14) |
146 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2023 |
35,513 |
2,241 |
760 |
82 |
- |
38,596 |
(23) |
38,573 |
|
Loans and advances to customers at amortised cost |
27,997 |
19,618 |
19,612 |
4,263 |
2,227 |
73,717 |
(1,103) |
72,614 |
|
- stage 1 |
27,183 |
18,885 |
16,313 |
1,292 |
- |
63,673 |
(51) |
63,622 |
|
- stage 2 |
814 |
733 |
3,299 |
2,971 |
- |
7,817 |
(145) |
7,672 |
|
- stage 3 |
- |
- |
- |
- |
2,224 |
2,224 |
(907) |
1,317 |
|
- POCI |
- |
- |
- |
- |
3 |
3 |
- |
3 |
|
Loans and advances to banks at amortised cost |
14,637 |
790 |
1,634 |
26 |
65 |
17,152 |
(43) |
17,109 |
|
- stage 1 |
14,502 |
565 |
1,605 |
1 |
- |
16,673 |
(6) |
16,667 |
|
- stage 2 |
135 |
225 |
29 |
25 |
- |
414 |
(21) |
393 |
|
- stage 3 |
- |
- |
- |
- |
65 |
65 |
(16) |
49 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
253,851 |
10,259 |
5,219 |
163 |
323 |
269,815 |
(137) |
269,678 |
|
- stage 1 |
253,572 |
9,893 |
4,324 |
41 |
- |
267,830 |
(14) |
267,816 |
|
- stage 2 |
279 |
366 |
895 |
122 |
- |
1,662 |
(17) |
1,645 |
|
- stage 3 |
- |
- |
- |
- |
323 |
323 |
(106) |
217 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Loans and other credit-related commitments |
82,801 |
23,578 |
17,523 |
2,392 |
163 |
126,457 |
(67) |
126,390 |
|
- stage 1 |
79,931 |
21,530 |
14,570 |
963 |
- |
116,994 |
(13) |
116,981 |
|
- stage 2 |
2,870 |
2,048 |
2,953 |
1,429 |
- |
9,300 |
(32) |
9,268 |
|
- stage 3 |
- |
- |
- |
- |
163 |
163 |
(22) |
141 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Financial guarantees |
2,924 |
1,171 |
995 |
153 |
84 |
5,327 |
(20) |
5,307 |
|
- stage 1 |
2,895 |
1,058 |
727 |
35 |
- |
4,715 |
(1) |
4,714 |
|
- stage 2 |
29 |
113 |
268 |
118 |
- |
528 |
(2) |
526 |
|
- stage 3 |
- |
- |
- |
- |
84 |
84 |
(17) |
67 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2022 |
382,210 |
55,416 |
44,983 |
6,997 |
2,862 |
492,468 |
(1,370) |
491,098 |
|
Debt instruments at FVOCI1 |
|
|
|
|
|
|
|
|
|
- stage 1 |
28,047 |
2,384 |
547 |
- |
- |
30,978 |
(10) |
30,968 |
|
- stage 2 |
201 |
87 |
79 |
105 |
- |
472 |
(14) |
458 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2022 |
28,248 |
2,471 |
626 |
105 |
- |
31,450 |
(24) |
31,426 |
1 For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value gains and losses.
|
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation (continued) |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/notional amount |
Allowance for ECL |
Net |
|||||
|
|
Strong |
Good |
Satisfactory |
Sub- standard |
Credit impaired |
Total |
||
|
The bank |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans and advances to customers at amortised cost |
20,450 |
6,782 |
4,140 |
663 |
765 |
32,800 |
(357) |
32,443 |
|
- stage 1 |
19,730 |
5,933 |
2,860 |
283 |
- |
28,806 |
(15) |
28,791 |
|
- stage 2 |
720 |
849 |
1,280 |
380 |
- |
3,229 |
(47) |
3,182 |
|
- stage 3 |
- |
- |
- |
- |
740 |
740 |
(289) |
451 |
|
- POCI |
- |
- |
- |
- |
25 |
25 |
(6) |
19 |
|
Loans and advances to banks at amortised cost |
11,275 |
339 |
56 |
- |
- |
11,670 |
- |
11,670 |
|
- stage 1 |
11,268 |
339 |
37 |
- |
- |
11,644 |
- |
11,644 |
|
- stage 2 |
7 |
- |
19 |
- |
- |
26 |
- |
26 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
160,134 |
11,144 |
2,973 |
44 |
9 |
174,304 |
(3) |
174,301 |
|
- stage 1 |
160,131 |
11,137 |
2,964 |
39 |
- |
174,271 |
- |
174,271 |
|
- stage 2 |
3 |
7 |
9 |
5 |
- |
24 |
(1) |
23 |
|
- stage 3 |
- |
- |
- |
- |
9 |
9 |
(2) |
7 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Loans and other credit-related commitments |
24,980 |
6,929 |
2,394 |
478 |
18 |
34,799 |
(22) |
34,777 |
|
- stage 1 |
23,092 |
5,754 |
1,657 |
169 |
- |
30,672 |
(7) |
30,665 |
|
- stage 2 |
1,888 |
1,175 |
737 |
309 |
- |
4,109 |
(14) |
4,095 |
|
- stage 3 |
- |
- |
- |
- |
15 |
15 |
(1) |
14 |
|
- POCI |
- |
- |
- |
- |
3 |
3 |
- |
3 |
|
Financial guarantees |
649 |
218 |
209 |
4 |
26 |
1,106 |
(9) |
1,097 |
|
- stage 1 |
648 |
172 |
76 |
- |
- |
896 |
(1) |
895 |
|
- stage 2 |
1 |
46 |
133 |
4 |
- |
184 |
- |
184 |
|
- stage 3 |
- |
- |
- |
- |
26 |
26 |
(8) |
18 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2023 |
217,488 |
25,412 |
9,772 |
1,189 |
818 |
254,679 |
(391) |
254,288 |
|
Debt instruments at FVOCI1 |
|
|
|
|
|
|
|
|
|
- stage 1 |
16,094 |
56 |
499 |
- |
- |
16,649 |
(3) |
16,646 |
|
- stage 2 |
- |
- |
5 |
- |
- |
5 |
(2) |
3 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2023 |
16,094 |
56 |
504 |
- |
- |
16,654 |
(5) |
16,649 |
|
Loans and advances to customers at amortised cost |
21,601 |
9,291 |
4,838 |
765 |
875 |
37,370 |
(378) |
36,992 |
|
- stage 1 |
20,937 |
9,032 |
3,849 |
101 |
- |
33,919 |
(19) |
33,900 |
|
- stage 2 |
664 |
259 |
989 |
664 |
- |
2,576 |
(35) |
2,541 |
|
- stage 3 |
- |
- |
- |
- |
875 |
875 |
(324) |
551 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Loans and advances to banks at amortised cost |
13,764 |
512 |
163 |
25 |
65 |
14,529 |
(43) |
14,486 |
|
- stage 1 |
13,663 |
502 |
134 |
- |
- |
14,299 |
(5) |
14,294 |
|
- stage 2 |
101 |
10 |
29 |
25 |
- |
165 |
(22) |
143 |
|
- stage 3 |
- |
- |
- |
- |
65 |
65 |
(16) |
49 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other financial assets measured at amortised cost |
159,030 |
7,858 |
2,402 |
10 |
21 |
169,321 |
(3) |
169,318 |
|
- stage 1 |
159,026 |
7,857 |
2,393 |
- |
- |
169,276 |
(2) |
169,274 |
|
- stage 2 |
4 |
1 |
9 |
10 |
- |
24 |
(1) |
23 |
|
- stage 3 |
- |
- |
- |
- |
21 |
21 |
- |
21 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Loans and other credit-related commitments |
25,143 |
6,577 |
3,200 |
732 |
40 |
35,692 |
(31) |
35,661 |
|
- stage 1 |
24,007 |
5,971 |
2,329 |
120 |
- |
32,427 |
(9) |
32,418 |
|
- stage 2 |
1,136 |
606 |
871 |
612 |
- |
3,225 |
(15) |
3,210 |
|
- stage 3 |
- |
- |
- |
- |
40 |
40 |
(7) |
33 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
Financial guarantees |
729 |
205 |
388 |
5 |
36 |
1,363 |
(12) |
1,351 |
|
- stage 1 |
729 |
200 |
265 |
- |
- |
1,194 |
- |
1,194 |
|
- stage 2 |
- |
5 |
123 |
5 |
- |
133 |
(1) |
132 |
|
- stage 3 |
- |
- |
- |
- |
36 |
36 |
(11) |
25 |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2022 |
220,267 |
24,443 |
10,991 |
1,537 |
1,037 |
258,275 |
(467) |
257,808 |
|
Debt instruments at FVOCI1 |
|
|
|
|
|
|
|
|
|
- stage 1 |
12,827 |
64 |
302 |
- |
- |
13,193 |
(1) |
13,192 |
|
- stage 2 |
- |
- |
5 |
- |
- |
5 |
(3) |
2 |
|
- stage 3 |
- |
- |
- |
- |
- |
- |
- |
- |
|
- POCI |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2022 |
12,827 |
64 |
307 |
- |
- |
13,198 |
(4) |
13,194 |
1 For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value gains and losses.
Credit‑impaired loans
(Audited)
The group determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether:
- contractual payments of either principal or interest are past due for more than 90 days;
- there are other indications that the borrower is unlikely to pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower's financial condition; and
- the loan is otherwise considered to be in default. If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit-impaired and default are aligned as far as possible so that stage 3 represents all loans which are considered defaulted or otherwise credit-impaired.
Forbearance
The following table shows the gross carrying amounts of the group's holdings of forborne loans and advances to customers by industry sector and by stages.
A summary of our current policies and practices for forbearance is set out in 'Credit risk management' on page 32.
|
Forborne loans and advances to customers at amortised costs by stage allocation |
||||
|
|
Performing - forborne |
Non-performing - forborne |
Total - forborne |
|
|
|
Stage 2 |
Stage 3 |
POCI |
Total |
|
The group |
£m |
£m |
£m |
£m |
|
Gross carrying amount Gross carrying amount |
|
|
|
|
|
Personal |
88 |
127 |
- |
215 |
|
- first lien residential mortgages |
66 |
120 |
- |
186 |
|
- guaranteed loans in respect of residential property |
19 |
6 |
- |
25 |
|
- other personal lending which is secured |
1 |
- |
- |
1 |
|
- credit cards |
1 |
- |
- |
1 |
|
- other personal lending which is unsecured |
1 |
1 |
- |
2 |
|
Wholesale |
1,545 |
788 |
24 |
2,357 |
|
- corporate and commercial |
1,510 |
778 |
24 |
2,312 |
|
- non-bank financial institutions |
35 |
10 |
- |
45 |
|
At 31 Dec 2023 |
1,633 |
915 |
24 |
2,572 |
|
Allowance for ECL |
|
|
|
|
|
Personal |
(4) |
(39) |
- |
(43) |
|
- first lien residential mortgages |
(4) |
(39) |
- |
(43) |
|
- guaranteed loans in respect of residential property |
- |
- |
- |
- |
|
- other personal lending which is secured |
- |
- |
- |
- |
|
- credit cards |
- |
- |
- |
- |
|
- other personal lending which is unsecured |
- |
- |
- |
- |
|
Wholesale |
(15) |
(267) |
(6) |
(288) |
|
- corporate and commercial |
(14) |
(263) |
(6) |
(283) |
|
- non-bank financial institutions |
(1) |
(4) |
- |
(5) |
|
At 31 Dec 2023 |
(19) |
(306) |
(6) |
(331) |
|
The group |
|
|
|
|
|
Gross carrying amount |
|
|
|
|
|
Personal |
29 |
32 |
- |
61 |
|
- first lien residential mortgages |
24 |
27 |
- |
51 |
|
- other personal lending which is secured |
3 |
4 |
- |
7 |
|
- credit cards |
1 |
- |
- |
1 |
|
- other personal lending which is unsecured |
1 |
1 |
- |
2 |
|
Wholesale |
1,816 |
726 |
- |
2,542 |
|
- corporate and commercial |
1,804 |
722 |
- |
2,526 |
|
- non-bank financial institutions |
12 |
4 |
- |
16 |
|
At 31 Dec 2022 |
1,845 |
758 |
- |
2,603 |
|
Allowance for ECL |
|
|
|
|
|
Personal |
(2) |
(4) |
- |
(6) |
|
- first lien residential mortgages |
(2) |
(4) |
- |
(6) |
|
- other personal lending which is secured |
- |
- |
- |
- |
|
- credit cards |
- |
- |
- |
- |
|
- other personal lending which is unsecured |
- |
- |
- |
- |
|
Wholesale |
(25) |
(252) |
- |
(277) |
|
- corporate and commercial |
(24) |
(252) |
- |
(276) |
|
- non-bank financial institutions |
(1) |
- |
- |
(1) |
|
At 31 Dec 2022 |
(27) |
(256) |
- |
(283) |
|
Forborne loans and advances to customers at amortised costs by stage allocation (continued) |
||||
|
|
Performing - forborne |
Non-performing - forborne |
Total - forborne |
|
|
|
Stage 2 |
Stage 3 |
POCI |
Total |
|
The bank |
£m |
£m |
£m |
£m |
|
Gross carrying amount |
|
|
|
|
|
Personal |
1 |
8 |
- |
9 |
|
- first lien residential mortgages |
- |
7 |
- |
7 |
|
- credit cards |
1 |
- |
- |
1 |
|
- other personal lending which is unsecured |
- |
1 |
- |
1 |
|
Wholesale |
125 |
265 |
24 |
414 |
|
- corporate and commercial |
125 |
265 |
24 |
414 |
|
At 31 Dec 2023 |
126 |
273 |
24 |
423 |
|
Allowance for ECL |
|
|
|
|
|
Personal |
- |
(1) |
- |
(1) |
|
- first lien residential mortgages |
- |
(1) |
- |
(1) |
|
- credit cards |
- |
- |
- |
- |
|
- other personal lending which is unsecured |
- |
- |
- |
- |
|
Wholesale |
(4) |
(126) |
(6) |
(136) |
|
- corporate and commercial |
(4) |
(126) |
(6) |
(136) |
|
At 31 Dec 2023 |
(4) |
(127) |
(6) |
(137) |
|
The bank |
|
|
|
|
|
Gross carrying amount |
|
|
|
|
|
Personal |
1 |
7 |
- |
8 |
|
- first lien residential mortgages |
- |
6 |
- |
6 |
|
- credit cards |
1 |
- |
- |
1 |
|
- other personal lending which is unsecured |
- |
1 |
- |
1 |
|
Wholesale |
106 |
364 |
- |
470 |
|
- corporate and commercial |
106 |
364 |
- |
470 |
|
At 31 Dec 2022 |
107 |
371 |
- |
478 |
|
Allowance for ECL |
|
|
|
|
|
Personal |
- |
(1) |
- |
(1) |
|
- first lien residential mortgages |
- |
(1) |
- |
(1) |
|
- credit cards |
- |
- |
- |
- |
|
- other personal lending which is unsecured |
- |
- |
- |
- |
|
Wholesale |
(1) |
(158) |
- |
(159) |
|
- corporate and commercial |
(1) |
(158) |
- |
(159) |
|
At 31 Dec 2022 |
(1) |
(159) |
- |
(160) |
Wholesale lending
This section provides further details on the major countries and industries comprising wholesale loans and advances to customers and banks. Product granularity is also provided by stage with geographical data presented for loans and advances to customers and banks, loans and other credit-related commitments and financial guarantees.
The table below provides a breakdown by industry sector and stage of the group's gross carrying amount and allowances for ECL for wholesale loans and advances to banks and customers. Counterparties or exposures are classified when presenting comparable economic characteristics, or engaged in similar activities so that their collective ability to meet contractual obligations is uniformly affected by changes in economic, political or other conditions. Therefore, the industry classification does not adhere to Nomenclature des Activités Économiques dans la Communauté Européenne ('NACE'), which is applicable to other financial regulatory reporting.
|
Total wholesale lending for loans and advances to banks and customers by stage distribution |
||||||||||
|
|
Gross carrying amount |
Allowance for ECL |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Corporate and commercial |
42,982 |
5,981 |
1,773 |
32 |
50,768 |
(48) |
(98) |
(673) |
(6) |
(825) |
|
- agriculture, forestry and fishing |
299 |
7 |
28 |
- |
334 |
(1) |
- |
(9) |
- |
(10) |
|
- mining and quarrying |
584 |
157 |
162 |
- |
903 |
(1) |
(3) |
- |
- |
(4) |
|
- manufacture |
8,267 |
1,465 |
348 |
- |
10,080 |
(6) |
(17) |
(123) |
- |
(146) |
|
- electricity, gas, steam and air-conditioning supply |
1,254 |
98 |
69 |
- |
1,421 |
(2) |
(1) |
(6) |
- |
(9) |
|
- water supply, sewerage, waste management and remediation |
359 |
42 |
5 |
- |
406 |
- |
- |
(4) |
- |
(4) |
|
- construction and real estate |
4,470 |
464 |
192 |
26 |
5,152 |
(11) |
(11) |
(55) |
(6) |
(83) |
|
- wholesale and retail trade, repair of motor vehicles and motorcycles |
9,118 |
689 |
186 |
1 |
9,994 |
(5) |
(6) |
(107) |
- |
(118) |
|
- transportation and storage |
2,085 |
969 |
151 |
- |
3,205 |
(2) |
(7) |
(101) |
- |
(110) |
|
- accommodation and food |
758 |
174 |
38 |
- |
970 |
(2) |
(5) |
(11) |
- |
(18) |
|
- publishing, audiovisual and broadcasting |
3,400 |
262 |
28 |
- |
3,690 |
(3) |
(15) |
(16) |
- |
(34) |
|
- professional, scientific and technical activities |
4,841 |
844 |
322 |
5 |
6,012 |
(6) |
(12) |
(157) |
- |
(175) |
|
- administrative and support services |
5,032 |
358 |
115 |
- |
5,505 |
(6) |
(7) |
(56) |
- |
(69) |
|
- public administration and defence, compulsory social security |
4 |
- |
- |
- |
4 |
- |
- |
- |
- |
- |
|
- education |
23 |
3 |
1 |
- |
27 |
- |
- |
- |
- |
- |
|
- health and care |
91 |
4 |
5 |
- |
100 |
- |
- |
(2) |
- |
(2) |
|
- arts, entertainment and recreation |
61 |
36 |
3 |
- |
100 |
- |
(1) |
(1) |
- |
(2) |
|
- other services |
1,196 |
289 |
70 |
- |
1,555 |
(3) |
(2) |
(23) |
- |
(28) |
|
- activities of households |
1 |
- |
- |
- |
1 |
- |
- |
- |
- |
- |
|
- extra-territorial organisations and bodies activities |
1 |
- |
- |
- |
1 |
- |
- |
- |
- |
- |
|
- government |
1,123 |
109 |
50 |
- |
1,282 |
- |
- |
(2) |
- |
(2) |
|
- asset-backed securities |
15 |
11 |
- |
- |
26 |
- |
(11) |
- |
- |
(11) |
|
Non-bank financial institutions |
11,927 |
530 |
323 |
- |
12,780 |
(7) |
(10) |
(138) |
- |
(155) |
|
Loans and advances to banks |
14,256 |
116 |
- |
- |
14,372 |
(1) |
- |
- |
- |
(1) |
|
At 31 Dec 2023 |
69,165 |
6,627 |
2,096 |
32 |
77,920 |
(56) |
(108) |
(811) |
(6) |
(981) |
|
By geography |
|
|
|
|
|
|
|
|
|
|
|
UK |
32,334 |
2,229 |
648 |
25 |
35,236 |
(11) |
(45) |
(258) |
(6) |
(320) |
|
France |
24,264 |
2,669 |
1,148 |
6 |
28,087 |
(27) |
(40) |
(447) |
- |
(514) |
|
Germany |
5,129 |
913 |
121 |
- |
6,163 |
(2) |
(16) |
(40) |
- |
(58) |
|
Other countries |
7,438 |
816 |
179 |
1 |
8,434 |
(16) |
(7) |
(66) |
- |
(89) |
|
At 31 Dec 2023 |
69,165 |
6,627 |
2,096 |
32 |
77,920 |
(56) |
(108) |
(811) |
(6) |
(981) |
|
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1 |
||||||||||
|
|
Nominal amount |
Allowance for ECL |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Corporate and commercial |
59,282 |
4,883 |
226 |
3 |
64,394 |
(12) |
(18) |
(20) |
- |
(50) |
|
Financial |
59,760 |
2,536 |
17 |
- |
62,313 |
(3) |
(4) |
(1) |
- |
(8) |
|
At 31 Dec 2023 |
119,042 |
7,419 |
243 |
3 |
126,707 |
(15) |
(22) |
(21) |
- |
(58) |
|
By geography |
|
|
|
|
|
|
|
|
|
|
|
Europe |
119,042 |
7,419 |
243 |
3 |
126,707 |
(15) |
(22) |
(21) |
- |
(58) |
|
- of which: UK |
27,612 |
4,704 |
13 |
3 |
32,332 |
(5) |
(14) |
(1) |
- |
(20) |
|
- of which: France |
81,739 |
1,405 |
77 |
- |
83,221 |
(5) |
(3) |
(7) |
- |
(15) |
|
- of which: Germany |
5,896 |
915 |
111 |
- |
6,922 |
(1) |
(5) |
- |
- |
(6) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
|
Total wholesale lending for loans and advances to banks and customers by stage distribution (continued) |
||||||||||
|
|
Gross carrying amount |
Allowance for ECL |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Corporate and commercial |
46,671 |
6,479 |
1,851 |
3 |
55,004 |
(40) |
(123) |
(774) |
- |
(937) |
|
- agriculture, forestry and fishing |
166 |
20 |
29 |
- |
215 |
- |
(1) |
(12) |
- |
(13) |
|
- mining and quarrying |
943 |
1 |
- |
- |
944 |
(2) |
- |
- |
- |
(2) |
|
- manufacture |
9,963 |
1,228 |
317 |
2 |
11,510 |
(7) |
(13) |
(78) |
- |
(98) |
|
- electricity, gas, steam and air- conditioning supply |
1,838 |
165 |
78 |
- |
2,081 |
(1) |
(1) |
(6) |
- |
(8) |
|
- water supply, sewerage, waste management and remediation |
208 |
6 |
5 |
- |
219 |
- |
- |
(4) |
- |
(4) |
|
- construction |
571 |
107 |
47 |
- |
725 |
(1) |
(3) |
(14) |
- |
(18) |
|
- wholesale and retail trade, repair of motor vehicles and motorcycles |
8,397 |
645 |
178 |
1 |
9,221 |
(4) |
(6) |
(114) |
- |
(124) |
|
- transportation and storage |
2,980 |
1,418 |
157 |
- |
4,555 |
(6) |
(13) |
(56) |
- |
(75) |
|
- accommodation and food |
668 |
209 |
46 |
- |
923 |
(2) |
(5) |
(11) |
- |
(18) |
|
- publishing, audiovisual and broadcasting |
3,292 |
90 |
36 |
- |
3,418 |
(2) |
(1) |
(14) |
- |
(17) |
|
- real estate |
3,955 |
784 |
199 |
- |
4,938 |
(5) |
(16) |
(124) |
- |
(145) |
|
- professional, scientific and technical activities |
2,568 |
564 |
211 |
- |
3,343 |
(2) |
(12) |
(95) |
- |
(109) |
|
- administrative and support services |
8,177 |
957 |
312 |
- |
9,446 |
(7) |
(38) |
(173) |
- |
(218) |
|
- public administration and defence, compulsory social security |
33 |
- |
- |
- |
33 |
- |
- |
- |
- |
- |
|
- education |
30 |
4 |
3 |
- |
37 |
- |
- |
(1) |
- |
(1) |
|
- health and care |
153 |
25 |
88 |
- |
266 |
- |
(1) |
(49) |
- |
(50) |
|
- arts, entertainment and recreation |
86 |
70 |
5 |
- |
161 |
- |
(2) |
(2) |
- |
(4) |
|
- other services |
1,330 |
38 |
76 |
- |
1,444 |
(1) |
- |
(19) |
- |
(20) |
|
- activities of households |
3 |
- |
- |
- |
3 |
- |
- |
- |
- |
- |
|
- extra-territorial organisations and bodies activities |
39 |
- |
- |
- |
39 |
- |
- |
- |
- |
- |
|
- government |
1,255 |
137 |
64 |
- |
1,456 |
- |
- |
(2) |
- |
(2) |
|
- asset-backed securities |
16 |
11 |
- |
- |
27 |
- |
(11) |
- |
- |
(11) |
|
Non-bank financial institutions |
11,709 |
723 |
268 |
- |
12,700 |
(2) |
(7) |
(102) |
- |
(111) |
|
Loans and advances to banks |
16,673 |
414 |
65 |
- |
17,152 |
(6) |
(21) |
(16) |
- |
(43) |
|
At 31 Dec 2022 |
75,053 |
7,616 |
2,184 |
3 |
84,856 |
(48) |
(151) |
(892) |
- |
(1,091) |
|
By geography |
|
|
|
|
|
|
|
|
|
|
|
UK |
36,885 |
2,187 |
825 |
- |
39,897 |
(15) |
(47) |
(309) |
- |
(371) |
|
France |
25,940 |
3,331 |
850 |
2 |
30,123 |
(16) |
(67) |
(435) |
- |
(518) |
|
Germany |
5,197 |
1,155 |
313 |
- |
6,665 |
- |
(21) |
(107) |
- |
(128) |
|
Other countries |
7,031 |
943 |
196 |
1 |
8,171 |
(17) |
(16) |
(41) |
- |
(74) |
|
At 31 Dec 2022 |
75,053 |
7,616 |
2,184 |
3 |
84,856 |
(48) |
(151) |
(892) |
- |
(1,091) |
|
Total wholesale lending for loans and other credit-related commitments and financial guarantees1 by stage distribution (continued) |
||||||||||
|
|
Nominal amount |
Allowance for ECL |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Corporate and commercial |
63,605 |
8,012 |
239 |
- |
71,856 |
(13) |
(29) |
(39) |
- |
(81) |
|
Financial |
56,080 |
1,707 |
2 |
- |
57,789 |
(1) |
(5) |
- |
- |
(6) |
|
At 31 Dec 2022 |
119,685 |
9,719 |
241 |
- |
129,645 |
(14) |
(34) |
(39) |
- |
(87) |
|
By geography |
|
|
|
|
|
|
|
|
|
|
|
Europe |
119,685 |
9,719 |
241 |
- |
129,645 |
(14) |
(34) |
(39) |
- |
(87) |
|
- of which: UK |
29,090 |
3,665 |
59 |
- |
32,814 |
(9) |
(17) |
(7) |
- |
(33) |
|
- of which: France |
75,886 |
2,796 |
38 |
- |
78,720 |
(2) |
(5) |
(14) |
- |
(21) |
|
- of which: Germany |
10,748 |
2,749 |
100 |
- |
13,597 |
(1) |
(11) |
- |
- |
(12) |
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
Collateral and other credit enhancement
(Audited)
Although collateral can be an important mitigant of credit risk, it is the group's practice to lend on the basis of the customer's ability to meet their obligations out of cash flow resources rather than placing primary reliance on collateral and other credit risk enhancements. Depending on the customer's standing and the type of product, facilities may be provided without any collateral or other credit enhancements. For other lending, a charge over collateral is obtained and considered in determining the credit decision and pricing. In the event of default, the group may utilise the collateral as a source of repayment.
Depending on its form, collateral can have a significant financial effect in mitigating our exposure to credit risk. Where there is sufficient collateral, an expected credit loss is not recognised. This is the case for reverse repurchase agreements and for certain loans and advances to customers where the loan to value ('LTV') is very low.
Mitigants may include a charge on borrowers' specific assets, such as real estate or financial instruments. Other credit risk mitigants include short positions in securities and financial assets held as part of linked insurance/investment contracts where the risk is predominantly borne by the policyholder. Additionally, risk may be managed by employing other types of collateral and credit risk enhancements, such as second charges, other liens and unsupported guarantees. Guarantees are normally taken from corporates and export credit agencies. Corporates would normally provide guarantees as part of a parent/ subsidiary relationship and span a number of credit grades. The export credit agencies will normally be investment grade.
Certain credit mitigants are used strategically in portfolio management activities. While single name concentrations arise in portfolios managed by Global Banking and Corporate Banking, it is only in Global Banking that their size requires the use of portfolio level credit mitigants. Across Global Banking, risk limits and utilisations, maturity profiles and risk quality are monitored and managed proactively. This process is key to the setting of risk appetite for these larger, more complex, geographically distributed customer groups. While the principal form of risk management continues to be at the point of exposure origination, through the lending decision-making process, Global Banking also utilises loan sales and credit default swap ('CDS') hedges to manage concentrations and reduce risk.
These transactions are the responsibility of a dedicated Global Banking portfolio management team. Hedging activity is carried out within agreed credit parameters, and is subject to market risk limits and a robust governance structure. Where applicable, CDSs are entered into directly with a central clearing house counterparty. Otherwise, our exposure to CDS protection providers is diversified among mainly banking counterparties with strong credit ratings.
CDS mitigants are held at portfolio level and are not included in the expected credit loss calculations. CDS mitigants are not reported in the following tables.
Collateral on loans and advances
Collateral held is analysed separately for commercial real estate and for other corporate, commercial and financial (non-bank) lending. The following tables include off-balance sheet loan commitments, primarily undrawn credit lines.
The collateral measured in the following tables consists of charges over cash and marketable financial instruments. The values in the tables represent the expected market value on an open market basis. No adjustment has been made to the collateral for any expected costs of recovery. Marketable securities are measured at their fair value.
Other types of collateral such as unsupported guarantees and floating charges over the assets of a customer's business are not measured in the following tables. While such mitigants have value, often providing rights in insolvency, their assignable value is not sufficiently certain and they are therefore assigned no value for disclosure purposes.
The LTV ratios presented are calculated by directly associating loans and advances with the collateral that individually and uniquely supports each facility. When collateral assets are shared by multiple loans and advances, whether specifically or, more generally, by way of an all monies charge, the collateral value is pro-rated across the loans and advances protected by the collateral.
For credit-impaired loans, the collateral values cannot be directly compared with impairment allowances recognised. The LTV figures use open market values with no adjustments. Impairment allowances are calculated on a different basis, by considering other cash flows and adjusting collateral values for costs of realising collateral as explained further on page 123.
Other corporate, commercial and financial (non-bank) loans and advances
Other corporate, commercial and financial (non-bank) loans are analysed separately in the following table, which focuses on the countries containing the majority of our loans and advances balances. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance.
Collateral values are generally refreshed when an obligor's general credit performance deteriorates and we have to assess the likely performance of secondary sources of repayment should it prove necessary to rely on them.
|
Wholesale lending - other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral for key countries/territories (by stage) |
||||||||||
|
(Audited) |
||||||||||
|
|
Gross carrying/nominal amount |
ECL coverage |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Not collateralised |
115,898 |
10,983 |
1,617 |
6 |
128,504 |
- |
1.0 |
43.8 |
- |
0.7 |
|
Fully collateralised by LTV ratio |
8,709 |
908 |
101 |
- |
9,718 |
0.1 |
1.2 |
23.8 |
- |
0.4 |
|
- less than 50% |
2,221 |
342 |
41 |
- |
2,604 |
0.2 |
1.5 |
24.4 |
- |
0.7 |
|
- 51% to 75% |
1,830 |
196 |
29 |
- |
2,055 |
0.1 |
1.0 |
20.7 |
- |
0.4 |
|
- 76% to 90% |
336 |
149 |
13 |
- |
498 |
- |
0.7 |
38.5 |
- |
1.2 |
|
- 91% to 100% |
4,322 |
221 |
18 |
- |
4,561 |
- |
1.8 |
22.2 |
- |
0.2 |
|
Partially collateralised (A): LTV > 100% |
3,709 |
821 |
404 |
1 |
4,935 |
0.1 |
0.5 |
12.1 |
- |
1.1 |
|
- collateral value on A |
2,963 |
595 |
135 |
1 |
3,694 |
|
|
|
|
|
|
Total at 31 Dec 2023 |
128,316 |
12,712 |
2,122 |
7 |
143,157 |
- |
1.0 |
36.8 |
- |
0.7 |
|
of which: UK |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
42,157 |
5,901 |
622 |
- |
48,680 |
- |
0.9 |
38.7 |
- |
0.6 |
|
Fully collateralised by LTV ratio |
4,464 |
168 |
11 |
- |
4,643 |
- |
- |
27.3 |
- |
0.1 |
|
- less than 50% |
654 |
119 |
6 |
- |
779 |
- |
- |
16.7 |
- |
0.1 |
|
- 51% to 75% |
1,031 |
47 |
3 |
- |
1,081 |
- |
- |
- |
- |
- |
|
- 76% to 90% |
33 |
- |
2 |
- |
35 |
- |
- |
100.0 |
- |
5.7 |
|
- 91% to 100% |
2,746 |
2 |
- |
- |
2,748 |
- |
- |
- |
- |
- |
|
Partially collateralised (B): LTV > 100% |
229 |
19 |
7 |
- |
255 |
- |
- |
42.9 |
- |
1.2 |
|
- collateral value on B |
150 |
- |
2 |
- |
152 |
|
|
|
|
|
|
Total UK at 31 Dec 2023 |
46,850 |
6,088 |
640 |
- |
53,578 |
- |
0.9 |
38.6 |
- |
0.6 |
|
of which: France |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
59,349 |
2,634 |
715 |
6 |
62,704 |
- |
1.1 |
53.8 |
- |
0.7 |
|
Fully collateralised by LTV ratio |
2,110 |
341 |
26 |
- |
2,477 |
0.1 |
1.2 |
15.4 |
- |
0.4 |
|
- less than 50% |
1,047 |
146 |
12 |
- |
1,205 |
0.1 |
0.7 |
16.7 |
- |
0.3 |
|
- 51% to 75% |
614 |
115 |
4 |
- |
733 |
0.2 |
0.9 |
25.0 |
- |
0.4 |
|
- 76% to 90% |
87 |
19 |
8 |
- |
114 |
- |
- |
12.5 |
- |
0.9 |
|
- 91% to 100% |
362 |
61 |
2 |
- |
425 |
- |
3.3 |
50.0 |
- |
0.7 |
|
Partially collateralised (C): LTV > 100% |
3,038 |
787 |
390 |
1 |
4,216 |
- |
0.4 |
10.0 |
- |
1.0 |
|
- collateral value on C |
2,418 |
583 |
129 |
1 |
3,131 |
|
|
|
|
|
|
Total France at 31 Dec 2023 |
64,497 |
3,762 |
1,131 |
7 |
69,397 |
- |
1.0 |
37.8 |
- |
0.7 |
|
of which: Germany |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
8,949 |
1,603 |
173 |
- |
10,725 |
- |
1.1 |
20.8 |
- |
0.5 |
|
Fully collateralised by LTV ratio |
624 |
113 |
12 |
- |
749 |
- |
0.9 |
25.0 |
- |
0.5 |
|
- less than 50% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 51% to 75% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 76% to 90% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 91% to 100% |
624 |
113 |
12 |
- |
749 |
- |
0.9 |
25.0 |
- |
0.5 |
|
Partially collateralised (D): LTV > 100% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- collateral value on D |
- |
- |
- |
- |
- |
|
|
|
|
|
|
Total Germany at 31 Dec 2023 |
9,573 |
1,716 |
185 |
- |
11,474 |
- |
1.1 |
21.1 |
- |
0.5 |
|
Wholesale lending - other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral for key countries/territories (by stage) |
||||||||||
|
(Audited) |
||||||||||
|
|
Gross carrying/nominal amount |
ECL coverage |
||||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
POCI |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
% |
% |
% |
% |
% |
|
Not collateralised |
117,166 |
13,074 |
1,795 |
2 |
132,037 |
- |
0.9 |
40.3 |
- |
0.7 |
|
Fully collateralised by LTV ratio |
10,444 |
1,132 |
80 |
- |
11,656 |
0.1 |
1.5 |
26.3 |
- |
0.4 |
|
- less than 50% |
2,456 |
515 |
26 |
- |
2,997 |
0.2 |
1.7 |
23.1 |
- |
0.7 |
|
- 51% to 75% |
3,321 |
272 |
6 |
- |
3,599 |
0.1 |
1.5 |
33.3 |
- |
0.2 |
|
- 76% to 90% |
354 |
4 |
11 |
- |
369 |
- |
- |
36.4 |
- |
1.1 |
|
- 91% to 100% |
4,313 |
341 |
37 |
- |
4,691 |
- |
1.2 |
21.6 |
- |
0.3 |
|
Partially collateralised (A): LTV > 100% |
4,542 |
509 |
172 |
- |
5,223 |
0.1 |
1.4 |
23.8 |
- |
1.0 |
|
- collateral value on A |
3,664 |
426 |
125 |
- |
4,215 |
|
|
|
|
|
|
Total at 31 Dec 2022 |
132,152 |
14,715 |
2,047 |
2 |
148,916 |
- |
1.0 |
38.4 |
- |
0.7 |
|
of which: UK |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
46,080 |
4,219 |
673 |
- |
50,972 |
- |
0.8 |
31.2 |
- |
0.5 |
|
Fully collateralised by LTV ratio |
6,300 |
327 |
10 |
- |
6,637 |
0.1 |
1.2 |
10.0 |
- |
0.1 |
|
- less than 50% |
1,643 |
224 |
2 |
- |
1,869 |
0.2 |
0.4 |
- |
- |
0.2 |
|
- 51% to 75% |
2,161 |
84 |
3 |
- |
2,248 |
- |
3.6 |
33.3 |
- |
0.2 |
|
- 76% to 90% |
234 |
2 |
2 |
- |
238 |
- |
- |
- |
- |
- |
|
- 91% to 100% |
2,262 |
17 |
3 |
- |
2,282 |
- |
- |
- |
- |
- |
|
Partially collateralised (B): LTV > 100% |
169 |
23 |
11 |
- |
203 |
- |
- |
27.3 |
- |
1.5 |
|
- collateral value on B |
77 |
13 |
3 |
- |
93 |
|
|
|
|
|
|
Total UK at 31 Dec 2022 |
52,549 |
4,569 |
694 |
- |
57,812 |
- |
0.8 |
30.8 |
- |
0.5 |
|
of which: France |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
53,960 |
4,581 |
668 |
2 |
59,211 |
- |
1.0 |
57.9 |
- |
0.8 |
|
Fully collateralised by LTV ratio |
2,146 |
239 |
12 |
- |
2,397 |
- |
1.7 |
33.3 |
- |
0.3 |
|
- less than 50% |
491 |
122 |
7 |
- |
620 |
- |
0.8 |
28.6 |
- |
0.6 |
|
- 51% to 75% |
1,050 |
69 |
2 |
- |
1,121 |
- |
1.4 |
50.0 |
- |
0.2 |
|
- 76% to 90% |
36 |
1 |
1 |
- |
38 |
- |
- |
- |
- |
- |
|
- 91% to 100% |
569 |
47 |
2 |
- |
618 |
- |
4.3 |
50.0 |
- |
0.3 |
|
Partially collateralised (C): LTV > 100% |
3,797 |
472 |
159 |
- |
4,428 |
0.1 |
1.5 |
23.3 |
- |
1.0 |
|
- collateral value on C |
3,128 |
405 |
122 |
- |
3,655 |
|
|
|
|
|
|
Total France at 31 Dec 2022 |
59,903 |
5,292 |
839 |
2 |
66,036 |
- |
1.1 |
51.0 |
- |
0.8 |
|
of which: Germany |
|
|
|
|
|
|
|
|
|
|
|
Not collateralised |
11,577 |
3,269 |
348 |
- |
15,194 |
- |
0.9 |
28.7 |
- |
0.9 |
|
Fully collateralised by LTV ratio |
809 |
228 |
24 |
- |
1,061 |
- |
0.9 |
29.2 |
- |
0.8 |
|
- less than 50% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 51% to 75% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 76% to 90% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 91% to 100% |
809 |
228 |
24 |
- |
1,061 |
- |
0.9 |
29.2 |
- |
0.8 |
|
Partially collateralised (D): LTV > 100% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- collateral value on D |
- |
- |
- |
- |
- |
|
|
|
|
|
|
Total Germany at 31 Dec 2022 |
12,386 |
3,497 |
372 |
- |
16,255 |
- |
0.9 |
28.8 |
- |
0.9 |
Other credit risk exposures
In addition to collateralised lending, other credit enhancements are employed and methods used to mitigate credit risk arising from financial assets. These are described in more detail below:
- Some securities issued by governments, banks and other financial institutions benefit from additional credit enhancement provided by government guarantees that cover the assets;
- Debt securities issued by banks and financial institutions include asset-backed securities ('ABSs') and similar instruments which are supported by underlying pools of financial assets. Credit risk associated with ABSs is reduced through the purchase of credit default swap ('CDS') protection;
- Trading loan and advances mainly pledged against cash collaterals are posted to satisfy margin requirements. There is limited credit risk on trading loans and advances since in the event of default of the counterparty these would be set off against the related liability. Reverse repos and stock borrowings are by their nature collateralised.
Collateral accepted as security that the group is permitted to sell or repledge under these arrangements is described on page 164 of the financial statements.
- The group's maximum exposure to credit risk includes financial guarantees and similar contracts granted; as well as loan and other credit-related commitments. Depending on the terms of the arrangement, we may use additional credit mitigation if a guarantee is called upon or a loan commitment is drawn and subsequently defaults.
For further information on these arrangements, see Note 31 on the financial statements.
Derivatives
We participate in transactions exposing us to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the counterparty to a transaction defaults before satisfactorily settling it. It arises principally from over-the-counter ('OTC') derivatives and securities financing transactions and is calculated in both the trading and non-trading books. Transactions vary in value by reference to market factors such as interest rates, exchange rates or asset prices.
The counterparty risk from derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit valuation adjustment ('CVA').
The International Swaps and Derivatives Association ('ISDA') master agreement is our preferred agreement for documenting derivatives activity. It is common, and our preferred practice, for the parties involved in a derivative transaction to execute a credit support annex ('CSA') in conjunction with the ISDA master agreement. Under a CSA, collateral is passed between the parties to mitigate the counterparty risk inherent in outstanding positions. The majority of our CSAs are with financial institutional clients.
We manage the counterparty exposure on our OTC derivative contracts by using collateral agreements with counterparties and netting agreements. Currently, we do not actively manage our general OTC derivative counterparty exposure in the credit markets, although we may manage individual exposures in certain circumstances.
We place strict policy restrictions on collateral types and as a consequence the types of collateral received and pledged are, by value, highly liquid and of a strong quality, being predominantly cash.
Where a collateral type is required to be approved outside the collateral policy, approval is required from a committee of senior representatives from Markets, Legal and Risk.
See Note 28 on the financial statements for details regarding legally enforceable right of offset in the event of counterparty default and collateral received in respect of derivatives.
Personal lending
This section provides further details on the countries and products comprising personal loans and advances to customers.
Further product granularity is also provided by stage, with geographical data presented for loans and advances to customers, loan and other credit-related commitments, and financial guarantees.
|
Total personal lending for loans and advances to customers at amortised costs by stage distribution |
||||||||
|
|
Gross Carrying amount |
Allowance for ECL |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
By portfolio |
|
|
|
|
|
|
|
|
|
First lien residential mortgages |
4,915 |
1,029 |
193 |
6,137 |
(14) |
(15) |
(63) |
(92) |
|
- of which: interest only (including offset) |
820 |
292 |
27 |
1,139 |
- |
(1) |
(11) |
(12) |
|
- affordability including ARMs |
221 |
4 |
- |
225 |
(1) |
(1) |
- |
(2) |
|
Other personal lending |
6,532 |
341 |
21 |
6,894 |
(6) |
(2) |
(8) |
(16) |
|
- guaranteed loans in respect of residential property |
5,497 |
314 |
11 |
5,822 |
- |
- |
- |
- |
|
- Other personal lending which is secured |
756 |
19 |
1 |
776 |
(1) |
- |
- |
(1) |
|
- credit cards |
121 |
4 |
1 |
126 |
(2) |
(1) |
(1) |
(4) |
|
- Other personal lending which is unsecured |
129 |
3 |
8 |
140 |
(3) |
(1) |
(7) |
(11) |
|
- motor vehicle finance |
29 |
1 |
- |
30 |
- |
- |
- |
- |
|
- IPO Loans |
- |
- |
- |
- |
- |
- |
- |
- |
|
- second lien residential mortgages |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 Dec 2023 |
11,447 |
1,370 |
214 |
13,031 |
(20) |
(17) |
(71) |
(108) |
|
By geography |
|
|
|
|
|
|
|
|
|
UK1 |
1,810 |
818 |
13 |
2,641 |
(2) |
(2) |
(3) |
(7) |
|
France |
5,811 |
356 |
37 |
6,204 |
- |
(1) |
(15) |
(16) |
|
Germany |
116 |
14 |
- |
130 |
- |
- |
- |
- |
|
Other countries |
3,710 |
182 |
164 |
4,056 |
(18) |
(14) |
(53) |
(85) |
|
At 31 Dec 2023 |
11,447 |
1,370 |
214 |
13,031 |
(20) |
(17) |
(71) |
(108) |
|
Total personal lending for loans and other credit-related commitments and financial guarantees2 by stage distribution |
||||||||
|
|
Nominal amount |
Allowance for ECL |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
UK |
330 |
2 |
2 |
334 |
- |
- |
- |
- |
|
France |
517 |
24 |
1 |
542 |
- |
- |
- |
- |
|
Germany |
- |
- |
- |
- |
- |
- |
- |
- |
|
Other countries |
431 |
3 |
- |
434 |
- |
- |
- |
- |
|
At 31 Dec 2023 |
1,278 |
29 |
3 |
1,310 |
- |
- |
- |
- |
1 Includes primarily first lien residential mortgages in Channel Islands and Isle of Man.
2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
|
Total personal lending for loans and advances to customers at amortised costs by stage distribution (continued) |
||||||||
|
|
Gross carrying amount |
Allowance for ECL |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
By portfolio |
|
|
|
|
|
|
|
|
|
First lien residential mortgages |
4,155 |
511 |
81 |
4,747 |
(7) |
(7) |
(22) |
(36) |
|
- of which: interest only (including offset) |
878 |
53 |
30 |
961 |
- |
(1) |
(12) |
(13) |
|
- affordability including ARMs |
353 |
6 |
- |
359 |
(1) |
(1) |
- |
(2) |
|
Other personal lending |
1,138 |
104 |
24 |
1,266 |
(2) |
(8) |
(9) |
(19) |
|
- guaranteed loans in respect of residential property |
- |
- |
- |
- |
- |
- |
- |
- |
|
- Other personal lending which is secured |
982 |
70 |
9 |
1,061 |
(1) |
(4) |
(2) |
(7) |
|
- credit cards |
61 |
23 |
7 |
91 |
- |
(2) |
- |
(2) |
|
- Other personal lending which is unsecured |
95 |
11 |
8 |
114 |
(1) |
(2) |
(7) |
(10) |
|
At 31 Dec 2022 |
5,293 |
615 |
105 |
6,013 |
(9) |
(15) |
(31) |
(55) |
|
By geography |
|
|
|
|
|
|
|
|
|
UK1 |
3,090 |
482 |
13 |
3,585 |
(2) |
(9) |
(3) |
(14) |
|
France |
50 |
3 |
36 |
89 |
- |
- |
(17) |
(17) |
|
Germany |
163 |
32 |
- |
195 |
- |
- |
- |
- |
|
Other countries |
1,990 |
98 |
56 |
2,144 |
(7) |
(6) |
(11) |
(24) |
|
At 31 Dec 2022 |
5,293 |
615 |
105 |
6,013 |
(9) |
(15) |
(31) |
(55) |
|
Total personal lending for loans and other credit-related commitments and financial guarantees2 by stage distribution (continued) |
||||||||
|
|
Nominal amount |
Allowance for ECL |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
UK |
875 |
11 |
2 |
888 |
- |
- |
- |
- |
|
France |
637 |
32 |
3 |
672 |
- |
- |
- |
- |
|
Germany |
155 |
57 |
- |
212 |
- |
- |
- |
- |
|
Other countries |
357 |
9 |
1 |
367 |
- |
- |
- |
- |
|
At 31 Dec 2022 |
2,024 |
109 |
6 |
2,139 |
- |
- |
- |
- |
1 Includes primarily first lien residential mortgages in Channel Islands and Isle of Man.
2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
Collateral on loans and advances
The following table provides a quantification of the value of fixed charges we hold over specific assets where we have a history of enforcing, and are able to enforce, collateral in satisfying a debt in the event of the borrower failing to meet its contractual obligations, and where the collateral is cash or can be realised by sale in an established market.
The collateral valuation excludes any adjustments for obtaining and selling the collateral and, in particular, loans shown as not collateralised or partially collateralised may also benefit from other forms of credit mitigants.
|
Personal lending - residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage |
||||||||
|
(Audited) |
||||||||
|
|
Gross carrying/nominal amount |
ECL coverage |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
% |
% |
% |
% |
|
Fully collateralised by LTV ratio |
5,019 |
1,011 |
125 |
6,155 |
0.3 |
1.2 |
22.4 |
0.9 |
|
- less than 50% |
2,320 |
448 |
59 |
2,827 |
0.2 |
0.9 |
15.3 |
0.6 |
|
- 51% to 70% |
1,753 |
352 |
28 |
2,133 |
0.2 |
1.1 |
21.4 |
0.7 |
|
- 71% to 80% |
594 |
121 |
11 |
726 |
0.5 |
1.7 |
27.3 |
1.1 |
|
- 81% to 90% |
271 |
59 |
15 |
345 |
0.7 |
1.7 |
33.3 |
2.3 |
|
- 91% to 100% |
81 |
31 |
12 |
124 |
1.2 |
3.2 |
41.7 |
5.6 |
|
Partially collateralised (A): LTV > 100% |
77 |
19 |
68 |
164 |
- |
15.8 |
52.9 |
23.8 |
|
- collateral value on A |
33 |
16 |
54 |
103 |
|
|
|
|
|
Total at 31 Dec 2023 |
5,096 |
1,030 |
193 |
6,319 |
0.3 |
1.5 |
33.2 |
1.5 |
|
of which: UK |
|
|
|
|
|
|
|
|
|
Fully collateralised by LTV ratio |
1,752 |
814 |
10 |
2,576 |
- |
- |
10.0 |
- |
|
- less than 50% |
863 |
354 |
9 |
1,226 |
- |
- |
11.1 |
0.1 |
|
- 51% to 70% |
559 |
295 |
1 |
855 |
- |
- |
- |
- |
|
- 71% to 80% |
179 |
96 |
- |
275 |
- |
- |
- |
- |
|
- 81% to 90% |
102 |
48 |
- |
150 |
- |
- |
- |
- |
|
- 91% to 100% |
49 |
21 |
- |
70 |
- |
- |
- |
- |
|
Partially collateralised (B): LTV > 100% |
9 |
1 |
- |
10 |
- |
- |
- |
- |
|
- collateral value on B |
3 |
1 |
- |
4 |
|
|
|
|
|
Total UK at 31 Dec 2023 |
1,761 |
815 |
10 |
2,586 |
- |
- |
10.0 |
- |
|
of which: France |
|
|
|
|
|
|
|
|
|
Fully collateralised |
280 |
36 |
6 |
322 |
- |
- |
16.7 |
0.3 |
|
- less than 50% |
108 |
17 |
5 |
130 |
- |
- |
- |
- |
|
- 51% to 70% |
126 |
15 |
- |
141 |
- |
- |
- |
- |
|
- 71% to 80% |
30 |
3 |
- |
33 |
- |
- |
- |
- |
|
- 81% to 90% |
14 |
1 |
- |
15 |
- |
- |
- |
- |
|
- 91% to 100% |
2 |
- |
1 |
3 |
- |
- |
100.0 |
33.3 |
|
Partially collateralised (C): LTV > 100% |
4 |
- |
14 |
18 |
- |
- |
64.3 |
50.0 |
|
- collateral value on C |
4 |
- |
14 |
18 |
|
|
|
|
|
Total France at 31 Dec 2023 |
284 |
36 |
20 |
340 |
- |
- |
50.0 |
2.9 |
|
|
|
|
|
|
|
|
|
|
|
(Audited) |
||||||||
|
|
Gross carrying/nominal amount |
ECL coverage |
||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
% |
% |
% |
% |
|
Fully collateralised by LTV ratio |
4,340 |
510 |
65 |
4,915 |
0.1 |
1.4 |
16.9 |
0.5 |
|
- less than 50% |
2,199 |
203 |
46 |
2,448 |
0.1 |
1.5 |
13.0 |
0.4 |
|
- 51% to 70% |
1,482 |
196 |
14 |
1,692 |
0.4 |
3.0 |
42.2 |
0.5 |
|
- 71% to 80% |
442 |
66 |
3 |
511 |
0.2 |
1.5 |
33.3 |
0.6 |
|
- 81% to 90% |
202 |
39 |
1 |
242 |
- |
- |
- |
0.4 |
|
- 91% to 100% |
15 |
6 |
1 |
22 |
- |
- |
100.0 |
4.5 |
|
Partially collateralised (A): LTV > 100% |
50 |
1 |
16 |
67 |
- |
- |
68.8 |
16.4 |
|
- collateral value on A |
10 |
1 |
- |
11 |
|
|
|
|
|
Total at 31 Dec 2022 |
4,390 |
511 |
81 |
4,982 |
0.1 |
1.4 |
27.2 |
0.7 |
|
of which: UK |
|
|
|
|
|
|
|
|
|
Fully collateralised by LTV ratio |
2,376 |
428 |
10 |
2,814 |
- |
0.5 |
10.0 |
0.1 |
|
- less than 50% |
1,255 |
151 |
9 |
1,415 |
- |
0.7 |
11.1 |
0.1 |
|
- 51% to 70% |
849 |
173 |
1 |
1,023 |
0.2 |
1.1 |
- |
0.2 |
|
- 71% to 80% |
198 |
60 |
- |
258 |
- |
- |
- |
- |
|
- 81% to 90% |
63 |
38 |
- |
101 |
- |
- |
- |
- |
|
- 91% to 100% |
11 |
6 |
- |
17 |
- |
- |
- |
- |
|
Partially collateralised (B): LTV > 100% |
11 |
1 |
- |
12 |
- |
- |
- |
- |
|
- collateral value on B |
6 |
1 |
- |
7 |
|
|
|
|
|
Total UK at 31 Dec 2022 |
2,387 |
429 |
10 |
2,826 |
- |
0.5 |
10.0 |
0.1 |
|
of which: France |
|
|
|
|
|
|
|
|
|
Fully collateralised |
3 |
- |
7 |
10 |
- |
- |
14.3 |
10.0 |
|
- less than 50% |
3 |
- |
- |
3 |
- |
- |
- |
- |
|
- 51% to 70% |
- |
- |
6 |
6 |
- |
- |
- |
- |
|
- 71% to 80% |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 81% to 90% |
- |
- |
- |
- |
- |
- |
- |
- |
|
- 91% to 100% |
- |
- |
1 |
1 |
- |
- |
100.0 |
100.0 |
|
Partially collateralised (C): LTV > 100% |
- |
- |
16 |
16 |
- |
- |
62.5 |
62.5 |
|
- collateral value on C |
- |
- |
- |
- |
|
|
|
|
|
Total France at 31 Dec 2022 |
3 |
- |
23 |
26 |
- |
- |
47.8 |
42.3 |
Treasury risk
Overview
Treasury risk is the risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, including the risk of adverse impact on earnings or capital due to structural and transactional foreign exchange exposures, as well as changes in market interest rates, together with pension and insurance risk.
Treasury risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment.
Approach and policy
(Audited)
Our objective in the management of treasury risk is to maintain appropriate levels of capital, liquidity, funding, foreign exchange and market risk to support our business strategy, and meet our regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment. We aim to maintain a strong capital and liquidity base to support the risks inherent in our business and invest in accordance with our strategy, to meet regulatory requirements.
Our policy is underpinned by our risk management framework. The risk management framework incorporates a number of measures aligned to our assessment of risks for both internal and regulatory purposes. These risks include credit, market, operational, pensions, structural and transactional foreign exchange risk, and interest rate risk in the banking book.
For further details, refer to our Pillar 3 Disclosures at 31 December 2023.
Treasury risk management
Key developments in 2023
- Following high-profile banking failures in the first quarter of 2023, we reviewed our liquidity monitoring and metric assumptions as part of our internal liquidity adequacy assessment process ('ILLAP') cycle to ensure they continued to cover observed and emerging risks.
- Effective July 2023, the Bank of England's Financial Policy Committee doubled the UK countercyclical capital buffer rate from 1% to 2%, in line with the usual 12‑month implementation lag. The change increased our CET1 requirement by approximately 0.3 percentage point.
- We further stabilised our net interest income against a backdrop of fluctuating interest rate expectations as the trajectory of inflation for major economies was reassessed.
- We acquired HBBM in October 2023 to better align the HSBC Group corporate structure with management responsibilities. This was partially funded by equity issuance to HSBC Holdings plc.
- Asset de-risking remained a focus for our pension plans over 2023 and we have worked with the fiduciaries of the plans to implement a number of de-risking strategies over the year. These have included improving the hedging position of our German plans by reducing the exposure to movements in interest rates and transitioning to lower risk investment strategies for two of our smaller plans enabling them to become better positioned to cope with future volatility.
- We completed the sale of our retail banking operations in France in January 2024.
Governance and structure
The Chief Risk Officer is the accountable risk steward for all treasury risks. The Chief Financial Officer is the risk owner for all treasury risks, with the exception of pension risk which is co-owned with the regional heads of Performance & Reward.
Capital risk, liquidity risk, interest rate risk in the banking book, structural foreign exchange risk and transactional foreign exchange risk are the responsibility of the Executive Committee and the Risk Committee. Treasury actively manages these risks on an ongoing basis, supported by the Asset and Liability Management Committee ('ALCO') and local ALCOs, overseen by Treasury Risk Management.
Pension risk is overseen by the Pension Risk Management Meeting.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is supported by a global capital management framework. The framework sets out our approach to determining key capital risk appetites including CET1, total capital, minimum requirements for own funds and eligible liabilities ('MREL'), and the leverage ratio. Our internal capital adequacy assessment process ('ICAAP') is an assessment of the group's capital position, outlining both regulatory and internal capital resources and requirements resulting from our business model, strategy, risk profile and management, performance and planning, risks to capital, and the implications of stress testing. Our assessment of capital adequacy is driven by an assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange, interest rate risk in the banking book and Group risk. Climate risk is also considered as part of the ICAAP, and we are continuing to develop our approach. The group's ICAAP supports the determination of the capital risk appetite and target ratios, as well as enabling the assessment and determination of capital requirements by regulators. Subsidiaries prepare ICAAPs in line with global guidance, while considering their local regulatory regimes to determine their own risk appetites and ratios.
HSBC Holdings provides our MREL, including equity and non-equity capital. These investments are funded by HSBC Holdings' own equity capital and MREL-eligible debt. MREL includes own funds and liabilities that can be written down or converted into capital resources in order to absorb losses or recapitalise a bank in the event of its failure. In line with the HSBC Group's existing structure and business model, HSBC has three resolution groups - the European resolution group (of which HSBC Bank plc forms part), the Asian resolution group and the US resolution group.
We aim to ensure that management has oversight of our liquidity and funding risks at group and entity level through robust governance, in line with our risk management framework. We manage liquidity and funding risk in accordance with globally consistent policies, procedures and reporting standards.
We are required to meet internal minimum requirements and any applicable regulatory requirements at all times. These requirements are assessed through our ILAAP, which ensures that we have robust strategies, policies, processes and systems for the identification, measurement, management and monitoring of liquidity risk over an appropriate set of time horizons, including intra-day. The ILAAP informs the setting of risk tolerance and risk appetite. It also assesses our capability to manage liquidity and funding effectively. These metrics are set and managed locally but are subject to robust global review and challenge to ensure consistency of approach and application of the HSBC Group's policies and controls.
Planning and performance
Capital and RWA plans form part of the annual financial resource plan that is approved by the Board. Capital and RWA forecasts are submitted to the ALCO on a monthly basis, and capital and RWAs are monitored and managed against the plan. The responsibility for global capital allocation principles rests with the HSBC Group Chief Financial Officer, supported by the HSBC Group Capital Management Meeting. This is a specialist forum addressing capital management, reporting into Holdings ALCO.
Through our internal governance processes, we seek to strengthen discipline over our investment and capital allocation decisions, and to ensure that returns on investment meet management's objectives. The group's strategy is to allocate capital to businesses and entities to support growth objectives where returns above internal hurdle levels have been identified and in order to meet their regulatory and economic capital needs. We evaluate and manage business returns by using a return on average tangible equity measure and a related economic profit measure.
Funding and liquidity plans also form part of the financial resource plan. The Board-level appetite measures are the liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR'), together with an internal liquidity metric. In addition, we use a wider set of measures to manage an appropriate funding and liquidity profile, including legal entity depositor concentration limits, intra-day liquidity, forward-looking funding assessments and other key measures.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs, capital and/or liquidity position. Downside and Upside scenarios are assessed against our management objectives, and mitigating actions are assigned as necessary. We closely monitor future regulatory developments and continue to evaluate the impact of these upon our capital and liquidity requirements, particularly those related to the UK's implementation of the outstanding measures to be implemented from the Basel III reforms ('Basel 3.1').
Regulatory developments
In November 2022, the PRA consulted on the implementation of Basel III Reforms ('Basel 3.1') in the UK. In September 2023, it announced that the implementation date of Basel 3.1 would be delayed by six months to 1 July 2025. In December 2023, the PRA published near-final rules in relation to the market risk, credit valuation adjustment, counterparty credit risk and operational risk elements of the package, together with information on the planned review of the Pillar 2 framework. The PRA intends to publish the near-final rules on the remaining parts, namely credit risk, the output floor and reporting and disclosure, in the second quarter of 2024.
We continue to assess the impact of the proposed rules, noting that the output floor is not expected to apply to HSBC Bank plc on either a solo or consolidated basis. Our subsidiaries will be subject to Basel 3.1 rules, including potentially the output floor, as determined by their local regulators.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for management and regulators. We are progressing with a comprehensive programme to strengthen our processes, improve consistency and enhance controls across regulatory reports.
The ongoing programme of work focuses on our material regulatory reports and is being phased over a number of years. This programme includes data enhancement, transformation of the reporting systems and an uplift to the control environment over the report production process.
While this programme continues, there may be further impacts on some of our regulatory ratios, such as the CET1, LCR and NSFR, as we implement recommended changes and continue to enhance our controls across the process.
Stress testing and recovery planning
The group uses stress testing to inform management of the capital and liquidity needed to withstand internal and external shocks, including a global economic downturn or a systems failure. Stress testing results are also used to inform risk mitigation actions, input into global business performance measures through tangible equity allocation, and recovery and resolution planning, as well as to re-evaluate business plans where analysis shows capital, liquidity and/or returns do not meet their target.
In addition to a range of internal stress tests, we are subject to supervisory stress testing by the PRA and Bank of England. Our subsidiaries may also be subject to supervisory stress tests, including by the European Banking Authority and the European Central Bank.
The results of regulatory stress testing and our internal stress tests are used when assessing our internal capital and liquidity requirements through the ICAAP and ILAAP. The outcomes of stress testing exercises carried out by the PRA and other regulators inform the setting of regulatory minimum ratios and buffers.
We maintain recovery plans for the group and material entities, which set out potential options management could take in a range of stress scenarios that could result in a breach of capital or liquidity buffers. They also set out the framework and governance arrangements to support restoring the group to a stable and viable position, and so lowering the probability of failure from either idiosyncratic company-specific stress or systemic market-wide issues. Our recovery plans provide detailed actions that management would consider taking in a stress scenario should our position deteriorate and threaten to breach risk appetite and regulatory minimum levels. This is to help ensure that we can stabilise our financial position and recover from financial losses in a stress environment.
The HSBC Group, including HSBC Bank plc, also has capabilities, resources and arrangements in place to address the unlikely event that HSBC might not be recoverable and would therefore need to be resolved by regulators. The HSBC Group and the BoE publicly disclosed the status of HSBC's progress against the BoE's Resolvability Assessment Framework in June 2022, following the submission of HSBC's inaugural resolvability self-assessment in October 2021. The HSBC Group has continued to enhance its resolvability capabilities since this time and submitted its second self-assessment in October 2023. A subsequent update was provided to the BoE in January 2024. Further public disclosure by the HSBC Group and the BoE as to HSBC's progress against the Resolvability Assessment Framework will be made in June 2024.
Overall, our recovery and resolution planning helps safeguard the group's financial and operational stability. The HSBC Group is committed to further developing its recovery and resolution capabilities, including in relation to the Bank of England's Resolvability Assessment Framework.
Measurement of interest rate risk in the banking book
Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is generated by our non-traded assets and liabilities, specifically loans, deposits and financial instruments that are not held for trading intent or held to hedge positions held with trading intent. Interest rate risk that can be economically hedged may be transferred to the Markets Treasury business. Hedging is generally executed through interest rate derivatives or fixed-rate government bonds. Any interest rate risk that Markets Treasury cannot economically hedge is not transferred and will remain within the global business where the risks originate.
The following measures are used by Treasury to monitor and control interest rate risk in the banking book including:
- Net Interest Income ('NII') sensitivity and banking net interest income ('BNII') sensitivity
- Economic Value of Equity ('EVE') Sensitivity; and
- Non-Trading Value at Risk ('VaR').
Net interest income and Banking Net Interest Income ('BNII') sensitivity
A principal part of our management of non-traded interest rate risk is to monitor the sensitivity of expected Net Interest Income (NII) under varying interest rate scenarios (simulation modelling), where all other economic variables are held constant. This monitoring is undertaken at an entity level. HSBC Bank plc calculates both one-year and five-year NII sensitivities across a range of interest rate scenarios.
NII sensitivity figures represent the effect of pro forma movements in projected yield curves based on a static balance sheet size and structure. The exception to this is where the size of the balances or repricing is deemed interest rate sensitive, for example, early prepayment of mortgages. These sensitivity calculations do not incorporate actions that would be taken by Markets Treasury or in the business that originates the risk to mitigate the effect of interest rate movements.
The NII sensitivity calculations assume that interest rates of all maturities move by the same amount in the 'up-shock' scenario. The sensitivity calculations in the 'down-shock' scenarios reflect no floors to the shocked market rates.
However, customer product-specific interest rate floors are recognised where applicable.
During 2023, we introduced an additional metric to measure and manage the sensitivity of our income to interest rate shocks. In addition to Net Interest Income Sensitivity, we now also monitor Banking Net Interest Income Sensitivity. HSBC has a significant quantity of Trading Book assets that are funded by Banking Book liabilities and the NII sensitivity measure does not include the sensitivity of the internal transfer income from this funding. Banking net interest income sensitivity includes an adjustment on top of NII sensitivity to reflect this. Going forwards, this will be our primary metric for monitoring and management of net interest income sensitivity.
As at 31 December 2023, the 12 month BNII sensitivity for the bank to an immediate 100bps parallel shock to interest rates is £96m for an upwards shock, and £(96)m for a downwards shock. This assessment is based on a static balance sheet with no management actions, a 50% pass-on assumption on certain interest bearing deposits and excludes pensions.
Economic value of equity sensitivity
EVE represents the present value of the future banking book cash flows that could be distributed to equity holders under a managed run-off scenario. This equates to the current book value of equity plus the present value of future NII in this scenario. EVE can be used to assess the economic capital required to support interest rate risk in the banking book. An EVE sensitivity represents the expected movement in EVE due to pre-specified interest rate shocks, where all other economic variables are held constant. Operating entities are required to monitor EVE sensitivities as a percentage of capital resources.
Non-trading Value at Risk
Non-trading portfolios comprise positions that primarily arise from the interest rate management of our retail and commercial banking assets and liabilities, financial investments measured at FVOCI, debt instruments measured at amortised cost, and exposures arising from our insurance operations.
The following table summarises the main business areas where non-trading market risks reside, and the market risk measures used to monitor and limit exposures.
|
Non-trading risk |
|
|
- Interest rates - Credit spreads |
|
|
Value at risk | Sensitivity | Stress testing |
Non-trading portfolios
Value at risk of the non-trading portfolios
(Audited)
The non-trading VaR in 2023 was driven by interest rate risk in the banking book arising from Markets Treasury and ALCM book positions. The non-trading VaR averaged £29m this year, with the low of £16.9m coming in Q1, and high in Q2 at £37.4m.
Throughout 2023, markets remained volatile, driven by continued geopolitical events and the shifting of the path of central bank interest rate hikes and the terminal Central Bank's rate expectations, driven by changing economic growth and inflation outlooks. During the first half of the year, the non-trading VaR trended upwards into the month of May as the Markets Treasury business took advantage of the higher yield environment, increasing G3 sovereign bond holdings, on an outright basis in Q2 contributing to a peak in the non-trading VaR of £37.4m. During the second half of the year the VaR remained steady over the period to end the year at £32.7m as Markets Treasury actively managed risk within their limits.
|
Daily VaR (non-trading portfolios), 99% 1 day (£m) |
The group's non-trading VaR for the year is shown in the table below.
|
Non-trading VaR, 99% 1 day |
||||
|
(Audited) |
||||
|
|
Interest rate ('IR') |
Credit spread ('CS') |
Portfolio |
Total2 |
|
|
£m |
£m |
£m |
£m |
|
Balance at 31 Dec 2023 |
32.0 |
7.6 |
(6.8) |
32.7 |
|
Average |
28.8 |
8.3 |
(8.1) |
29.0 |
|
Maximum |
40.0 |
13.3 |
- |
37.4 |
|
Minimum |
14.5 |
6.1 |
- |
16.9 |
|
|
|
|
|
|
|
Balance at 31 Dec 2022 |
17.1 |
7.2 |
(5.6) |
18.6 |
|
Average |
26.3 |
6.7 |
(5.0) |
28.0 |
|
Maximum |
39.7 |
11.9 |
- |
40.9 |
|
Minimum |
16.3 |
4.2 |
- |
17.8 |
1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate, equity and foreign exchange, together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number represents the benefit of portfolio diversification. As the maximum occurs on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for this measure.
2 The total VaR is non-additive across risk types due to diversification effect.
Other Risk
Non-trading book foreign exchange exposures are outlined below.
Structural foreign exchange exposures
Structural foreign exchange exposures arise from net assets or capital investments in foreign operations, together with any associated hedging. A foreign operation is defined as a subsidiary, associate, joint arrangement or branch where the activities are conducted in a currency other than that of the reporting entity. An entity's functional reporting currency is normally that of the primary economic environment in which the entity operates.
Exchange differences on structural exposures are recognised in other comprehensive income ('OCI'). We use the pound sterling as our presentation currency in our consolidated financial statements. Therefore, our consolidated balance sheet is affected by exchange differences between the pound sterling and all the other functional currencies of underlying foreign operations.
Our structural foreign exchange exposures are managed with the primary objective of ensuring, where practical, that our most constraining capital ratio is largely protected from the effect of changes in exchange rates. For capital efficiency reasons, we rely on net investment hedges held at HSBC Holdings plc level to manage our structural foreign exchange positions.
For further details of our structural foreign exchange exposures, see page 74.
Transaction foreign exchange exposures
Transactional foreign exchange risk arises primarily from day-to-day transactions in the banking book generating profit and loss or FVOCI reserves in a currency other than the reporting currency of the operating entity. Transactional foreign exchange exposure generated through profit and loss is periodically transferred to Markets and Securities Services with the exception of limited residual foreign exchange exposure arising from timing differences or for other reasons. Transactional foreign exchange exposure generated through OCI reserves is managed by the Markets Treasury business within agreed limits.
Pension risk management processes
HSBC provides future pension benefits on a defined contribution basis from many of its European operations. However, there remain future defined benefit pensions provided in the region.
Pension plans are run by local fiduciaries in line with local legislative requirements. The largest pension plan is the HSBC Germany Pension Scheme which is regulated by the German Company Benefits Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung - Betriebsrentengesetz - BetrAVG).
In defined contribution pension plans, the contributions that HSBC is required to make are known, while the ultimate pension benefit will vary, typically with investment returns achieved by investment choices made by the employee.
While the market risk to HSBC of defined contribution plans is low, it is still exposed to operational and reputational risk.
In defined benefit pension plans, the level of pension benefit is known. Therefore, the level of contributions required by HSBC will vary due to a number of risks, including:
- investments delivering a return below that required to provide the projected plan benefits;
- the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset values (both equity and debt);
- a change in either interest rates or inflation, causing an increase in the value of the plan liabilities; and
- plan members living longer than expected (known as longevity risk).
Pension risk is assessed using an economic capital model that takes into account potential variations in these factors.
The impact of these variations on both pension assets and pension liabilities are assessed using a 1-in-200-year stress test. Scenario analysis and other stress tests are also used to support pension risk management.
To fund the benefits associated with defined benefit plans, sponsoring group companies, and in some instances employees, make regular contributions in accordance with advice from actuaries and in consultation with the plan's fiduciaries where relevant. These contributions are normally set to ensure that there are sufficient funds to meet the cost of the accruing benefits for the future service of active members. However, higher contributions are required when plan assets are considered insufficient to cover the existing pension liabilities. Contribution rates are typically revised annually or once every three years, depending on the plan.
The defined benefit plans invest contributions in a range of investments designed to limit the risk of assets failing to meet a plan's liabilities. Any changes in expected returns from the investments may also change future contribution requirements. In pursuit of these long-term objectives, an overall target allocation of the defined benefit plan assets between asset classes is established. In addition, each permitted asset class has its own benchmarks, such as stock market or property valuation indices or liability characteristics. The benchmarks are reviewed at least once every three to five years and more frequently if required by local legislation or circumstances. The process generally involves an extensive asset and liability review.
Capital risk in 2023
Capital overview
|
Capital adequacy metrics |
||
|
|
At |
|
|
|
31 Dec |
31 Dec |
|
|
2023 |
20221,2 |
|
Risk-weighted assets ('RWAs') (£m) |
|
|
|
Credit risk |
61,983 |
66,887 |
|
Counterparty credit risk |
17,066 |
17,981 |
|
Market risk |
15,525 |
16,826 |
|
Operational risk |
12,875 |
11,547 |
|
Total RWAs |
107,449 |
113,241 |
|
Capital on a transitional basis (£m) |
|
|
|
Common equity tier 1 ('CET1') capital |
19,230 |
18,411 |
|
Tier 1 capital |
23,124 |
22,304 |
|
Total capital |
37,131 |
35,414 |
|
Capital ratios on a transitional basis (%) |
|
|
|
Common equity tier 1 |
17.9 |
16.3 |
|
Total tier 1 |
21.5 |
19.7 |
|
Total capital ratio |
34.6 |
31.3 |
|
Leverage ratio (fully phased-in) |
|
|
|
Tier 1 capital (£m) |
23,124 |
22,304 |
|
Total leverage ratio exposure measure (£m) |
455,852 |
416,814 |
|
Leverage ratio (%) |
5.1 |
5.4 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
2 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 re-presented.
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.
Capital figures and ratios in the table above are calculated in accordance with the revised Capital Requirements Regulation and Directive, as implemented ('CRR II'). Leverage ratios are calculated using the end point definition of capital and the IFRS 9 regulatory transitional arrangements.
Own funds
|
Own funds disclosure |
|||
|
(Audited) |
|
||
|
|
|
At |
|
|
|
|
31 Dec |
31 Dec |
|
|
|
2023 |
2022 |
|
Ref* |
|
£m |
£m |
|
|
Common equity tier 1 ('CET1') capital: instruments and reserves |
|
|
|
1 |
Capital instruments and the related share premium accounts |
1,801 |
1,217 |
|
|
- ordinary shares |
1,801 |
1,217 |
|
2,3 |
Retained earnings, accumulated other comprehensive income (and other reserves)1 |
17,886 |
19,414 |
|
5 |
Minority interests (amount allowed in consolidated CET1) |
77 |
72 |
|
5a |
Independently reviewed interim net profits net of any foreseeable charge or dividend |
742 |
(1,459) |
|
6 |
Common equity tier 1 capital before regulatory adjustments1 |
20,506 |
19,244 |
|
28 |
Total regulatory adjustments to common equity tier 1 |
(1,276) |
(833) |
|
29 |
Common equity tier 1 capital1 |
19,230 |
18,411 |
|
36 |
Additional tier 1 capital before regulatory adjustments |
3,941 |
3,942 |
|
43 |
Total regulatory adjustments to additional tier 1 capital |
(47) |
(49) |
|
44 |
Additional tier 1 capital |
3,894 |
3,893 |
|
45 |
Tier 1 capital1 |
23,124 |
22,304 |
|
51 |
Tier 2 capital before regulatory adjustments |
14,403 |
13,559 |
|
57 |
Total regulatory adjustments to tier 2 capital |
(396) |
(449) |
|
58 |
Tier 2 capital |
14,007 |
13,110 |
|
59 |
Total capital1 |
37,131 |
35,414 |
* The references identify the lines prescribed in the template, that are applicable and where there is a value.
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
At 31 December 2023, our common equity tier 1 ('CET1') capital ratio increased to 17.9% from 16.3% at 31 December 2022. The key drivers of the increase in our CET1 ratio were:
- a 0.9 percentage point increase from RWA reduction due to balance sheet reductions and upstream risk parameter refinements mainly in corporate lending and overdraft, further supplemented by favourable FX movements.
- a 0.9 percentage point increase from capital generation through profits and issuance of share capital net of dividend payment.
- a (0.2) percentage point decrease from unfavourable FX movement and other movements in own funds.
Throughout 2023, we complied with the PRA's regulatory capital adequacy requirements, including those relating to stress testing.
Risk-weighted assets
|
RWA movement by key driver |
|
|
|
Total |
|
|
£m |
|
RWAs at 1 Jan 20231 |
113,241 |
|
Asset size |
(698) |
|
Asset quality |
(760) |
|
Model updates |
(339) |
|
Methodology and policy |
(2,476) |
|
Acquisitions, disposals and transfers |
2,285 |
|
Foreign exchange movement |
(3,804) |
|
Total RWA movement |
(5,792) |
|
RWAs at 31 Dec 2023 |
107,449 |
1 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 re-presented.
RWAs decreased by £(5.8)bn during the year, including a decrease of £(3.8)bn due to favourable foreign currency translation differences.
Asset size
Asset size decreased by £(0.7)bn driven mainly by a decrease in Credit risk RWAs by £(2.2)bn due to balance sheet reductions mainly in corporate lending and due to management initiatives. This was further supplemented by a Market risk RWAs fall of £(0.5)bn due to lower structural foreign exchange exposures. This was partially offset by the Operational Risk RWA increase by £1.1bn mainly driven by higher average revenue in the annual recalculation of operational risk and a £0.9bn increase in Counterparty Credit Risk RWA driven by an increase in cash exposures and the Securities Financing Transactions portfolio.
Asset quality
The £(0.8)bn decrease in RWAs is mainly due to portfolio mix changes in Credit Risk and Counterparty Credit Risk.
Model updates
The £(0.3)bn decrease in RWAs is mainly due to implementation of a new Incremental Risk Charge model in Market Risk. This was further supplemented by a decrease in Credit Risk driven by a change in approach to report multilateral development banks' exposures under the STD method, partially offset by an increase due to implementation of the new Retail EAD model.
Acquisitions and disposals
The £2.3bn increase is mainly due to the acquisition of HBBM and PBLU, which was offset by a £(0.4)bn decrease due to strategic disposals including the sale of our branch operations in Greece.
Methodology and policy
The £(2.5)bn decrease was primarily driven by RWA initiatives and risk parameter refinements in Credit Risk and Counterparty Credit Risk.
Leverage ratio
Our leverage ratio was 5.1% at 31 December 2023, down from 5.4% at 31 December 2022. The increase in leverage exposure is primarily due to growth in the balance sheet, which led to a fall by 0.5 percentage points in the leverage ratio. This is partly offset by a rise of 0.2 percentage points due to an increase in the tier 1 capital.
|
Leverage ratio |
|
|
|
|
At |
|
|
|
31 Dec |
31 Dec |
|
|
2023 |
2022 |
|
|
£bn |
£bn |
|
Tier 1 capital |
23,124 |
22,304 |
|
Total leverage ratio exposure |
455,852 |
416,814 |
|
|
% |
% |
|
Leverage ratio |
5.1 |
5.4 |
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more transparent by requiring publication of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures at 31 December 2023 is published on our website, www.hsbc.com/investors.
Structural foreign exchange exposures
The group's structural foreign currency exposure is represented by the net assets or capital investments in subsidiaries, branches, joint arrangements or associates, the functional currencies of which are currencies other than the sterling.
For our policies and procedures for managing structural foreign exchange exposures, see page 71 of the 'Risk management' section.
|
Net structural foreign exchange exposures |
||
|
|
2023 |
2022 |
|
|
£m |
£m |
|
Currency of structural exposure |
|
|
|
Euro |
10,117 |
9,387 |
|
US Dollars |
1,482 |
1,062 |
|
South African Rand |
287 |
287 |
|
Armenian dram |
118 |
116 |
|
Israeli New Shekel |
107 |
85 |
|
Others, each less than £100m |
192 |
188 |
|
At 31 Dec |
12,303 |
11,125 |
Liquidity and funding risk in 2023
Liquidity coverage ratio
The LCR aims to ensure that a bank has sufficient unencumbered HQLA to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLA consist of cash or assets that can be converted into cash at little or no loss of value in markets.
At 31 December 2023, all the group's principal operating entities were within the LCR risk tolerance level established by the Board and applicable under the LFRF.
|
LCR1,2 |
|||
|
|
|
At |
|
|
|
|
31 Dec |
31 Dec |
|
|
|
2023 |
2022 |
|
|
|
% |
% |
|
HSBC Bank plc |
|
148 |
143 |
In addition to the regulatory metric, the group manages liquidity via 'internal liquidity metric', which is being used to monitor and manage liquidity risk via a low-point measure across a 270-day horizon, taking into account recovery capacity.
Net stable funding ratio
The Net Stable Funding Ratio ('NSFR') requires institutions to maintain sufficient stable funding relative to required stable funding, and reflects a bank's long-term funding profile (funding with a term of more than a year).
At 31 December 2023, all the group's principal operating entities were within the NSFR risk tolerance level established by the Board and applicable under the LFRF.
|
NSFR1 |
|||
|
|
|
At |
|
|
|
|
31 Dec |
31 Dec |
|
|
|
2023 |
2022 |
|
|
|
% |
% |
|
HSBC Bank plc |
|
116 |
115 |
Depositor concentration and term funding maturity concentration
The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within each depositor segment. To ensure the validity of these assumptions in the sense that the deposit base is sufficiently diversified, the depositor concentration is monitored on an ongoing basis.
In addition to this, operating entities monitor the term funding maturity concentration metric to ensure they are not overly exposed to term funding concentration of wholesale market counterparts by the current maturity profile in any defined period.
Liquid assets
The table below shows the weighted liquidity value of assets categorised as liquid, which is used for the purposes of calculating the LCR metric. This reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets.
|
Liquid assets2 |
|
|
|
|
At Estimated liquidity value |
At Estimated liquidity value |
|
|
31 Dec 2023 |
31 Dec 2022 |
|
|
£m |
£m |
|
HSBC Bank plc |
|
|
|
Level 1 |
88,678 |
93,500 |
|
Level 2a |
8,699 |
5,726 |
|
Level 2b |
6,051 |
3,270 |
1 The LCR and NSFR ratios presented in this table are based on average value. The LCR is the average of the preceding 12 months. The NSFR is the average of preceding quarters. Prior period numbers have been restated for consistency.
2 In December 2022, a strategic data enhancement for HSBC Bank plc was implemented which resulted in a reclassification of some securities. This reclassification drove a reduction in total High Quality Liquid Assets and corresponding LCR as of 31 December 2022. Prior period numbers have been restated for consistency.
Sources of funding
Our primary sources of funding are customer current accounts, repo and wholesale securities.
The following 'Funding sources and uses' table provides a consolidated view of how our balance sheet is funded, and should be read in light of the LFRF, which requires operating entities to manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented at other balance sheet lines. In 2023, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets, cash and balances with central banks and financial investments, as required by the LFRF.
|
Funding sources and uses for the group |
||||||
|
|
2023 |
20221 |
|
|
2023 |
20221 |
|
|
£m |
£m |
|
|
£m |
£m |
|
Sources |
|
|
|
Uses |
|
|
|
Customer accounts |
222,941 |
215,948 |
|
Loans and advances to customers |
75,491 |
72,614 |
|
Deposits by banks |
22,943 |
20,836 |
|
Loans and advances to banks |
14,371 |
17,109 |
|
Repurchase agreements - non-trading |
53,416 |
32,901 |
|
Reverse repurchase agreements - non-trading |
73,494 |
53,949 |
|
Debt securities in issue |
13,443 |
7,268 |
|
Cash collateral, margin and settlement accounts |
52,154 |
51,858 |
|
Cash collateral, margin and settlement accounts |
53,094 |
60,385 |
|
Assets held for sale |
20,368 |
21,214 |
|
Liabilities of disposal groups held for sale |
20,684 |
24,711 |
|
Trading assets |
100,696 |
79,878 |
|
Subordinated liabilities |
14,920 |
14,528 |
|
- reverse repos |
8,510 |
8,729 |
|
Financial liabilities designated at fair value |
32,545 |
27,282 |
|
- stock borrowing |
8,713 |
5,627 |
|
Insurance contract liabilities |
20,595 |
20,004 |
|
- other trading assets |
83,473 |
65,522 |
|
Trading liabilities |
42,276 |
41,265 |
|
Financial investments |
46,368 |
32,604 |
|
- repos |
7,929 |
8,213 |
|
Cash and balances with central banks |
110,618 |
131,433 |
|
- stock lending |
2,190 |
1,773 |
|
Other balance sheet assets |
209,410 |
255,987 |
|
- other trading liabilities |
32,157 |
31,279 |
|
At 31 Dec |
702,970 |
716,646 |
|
Total equity |
24,505 |
23,233 |
|
|
|
|
|
Other balance sheet liabilities |
181,608 |
228,285 |
|
|
|
|
|
At 31 Dec |
702,970 |
716,646 |
|
|
|
|
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
Contingent liquidity risk arising from committed lending facilities
The group provides customers with committed facilities such as standby facilities to corporate customers and committed backstop lines to conduits sponsored by the group. All of the undrawn commitments provided to conduits or external customers are accounted for in the LCR and NSFR in line with the applicable regulations.
This ensures that under a stress scenario any additional outflow generated by increased utilisation of these committed facilities by
either customers or the group's sponsored conduits is appropriately reflected in our liquidity and funding position.
In relation to commitments to customers, the table below shows the level of undrawn commitments outstanding in terms of the five largest single facilities and the largest market sector.
|
The group's contractual exposures at 31 December monitored under the contingent liquidity risk limit structure |
||
|
|
2023 |
2022 |
|
|
£bn |
£bn |
|
Commitments to conduits |
|
|
|
Multi-seller conduits1 |
|
|
|
- total lines |
3.6 |
3.7 |
|
- largest individual lines |
0.2 |
0.2 |
|
Securities investment conduits - total lines |
1.0 |
1.3 |
|
Commitments to customers |
|
|
|
- five largest 2 |
3.5 |
3.7 |
|
- largest market sector3 |
14.4 |
13.3 |
1 Exposures relate to the Regency multi-seller conduit. This vehicle provides funding to group customers by issuing debt secured by a diversified pool of customer-originated assets.
2 Represents the undrawn balance for the five largest committed liquidity facilities provided to customers, other than those facilities to conduits.
3 Represents the undrawn balance for the total of all committed liquidity facilities provided to the largest market sector, other than those facilities to conduits.
Asset encumbrance and collateral management
An asset is defined as encumbered if it has been pledged as collateral against an existing liability and, as a result, is no longer available to the group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement. Collateral is managed on an operating entity basis consistent with the approach to managing liquidity and funding. Available collateral held in an operating entity is managed as a single consistent collateral pool from which each operating entity will seek
to optimise the use of the available collateral. The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that could be used to support potential future funding and collateral needs. The disclosure is not designed to identify assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the event of a resolution or bankruptcy.
|
Summary of assets available to support potential future funding and collateral needs (on- and off-balance sheet) |
||
|
|
2023 |
2022 |
|
|
£m |
£m |
|
Total on-balance sheet assets at 31 Dec |
702,970 |
717,353 |
|
Less: |
|
|
|
- reverse repo/stock borrowing receivables and derivative assets |
(264,834) |
(293,543) |
|
- other assets that cannot be pledged as collateral |
(59,134) |
(51,974) |
|
Total on-balance sheet assets that can support funding and collateral needs at 31 Dec |
379,002 |
371,836 |
|
Add: off-balance sheet assets |
|
|
|
- fair value of collateral received in relation to reverse repo/stock borrowing/derivatives that is available to sell or repledge |
224,836 |
180,233 |
|
Total assets that can support future funding and collateral needs |
603,838 |
552,069 |
|
Less: |
|
|
|
- on-balance sheet assets pledged |
(97,077) |
(98,124) |
|
- re-pledging of off-balance sheet collateral received in relation to reverse repo/stock borrowing/derivatives |
(175,100) |
(136,777) |
|
Assets available to support funding and collateral needs at 31 Dec |
331,661 |
317,168 |
Market risk
Overview
Market risk is the risk that movements in market factors, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices will reduce the group's income or the value of its portfolios.
Exposure to market risk is separated into two portfolios.
Trading portfolios comprise positions arising from market-making and warehousing of customer-derived positions.
Non-trading portfolios including Markets Treasury comprise positions that primarily arise from the interest rate management of the group's retail and commercial banking assets and liabilities, financial investments designated as held-to-collect-and-sale ('HTCS'), and exposures arising from the group's insurance operations.
Key developments in 2023
There were no material changes to our policies and practices for the management of market risk in 2023.
Market risk governance
(Audited)
The following diagram summarises the main business areas where trading market risks reside, and the market risk measures used to monitor and limit exposures.
|
Trading risk |
|
|
- Foreign exchange and commodities - Interest rates - Credit spreads - Equities |
|
|
Value at risk | Sensitivity | Stress testing |
Where appropriate, we apply similar risk management policies and measurement techniques to trading portfolios. Our objective is to manage and control market risk exposures to optimise return on risk while maintaining a market profile consistent with our established risk appetite.
Market risk is managed and controlled through limits approved by the group Chief Risk Officer. These limits are allocated across business lines and to the group and its subsidiaries. The majority of HSBC's total VaR and almost all trading VaR reside in GBM. Each major operating entity has an independent market risk management and control sub-function, which is responsible for measuring, monitoring and reporting market risk exposures against limits on a daily basis. The Traded Risk function enforces the controls around trading in permissible instruments approved for each site as well as following completion of the new product approval process. Traded Risk also restricts trading in the more complex derivative products to offices with appropriate levels of product expertise and robust control systems.
Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures while maintaining a market profile consistent with the group's risk appetite.
We use a range of tools to monitor and limit market risk exposures including sensitivity analysis, VaR, and stress testing.
Sensitivity analysis
Sensitivity analysis measures the impact of individual market factor movements on specific instruments or portfolios, including interest rates, foreign exchange rates, credit spreads and equity prices, such as the effect of a one basis point change in yield. We use sensitivity measures to monitor the market risk positions within each risk type. Sensitivity limits are set for portfolios, products and risk types, with the depth of the market being one of the principal factors in determining the level of limits set.
Value at risk
VaR is a technique that estimates the potential losses on risk positions as a result of movements in market rates and prices over a specified time horizon and to a given level of confidence. The use of VaR is integrated into market risk management and is calculated for all trading positions regardless of how the group capitalises those exposures. Where there is not an approved internal model, the group uses the appropriate local rules to capitalise exposures.
The VaR models for trading portfolios are predominantly based on historical simulation. The VaR is calculated at a 99% confidence level for a one-day holding period. Where we do not calculate VaR explicitly, we use alternative tools like Stress Testing.
The VaR models derive plausible future scenarios from past series of recorded market rates and prices, taking into account inter-relationships between different markets and rates such as interest rates and foreign exchange rates. The models also incorporate the effect of option features on the underlying exposures.
The historical simulation models used incorporate the following features:
- Historical market rates and prices are calculated with reference to foreign exchange rates and commodity prices, interest rates, equity prices and the associated volatilities;
- Potential market movements utilised for VaR are calculated with reference to data from the past two years; and
- VaR measures are calculated to a 99% confidence level and use a one-day holding period.
The nature of the VaR models means that an increase in observed market volatility will most likely lead to an increase in VaR without any changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR should always be viewed in the context of its limitations. For example:
- the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature;
- the use of a holding period assumes that all positions can be liquidated or the risks offset during that period. This may not fully reflect the market risk arising at times of severe illiquidity, when the holding period may be insufficient to liquidate or hedge all positions fully;
- the use of a 99% confidence level by definition does not take into account losses that might occur beyond this level of confidence; and
- VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect intra-day exposures.
Risk not in VaR framework
Other basis risks which are not completely covered in VaR are complemented by our risk not in VaR ('RNIV') calculations, and are integrated into our capital framework.
Risk factors are reviewed on a regular basis and either incorporated directly in the VaR models, where possible, or quantified through the VaR-based RNIV approach or a stress test approach within the RNIV framework. The outcome of the VaR-based RNIV is included in the VaR calculation; a stressed VaR RNIV is also computed for the risk factors considered in the VaR-based RNIV approach.
Stress-type RNIVs include a deal contingent derivatives capital charge to capture risk for these transactions and a de-peg risk measure to capture risk to pegged and heavily managed currencies.
Stress testing
Stress testing is an important procedure that is integrated into our market risk management tool to evaluate the potential impact on portfolio values of more extreme, although plausible, events or movements in a set of financial variables. In such scenarios, losses can be much greater than those predicted by VaR modelling.
Stress testing is implemented at legal entity, regional and overall HSBC Group levels. A standard set of scenarios is utilised consistently across all regions within the HSBC Group. Scenarios are tailored to capture the relevant events or market movements at each level. The risk appetite around potential stress losses for the group is set and monitored against referral limits.
Market risk reverse stress tests are undertaken on the premise that there is a fixed loss. The stress testing process identifies which scenarios lead to this loss. The rationale behind the reverse stress test is to understand scenarios which are beyond normal business settings that could have contagion and systemic implications.
Stressed VaR and stress testing, together with reverse stress testing and the management of gap risk, provide management with insights regarding the 'tail risk' beyond VaR for which the group's appetite is limited.
Trading portfolios
Back-testing
We routinely validate the accuracy of our VaR models by back-testing the VaR metric against both actual and hypothetical profit and loss. Hypothetical profit and loss excludes non-modelled items such as fees, commissions and revenue of intra-day transactions. The hypothetical profit and loss reflects the profit and loss that would be
realised if positions were held constant from the end of one trading day to the end of the next. This measure of profit and loss does not align with how risk is dynamically hedged, and is not therefore necessarily indicative of the actual performance of the business. The number of hypothetical loss back-testing exceptions, together with a number of other indicators, is used to assess model performance and to consider whether enhanced internal monitoring of a VaR model is required. We back-test our VaR at set levels of our HSBC Group entity hierarchy.
Defined benefit pension plans
Market risk also arises within the Bank's defined benefit pension plans to the extent that the obligations of the plans are not fully matched by assets with determinable cash flows. Refer to the Pension risk management processes section on page 71 for additional information.
Market risk in 2023
During 2023, global financial markets were mainly driven by the inflation outlook, interest rates expectations and recession risks, coupled with banking distress in March and rising geopolitical tensions in the Middle East from October. Major central banks maintained restrictive monetary policies and bond markets experienced a volatile year. After rising significantly in the second and third quarter, US treasury bond yields fell during 4Q23, as lower inflation pressures led markets to expect that key rates would be cut in 2024. The interest rates outlook was also a major driver of global equity markets performance, alongside resilient corporate earnings and sentiment in the technology sector. Developed markets' equities advanced significantly amid low volatility, while emerging markets performance was more subdued. In foreign exchange markets, the US dollar fluctuated against other major currencies, mostly in line with the Fed policy and bond yields expectations. Investor sentiment remained resilient in credit markets. High-yield and investment-grade credit spreads were narrow in general, as fears of contagion in the banking sector in 1Q23 abated and economic growth remained resilient throughout 2023.
We continued to manage market risk prudently during 2023. Sensitivity exposures and VaR remained within appetite as the business pursued its core market-making activity in support of our customers. Market risk was managed using a complementary set of risk measures and limits, including stress testing and scenario analysis.
Trading portfolios
Value at risk of the trading portfolios
(Audited)
The Trading VaR predominantly resides within Markets Securities Services where it amounted to £25.4m as of 31 December 2023 compared with £31.2m as of 31 December 2022. The Trading VaR peaked at £55.4m in September owing to the sensitivity of the trading book to interest rates moves, coupled with a large volatility in the rates market. The lower than market expected inflation data in developed markets led to a general decrease of volatility from beginning of November; as a result, the Trading VaR decreased in the last two months of the year and remained fairly stable, ranging between £19m and £31.7m.
|
Daily VaR (trading portfolios), 99% 1 day (£m) |
.
The group's trading VaR for the year is shown in the table below.
|
Trading VaR, 99% 1 day |
||||||
|
(Audited) |
||||||
|
|
Foreign exchange ('FX') and commodity |
Interest rate ('IR') |
Equity ('EQ') |
Credit Spread ('CS') |
Portfolio Diversification1 |
Total2 |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Balance at 31 Dec 2023 |
6.2 |
20.1 |
11.0 |
5.2 |
(17.0) |
25.4 |
|
Average |
11.4 |
25.8 |
10.0 |
9.2 |
(24.1) |
32.3 |
|
Maximum |
17.2 |
50.2 |
14.7 |
12.7 |
- |
55.4 |
|
Minimum |
5.6 |
13.8 |
7.8 |
5.2 |
- |
19.0 |
|
|
||||||
|
Balance at 31 Dec 2022 |
7.5 |
26.4 |
13.6 |
8.6 |
(24.9) |
31.2 |
|
Average |
10.0 |
15.3 |
11.7 |
13.0 |
(22.8) |
27.2 |
|
Maximum |
21.5 |
49.2 |
17.1 |
22.9 |
- |
60.0 |
|
Minimum |
3.3 |
8.2 |
6.8 |
7.0 |
- |
14.2 |
1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate, equity and foreign exchange, together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number represents the benefit of portfolio diversification. As the maximum occurs on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for this measure.
2 The total VaR is non-additive across risk types due to diversification effect and it includes VaR RNIV.
Back-Testing
In 2023, HSBC Bank plc did not experience any back-testing exceptions against the Hypothetical P&L and Actual P&L.
Climate Risk
Overview
Our Climate risk approach is aligned to the framework outlined by the Taskforce for Climate-related Financial Disclosures ('TCFD'), which identifies two primary drivers of climate risk:
- physical risk, which arises arising from the increased frequency and severity of extreme weather events, such as hurricanes and floods, or chronic gradual shifts in weather patterns or sea level rise; and
- transition risk, which arises from the process of moving to a net zero economy, including changes in government policy and legislation, technology, market demand, and reputational implications triggered by a change in stakeholder expectations, action or inaction.
In addition to these primary drivers of climate risk we have also identified the following thematic issues related to climate risk which are most likely to materialise in the form of reputational, regulatory compliance and litigation risks.
- net zero alignment risk, which arises from the risk of HSBC Group failing to meet its net zero commitments or failing to meet external expectations related to net zero, impacting HSBC Bank plc, because of inadequate ambition and/or plans, poor execution, or inability to adapt to changes in external environment; and
- the risk of greenwashing, which arises from the act of knowingly or unknowingly making inaccurate, unclear, misleading or unsubstantiated claims regarding sustainability to our stakeholders.
Approach
We recognise that the physical impacts of climate change and the transition to net zero economy can create significant financial risks for the companies, investors and the financial system. HSBC Bank plc may be affected by climate risks either directly or indirectly through our relationships with our customers and through macro impacts on the economies we serve, which could result in both financial and non-financial impacts.
Our climate risk approach aims to effectively manage the material climate risks that could impact our operations, financial performance and stability, and reputation. It is informed by the evolving expectations of our regulators.
We remain aligned with HSBC Group, in developing our climate risk capabilities across our business, by prioritizing sectors, portfolios and counterparties with the highest impacts.
We continue to make progress in enhancing our climate risk capabilities and recognise it is a long-term iterative process.
We aim to regularly review our approach to increase coverage and incorporate maturing data, climate analytics capabilities, frameworks and tools as well as respond to emerging industry best practice and climate risk regulations.
This includes updating our approach to reflect how the risks associated with climate change continue to evolve in the real world, and maturing how we embed climate risk factors into strategic planning, transactions and decision making across our businesses.
In 2023, the HSBC Group refreshed their assessment of how climate risk may impact HSBC taxonomy risk types, with the assessment focusing on a 12-month time horizon. It also considers additional short term (up to 2025), medium term (2026 - 2035) and long term (2036 - 2050) time horizons. The assessment is refreshed annually, and results may change as our understanding of climate risk and how it impacts HSBC evolves.
Climate risk management
Key developments in 2023
Our climate risk programme continues to support the development of our climate risk management capabilities, expanding the scope of climate-related training and developing new climate risk metrics to monitor and manage exposures. We enhanced our internal scenario analysis through improvements of our use of customer transition plans data.
We have enhanced and expanded the use of a client transition engagement questionnaire to better understand our exposure to the highest transition risk sectors and we continue to engage with our customers to understand and support their transition away from high carbon activities.
While the HSBC Group have made progress in enhancing our climate risk framework, further work remains. This includes the need to develop additional metrics and tools to measure our exposure to climate-related risks, and to incorporate these tools within decision making.
Governance and structure
The group's Board takes overall responsibility for our ESG strategy, overseeing executive management in developing the approach, execution and associated reporting.
We continue to aim to deepen our understanding of the drivers of climate risk as well as aim to manage our exposure. The Environmental Risk Oversight Forum (formerly the Climate Risk Oversight Forum) oversees risk activities relating to climate and sustainability risk management, including the transition and physical risks from climate change.
The Europe Reputational Risk Committee considers climate-related matters arising from customers, transactions and third parties that either present a serious potential reputational risk to HSBC Bank plc (or the HSBC Group) or merit a decision to ensure a consistent approach to reputational risk management across the regions, global businesses and global functions.
The group's Risk Management Meeting and Risk Committee receive regular updates on our climate risk profile and progress of our climate risk programme.
Risk appetite
Our climate risk appetite forms part of the HSBC Group's risk appetite statement and supports the business in delivering our net zero ambition effectively and sustainably.
Our climate risk appetite statement is approved and overseen by the Board. It is supported by risk appetite metrics and tolerance thresholds. We have also defined additional key management information metrics. Both the risk appetite statement and key management information metrics are reported on a quarterly basis for oversight by the HSBC Bank plc Risk Management Meeting and the HSBC Bank plc Risk Committee receive regular updates on our climate risk profile and progress of our climate risk programme.
Challenges
Whilst HSBC Group have continued to develop our climate risk framework, our remaining challenges include:
- The diverse range of data sources and data structures needed for climate related reporting drives data accuracy and reliability risks.
- Data limitations on customer assets and supply chains, and methodology gaps, which hinder our ability to assess physical risks accurately.
- Data gaps on customer emissions and transition plan and methodology gaps, which limit our ability to assess transition risks accurately.
- Limitations in our management of net zero alignment risk is due to known and unknown factors, including the limited accuracy and reliability of data, merging methodologies, and the need to develop new tools to better inform decision making.
Resilience Risk
Overview
Resilience risk is the risk that we are unable to provide critical services to our customers, affiliates and counterparties as a result of sustained and significant operational disruption. Resilience risk arises from failures or inadequacies in processes, people, systems or external events.
Key developments in 2023
The Operational and Resilience Risk sub-function seeks to provide robust Risk Steward oversight of the management of risk by our businesses, functions and legal entities. This includes effective and timely independent challenge and expert advice. During the year, we carried out a number of initiatives to seek to keep pace with geopolitical, regulatory and technology changes and to strengthen the management of resilience risk:
- We focused on enhancing our understanding of our risk and control environment, by updating our risk taxonomy and control libraries, including Change Execution risk, and refreshing risk and control assessments.
- We have continued to monitor geopolitical events, such as the Russia-Ukraine and Israel-Hamas wars, for any potential impact they may have on our colleagues and operations.
- We have strengthened the way third-party risk is overseen and managed across all non-financial risks and have enhanced our processes, framework and reporting capabilities to improve the control and oversight of our material third parties by our global businesses and functions in the region.
- We provided analysis and easy-to-access risk and control information and metrics to enable management to focus on non-financial risks in their decision making and appetite setting.
Governance and structure
The Enterprise Risk Management target operating model provides a globally consistent view across resilience risks, strengthening our risk management oversight while operating effectively as part of a simplified non-financial risk structure.
We view resilience risk across seven sub-risk types related to: third party risk; technology and cyber security risk; transaction processing risk; business interruption and incident risk; data risk; change execution risk; and facilities availability, safety and security risk.
Risk appetite and key escalations for resilience risk are reported to the group's Risk Management Meeting, chaired by the Europe Chief Risk Officer, with an escalation path to the HSBC Group Risk Management Meeting and HSBC Group Risk Committee.
Key risk management process
Operational resilience is our ability to anticipate, prevent, adapt, respond to, recover and learn from operational disruption while minimising customer and market impact. Resilience is determined by assessing whether we are able to continue to provide our important business services, within an agreed level. This is achieved via day-to-day oversight and periodic and ongoing assurance, such as deep dive
reviews and controls testing, which may result in challenges being raised to the business by risk stewards. Further challenge is also raised in the form of our risk steward opinion papers to formal governance, at least four times a year. We accept we will not be able to prevent all disruption but we must prioritise investment to continually improve the response and recovery strategies for our important business services.
Business operations continuity
We continue to monitor the Israel-Hamas war and remain ready to take measures to help ensure business continuity should the situation require. There has been no significant impact to our services in nearby markets where the group operates. However in light of potential disruption, businesses and functions in these and nearby markets are reviewing existing plans and responses to minimise any impact.
Cybersecurity Risk
Overview
The threat of cyber-attacks remains a concern for our organisation, as it does across the financial sector and other industries. As cyber-attacks continue to evolve, failure to protect our operations may result in the loss of sensitive data, disruption for our customers and our business, or financial loss. This could have a negative impact on our customers and our reputation, among other risks.
We continue to monitor ongoing geopolitical events and changes to the cyber threat landscape and take proactive measures with the aim to reduce any impact to our customers.
We invest in business and technical controls to help prevent, detect, and mitigate cyber threats. Our cybersecurity controls follow a 'defence in depth' approach, making use of multiple security layers, recognising the complexity of our environment. Our ability to detect and respond to attacks through round-the-clock security operations centre capabilities is intended to help reduce the impact of attacks.
We have a cyber intelligence and threat analysis team, which proactively collects and analyses internal and external cyber information to continuously evaluate threat levels for the most prevalent attack types and their potential outcomes. We actively participate in the broader cyber intelligence community, including by sharing technical expertise in investigations, alongside others in the financial services industry and government agencies around the world.
Key developments in 2023
We have continued to work with our suppliers, financial infrastructure bodies and other non-traditional third parties, in an effort to help reduce the threat of cyber-attacks impacting our business services. We have a third-party security risk management process in place to assess, identify and manage the risks associated with cybersecurity threats to our third-party relationships. The process includes risk-based cybersecurity due diligence reviews that assess third parties' cybersecurity programmes against our standards and requirements.
In 2023, we further strengthened our cyber defences and enhanced our cybersecurity capabilities with the objective to help reduce the likelihood and impact of unauthorised access, security vulnerabilities being exploited, data leakage, third-party security exposure, and advanced malware. These defences build upon a proactive data analytical approach to help identify advanced targeted threats and malicious behaviour.
Governance and structure
We operate a three lines of defence model, aligned to the enterprise risk management framework, to help ensure oversight and challenge of our cybersecurity capabilities and priorities. In the first line of defence, we have risk owners within global businesses and functions who are accountable for identifying and managing cyber risk. They work with cybersecurity control owners to apply the appropriate risk treatment in line with our risk appetite. Our controls are designed to be executed in line with our policies and are reviewed and challenged by our risk stewards representing the second line of defence.They are independently assured by the Global Internal Audit function, the third line of defence.
The assessment and management of our cybersecurity risks across the HSBC Group is led and coordinated by a Global Chief Information Security Officer, supported by regional and business level chief information security officers. Our regional chief information security officer covering Europe and the UK has extensive experience in financial services, security and resilience as well as in strategy, governance, risk management and regulatory compliance. In the event of incidents, the Global Chief Information Security Officer and relevant supporting information security officers are informed by our security operations team and are engaged in alignment with our cybersecurity incident response protocols.
Key risk management processes
We have a robust suite of cybersecurity policies, procedures, and key controls designed to help ensure that the organisation is well managed, with effective oversight and control. This includes but is not limited to defined information security responsibilities for employees, contractors, and third parties, as well as standard procedures for cyber incident identification, investigation, mitigation, and reporting.
Key performance indicators, control effectiveness, and other matters related to cybersecurity, including significant cyber incidents, are presented on a regular basis to various management risk and control committees, including to the Board, the Risk Management Meeting, and across global businesses, functions, and regions. This is done to facilitate ongoing awareness and management of our cybersecurity position.
Our cybersecurity capabilities are regularly assessed against the National Institute of Standards and Technology (NIST) framework by independent third parties and we proactively collaborate with regulators to participate in regular testing activities. In addition, HSBC engages external independent third parties to support our penetration and threat-led penetration testing, which help to identify our vulnerabilities to cyber threats and test our security resilience.
Cyber training and awareness
We understand the important role our people play in protecting against cybersecurity threats. Our mission is to equip every colleague with the appropriate tools and behaviours they need to keep our organisation and customers' data safe. We provide cybersecurity training and awareness to our people, ranging from our top executives to IT developers to front-line relationship managers around the world.
We host an annual cyber awareness month for all colleagues, covering topics such as online safety at home, social media safety, safe hybrid working, and cyber incidents and response. Our dedicated cybersecurity training and awareness team provides a wide range of education and guidance to both customers and our colleagues about how to spot and prevent online fraud.
Regulatory compliance risk
Overview
Regulatory compliance risk is the risk associated with breaching our duty to clients and other counterparties, inappropriate market conduct and breaching related financial services regulatory standards. Regulatory compliance risk arises from the failure to observe relevant laws, codes, rules and regulations and can manifest itself in poor market or customer outcomes and lead to fines, penalties and reputational damage to our business.
Key developments in 2023
The dedicated programme to embed our updated purpose-led conduct approach has concluded. Work to map applicable regulations to our risks and controls continued in 2023 alongside adoption of new tooling to support enterprise-wide horizon scanning for new regulatory obligations and to manage our regulatory reporting inventories. Climate risk has been integrated into regulatory compliance policies and processes, with enhancements being made to the Product Governance Framework and controls in order to ensure the effective consideration of Climate risk, in particular Greenwashing.
In July 2023, the FCA rules and guidance for the new Consumer Duty became effective setting higher expectations for the standard of care firms give to consumers. The rules require that firms consider the needs, characteristics, and objectives of their customers and how
they behave at every stage of the customer journey. As well as enhancing processes to ensure delivery of good retail customer outcomes, the firm has implemented measures to evidence how those outcomes are being met.
Governance and structure
The Compliance function has now been restructured and integrated into a combined Risk and Compliance function. In Europe, a new Chief Compliance Officer has been appointed responsible for all Regulatory and Financial Crime Compliance teams across the region. Regulatory Compliance and Financial Crime teams in all markets and lines of business continue to work to identify and manage regulatory and financial crime compliance risks across the region. They also work together and with all relevant stakeholders to ensure we achieve good conduct outcomes and provide enterprise-wide support on the Compliance risk agenda in collaboration with the regional Risk function.
Key risk management processes
The Europe Regulatory Conduct function is engaged in setting policies, standards and risk appetite to guide the management of regulatory compliance risks. It also devises clear frameworks and support processes to mitigate such risks. The capability provides oversight, review and challenge to the Country Chief Compliance Officers and their teams to help them identify, assess and mitigate regulatory compliance risks, where required. The regulatory compliance risk policies are regularly reviewed. Policies and procedures require the prompt identification and escalation of any actual or potential regulatory breach. Relevant reportable events are escalated to the HSBC Bank plc RMM and to the HSBC Group Risk Committee, as appropriate.
Conduct of business
Our purpose-led conduct approach aims 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. It complements our purpose and values and - together with more formal policies and the tools we have to do our jobs - provides a clear path to achieving our purpose and delivering our strategy. For further information on our Purpose-led Conduct Approach, see www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.
Regulators and governments
We proactively engage with regulators and governments to facilitate strong relationships through virtual and in-person meetings and by responding to consultations individually and jointly via industry bodies.
Financial crime risk
Overview
Financial crime risk is the risk that HSBC's products and services will be exploited for criminal activity. This includes fraud, bribery and corruption, tax evasion, sanctions and export control violations, money laundering, terrorist financing and proliferation financing. Financial crime risk arises from day-to-day banking operations involving customers, third parties and employees.
Key developments in 2023
We regularly review the effectiveness of our financial crime risk management framework, which includes continued consideration of the complex and dynamic nature of sanctions compliance and export control risk. We continued to respond to the economic sanctions and trade restrictions that have been imposed on Russia, including methods used to limit sanctions evasion.
We continued to make progress with several key financial crime risk management initiatives, including:
- We deployed our intelligence-led, dynamic risk assessment capability for customer account monitoring in additional entities and global businesses including in the UK, the Channel Islands and the Isle of Man.
- We deployed a next generation capability to increase our monitoring coverage on correspondent banking activity in France.
- We successfully introduced the required changes to our transaction screening capability to accommodate the global change to payment systems formatting under ISO20022 requirements.
- We made enhancements in response to the rapidly evolving and complex global payments landscape and refined our digital assets and currencies strategy.
Governance and Structure
The Financial Crime function has been restructured in 2023 as part of the continued effort to review the effectiveness of our governance framework to manage financial crime risk. The Regional Head of Financial Crime and HSBC Bank plc Money Laundering Reporting Officer reports now to the Chief Compliance Officer for Europe, while the HSBC Bank plc Risk Management Meeting retains oversight of matters relating to money laundering, fraud, bribery and corruption, tax evasion, sanctions and export control breaches, terrorist financing and proliferation financing.
Key risk management processes
We will not tolerate knowingly conducting business with individuals or entities believed to be engaged in criminal activity. We require everybody in HSBC to play their role in maintaining effective systems and controls to prevent and detect financial crime. Where we believe we have identified suspected criminal activity or vulnerabilities in our control framework, we will take appropriate mitigating action.
We manage financial crime risk because it is the right thing to do to protect our customers, shareholders, staff, the communities in which we operate, as well as the integrity of the financial system on which we all rely. We operate in a highly regulated industry in which these same policy goals are codified in law and regulation. We are committed to complying with the law and regulation of all the markets in which we operate in HSBC Bank plc and applying a consistently high financial crime standard. In cases where material differences exist between the law and regulation of these markets, our policy adopts the highest standard while acknowledging the primacy of local law.
We continue to assess the effectiveness of our end-to-end financial crime risk management framework, and invest in enhancing our operational control capabilities and technology solutions to deter and detect criminal activity. We have simplified our framework and consolidated previously separate financial crime policies into a single global financial crime policy to drive consistency and provide a more holistic assessment of financial crime risk. We further strengthened our financial crime risk taxonomy and control libraries and our monitoring capabilities through technology deployments. We developed more targeted metrics, and continued to seek to enhance our governance and reporting.
We are committed to working in partnership with the wider industry and the public sector in managing financial crime risk, protecting the integrity of the financial system and the communities we serve. We participate in numerous public-private partnerships and information-sharing initiatives around the Europe region, including holding leadership positions in many. In 2023, our focus remained on measures to improve information sharing, including typologies of financial crime and highlighting key tools in the fight against it. Within the European Police agency, Europol, we maintained a presence, and lent our expertise to working groups, as well as advocacy teams focused on how financial crime risk management frameworks can deliver more effective outcomes in detecting and deterring criminal activity, including tackling evolving criminal behaviour such as fraud. We continued our engagement in the Joint Money Laundering Intelligence Task Force in the UK, particularly on sanctions matters.
Safeguarding the financial system
We have continued our efforts to combat financial crime and reduce its impact on our organisation, customers and the communities that we serve. Financial crime includes fraud, bribery and corruption, tax evasion, sanctions and export control violations, money laundering, terrorist financing and proliferation financing.
We are committed to acting with integrity and have built a strong financial crime risk management framework across all global businesses and all countries and territories in which we operate. The financial crime risk framework, which is overseen by the HSBC Bank plc Board, is supported by our financial crime policies that are designed to enable adherence to applicable laws and regulations globally.
Annual mandatory training is provided to all colleagues, with additional targeted training tailored to certain individuals. We carry out regular risk assessments, identifying where we need to respond to evolving financial crime threats, as well as monitor and test our financial crime risk management programme.
We continue to invest in new technology, including through the deployment of a capability to monitor correspondent banking activity, the enhancements to our fraud monitoring capability and our trade screening controls, and the application of machine learning to improve the accuracy and timeliness of our detection capabilities. Our adoption of these new technologies is expected to continue to enhance our ability to respond quickly to unusual activity and be more granular in our risk assessments. This will help us to protect our customers, shareholders, staff, the communities in which we operate and the integrity of the financial system on which we all rely, while providing actionable information to government authorities through our reporting.
Anti-bribery and anti-corruption
Our global Financial Crime policy requires that all activity must be: conducted without intent to bribe or corrupt; reasonable and transparent; considered to not be lavish nor disproportionate to the professional relationship; appropriately documented with business rationale; and authorised at an appropriate level of seniority. There were no concluded, nor live active, legal cases regarding bribery or corruption brought against HSBC or its employees in 2023. The policy requires that we identify and mitigate the risk of our customers and third parties committing bribery or corruption. We utilise anti-money laundering controls, including customer due diligence and transaction monitoring, to identify and mitigate the risk that our customers are involved in bribery or corruption. We perform a bribery risk assessment on all third parties, and impose risk-based controls on the third parties that expose us to bribery or corruption risk.
Model risk
Overview
Model risk is the risk of inappropriate or incorrect business decisions arising from the use of models that have been inadequately designed, implemented or used, or from models that do not perform in line with expectations and predictions.
Model risk arises in both financial and non-financial contexts whenever business decision making includes reliance on models.
Key developments in 2023
We are part of the HSBC's Global Model Risk Management Programme to enhance model risk oversight and controls to satisfy the regulatory requirements published by the PRA.
In addition, we enhanced our risk management in the following areas:
- In response to regulatory capital charges, we redeveloped, validated and submitted to the PRA and ECB our models for the internal ratings-based ('IRB') approach for credit risk, internal model method ('IMM') for counterparty credit risk and internal model approach ('IMA') for market risk. These new models have been built to enhanced standards using improved data as a result of investment in processes and systems. We have continued to improve our risk governance decision making, to ensure senior executives have appropriate oversight and visibility issues impacting model performance and compliance to regulatory requirements.
- We deployed new models impacted by changes to alternative rate setting mechanisms due to the Ibor transition.
- We initiated the development and validation of models impacted by the new Fundamental Review of Trading Book requirements.
- Our businesses and functions continue to be more involved in the prioritisation, development, and management of models, and hiring colleagues who have strong model risk skills. They also put an
enhanced focus on key model risk drivers such as data quality and model methodology.
- We are proposing enhanced model risk appetite measures to support our businesses and functions in managing model risk more efficiently.
- We continued to support businesses in the programme of work related to climate risk and models using advanced analytics and machine learning, continue to be a critical areas of focus in coming years. We also enhanced governance standards and strengthened skills to increase the level of review and challenge provided.
- We continued the transformation of the Model Risk Management team, with further enhancements to the independent model validation processes, including new systems and working practices. Key senior hires were made during the year to lead the business areas and regions to strengthen oversight and expertise within the function.
Governance and structure
The group's Model Risk Committee is chaired by our Chief Risk Officer and provides oversight of model risk. The committee includes senior leaders and risk owners across the lines of business and Risk and focuses on model-related concerns and key model risk metrics.
Key risk management processes
We use a variety of modelling approaches, including regression, simulation, sampling, machine learning and judgmental scorecards for a range of business applications. These activities include customer selection, product pricing, financial crime transaction monitoring, creditworthiness evaluation and financial reporting. HSBC Bank plc responsibility for managing model risk is delegated from the group's RMM to the group's Model Risk Committee, which is chaired by the group's Chief Risk Officer. This committee regularly reviews our model risk management policies and procedures, and requires the first line of defence to demonstrate comprehensive and effective controls based on a library of model risk controls provided by Model Risk Management.
Model Risk Management also reports on model risk to senior management on a regular basis through the use of risk management information, risk appetite metrics and top and emerging risks.
We regularly review the effectiveness of these processes, including the model oversight committee structure, to help ensure appropriate understanding and ownership of model risk is embedded in the businesses and functions.
Insurance manufacturing operations risk Overview
The key risks for our insurance manufacturing operations are market risks, in particular interest rate and equity, credit risks and insurance underwriting risks. These have a direct impact on the financial results and capital positions of the insurance operations. Liquidity risk, whilst significant in other parts of the bank, is less material for our insurance operations.
HSBC's insurance business
We sell insurance products through a range of channels including our branches, insurance sales forces, direct channels and third-party distributors. The majority of sales are through an integrated bancassurance model that provides insurance products principally for customers with whom we have a banking relationship, although the proportion of sales though digital is increasing.
For the insurance products we manufacture, the majority of sales are savings, universal life and protection contracts.
We choose to manufacture these insurance products in HSBC subsidiaries based on an assessment of operational scale and risk appetite. Manufacturing insurance allows us to retain the risks and rewards associated with writing insurance contracts by keeping part of the underwriting profit and investment income within the HSBC Group.
Where we do not have the risk appetite or operational scale to be an effective insurance manufacturer, we engage with a small number of
leading external insurance companies in order to provide insurance products to our customers. These arrangements are generally structured with our exclusive strategic partners and earn the group a combination of commissions, fees and a share of profits. We distribute insurance products in all of our geographical regions.
Insurance products are sold through all global businesses, but predominantly by WPB and CMB through our branches and direct channels.
Insurance manufacturing operations risk management
Key developments in 2023
The insurance manufacturing subsidiaries follow the HSBC Group's risk management framework. In addition, there are specific policies and practices relating to the risk management of insurance contracts, which have not changed materially over 2023. During the year, there was continued market volatility observed across interest rates, equity and credit markets and foreign exchange rates.
This was predominantly driven by geopolitical factors and wider inflationary concerns. One key area of risk management focus during 2023 was the implementation of the new accounting standard, IFRS 17 'Insurance Contracts' (which became effective on 1 January 2023). Given the fundamental change the new accounting standard represented in insurance accounting, this change presented additional financial reporting and model risks for the HSBC Group which were managed via the IFRS 17 implementation project.
Governance
(Audited)
Insurance manufacturing risks are managed to a defined risk appetite, which is aligned to the bank's risk appetite and risk management framework, including the three lines of defence model. For details on the governance framework, see page 22. The HSBC Group Insurance Risk Management Meeting oversees the control framework globally and is accountable to the WPB Risk Management Meeting on risk matters relating to the insurance business.
The monitoring of the risks within the insurance operations is carried out by Insurance Risk teams. The Bank's risk stewardship functions support the Insurance Risk teams in their respective areas of expertise.
Stress and scenario testing
(Audited)
Stress testing forms a key part of the risk management framework for the insurance business. We participate in local and HSBC Group-wide regulatory stress tests, including, as may be required from time to time, the Bank of England stress test of the banking system, HSBC's Group Internal Stresses, and individual country insurance regulatory stress tests. The results of these stress tests and the adequacy of management action plans to mitigate these risks are considered in the HSBC Bank plc ICAAP and the entities' regulatory Own Risk and Solvency Assessments ('ORSAs'), which are produced by all material entities.
Management and mitigation of key risk types
Market risk
(Audited)
All our insurance manufacturing subsidiaries have market risk mandates and limits that specify the investment instruments in which they are permitted to invest and the maximum quantum of market risk that they may retain. They manage market risk by using, among others, some or all of the techniques listed below, depending on the nature of the contracts written:
- We are able to adjust bonus rates to manage the liabilities to policyholders for products with participating features. The effect is that a significant portion of the market risk is borne by the policyholder.
-
We use asset and liability matching where asset portfolios are structured to support projected liability cash flows. The Group manages its assets using an approach that considers asset quality, diversification, cash flow matching, liquidity, volatility and target investment return. We use models to assess the effect of a range of future scenarios on the values of financial assets and associated liabilities, and ALCOs employ the outcomes in determining how best to structure asset holdings to support liabilities.
- We use derivatives and other financial instruments to protect against adverse market movements.
- We design new products to mitigate market risk, such as changing the investment return sharing portion between policyholders and the shareholder.
Credit risk
Our insurance manufacturing subsidiaries also have credit risk mandates and limits within which they are permitted to operate, which consider the credit risk exposure, quality and performance of their investment portfolios. Our assessment of the creditworthiness of issuers and counterparties is based primarily upon internationally recognised credit ratings and other publicly available information.
Stress testing is performed on investment credit exposures using credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk. These include a credit report containing a watch-list of investments with current credit concerns, primarily investments that may be at risk of future impairment or where high concentrations to counterparties are present in the investment portfolio. Sensitivities to credit spread risk are assessed and monitored regularly.
Capital and liquidity risk
Capital risk for our insurance manufacturing subsidiaries is assessed in the group's ICAAP based on their financial capacity to support the risks to which they are exposed. Capital adequacy is assessed on both the group's economic capital basis, and the relevant local insurance regulatory basis.
Risk appetite buffers are set to ensure that the operations are able to remain solvent, allowing for business-as-usual volatility and extreme but plausible stress events.
Liquidity risk is less material for the insurance business. It is managed by cash flow matching and maintaining sufficient cash resources, investing in high credit-quality investments with deep and liquid markets, monitoring investment concentrations and restricting them where appropriate, and establishing committed contingency borrowing facilities.
Insurance manufacturing subsidiaries complete quarterly liquidity risk reports and an annual review of the liquidity risks to which they are exposed.
Insurance underwriting risk
Our insurance manufacturing subsidiaries primarily use the following frameworks and processes to manage and mitigate insurance underwriting risks:
- a formal approval process for launching new products or making changes to products;
- a product pricing and profitability framework, which requires initial and ongoing assessment of the adequacy of premiums charged on new insurance contracts to meet the risks associated with them;
- a framework for customer underwriting;
- reinsurance, which cedes risks to third-party reinsurers to keep risks within risk appetite, reduce volatility and improve capital efficiency; and
- oversight of expense and reserve risks by entity Financial Reporting Committees.
Insurance manufacturing operations risk in 2023
Measurement
The following table shows the composition of assets and liabilities by contract type.
|
Balance sheet of insurance manufacturing subsidiaries by type of contract |
|||||
|
(Audited) |
|||||
|
|
Life Direct Participating and investment DPF contracts2 |
Life other3 |
Other contracts4 |
Shareholder assets and liabilities |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
|
Financial assets |
21,284 |
101 |
942 |
1,331 |
23,658 |
|
- trading assets |
|
|
|
|
|
|
- financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
13,101 |
78 |
935 |
776 |
14,890 |
|
- derivatives |
92 |
- |
- |
5 |
97 |
|
- financial investments - at amortised cost |
218 |
- |
- |
14 |
232 |
|
- financial investments at fair value through other comprehensive income |
6,947 |
- |
- |
452 |
7,399 |
|
- other financial assets5 |
926 |
23 |
7 |
84 |
1,040 |
|
Insurance contract assets |
- |
41 |
- |
- |
41 |
|
Reinsurance contract assets |
- |
145 |
- |
- |
145 |
|
Other assets and investment properties |
748 |
75 |
- |
82 |
905 |
|
Total assets at 31 Dec 2023 |
22,032 |
362 |
942 |
1,413 |
24,749 |
|
Liabilities under investment contracts designated at fair value |
- |
- |
1,002 |
- |
1,002 |
|
Insurance contract liabilities |
20,289 |
306 |
- |
- |
20,595 |
|
Reinsurance contract liabilities |
- |
33 |
- |
- |
33 |
|
Deferred tax |
- |
- |
- |
2 |
2 |
|
Other liabilities |
- |
- |
- |
1,966 |
1,966 |
|
Total liabilities at 31 Dec 2023 |
20,289 |
339 |
1,002 |
1,968 |
23,598 |
|
Total equity at 31 Dec 2023 |
- |
- |
- |
1,151 |
1,151 |
|
Total liabilities and equity at 31 Dec 2023 |
20,289 |
339 |
1,002 |
3,119 |
24,749 |
|
Financial assets |
20,623 |
93 |
883 |
1,156 |
22,755 |
|
- trading assets |
- |
- |
- |
- |
- |
|
- financial assets designated and otherwise mandatorily measured at fair value through profit or loss |
11,562 |
85 |
883 |
634 |
13,164 |
|
- derivatives |
232 |
- |
- |
11 |
243 |
|
- financial investments - at amortised cost |
298 |
- |
- |
20 |
318 |
|
- financial investments at fair value through other comprehensive income |
7,497 |
- |
- |
394 |
7,891 |
|
- other financial assets5 |
1,034 |
8 |
- |
97 |
1,139 |
|
Insurance contract assets |
- |
43 |
- |
- |
43 |
|
Reinsurance contract assets |
- |
121 |
- |
- |
121 |
|
Other assets and investment properties |
726 |
13 |
- |
131 |
870 |
|
Total assets at 31 Dec 20221 |
21,349 |
270 |
883 |
1,287 |
23,789 |
|
Liabilities under investment contracts designated at fair value |
- |
- |
944 |
- |
944 |
|
Insurance contract liabilities |
19,719 |
285 |
- |
- |
20,004 |
|
Reinsurance contract liabilities |
- |
33 |
- |
- |
33 |
|
Deferred tax |
- |
- |
- |
- |
- |
|
Other liabilities |
- |
- |
- |
1,837 |
1,837 |
|
Total liabilities at 31 Dec 20221 |
19,719 |
318 |
944 |
1,837 |
22,818 |
|
Total equity at 31 Dec 20221 |
- |
- |
- |
971 |
971 |
|
Total liabilities and equity at 31 Dec 20221 |
19,719 |
318 |
944 |
2,808 |
23,789 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
2 'Life direct participating and investment DPF' contracts are substantially measured under the variable fee approach measurement model.
3 'Life other' contracts are measured under the general measurement model and mainly includes protection insurance contracts as well as reinsurance contracts. The reinsurance contracts primarily provide diversification benefits over the life direct participating and investment discretionary participation feature ('DPF') contracts.
4 'Other contracts' includes investment contracts for which HSBC does not bear significant insurance risk.
5 'Other financial assets' comprise mainly loans and advances to banks, cash and intercompany balances with other non-insurance legal entities.
Key risk types
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting the bank's capital or profit. Market factors include interest rates, equity and growth assets, credit spreads and foreign exchange rates.
Our exposure varies depending on the type of contract issued. Our most significant life insurance products are investment contracts with discretionary participating features ('DPF') issued in France. These products typically include some form of capital guarantee or guaranteed return on the sums invested by the policyholders, to which discretionary bonuses are added if allowed by the overall performance of the funds. These funds are primarily invested in fixed
interest assets with a proportion allocated to other asset classes, to provide customers with the potential for enhanced returns.
DPF products expose the bank to the risk of variation in asset returns, which will impact our participation in the investment performance. In addition, in some scenarios the asset returns can become insufficient to cover the policyholders' financial guarantees, in which case the shortfall has to be met by the bank. Amounts are held against the cost of such guarantees, calculated by stochastic modelling in the larger entities. The cost of such guarantees are generally not material and form part of insurance fulfilment cash flows.
For unit-linked contracts, market risk is substantially borne by the policyholder, but some market risk exposure typically remains as fees earned are related to the market value of the linked assets.
Sensitivities
(Audited)
The following table provides the impacts on the contractual service margin, profit after tax and equity of our insurance manufacturing subsidiaries from reasonably possible effects of changes in selected
interest rate, equity price and growth assets scenarios for the year.
These sensitivities are prepared in accordance with current IFRS Accounting Standards and are based on changing one assumption at a time with other variables being held constant which in practice could be correlated. All policies and underline investments are in respective functional currencies, no material exposure to FX change.
Due in part to the impact of the cost of guarantees and hedging strategies, which may be in place, the relationship between the contractual service margin, profit after tax and total equity and the risk factors is non-linear. Therefore, the results disclosed should not be extrapolated to measure sensitivities to different levels of stress. For the same reason, the impact of the stress is not necessarily symmetrical on the upside and downside. The sensitivities are stated before allowance for management actions, which may mitigate the effect of changes in the market environment. The sensitivities presented allow for adverse changes in policyholder behaviour that may arise in response to changes in market rates.
The method used for deriving sensitivity information and significant variables did not change from the previous period.
|
|
|
|
|
|
|
|
|
Sensitivity of the group's insurance manufacturing subsidiaries to market risk factors3 |
||||||
|
|
2023 |
20221 |
||||
|
|
Effect on profit after tax |
Effect on CSM |
Effect on total equity |
Effect on profit after tax |
Effect on CSM |
Effect on total equity |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
+100 basis point parallel shift in yield curves |
1 |
5 |
(25) |
4 |
29 |
(22) |
|
- Insurance & Reinsurance Contracts |
6 |
8 |
6 |
7 |
29 |
7 |
|
- Financial Instruments |
(5) |
(3) |
(31) |
(3) |
- |
(29) |
|
-100 basis point parallel shift in yield curves |
(8) |
(59) |
18 |
(13) |
(109) |
13 |
|
- Insurance & Reinsurance Contracts |
(13) |
(62) |
(13) |
(16) |
(109) |
(16) |
|
- Financial Instruments |
5 |
3 |
31 |
3 |
- |
29 |
|
+100 basis point shift in credit spreads |
(3) |
(34) |
(30) |
(3) |
(30) |
(29) |
|
- Insurance & Reinsurance Contracts |
(2) |
(34) |
(2) |
(2) |
(30) |
(2) |
|
- Financial Instruments |
(1) |
- |
(28) |
(1) |
- |
(27) |
|
-100 basis point shift in credit spreads |
4 |
36 |
31 |
4 |
57 |
30 |
|
- Insurance & Reinsurance Contracts |
3 |
36 |
3 |
3 |
57 |
3 |
|
- Financial Instruments |
1 |
- |
28 |
1 |
- |
27 |
|
10% increase in growth assets2 |
32 |
65 |
32 |
26 |
78 |
26 |
|
- Insurance & Reinsurance Contracts |
6 |
65 |
6 |
4 |
78 |
4 |
|
- Financial Instruments |
26 |
- |
26 |
22 |
- |
22 |
|
10% decrease in growth assets2 |
(32) |
(64) |
(32) |
(28) |
(78) |
(28) |
|
- Insurance & Reinsurance Contracts |
(6) |
(64) |
(6) |
(5) |
(78) |
(5) |
|
- Financial Instruments |
(26) |
- |
(26) |
(23) |
- |
(23) |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
2 'Growth assets' primarily comprise equity securities and investment properties and variability in growth asset fair value constitutes a market risk to group's insurance manufacturing subsidiaries.
3 Sensitivities presented for 'Insurance & Reinsurance Contracts' includes the impact of the sensitivity stress on underlying assets held to support insurance and reinsurance contracts; sensitivities presented for 'Financial Instruments' includes the impact of the sensitivity stress on other financial instruments, primarily shareholder assets.
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or counterparty fails to meet their obligation under a contract. It arises in two main areas for our insurance manufacturers:
- risk associated with credit spread volatility and default by debt security counterparties after investing premiums to generate a return for policyholders and shareholders; and
- risk of default by reinsurance counterparties and non-reimbursement for claims made after ceding insurance risk.
The amounts outstanding at the balance sheet date in respect of these items are shown in the table on page 84.
The credit quality of the reinsurers' share of liabilities under insurance contracts is assessed as 'satisfactory' or higher as defined on page 31, with 100% of the exposure being neither past due nor impaired. Credit risk on assets supporting unit-linked liabilities is predominantly borne by the policyholder; therefore our exposure is primarily related to liabilities under non-linked insurance and investment contracts and shareholders' funds.
The credit quality of these financial assets is included in the table on page 54.
The risk associated with credit spread volatility is to a large extent mitigated by holding debt securities to maturity, and sharing a degree of credit spread experience with policyholders.
Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though solvent, either does not have sufficient financial resources available to meet its obligations when they fall due, or can secure them only at excessive cost. Liquidity risk may be able to be shared with policyholders for products with participating features.
The remaining contractual maturity of investment contract liabilities is included within 'Financial liabilities designated at fair value' in Note 23.
The amounts of insurance contract liabilities that are payable on demand are set out by the product grouping below:
|
Amounts Payable on Demand |
||||
|
(Audited) |
|
|
|
|
|
|
2023 |
20221 |
||
|
|
Amounts Payable on Demand |
Carrying Amount for these Contracts |
Amounts Payable on Demand |
Carrying Amount for these Contracts |
|
|
£m |
£m |
£m |
£m |
|
Life direct participating and investment DPF contracts |
17,880 |
20,289 |
20,164 |
19,719 |
|
Life other contracts |
- |
306 |
51 |
285 |
|
At 31 Dec |
17,880 |
20,595 |
20,215 |
20,004 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
Insurance underwriting risk
Description and exposure
Insurance underwriting risk is the risk of loss through adverse experience, in either timing or amount, of insurance underwriting parameters (non-economic assumptions). These parameters include mortality, morbidity, longevity, lapse and expense rates.
The principal risk we face is that, over time, the cost of the contract, including claims and benefits, may exceed the total amount of premiums and investment income received.
The table on page 84 analyses our insurance manufacturing exposures by type of contract.
The insurance underwriting risk profile and related exposures remain largely consistent with those observed at 31 December 2022.
Sensitivities
The table below shows the sensitivity of the CSM, profit and total equity to reasonably foreseeable changes in non-economic assumptions across all our insurance manufacturing subsidiaries.
These sensitivities are prepared in accordance with current IFRS Accounting Standards, which have changed following the adoption of IFRS 17 'Insurance Contracts', effective from 1 January 2023. Further information about the adoption of IFRS 17 is provided on page 186. Mortality and morbidity risk is typically associated with life insurance contracts. The effect on profit of an increase in mortality or morbidity depends on the type of business being written.
Sensitivity to lapse rates depends on the type of contracts being written. An increase in lapse rates typically has a negative effect on CSM (and therefore expected future profits)due to the loss of future income on the lapsed policies. However, some contract lapses have a positive effect on profit due to the existence of policy surrender charges. We are most sensitive to a change in lapse rates in France.
Expense rate risk is the exposure to a change in the allocated cost of administering insurance contracts. To the extent that increased expenses cannot be passed on to policyholders, an increase in expense rates will have a negative effect on our profits. This risk is generally greatest for smaller entities.
The impact of changing insurance underwriting risk factors is primarily absorbed within the CSM, unless contracts are onerous in which case the impact is directly to profits. The impact of changes to the CSM is released to profits over the expected coverage periods of the related insurance contracts.
|
|
|
|
|
|
|
|
Sensitivity of group's insurance manufacturing subsidiaries to insurance underwriting risk factors |
|||||
|
(Audited) |
|||||
|
|
At 31 Dec 2023 |
||||
|
|
Effect on CSM (gross)2 |
Effect on profit after tax (gross)2 |
Effect on profit after tax (net)3 |
Effect on total equity (gross)2 |
Effect on total equity (net)3 |
|
|
£m |
£m |
£m |
£m |
£m |
|
10% increase in mortality and/or morbidity rates |
(61) |
(11) |
(5) |
(11) |
(5) |
|
10% decrease in mortality and/or morbidity rates |
67 |
4 |
4 |
4 |
4 |
|
10% increase in lapse rates |
(60) |
(8) |
(8) |
(8) |
(8) |
|
10% decrease in lapse rates |
66 |
5 |
7 |
5 |
7 |
|
10% increase in expense rates |
(28) |
(4) |
(3) |
(4) |
(3) |
|
10% decrease in expense rates |
28 |
2 |
3 |
2 |
3 |
|
|
At 31 Dec 20221 |
||||
|
10% increase in mortality and/or morbidity rates |
(67) |
(5) |
(4) |
(5) |
(4) |
|
10% decrease in mortality and/or morbidity rates |
72 |
1 |
3 |
1 |
3 |
|
10% increase in lapse rates |
(53) |
(5) |
(5) |
(5) |
(5) |
|
10% decrease in lapse rates |
56 |
4 |
5 |
4 |
5 |
|
10% increase in expense rates |
(26) |
(2) |
(2) |
(2) |
(2) |
|
10% decrease in expense rates |
26 |
1 |
1 |
1 |
1 |
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.
2 The 'gross' sensitivities impacts are provided before considering the impacts of reinsurance contracts held as risk mitigation.
3 The 'net' sensitivities impacts are provided before considering the impacts of reinsurance contracts held as risk mitigation.
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