Independent auditors' report to
the members of HSBC Bank plc
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Report on the audit of the
financial statements
Opinion
In our opinion, HSBC Bank plc's
group financial statements and company financial statements (the
'financial statements'):
- give a true and
fair view of the state of the group's and of the company's affairs
as at 31 December 2023 and of the group's profit and the group's
and company's cash flows for the year then ended;
- have been
properly prepared in accordance with UK-adopted international
accounting standards as applied in accordance with the provisions
of the Companies Act 2006; and
- have been
prepared in accordance with the requirements of the Companies Act
2006.
We have audited the financial
statements, included within the Annual Report and Accounts 2023
(the 'Annual Report'), which comprise the:
- consolidated
balance sheet as at 31 December 2023;
- consolidated
income statement and consolidated statement of comprehensive income
for the year then ended;
- consolidated
statement of changes in equity for the year then ended;
- consolidated
statement of cash flows for the year then ended;
- HSBC Bank plc
balance sheet as at 31 December 2023;
- HSBC Bank plc
statement of changes in equity for the year then ended;
- HSBC Bank plc
statement of cash flows for the year then ended; and
- notes on the
financial statements, comprising material accounting policies and
other explanatory information.
Certain notes to the financial
statements have been presented elsewhere in the Annual Report,
rather than in the notes to the financial statements. These are
cross-referenced from the financial statements and are identified
as '(Audited)'. The relevant disclosures are included in the Risk
review section on pages 22 to 86.
Our opinion is consistent with our
reporting to the Audit Committee.
Separate opinion in relation to
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union
As explained in note 1.1(a) to the
financial statements, the group and company, in addition to
applying UK-adopted international accounting standards, have also
applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
In our opinion, the group and
company financial statements have been properly prepared in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
Separate opinion in relation to
IFRSs as issued by the IASB
As explained in note 1.1(a) to the
financial statements, the group and company, in addition to
applying UK-adopted international accounting standards, have also
applied international financial reporting standards ('IFRSs') as
issued by the International Accounting Standards Board ('IASB')
('IFRS Accounting Standards').
In our opinion, the group and
company financial statements have been properly prepared in
accordance with IFRS Accounting Standards
Basis for opinion
We conducted our audit in
accordance with International Standards on Auditing (UK) ('ISAs
(UK)'), International Standards on Auditing issued by the
International Auditing and Assurance Standards Board ('ISAs') and
applicable law. Our responsibilities under ISAs (UK) and ISAs are
further described in the Auditors' responsibilities for the audit
of the financial statements section of our report. We believe that
the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Independence
We remained independent of the
group in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, which includes
the FRC's Ethical Standard, as applicable to listed public interest
entities, and the International Code of Ethics for Professional
Accountants (including International Independence Standards) issued
by the International Ethics Standards Board for Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and
belief, we declare that non-audit services prohibited by either the
FRC's Ethical Standard or Article 5(1) of Regulation (EU) No
537/2014 were not provided.
Other than those disclosed in note
6, we have provided no non-audit services
to the company or its controlled undertakings in the period under
audit.
Our audit approach
Overview
Audit scope
- We performed
audits of the complete financial information of two Components,
namely the UK non-ring-fenced bank ('UK NRFB') and HSBC Continental
Europe ('HBCE'). For five further Components, specific audit
procedures were performed over selected significant account
balances and financial statement note disclosures.
Key audit matter
- Expected credit
losses - Impairment of loans and advances to customers (group and
company)
Materiality
- Overall group
materiality: £231 million (2022: £230 million) based on 1% of Tier
1 capital.
- Overall company
materiality: £129 million (2022: £133 million) based on 1% of Tier
1 capital.
- Performance
materiality: £174 million (2022: £172 million) (group) and £97
million (2022: £99 million) (company).
The scope of our audit
As part of designing our audit, we
determined materiality and assessed the risks of material
misstatement in the financial statements.
Key audit matters
Key audit matters are those
matters that, in the auditors' professional judgement, were of most
significance in the audit of the financial statements of the
current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
the auditors, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all
risks identified by our audit.
Held for sale accounting (group),
recognition of deferred tax assets (group) and impairment of
investment in subsidiaries (company), which were key audit matters
last year, are no longer included. The judgement in relation to
held for sale accounting (group) has reduced following the
completion of the disposal of the HBCE retail banking business on 1
January 2024. The judgement associated with the recognition of
deferred tax assets has also reduced as the forecast cash flows of
HBCE have improved and there is less uncertainty on the underlying
assumptions.
The risk of impairment of
investment in subsidiaries (company) has reduced due to a
significantly improved Value in Use assessment resulting in a lower
risk of material misstatement.
Expected credit losses - Impairment of loans and advances to
customers (group and company)
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Determining expected credit losses
('ECL') involves management judgement and is subject to a high
degree of estimation uncertainty. Management makes various
assumptions when estimating ECL. The significant assumptions that
we focused on in our audit included those with greater levels of
management judgement and for which variations had the most
significant impact on ECL. These included assumptions made in
determining forward looking economic scenarios and their
probability weightings (specifically the central and downside
scenarios given these have the most material impact on ECL) and
estimating expected cash flows and collateral valuations to assess
the ECL of credit impaired wholesale exposures.
The level of estimation
uncertainty and judgement has remained high during 2023 as a result
of the uncertain macroeconomic and geopolitical environment, high
levels of inflation and the rising global interest rate
environment.
This leads to uncertainty around
judgements made in determining the severity and probability
weighting of macroeconomic variable forecasts across the different
economic scenarios used in ECL models, and in the estimation of
expected cash flows and collateral valuations on credit impaired
stage 3 exposures.
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We held discussions with the Audit
Committee covering governance and controls over ECL. We discussed a
number of areas including:
- the severity of
forward looking economic scenarios, and their related probability
weightings;
- the valuation of
credit impaired exposures, with focus on assumptions made in the
recoverability of significant wholesale exposures; and
- the disclosures made
in relation to ECL.
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We assessed the design and
effectiveness of governance and controls over the estimation of
ECL. We observed management's review and challenge in governance
forums for (1) the determination of forward looking economic
scenarios and their probability weightings and (2) the assessment
of ECL for Wholesale portfolios, including the assessment of ECL
calculated on high value credit impaired stage 3
exposures.
We also tested controls
over:
- the input of critical
data into source systems and the flow and transformation of
critical data elements from source systems to impairment models and
management judgemental adjustments;
- the calculation and
approval of management's judgemental adjustments to modelled
outcomes;
- the identification of
credit impairment triggers; and
- the calculation and
approval of significant individual impairments relating to high
value wholesale credit impaired exposures.
We involved our economic experts
in assessing the significant assumptions made in determining the
severity and probability weighting of forward looking economic
scenarios, with particular focus on the downside and consensus
central scenarios. These assessments considered the sensitivity of
ECL to variations in the severity and probability weighting of
macroeconomic variables for different economic
scenarios.
We involved our modelling
specialists in assessing the appropriateness of the significant
assumptions and methodologies used for models and independently
reperformed the calculations for a sample of those models. We
further considered whether the judgements made in selecting the
significant assumptions would give rise to indicators of possible
management bias.
We tested a sample of Credit Risk
Ratings ('CRRs') applied to wholesale exposures and for certain
credit impaired wholesale exposures we tested calculations made in
estimating expected cash flows and challenged assumptions used by
management. Where necessary, we involved our valuation specialists
to assist in testing the valuation of collateral for a sample of
wholesale credit impaired exposures.
In addition, we performed
substantive testing over:
- the compliance
of ECL methodologies and assumptions with the requirements of IFRS
9;
- the
appropriateness and application of the quantitative and qualitative
criteria used to assess significant increases in credit risk;
and
- a sample of
critical data elements used in the year end ECL
calculation.
We evaluated and tested the Credit
Risk disclosures made in the financial statements.
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- Credit risk
page 30 - 68
Audit Committee Report, page
90
Note 1.2(d) Financial instruments
measured at amortised cost, page 122.
Note 1.2(i) Impairment of
amortised cost and FVOCI financial assets, page 123.
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How we tailored the audit
scope
We tailored the scope of our audit
to ensure that we performed enough work to be able to give an
opinion on the financial statements as a whole, taking into account
the structure of the group and the company, the accounting
processes and controls, and the industry in which they
operate.
The risks that HSBC Bank plc faces
are diverse, with the interdependencies between them being numerous
and complex. In performing our risk assessment we engaged with a
number of stakeholders to ensure we appropriately understood and
considered these risks and their interrelationships. This included
stakeholders within HSBC and our own experts within PwC. This
engagement covered external factors across the geopolitical,
macroeconomic, regulatory and accounting landscape, the impact of
climate change risk, as well as the internal environment at HSBC,
driven by strategy and transformation.
We evaluated and challenged
management's assessment of the impact of climate change risk
including their conclusion that there is no material impact on the
financial statements. In making this evaluation we considered
management's use of stress testing and scenario analysis to arrive
at the conclusion that there is no material impact on the financial
statements. We considered management's assessment on the areas in
the financial statements most likely to be impacted by climate
risk, including:
- the impact on
ECL on loans and advances to customers, for both physical and
transition risk;
- the forecast
cash flows from management's five year business plan and long term
growth rates used in estimating recoverable amounts as part of
impairment assessments of investments in subsidiaries;
- the impact of
climate related terms on the solely payments of principal and
interest test for classification and measurement of loans and
advances to customers; and
- climate risks
relating to contingent liabilities as HSBC faces increased
reputational, legal and regulatory risk as it progresses towards
its climate ambition.
HSBC Bank plc's progress on their
group-wide ESG targets is not included within the scope of this
audit.
Scoping
HSBC Bank plc operates as one
integrated business with two main hubs in London and Paris. The
London hub consists of the UK NRFB and the Paris hub comprises
HBCE, its EU branches and its subsidiaries in Malta and
Luxembourg.
Through our risk assessment, we
tailored the scope of our audit to ensure that we performed enough
work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the
company, the accounting processes and controls, and the industry in
which they operate. The risks of material misstatement can be
reduced to an acceptable level by testing the most financially
significant entities within the group and those that drive
particular significant risks identified as part of our risk
assessment (collectively 'Components'). This ensures that
sufficient coverage has been obtained for each financial statement
line item ('FSLI'). We continually assessed risks and changed the
scope of our audit where necessary.
In establishing the overall
approach to the group and company audit, we scoped using the
balances relevant to each Component and determined the type of work
that needed to be performed over the Components by us, as the group
engagement team, or auditors within PwC UK and from other PwC
network firms operating under our instruction ('Component
auditors').
As a result of our scoping for the
group we determined that audits of the complete financial
information of the UK NRFB and HBCE were necessary, owing to their
financial significance. We instructed Component auditors, PwC UK
and PwC France to perform the audits of these
Components. We then considered the
significance of other Components in relation to primary statement
account balances and note disclosures. In doing this we also
considered the presence of any significant audit risks and other
qualitative factors (including history of misstatements through
fraud or error). For five Components, specific audit procedures
were performed over selected significant account balances. For the
remainder, the risk of material misstatement was mitigated through
group audit procedures including testing of entity level controls
and group and company level analytical review
procedures.
In June 2023, we held a meeting in
London with the partners and senior staff from the group audit team
and the PwC teams who undertake audits of the financially
significant Components. The meeting focused primarily on assessing
our approach to auditing the group's businesses, changes at HSBC
Bank plc and in our PwC teams, and how we continue to innovate and
improve the quality of the audit. We also discussed our significant
audit risks.
We were in active dialogue
throughout the year with the partners and teams responsible for the
UK NFRB and HBCE audits, including consideration of how they
planned and performed their work. Senior members of our team
undertook at least one in-person site visit prior to the year end
where a full scope audit was requested. Our interactions with
Component auditors included regular communication throughout the
audit, including the issuance of instructions, a review of working
papers relating to the key audit matters, in-person site visits to
inspect their working papers throughout the different phases of the
audit and formal clearance meetings. This enabled us to effectively
oversee and monitor the quality of the audit carried out by the
Component auditors. The group audit engagement partner was also the
partner on the audit of the UK NRFB significant
Component.
Certain balances were audited by
the PwC HSBC Holdings plc Group engagement team where they related
to Group level accounts. HSBC has entity level controls that have a
pervasive influence across the Group, as well as other global and
regional governance and controls over aspects of financial
reporting, such as those operated by the Global Risk function for
expected credit losses. A significant amount of IT and operational
processes and controls relevant to financial reporting are
undertaken in operations centres run by Digital Business Services
('DBS'). Whilst these operations centres are not separate
Components, the IT and operational processes and controls are
relevant to the financial information of HSBC Bank plc. Financial
reporting processes and controls are also performed centrally in
HSBC Bank plc's finance operations centres ('Finance Operations'),
including the impairment assessment of investment in subsidiaries
and intangible assets, the consolidation of HSBC Bank plc's
results, the preparation of financial statements, and certain
management oversight controls relevant to financial
reporting.
HSBC Holdings plc Group-wide
processes or processes in DBS and Finance Operations are subject to
specified audit procedures or an audit over specific FSLIs. These
procedures primarily relate to testing of IT general controls,
forward looking economic scenarios for ECL, operating expenses,
intangible assets, valuation of financial instruments, intercompany
eliminations, reconciliations, consolidation and payroll. For these
areas, we either performed audit work ourselves, or directed and
provided oversight of the audit work performed by other PwC teams.
This audit work, together with analytical review procedures and
assessing the outcome of local external audits, also mitigated the
risk of material misstatement for balances in entities that were
not financially significant components.
Materiality
The scope of our audit was
influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Based on our professional
judgement, we determined materiality for the financial statements
as a whole as follows:
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Overall materiality
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£231 million (2022: £230 million).
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£129 million (2022: £133 million).
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How we determined it
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1% of Tier 1 capital
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1% of Tier 1 capital
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Rationale for benchmark
applied
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Tier 1 capital is used as a
benchmark as it is considered to be a key driver of HSBC Bank plc's
decision making process and has been a primary focus for
regulators.
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Tier 1 capital is used as a
benchmark as it is considered to be a key driver of HSBC Bank plc's
decision making process and has been a primary focus for
regulators.
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Tier 1 capital was also used as
the benchmark in the prior year. The basis for determining
materiality was re-evaluated and we considered other benchmarks,
such as profit before tax. Tier 1 capital is a common benchmark for
wholly owned banking subsidiaries, because of the focus on
financial stability. Tier 1 capital was determined to be the most
appropriate benchmark given the importance of this metric to the
HSBC Bank plc decision making process and to principal users of the
financial statements, including the ultimate holding company HSBC
Holdings plc.
For each Component in the scope of
our group audit, we allocated a materiality that was less than our
overall group materiality. The range of materiality allocated
across Components was £6 million to £117 million. Certain
Components were audited to a local statutory audit materiality that
was also less than our overall group materiality.
We use performance materiality to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
overall materiality. Specifically, we use performance materiality
in determining the scope of our audit and the nature and extent of
our testing of account balances, classes of transactions and
disclosures, for example in determining sample sizes. Our
performance materiality was 75% (2022: 75%) of overall materiality,
amounting to £174 million (2022: £172 million) for the group
financial statements and £97 million (2022: £99 million) for the
company financial statements.
In determining the performance
materiality, we considered a number of factors - the history of
misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the
upper end of our normal range was appropriate.
We agreed with the Audit Committee
that we would report to them misstatements identified during our
audit above £12 million (group audit) (2022: £11 million) and £6
million (company audit) (2022: £6 million) as well as misstatements
below those amounts that, in our view, warranted reporting for
qualitative reasons.
Conclusions relating to going
concern
Our evaluation of the directors'
assessment of the group's and the company's ability to continue to
adopt the going concern basis of accounting included:
- Performing a
risk assessment to identify factors that could impact the going
concern basis of accounting, including both internal risks (i.e.,
strategy execution) and external risks (i.e., macroeconomic
conditions);
- Understanding
and evaluating the group and company's financial forecasts and
stress testing of liquidity and regulatory capital, including the
severity of the stress scenarios that were used;
- Inspecting
credit rating agency ratings and actions; and
- Reading and
evaluating the adequacy of the disclosures made in the financial
statements in relation to going concern.
Based on the work we have
performed, we have not identified any material uncertainties
relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's and the
company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In auditing the financial
statements, we have concluded that the directors' use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate.
However, because not all future
events or conditions can be predicted, this conclusion is not a
guarantee as to the group's and the company's ability to continue
as a going concern.
Our responsibilities and the
responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
Reporting on other
information
The other information comprises
all of the information in the Annual Report other than the
financial statements and our auditors' report thereon. The
directors are responsible for the other information. Our opinion on
the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the
extent otherwise explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of
the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent
material inconsistency or material misstatement, we are required to
perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement
of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report based on these responsibilities.
With respect to the Strategic
report and Report of the Directors, we also considered whether the
disclosures required by the UK Companies Act 2006 have been
included.
Based on our work undertaken in
the course of the audit, the Companies Act 2006 requires us also to
report certain opinions and matters as described below.
Strategic Report and Report of the
Directors
In our opinion, based on the work
undertaken in the course of the audit, the information given in the
Strategic report and Report of the Directors for the year ended 31
December 2023 is consistent with the financial statements and has
been prepared in accordance with applicable legal
requirements.
In light of the knowledge and
understanding of the group and company and their environment
obtained in the course of the audit, we did not identify any
material misstatements in the Strategic report and Report of the
Directors.
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the
Statement of directors' responsibilities in respect of the
financial statements, the directors are responsible for the
preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial
statements, the directors are responsible for assessing the group's
and the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the group or the company or to cease
operations, or have no realistic alternative but to do
so.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain
reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) and
ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Irregularities, including fraud,
are instances of non-compliance with laws and regulations. We
design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures
are capable of detecting irregularities, including fraud, is
detailed below.
Based on our understanding of the
group and industry, we identified that the principal risks of
non-compliance with laws and regulations related to Financial
Conduct Authority's ('FCA') regulations, the Prudential Regulation
Authority's ('PRA') regulations, and equivalent local laws and
regulations applicable to other countries in which the company
operates, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on
the financial statements such as the Companies Act 2006 and
relevant tax legislation. We evaluated management's incentives and
opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and
determined that the principal risks were related to posting
inappropriate journal entries to increase revenue or reduce costs,
creation of fictitious transactions to hide losses or to improve
financial
performance, and management bias
in accounting estimates. The group engagement team shared this risk
assessment with the Component auditors so that they could include
appropriate audit procedures in response to such risks in their
work. Audit procedures performed by the group engagement team
and/or Component auditors included:
- Review of
correspondence with and reports to the regulators, including the
PRA and FCA;
- Review of
reporting to the Audit Committee and Risk Committee in respect of
compliance and legal matters;
- Enquiries of
management and review of internal audit reports in so far as they
related to the financial statements;
- Obtaining legal
confirmations from legal advisors relating to material litigation
and compliance matters;
- Assessment of
matters reported on the group's whistleblowing programmes and the
results of management's investigation of such matters; insofar as
they related to the financial statements;
- Challenging
assumptions and judgements made by management in their significant
accounting estimates, in particular in relation to the
determination of fair value for certain financial instruments, the
determination of expected credit losses and recognition of deferred
tax assets;
- Obtaining
confirmations from third parties to confirm the existence of a
sample of balances; and
- Identifying and
testing journal entries meeting specific fraud criteria, including
those posted with certain descriptions, posted and approved by the
same individual, backdated journals or posted by infrequent and
unexpected users.
There are inherent limitations in
the audit procedures described above. We are less likely to become
aware of instances of non-compliance with laws and regulations that
are not closely related to events and transactions reflected in the
financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include
testing complete populations of certain transactions and balances,
possibly using data auditing techniques. However, it typically
involves selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to target
particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the
sample is selected.
A further description of our
responsibilities for the audit of the financial statements in
accordance with ISAs (UK) is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors' report.
As part of an audit in accordance
with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
- Identify and
assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control;
- Obtain an
understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the group's and company's internal
control;
- Evaluate the
appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by
management;
- Conclude on the
appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that
may cast significant doubt on the group's and company's ability to
continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our
auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the group to cease to continue as a
going concern;
- Evaluate the
overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair
presentation; and
- Obtain
sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group
and company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group and company audit. We remain solely
responsible for our audit opinion.
We communicate with those charged
with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with
governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate
with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable,
actions taken to eliminate threats or safeguards
applied.
From the matters communicated with
those charged with governance, we determine those matters that were
of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless
law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Use of this report
This report, including the
opinions, has been prepared for and only for the company's members
as a body in accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent
in writing.
Other required
reporting
Companies Act 2006 exception
reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
- we have not
obtained all the information and explanations we require for our
audit; or
- adequate
accounting records have not been kept by the company, or returns
adequate for our audit have not been received from branches not
visited by us; or
- certain
disclosures of directors' remuneration specified by law are not
made; or
- the company
financial statements are not in agreement with the accounting
records and returns.
We have no exceptions to report
arising from this responsibility.
Appointment
Following the recommendation of the
Audit Committee, we were appointed by the directors on 31 March
2015 to audit the financial statements for the year ended 31
December 2015 and subsequent financial periods. The period of total
uninterrupted engagement is nine years, covering the years ended 31
December 2015 to 31 December 2023.
Other matter
As required by the Financial Conduct
Authority Disclosure Guidance and Transparency Rule 4.1.14R, these
financial statements form part of the ESEF-prepared annual
financial report filed on the National Storage Mechanism of the
Financial Conduct Authority in accordance with the ESEF Regulatory
Technical Standard ('ESEF RTS'). This auditors' report provides no
assurance over whether the annual financial report has been
prepared using the single electronic format specified in the ESEF
RTS.
Lawrence Wilkinson
(Senior Statutory
Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
London
20 February 2024
Contents
106
|
Consolidated income
statement
|
|
108
|
Consolidated statement of
comprehensive income
|
|
109
|
Consolidated balance
sheet
|
|
110
|
Consolidated statement of changes
in equity
|
|
114
|
Consolidated statement of cash
flows
|
|
115
|
HSBC Bank plc balance
sheet
|
|
116
|
HSBC Bank plc statement of changes
in equity
|
|
118
|
HSBC Bank plc statement of cash
flows
|
|
Consolidated income
statement
|
|
for the year ended 31
December
|
|
|
|
2023
|
20221
|
20211
|
|
Notes*
|
£m
|
£m
|
£m
|
Net interest income
|
|
2,151
|
1,904
|
1,754
|
- interest
income2,3
|
|
17,782
|
6,535
|
3,149
|
- interest
expense4
|
|
(15,631)
|
(4,631)
|
(1,395)
|
Net fee income
|
2
|
1,229
|
1,295
|
1,413
|
- fee income
|
|
2,594
|
2,593
|
2,706
|
- fee expense
|
|
(1,365)
|
(1,298)
|
(1,293)
|
Net income from financial
instruments held for trading or managed on a fair value
basis
|
3
|
3,395
|
2,875
|
1,733
|
Net income/ (expense) from assets
and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or
loss
|
3
|
1,168
|
(1,370)
|
1,214
|
Changes in fair value of long-term
debt and related derivatives
|
3
|
(63)
|
102
|
(8)
|
Changes in fair value of other
financial instruments mandatorily measured at fair value through
profit or loss
|
3
|
284
|
143
|
493
|
Net (losses)/ gains from financial
investments
|
|
(84)
|
(60)
|
60
|
Net insurance premium
income
|
4
|
-
|
-
|
1,906
|
Gains/ (losses) recognised on
Assets held for sale5,6
|
|
296
|
(1,947)
|
67
|
Insurance finance
(expense)/income
|
|
(1,184)
|
1,106
|
-
|
Insurance service
result
|
|
124
|
121
|
-
|
- Insurance
revenue
|
|
379
|
361
|
-
|
- Insurance service
expense
|
|
(255)
|
(240)
|
-
|
Other operating
income6
|
|
190
|
135
|
527
|
Total operating income
|
|
7,506
|
4,304
|
9,159
|
Net insurance claims, benefits
paid and movement in liabilities to policyholders
|
4
|
-
|
-
|
(3,039)
|
Net operating income before change in expected credit losses
and other credit impairment charges7
|
|
7,506
|
4,304
|
6,120
|
Change in expected credit losses
and other credit impairment charges
|
|
(169)
|
(222)
|
174
|
Net operating income
|
|
7,337
|
4,082
|
6,294
|
Total operating expenses
|
|
(5,142)
|
(5,251)
|
(5,462)
|
- employee compensation and
benefits
|
5
|
(1,706)
|
(1,698)
|
(2,023)
|
- general and administrative
expenses
|
|
(3,375)
|
(3,425)
|
(3,265)
|
- depreciation and
impairment of property, plant and equipment and right of use
assets
|
|
(45)
|
(103)
|
(110)
|
- amortisation and
impairment of intangible assets
|
|
(16)
|
(25)
|
(64)
|
Operating profit/ (loss)
|
|
2,195
|
(1,169)
|
832
|
Share of (loss)/profit in
associates and joint ventures
|
17
|
(43)
|
(30)
|
191
|
Profit/(loss) before tax
|
|
2,152
|
(1,199)
|
1,023
|
Tax (charge)/ credit
|
7
|
(427)
|
646
|
23
|
Profit/(loss) for the year
|
|
1,725
|
(553)
|
1,046
|
Profit/ (loss) attributable to the
parent company
|
|
1,703
|
(563)
|
1,041
|
Profit attributable to
non-controlling interests
|
|
22
|
10
|
5
|
|
|
|
|
|
| |
* For Notes on the financial statements, see page
118.
1 From 1 January 2023, we
adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4
'Insurance Contracts'. Comparative data of the financial year ended
31 December 2022 have been restated accordingly. Comparative data
for the year ended 31 December 2021 is prepared on an IFRS 4
basis.
2 Interest income includes
£16,484m (2022: £5,512m; 2021: £1,986m) of interest recognised on
financial assets measured at amortised cost; £42m
(2022: £422m; 2021: £659m) of negative interest recognised on
financial liabilities and £1,256m (2022: £601m; 2021: £504m) of
interest recognised on financial assets measured at fair value
through other comprehensive income. Include within this is £117m
(2022: £59m; 2021: £61m) interest recognised on impaired financial
assets.
3 Interest revenue calculated using the effective
interest method comprises interest recognised on financial assets
measured at either amortised cost or fair value through other
comprehensive income.
4 Interest expense includes £14,226m (2022:
£3,740m; 2021: £616m) of interest on financial liabilities,
excluding interest on financial liabilities held for trading or
designated or otherwise mandatorily measured at fair
value.
5 In relation to the sale of our retail banking
operations in France, we recognised a £1.7bn impairment loss in
3Q22 on initial classification of the business as held-for-sale. In
1Q23, we reversed the £1.7bn impairment loss as the sale became
less certain. On subsequent re-classification of the business as
held-for-sale in 4Q23, we recognised a £1.5bn impairment
loss.
6 In 2022, a £0.2bn impairment loss on the
planned sale of our business in Russia was recognised upon
classification as held for sale in accordance with IFRS 5. As at 31
December 2023, the outcome of the planned sale become less certain.
This resulted in the reversal of £0.2bn of the previously
recognised loss, as the business was no longer classified as held
for sale. However, owing to restrictions impacting the
recoverability of assets in Russia, we recognised a charge of
£0.2bn in other operating income.
7 Net operating income before
change in expected credit losses and other credit impairment
charges is also referred to as 'revenue'.
Consolidated statement of
comprehensive income
|
|
for the year ended 31
December
|
|
|
2023
|
20221
|
20211
|
|
£m
|
£m
|
£m
|
Profit/(loss) for the
year
|
1,725
|
(553)
|
1,046
|
Other comprehensive income/(expense)
|
|
|
|
Items that will be reclassified subsequently to profit or
loss when specific conditions are met:
|
|
|
|
Debt instruments at fair value
through other comprehensive income
|
439
|
(1,886)
|
(237)
|
- fair value
gains/(losses)
|
495
|
(2,631)
|
(247)
|
- fair value (gains)/losses
transferred to the income statement on disposal
|
93
|
59
|
(63)
|
- expected credit
(recoveries)/losses recognised in the income statement
|
(2)
|
6
|
(5)
|
- income taxes
|
(147)
|
680
|
78
|
Cash flow hedges
|
663
|
(943)
|
(165)
|
- fair value
gains/(losses)
|
614
|
(1,418)
|
(40)
|
- fair value losses/(gains)
reclassified to the income statement
|
301
|
127
|
(202)
|
- income taxes
|
(252)
|
348
|
77
|
Finance (expenses)/income from
insurance contracts
|
(298)
|
1,408
|
-
|
- before income
taxes
|
(402)
|
1,898
|
-
|
- income taxes
|
104
|
(490)
|
-
|
Exchange differences
|
(302)
|
672
|
(603)
|
Items that will not be reclassified subsequently to profit or
loss:
|
|
|
|
Remeasurement of defined benefit
asset/liability
|
(2)
|
38
|
44
|
- before income
taxes
|
(20)
|
56
|
61
|
- income taxes
|
18
|
(18)
|
(17)
|
Equity instruments designated at
fair value through other comprehensive income
|
(1)
|
-
|
2
|
- fair value
(losses)/gains
|
(1)
|
-
|
2
|
- income taxes
|
-
|
-
|
-
|
Changes in fair value of financial
liabilities designated at fair value upon initial recognition
arising from changes in own credit risk
|
(132)
|
329
|
2
|
- fair value
(losses)/gains
|
(179)
|
462
|
3
|
- income taxes
|
47
|
(133)
|
(1)
|
Other comprehensive income/(expense) for the year, net of
tax
|
367
|
(382)
|
(957)
|
Total comprehensive income/(expense) for the
year
|
2,092
|
(935)
|
89
|
Attributable to:
|
|
|
|
- shareholders of the parent
company
|
2,070
|
(947)
|
93
|
- non-controlling
interests
|
22
|
12
|
(4)
|
1 From 1 January 2023, we
adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4
'Insurance Contracts'. Comparative data of the financial year ended
31 December 2022 have been restated accordingly. Comparative data
for the year ended 31 December 2021 is prepared on an IFRS 4
basis.
Consolidated balance
sheet
|
|
at 31 December
|
|
|
|
At
|
|
|
31 Dec
|
31
Dec
|
1
Jan
|
|
|
2023
|
20221
|
2022
|
|
Notes*
|
£m
|
£m
|
£m
|
Assets
|
|
|
|
|
Cash and balances at central
banks
|
|
110,618
|
131,433
|
108,482
|
Items in the course of collection
from other banks
|
|
2,114
|
2,285
|
346
|
Trading assets
|
10
|
100,696
|
79,878
|
83,706
|
Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss
|
13
|
19,068
|
15,881
|
18,649
|
Derivatives
|
14
|
174,116
|
225,238
|
141,221
|
Loans and advances to
banks
|
|
14,371
|
17,109
|
10,784
|
Loans and advances to
customers
|
|
75,491
|
72,614
|
91,177
|
Reverse repurchase agreements -
non-trading
|
|
73,494
|
53,949
|
54,448
|
Financial investments
|
15
|
46,368
|
32,604
|
41,300
|
Assets held for
sale2
|
35
|
20,368
|
21,214
|
9
|
Prepayments, accrued income and
other assets
|
21
|
63,635
|
61,444
|
43,146
|
Current tax assets
|
|
485
|
595
|
1,135
|
Interests in associates and joint
ventures
|
17
|
665
|
728
|
743
|
Goodwill and intangible
assets
|
20
|
203
|
91
|
83
|
Deferred tax assets
|
7
|
1,278
|
1,583
|
798
|
Total assets
|
|
702,970
|
716,646
|
596,027
|
Liabilities and equity
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits by banks
|
|
22,943
|
20,836
|
32,188
|
Customer accounts
|
|
222,941
|
215,948
|
205,241
|
Repurchase agreements -
non-trading
|
|
53,416
|
32,901
|
27,259
|
Items in the course of
transmission to other banks
|
|
2,116
|
2,226
|
489
|
Trading liabilities
|
22
|
42,276
|
41,265
|
46,433
|
Financial liabilities designated
at fair value
|
23
|
32,545
|
27,282
|
33,608
|
Derivatives
|
14
|
171,474
|
218,867
|
139,368
|
Debt securities in
issue
|
|
13,443
|
7,268
|
9,428
|
Liabilities of disposal groups
held for sale2
|
35
|
20,684
|
24,711
|
-
|
Accruals, deferred income and
other liabilities
|
24
|
60,444
|
67,020
|
43,515
|
Current tax liabilities
|
|
272
|
130
|
97
|
Insurance contract
liabilities
|
4
|
20,595
|
20,004
|
22,201
|
Provisions
|
25
|
390
|
424
|
562
|
Deferred tax
liabilities
|
7
|
6
|
3
|
5
|
Subordinated
liabilities
|
26
|
14,920
|
14,528
|
12,488
|
Total liabilities
|
|
678,465
|
693,413
|
572,882
|
Equity
|
|
|
|
|
Total shareholders'
equity
|
|
24,359
|
23,102
|
23,014
|
- called up share
capital
|
30
|
797
|
797
|
797
|
- share premium
account
|
|
1,004
|
420
|
-
|
- other equity
instruments
|
30
|
3,930
|
3,930
|
3,722
|
- other reserves
|
|
(6,096)
|
(6,413)
|
(5,662)
|
- retained
earnings
|
|
24,724
|
24,368
|
24,157
|
Non-controlling
interests
|
|
146
|
131
|
131
|
Total equity
|
|
24,505
|
23,233
|
23,145
|
Total liabilities and equity
|
|
702,970
|
716,646
|
596,027
|
1 From 1 January 2023, we
adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4
'Insurance Contracts'. We have restated 2022 comparative data and
the IFRS 17 transition impact on the balance sheet at 1 January
2022.
2 Includes businesses
classified as held-for-sale as part of a broader restructuring of
our European business. Refer to Note 35 'Assets held for sale and
liabilities of disposal groups held for sale' on page
184.
* For Notes on the financial statements, see page
118.
The accompanying notes on pages
118 to 192, and the audited sections of the
'Report of the Directors' on pages 22 to 96 form an integral
part of these financial statements.
The financial statements were
approved by the Board of Directors on 20 February 2024 and signed
on its behalf by:
Kavita Mahtani
Director
Consolidated statement of changes
in equity
|
for the year ended 31
December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
reserves
|
|
|
|
|
|
Called up
share capital
& share premium
|
Other
equity
instru-
ments
|
Retained
earnings
|
Financial assets at FVOCI
reserve
|
Cash
flow
hedging
reserve
|
Foreign
exchange
reserve
|
Group reorgan-isation
reserve ('GRR')7
|
Insur-ance finance
reserve1
|
Total
share-
holders'
equity
|
Non-control-ling
interests
|
Total
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2023
|
1,217
|
3,930
|
24,368
|
(278)
|
(950)
|
1,613
|
(7,692)
|
894
|
23,102
|
131
|
23,233
|
Profit for the period
|
-
|
-
|
1,703
|
-
|
-
|
-
|
-
|
-
|
1,703
|
22
|
1,725
|
Other comprehensive
income/(expense) (net of tax)
|
-
|
-
|
(134)
|
422
|
661
|
(294)
|
-
|
(288)
|
367
|
-
|
367
|
- debt instruments at fair
value through other comprehensive income
|
-
|
-
|
-
|
437
|
-
|
-
|
-
|
-
|
437
|
2
|
439
|
- equity instruments
designated at fair value through other comprehensive
income
|
-
|
-
|
-
|
(1)
|
-
|
-
|
-
|
-
|
(1)
|
-
|
(1)
|
- cash flow
hedges
|
-
|
-
|
-
|
-
|
663
|
-
|
-
|
-
|
663
|
-
|
663
|
- remeasurement of defined
benefit asset/liability
|
-
|
-
|
(2)
|
-
|
-
|
-
|
-
|
-
|
(2)
|
-
|
(2)
|
- changes in fair value of
financial liabilities designated at fair value due to movement in
own credit risk3
|
-
|
-
|
(132)
|
-
|
-
|
-
|
-
|
-
|
(132)
|
-
|
(132)
|
- insurance finance
(expense)/income recongnised in other comprehensive
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(298)
|
(298)
|
-
|
(298)
|
- exchange
differences
|
-
|
-
|
-
|
(14)
|
(2)
|
(294)
|
-
|
10
|
(300)
|
(2)
|
(302)
|
Total comprehensive income/(expense) for the
year
|
-
|
-
|
1,569
|
422
|
661
|
(294)
|
-
|
(288)
|
2,070
|
22
|
2,092
|
Capital securities issued during
the period
|
584
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
584
|
-
|
584
|
Dividends paid to the parent
company4
|
-
|
-
|
(961)
|
-
|
-
|
-
|
-
|
-
|
(961)
|
(7)
|
(968)
|
Net impact of equity-settled
share-based payments
|
-
|
-
|
(18)
|
-
|
-
|
-
|
-
|
-
|
(18)
|
-
|
(18)
|
Change in business combinations
and other movements
|
-
|
-
|
(234)
|
(1,012)
|
(41)
|
859
|
-
|
10
|
(418)
|
-
|
(418)
|
At 31 Dec 2023
|
1,801
|
3,930
|
24,724
|
(868)
|
(330)
|
2,178
|
(7,692)
|
616
|
24,359
|
146
|
24,505
|
Consolidated statement of changes
in equity (continued)
|
for the year ended 31
December
|
|
|
|
|
|
Other
reserves
|
|
|
|
|
|
Called
up
share
capital & share premium
|
Other
equity
instru-ments
|
Retained
earnings
|
Financial
assets at
FVOCI
reserve
|
Cash
flow
hedging
reserve
|
Foreign
exchange
reserve
|
Group
reorgani-sation reserve
('GRR')7
|
Insur-ance finance reserve1
|
Total
share-
holders'
equity
|
Non-
control-ling
interests
|
Total
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
As on 31 Dec 2021
|
797
|
3,722
|
24,735
|
1,081
|
(7)
|
948
|
(7,692)
|
-
|
23,584
|
131
|
23,715
|
IFRS 17 Transition
|
-
|
-
|
(578)
|
522
|
-
|
-
|
-
|
(514)
|
(570)
|
-
|
(570)
|
At 1 Jan 2022
|
797
|
3,722
|
24,157
|
1,603
|
(7)
|
948
|
(7,692)
|
(514)
|
23,014
|
131
|
23,145
|
Loss for the year
|
-
|
-
|
(563)
|
-
|
-
|
-
|
-
|
-
|
(563)
|
10
|
(553)
|
Other comprehensive
(expense)/income (net of tax)
|
-
|
-
|
367
|
(1,881)
|
(943)
|
665
|
-
|
1,408
|
(384)
|
2
|
(382)
|
- debt instruments at fair
value through other comprehensive income
|
-
|
-
|
-
|
(1,881)
|
-
|
-
|
-
|
-
|
(1,881)
|
(5)
|
(1,886)
|
- equity instruments
designated at fair value through other comprehensive
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- cash flow
hedges
|
-
|
-
|
-
|
-
|
(943)
|
-
|
-
|
-
|
(943)
|
-
|
(943)
|
- remeasurement of defined
benefit asset/liability
|
-
|
-
|
38
|
-
|
-
|
-
|
-
|
-
|
38
|
-
|
38
|
- changes in fair value of
financial liabilities designated at fair value due to movement in
own credit risk3
|
-
|
-
|
329
|
-
|
-
|
-
|
-
|
-
|
329
|
-
|
329
|
- insurance finance income/
(expense) recongnised in other comprehensive income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,408
|
1,408
|
-
|
1,408
|
- exchange
differences
|
-
|
-
|
-
|
-
|
-
|
665
|
-
|
-
|
665
|
7
|
672
|
Total comprehensive
(expense)/income for the year
|
-
|
-
|
(196)
|
(1,881)
|
(943)
|
665
|
-
|
1,408
|
(947)
|
12
|
(935)
|
Capital securities issued during
the period
|
420
|
208
|
-
|
-
|
-
|
-
|
-
|
-
|
628
|
-
|
628
|
Dividends paid to the parent
company4
|
-
|
-
|
(1,052)
|
-
|
-
|
-
|
-
|
-
|
(1,052)
|
(2)
|
(1,054)
|
Net impact of equity-settled
share-based payments
|
-
|
-
|
5
|
-
|
-
|
-
|
-
|
-
|
5
|
-
|
5
|
Capital
contribution5
|
-
|
-
|
1,465
|
-
|
-
|
-
|
-
|
-
|
1,465
|
-
|
1,465
|
Change in business combinations
and other movements
|
-
|
-
|
(11)
|
-
|
-
|
-
|
-
|
-
|
(11)
|
(10)
|
(21)
|
At 31 Dec
20222
|
1,217
|
3,930
|
24,368
|
(278)
|
(950)
|
1,613
|
(7,692)
|
894
|
23,102
|
131
|
23,233
|
Consolidated statement of changes
in equity (continued)
|
for the year ended 31
December
|
|
|
|
|
|
Other
reserves
|
|
|
|
|
Called
up
share
capital & share premium
|
Other
equity
instru-ments
|
Retained
earnings
|
Financial
assets at
FVOCI
reserve
|
Cash
flow
hedging
reserve
|
Foreign
exchange
reserve
|
Group
reorgani-sation reserve
('GRR')7
|
Total
share-
holders'
equity
|
Non-
control-ling
interests
|
Total
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2021
|
797
|
3,722
|
23,829
|
1,309
|
158
|
1,543
|
(7,692)
|
23,666
|
183
|
23,849
|
Profit for the year
|
-
|
-
|
1,041
|
-
|
-
|
-
|
-
|
1,041
|
5
|
1,046
|
Other comprehensive
(expense)/income (net of tax)
|
-
|
-
|
46
|
(234)
|
(165)
|
(595)
|
-
|
(948)
|
(9)
|
(957)
|
- debt instruments at fair
value through other comprehensive income
|
-
|
-
|
-
|
(236)
|
-
|
-
|
-
|
(236)
|
(1)
|
(237)
|
- equity instruments
designated at fair value through other comprehensive
income
|
-
|
-
|
-
|
2
|
-
|
-
|
-
|
2
|
-
|
2
|
- cash flow
hedges
|
-
|
-
|
-
|
-
|
(165)
|
-
|
-
|
(165)
|
-
|
(165)
|
- remeasurement of defined
benefit asset/liability
|
-
|
-
|
44
|
-
|
-
|
-
|
-
|
44
|
-
|
44
|
- changes in fair value of
financial liabilities designated at fair value due to movement in
own credit risk3
|
-
|
-
|
2
|
-
|
-
|
-
|
-
|
2
|
-
|
2
|
- exchange
differences
|
-
|
-
|
-
|
-
|
-
|
(595)
|
-
|
(595)
|
(8)
|
(603)
|
Total comprehensive
income/(expense) for the year
|
-
|
-
|
1,087
|
(234)
|
(165)
|
(595)
|
-
|
93
|
(4)
|
89
|
Capital securities issued during
the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Dividends paid to the parent
company4
|
-
|
-
|
(194)
|
-
|
-
|
-
|
-
|
(194)
|
(1)
|
(195)
|
Net impact of equity-settled
share-based payments
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
-
|
(10)
|
Change in business combinations
and other movements6
|
-
|
-
|
23
|
6
|
-
|
-
|
-
|
29
|
(47)
|
(18)
|
At 31 Dec
20212
|
797
|
3,722
|
24,735
|
1,081
|
(7)
|
948
|
(7,692)
|
23,584
|
131
|
23,715
|
1 The insurance finance reserve
reflects the impact of the adoption of the other comprehensive
income option for our insurance business in France. Underlying
assets supporting these contracts are measured at fair value
through other comprehensive income. Under this option, only the
amount that matches income or expenses recognised in profit or loss
on underlying items is included in finance income or expenses,
resulting in the elimination of income statement accounting
mismatches. The remaining amount of finance income or expenses for
these insurance contracts is recognised in other comprehensive
income ('OCI').
2 From 1 January 2023, we
adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4
'Insurance Contracts'. Comparative data of the financial year ended
31 December 2022 have been restated accordingly. Comparative data
for the year ended 31 December 2021 is prepared on an IFRS 4
basis.
3 The cumulative amount of
change in fair value attributable to changes in own credit risk of
financial liabilities designated at fair value was a gain
of £151m (2022: gain of
£292m and 2021: loss of £165m).
4 The dividends to the parent
company includes dividend on ordinary share capital £750m (2022:
£850m and 2021: nil) and coupon payments on additional tier 1
instrument £211m (2022: £202m and 2021:
£194m).
5 HSBC Holdings plc injected
£1.5bn of CET1 capital into HSBC Bank plc during November 2022
which in turn injected into HSBC Continental Europe for funding the
acquisition of HSBC Bank Malta plc and HSBC Trinkaus &
Burkhardt GmbH.
6 Additional shares were
acquired in HSBC Trinkaus & Burkhardt GmbH and HSBC Bank
Armenia CJSC, in 2021 increasing the group's interest to
100%.
7 The Group reorganisation
reserve ('GRR') is an accounting reserve resulting from the
ring-fencing implementation.
Consolidated statement of cash
flows
|
|
for the year ended 31
December
|
|
|
2023
|
20221
|
20211
|
|
£m
|
£m
|
£m
|
Profit/(loss) before tax
|
2,152
|
(1,199)
|
1,023
|
Adjustments for non-cash items
|
|
|
|
Depreciation, amortisation and
impairment
|
61
|
128
|
174
|
Net loss/(gain) from investing
activities2
|
(66)
|
2,002
|
(62)
|
Share of loss/(profit) in
associates and joint ventures
|
43
|
30
|
(191)
|
Change in expected credit losses
gross of recoveries and other credit impairment charges
|
161
|
253
|
(171)
|
Provisions including
pensions
|
132
|
192
|
104
|
Share-based payment
expense
|
58
|
46
|
96
|
Other non-cash items included in
loss/(profit) before tax
|
(165)
|
(16)
|
(198)
|
Elimination of exchange
differences3
|
4,426
|
(6,761)
|
4,926
|
Changes in operating assets and liabilities
|
(3,172)
|
37,515
|
9,602
|
- change in net trading
securities and derivatives
|
(15,528)
|
(6,213)
|
8,157
|
- change in loans and
advances to banks and customers
|
4,245
|
(2,717)
|
11,149
|
- change in reverse
repurchase agreements - non-trading
|
(13,531)
|
6,251
|
9,538
|
- change in financial assets
designated and otherwise mandatorily measured at fair
value
|
(3,296)
|
2,729
|
(2,429)
|
- change in other
assets
|
(5,707)
|
(7,359)
|
10,924
|
- change in deposits by
banks and customer accounts
|
7,548
|
19,835
|
7,940
|
- change in repurchase
agreements - non-trading
|
20,516
|
5,641
|
(7,643)
|
- change in debt securities
in issue
|
6,175
|
(1,060)
|
(7,943)
|
- change in financial
liabilities designated at fair value
|
4,042
|
(1,827)
|
(7,191)
|
- change in other
liabilities
|
(7,506)
|
21,393
|
(12,295)
|
- dividend received from
associates
|
15
|
7
|
-
|
- contributions paid to
defined benefit plans
|
(5)
|
(10)
|
(24)
|
- tax
received/(paid)
|
(140)
|
845
|
(581)
|
Net cash from operating activities
|
3,630
|
32,190
|
15,303
|
- purchase of financial
investments
|
(26,586)
|
(13,227)
|
(18,890)
|
- proceeds from the sale and
maturity of financial investments
|
15,497
|
20,490
|
25,027
|
- net cash flows from the
purchase and sale of property, plant and equipment
|
(31)
|
(20)
|
52
|
- net investment in
intangible assets
|
(125)
|
(28)
|
(45)
|
- net cash outflow from
investment in associates and acquisition of businesses and
subsidiaries4
|
(1,161)
|
(29)
|
(85)
|
- net cash flow on disposal
of subsidiaries, businesses, associates and joint
ventures5
|
(394)
|
-
|
-
|
Net cash from investing activities
|
(12,800)
|
7,186
|
6,059
|
- issue of ordinary share
capital and other equity instruments
|
584
|
628
|
-
|
- subordinated loan capital
issued6
|
3,246
|
3,111
|
10,466
|
- subordinated loan capital
repaid6
|
(2,693)
|
(2,248)
|
(10,902)
|
- dividends to the parent
company
|
(961)
|
(1,052)
|
(194)
|
- funds received from the
parent company
|
-
|
1,465
|
-
|
- dividends paid to
non-controlling interests
|
(7)
|
(2)
|
(1)
|
Net cash from financing activities
|
169
|
1,902
|
(631)
|
Net increase in cash and cash equivalents
|
(9,001)
|
41,278
|
20,731
|
Cash and cash equivalents at 1
Jan
|
189,907
|
140,923
|
125,304
|
Exchange difference in respect of
cash and cash equivalents
|
(3,869)
|
7,706
|
(5,112)
|
Cash and cash equivalents at 31
Dec7
|
177,037
|
189,907
|
140,923
|
|
|
|
|
Cash and cash equivalents comprise of
|
|
|
|
- cash and balances at
central banks
|
110,618
|
131,433
|
108,482
|
- items in the course of
collection from other banks
|
2,114
|
2,285
|
346
|
- loans and advances to
banks of one month or less
|
12,970
|
13,801
|
7,516
|
- reverse repurchase
agreement with banks of one month or less
|
28,704
|
23,182
|
17,430
|
- treasury bills, other
bills and certificates of deposit less than three months
|
144
|
294
|
235
|
- cash collateral and net
settlement accounts
|
16,325
|
19,213
|
7,403
|
- cash and cash equivalents
held for sale8
|
8,278
|
1,925
|
-
|
- less: items in the course
of transmission to other banks
|
(2,116)
|
(2,226)
|
(489)
|
Cash and cash equivalents at 31
Dec6
|
177,037
|
189,907
|
140,923
|
1 From 1 January 2023, we
adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4
'Insurance Contracts'. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative
data for the year 31 December 2021 is prepared on an IFRS 4
basis.
2 2022 balances include losses
on disposal of businesses classified as held-for-sale as part of a
broader restructuring of our European
business.
3 Adjustment to bring changes
between opening and closing balance sheet amounts to average rates.
This is not done on a line-by-line basis, as details cannot be
determined without unreasonable expense.
4 During 2023, HSBC Bank plc
acquired HSBC Bank Bermuda Limited ('HBBM') from HSBC Overseas
Holdings (UK) Limited ('HOHU') for £990m and HSBC Continental
Europe ('HBCE') acquired HSBC Private Bank (Luxembourg) SA ('PBLU')
for £170m.
5 2023 balances includes net
cash outflow of £(667)m on sale of the assets of our HBCE Greece
branch.
6 Subordinated liabilities
changes during the year are attributable to cash flows from
issuance £3,246m (2022: £3,111m; 2021: £10,466m) and repayment of
£(2,693)m (2022: £(2,248)m; 2021: £(10,902)m) of securities as
presented in the Consolidated statement of cash flows. Non-cash
changes during the year included foreign exchanges gains/(losses)
£(420)m (2022: £711m; 2021: £(512)m) and fair value gains/(losses)
£62m (2022: £(427)m; 2021: £(82)m).
7 At 31 December 2023, £26,554m
(2022: £23,395m; 2021: £9,410m) was not available for use by the
group due to a range of restrictions including currency exchange
and other restrictions.
8 Includes £177m (2022:
£1,562m) of cash and balances at central banks; £8,103m (2022:
£114m) of loans and advances to banks of one month or less, nil
(2022: £208m) of reverse repurchase agreements with banks of one
month or less and remaining £(2)m (2022: £41m) relates to other
cash and cash equivalents.
Interest received was £19,288m (2022: £7,668m; 2021: £4,285m), interest paid was £17,267m (2022: £5,284m; 2021: £2,919m) and dividends received were £522m (2022: £431m; 2021: £704m).
HSBC Bank plc balance
sheet
|
at 31 December
|
|
|
2023
|
2022
|
|
Notes*
|
£m
|
£m
|
Assets
|
|
|
|
Cash and balances at central
banks
|
|
61,128
|
78,441
|
Items in the course of collection
from other banks
|
|
1,877
|
1,863
|
Trading assets
|
10
|
85,766
|
67,623
|
Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss
|
13
|
3,181
|
1,618
|
Derivatives
|
14
|
153,765
|
196,714
|
Loans and advances to
banks
|
|
11,670
|
14,486
|
Loans and advances to
customers
|
|
32,443
|
36,992
|
Reverse repurchase agreements -
non-trading
|
|
56,973
|
43,055
|
Financial investments
|
15
|
28,391
|
18,639
|
Assets held for
sale1
|
35
|
160
|
-
|
Prepayments, accrued income and
other assets
|
21
|
47,400
|
43,907
|
Current tax assets
|
|
39
|
394
|
Investments in subsidiary
undertakings
|
18
|
11,627
|
10,646
|
Goodwill and intangible
assets
|
20
|
88
|
41
|
Deferred tax assets
|
7
|
391
|
608
|
Total assets
|
|
494,899
|
515,027
|
Liabilities and equity
|
|
|
|
Liabilities
|
|
|
|
Deposits by banks
|
|
18,775
|
13,594
|
Customer accounts
|
|
133,373
|
141,714
|
Repurchase agreements -
non-trading
|
|
48,842
|
29,638
|
Items in the course of
transmission to other banks
|
|
1,837
|
1,758
|
Trading liabilities
|
22
|
24,932
|
25,765
|
Financial liabilities designated
at fair value
|
23
|
23,446
|
19,415
|
Derivatives
|
14
|
152,799
|
193,336
|
Debt securities in
issue
|
|
7,353
|
4,656
|
Accruals, deferred income and
other liabilities
|
24
|
44,922
|
47,982
|
Current tax liabilities
|
|
77
|
21
|
Provisions
|
25
|
176
|
167
|
Deferred tax
liabilities
|
7
|
1
|
-
|
Subordinated
liabilities
|
26
|
14,658
|
14,252
|
Total liabilities
|
|
471,191
|
492,298
|
Equity
|
|
|
|
Called up share capital
|
30
|
797
|
797
|
Share premium account
|
|
1,004
|
420
|
Other equity
instruments
|
30
|
3,930
|
3,930
|
Other reserves
|
|
(5,522)
|
(6,073)
|
Retained earnings
|
|
23,499
|
23,655
|
Total equity
|
|
23,708
|
22,729
|
Total liabilities and equity
|
|
494,899
|
515,027
|
* For Notes on the financial statements, see page
118.
1 Includes planned transfer of hedge fund
administration services.
Profit after tax for the year was
£887m (2022:
£2,743m).
The accompanying notes on pages
118 to 192, and the audited sections of
the 'Report of the Directors' on pages 22 to
96 form an integral part of these financial
statements.
The financial statements were
approved by the Board of Directors on 20
February 2024 and signed on its behalf by:
Kavita Mahtani
Director
HSBC Bank plc statement of changes
in equity
|
for the year ended 31
December
|
|
|
|
|
Other
reserves
|
|
|
Called up
share
capital &
share premium
|
Other
equity
instruments
|
Retained
earnings
|
Financial
assets
at
FVOCI
reserve
|
Cash flow
hedging
reserve
|
Foreign
exchange
reserve
|
Group
reorganisation
reserve
('GRR')4
|
Total
shareholders'
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2023
|
1,217
|
3,930
|
23,655
|
(122)
|
(796)
|
93
|
(5,248)
|
22,729
|
Profit for the year
|
-
|
-
|
887
|
-
|
-
|
-
|
-
|
887
|
Other comprehensive
income/(expense) (net of tax)
|
-
|
-
|
(63)
|
65
|
516
|
(30)
|
-
|
488
|
- debt instruments at fair
value through other comprehensive income
|
-
|
-
|
-
|
67
|
-
|
-
|
-
|
67
|
- equity instruments
designated at fair value through other comprehensive
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- cash flow
hedges
|
-
|
-
|
-
|
-
|
516
|
-
|
-
|
516
|
- changes in fair value of
financial liabilities designated at fair value due to movement in
own credit risk1
|
-
|
-
|
(80)
|
-
|
-
|
-
|
-
|
(80)
|
- remeasurement of defined
benefit asset/liability
|
-
|
-
|
17
|
-
|
-
|
-
|
-
|
17
|
- exchange
differences
|
-
|
-
|
-
|
(2)
|
-
|
(30)
|
-
|
(32)
|
Total comprehensive income/(expense) for the
period
|
-
|
-
|
824
|
65
|
516
|
(30)
|
-
|
1,375
|
Capital securities issued during
the period
|
584
|
-
|
-
|
-
|
-
|
-
|
-
|
584
|
Dividends to the parent
company2
|
-
|
-
|
(961)
|
-
|
-
|
-
|
-
|
(961)
|
Net impact of equity-settled
share-based payments
|
-
|
-
|
(18)
|
-
|
-
|
-
|
-
|
(18)
|
Change in business combinations
and other movements
|
-
|
-
|
(1)
|
(29)
|
4
|
25
|
-
|
(1)
|
At 31 Dec 2023
|
1,801
|
3,930
|
23,499
|
(86)
|
(276)
|
88
|
(5,248)
|
23,708
|
HSBC Bank plc statement of changes
in equity (continued)
|
for the year ended 31
December
|
|
|
|
|
Other
reserves
|
|
|
Called
up
share
capital & share premium
|
Other
equity
instruments
|
Retained
earnings
|
Financial
assets at
FVOCI
reserve
|
Cash
flow
hedging
reserve
|
Foreign
exchange
reserve
|
Group
reorganisation
reserve
('GRR')5
|
Total
shareholders'
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2022
|
797
|
3,722
|
20,353
|
135
|
(82)
|
22
|
(5,248)
|
19,699
|
Profit for the year
|
-
|
-
|
2,743
|
-
|
-
|
-
|
-
|
2,743
|
Other comprehensive
income/(expense) (net of tax)
|
-
|
-
|
141
|
(257)
|
(714)
|
71
|
-
|
(759)
|
- debt instruments at fair
value through other comprehensive income
|
-
|
-
|
-
|
(258)
|
-
|
-
|
-
|
(258)
|
- equity instruments
designated at fair value through other comprehensive
income
|
-
|
-
|
-
|
1
|
-
|
-
|
-
|
1
|
- cash flow
hedges
|
-
|
-
|
-
|
-
|
(714)
|
-
|
-
|
(714)
|
- changes in fair value of
financial liabilities designated at fair value due to movement in
own credit risk1
|
-
|
-
|
156
|
-
|
-
|
-
|
-
|
156
|
- remeasurement of defined
benefit asset/liability
|
-
|
-
|
(15)
|
-
|
-
|
-
|
-
|
(15)
|
- exchange
differences
|
-
|
-
|
-
|
-
|
-
|
71
|
-
|
71
|
Total comprehensive
income/(expense) for the period
|
-
|
-
|
2,884
|
(257)
|
(714)
|
71
|
-
|
1,984
|
Capital securities issued during
the period
|
420
|
208
|
-
|
-
|
-
|
-
|
-
|
628
|
Dividends to the parent
company2
|
-
|
-
|
(1,052)
|
-
|
-
|
-
|
-
|
(1,052)
|
Net impact of equity-settled
share-based payments
|
-
|
-
|
5
|
-
|
-
|
-
|
-
|
5
|
Capital
contribution3
|
-
|
-
|
1,465
|
-
|
-
|
-
|
-
|
1,465
|
At 31 Dec 2022
|
1,217
|
3,930
|
23,655
|
(122)
|
(796)
|
93
|
(5,248)
|
22,729
|
1 The cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a gain of £42m (2022: gain of
£139m).
2 The dividends to the parent company includes
dividend on ordinary share capital £750m
(2022: £850m) and coupon payments on
additional tier 1 instrument £211m (2022:
£222m) & dividend on preference share
capital nil (2022: nil).
3 HSBC Holdings plc injected £1.5bn of CET1 capital into HSBC Bank plc during
November 2022 which in turn injected into HSBC Continental Europe
for funding the acquisition of HSBC Bank Malta plc and HSBC
Trinkaus & Burkhardt GmbH.
4 The Group reorganisation reserve ('GRR') is an
accounting reserve resulting from the ring-fencing
implementation.
HSBC Bank plc statement of cash
flows
|
for the year ended 31
December
|
|
|
2023
|
2022
|
|
|
£m
|
£m
|
Profit before tax
|
|
1,063
|
2,548
|
Adjustments for non-cash items
|
|
|
|
Depreciation, amortisation and
impairment
|
|
4
|
17
|
Net (gain)/loss from investing
activities1
|
|
80
|
(1,669)
|
Change in expected credit losses
gross of recoveries and other credit impairment charges
|
|
37
|
130
|
Provisions including
pensions
|
|
110
|
91
|
Share-based payment
expense
|
|
45
|
27
|
Other non-cash items included in
loss/(profit) before tax
|
|
(127)
|
(21)
|
Elimination of exchange
differences2
|
|
2,650
|
(2,109)
|
Changes in operating assets and liabilities
|
|
(5,098)
|
18,609
|
- change in net trading
securities and derivatives
|
|
(16,033)
|
(9,551)
|
- change in loans and
advances to banks and customers
|
|
(1,405)
|
(3,870)
|
- change in reverse
repurchase agreements - non-trading
|
|
(8,040)
|
791
|
- change in financial assets
designated and otherwise mandatorily measured at fair
value
|
|
(1,632)
|
1,597
|
- change in other
assets3
|
|
(6,509)
|
(10,912)
|
- change in deposits by
banks and customer accounts
|
|
5,989
|
15,947
|
- change in repurchase
agreements - non-trading
|
|
19,204
|
7,294
|
- change in debt securities
in issue
|
|
2,697
|
(1,002)
|
- change in financial
liabilities designated at fair value
|
|
3,946
|
(116)
|
- change in other
liabilities
|
|
(3,554)
|
17,343
|
- contributions paid to
defined benefit plans
|
|
(5)
|
(10)
|
- tax received
|
|
244
|
1,098
|
Net cash from operating activities
|
|
(1,236)
|
17,623
|
- purchase of financial
investments
|
|
(19,798)
|
(8,535)
|
- proceeds from the sale and
maturity of financial investments
|
|
11,115
|
17,022
|
- net cash flows from the
purchase and sale of property, plant and equipment
|
|
(6)
|
(2)
|
- net investment in
intangible assets
|
|
(76)
|
(176)
|
- net cash outflow from
investment in associates and acquisition of businesses and
subsidiaries4
|
|
(990)
|
-
|
- net cash flow on disposal of
subsidiaries, businesses, associates and joint ventures
|
|
268
|
-
|
Net cash from investing activities
|
|
(9,487)
|
8,309
|
- issue of ordinary share
capital and other equity instruments
|
|
584
|
628
|
- subordinated loan capital
issued5
|
|
3,246
|
3,111
|
- subordinated loan capital
repaid5
|
|
(2,685)
|
(2,240)
|
- funds received from the
parent company
|
|
-
|
1,465
|
- dividends to the parent
company
|
|
(961)
|
(1,052)
|
Net cash from financing activities
|
|
184
|
1,912
|
Net increase in cash and cash equivalents
|
|
(10,539)
|
27,844
|
Cash and cash equivalents at 1
Jan
|
|
115,310
|
83,814
|
Exchange difference in respect of
cash and cash equivalents
|
|
(2,354)
|
3,652
|
Cash and cash equivalents at 31 Dec
|
|
102,417
|
115,310
|
Cash and cash equivalents comprise of:
|
|
|
|
- cash and balances at
central banks
|
|
61,128
|
78,441
|
- items in the course of
collection from other banks
|
|
1,877
|
1,863
|
- loans and advances to
banks of one month or less
|
|
9,922
|
11,353
|
- reverse repurchase
agreement with banks of one month or less
|
|
19,795
|
13,917
|
- treasury bills, other
bills and certificates of deposit less than three months
|
|
-
|
150
|
- cash collateral and net
settlement accounts
|
|
11,532
|
11,344
|
- less: items in the course
of transmission to other banks
|
|
(1,837)
|
(1,758)
|
Cash and cash equivalents at 31 Dec
|
|
102,417
|
115,310
|
1 Included within 2022 is the
impact of impairment reversal booked in Paris branch for investment
in subsidiary.
2 Adjustment to bring changes
between opening and closing balance sheet amounts to average rates.
This is not done on a line-by-line basis, as details cannot be
determined without unreasonable expense.
3 Includes additional
investment in subsidiaries nil (2022:
£3,406m).
4 During 2023, HSBC Bank plc acquired HBBM from
HOHU and invested £990m.
5 Subordinated liabilities
changes during the year are attributable to cash flows from
issuance £3,246m (2022: £3,111m) and repayment of £(2,685)m (2022:
£(2,240)m) of securities as presented in the HSBC Bank plc
statement of cash flows. Non-cash changes during the year included
foreign exchange gains/(losses) £(415)m (2022: £696m) and fair
value gains/(losses) £62m (2022: £(427)m).
Interest received was £13,005m
(2022: £5,023m), interest paid was £12,934m (2022: £3,891m) and
dividends received was £629m (2022: £936m).
Notes on the Financial
Statements
|
Contents
|
|
119
|
1
|
Basis of preparation and material
accounting policies
|
170
|
20
|
Goodwill and intangible
assets
|
|
131
|
2
|
Net fee income
|
170
|
21
|
Prepayments, accrued income and
other assets
|
|
132
|
3
|
Net income from financial
instruments measured at fair value through profit or
loss
|
171
|
22
|
Trading liabilities
|
|
171
|
23
|
Financial liabilities designated
at fair value
|
|
132
|
4
|
Insurance business
|
172
|
24
|
Accruals, deferred income and
other liabilities
|
|
139
|
5
|
Employee compensation and
benefits
|
172
|
25
|
Provisions
|
|
144
|
6
|
Auditors' remuneration
|
173
|
26
|
Subordinated
liabilities
|
|
144
|
7
|
Tax
|
176
|
27
|
Maturity analysis of assets,
liabilities and off-balance sheet commitments
|
|
147
|
8
|
Dividends
|
|
147
|
9
|
Segmental analysis
|
179
|
28
|
Offsetting of financial assets and
financial liabilities
|
|
149
|
10
|
Trading assets
|
180
|
29
|
Interest rate benchmark
reform
|
|
149
|
11
|
Fair values of financial
instruments carried at fair value
|
180
|
30
|
Called up share capital and other
equity instruments
|
|
157
|
12
|
Fair values of financial
instruments not carried at fair value
|
181
|
31
|
Contingent liabilities,
contractual commitments, guarantees and contingent
assets
|
|
159
|
13
|
Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss
|
|
182
|
32
|
Finance lease
receivables
|
|
159
|
14
|
Derivatives
|
182
|
33
|
Legal proceedings and regulatory
matters
|
|
164
|
15
|
Financial investments
|
185
|
34
|
Related party
transactions
|
|
165
|
16
|
Assets pledged, collateral
received and assets transferred
|
187
|
35
|
Assets held for sale and
liabilities of disposal groups held for sale
|
|
166
|
17
|
Interests in associates and joint
ventures
|
189
|
36
|
Effects of adoption of IFRS
17
|
|
166
|
18
|
Investments in
subsidiaries
|
192
|
37
|
Events after the balance sheet
date
|
|
168
|
19
|
Structured entities
|
193
|
38
|
HSBC Bank plc's subsidiaries,
joint ventures and associates
|
|
1
|
Basis of preparation and material
accounting policies
|
1.1 Basis of
preparation
(a)
Compliance with International Financial Reporting
Standards
The consolidated financial
statements of the group and the separate financial statements of
the bank comply with UK-adopted international accounting standards
and with the requirements of the Companies Act 2006, and have also
applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. These financial statements are also prepared in
accordance with International Financial Reporting Standards as
issued by the IASB ('IFRS Accounting Standards'), including
interpretations issued by the IFRS Interpretations Committee, as
there are no applicable differences from IFRS Accounting standards
adopted by the UK, IFRS Accounting Standards as adopted by the EU
and IFRS Accounting Standards as issued by the IASB in terms of
their application to the group for the periods presented. There
were no unendorsed standards effective for the year ended
31 December 2023 affecting these consolidated and
separate financial statements.
Standards adopted during the year
ended 31 December 2023
IFRS 17 'Insurance Contracts'
On 1 January 2023, the group
adopted the requirements of IFRS 17 'Insurance Contracts'
retrospectively with comparatives restated from the transition
date, 1 January 2022. At transition, the group's total equity
reduced by £570m.
On adoption of IFRS 17, balances
based on IFRS 4, including the present value of in-force long-term
insurance business ('PVIF') asset in relation to the upfront
recognition of future profits of in-force insurance contracts, were
derecognised. Insurance contract liabilities have been remeasured
under IFRS 17 based on groups of insurance contracts, which
include the fulfilment cash flows comprising the best estimate of
the present value of the future cash flows (for example premiums
and payouts for claims, benefits and expenses), together with a
risk adjustment for non-financial risk, as well as the contractual
service margin ('CSM'). The CSM represents the unearned profits
that will be released and systematically recognised in insurance
revenue as services are provided over the expected coverage
period.
In addition, the group has made
use of the option under the standard to re-designate certain
eligible financial assets held to support insurance contract
liabilities, which were predominantly measured at amortised cost,
as financial assets measured at fair value through profit or loss,
with comparatives restated from the transition date. The effects on
adoption of IFRS 17 are set out in Note 36 with a description of
the policy set out in Note 1.2(j).
The key differences between IFRS 4
and IFRS 17 are summarised in the following table:
|
|
|
Balance sheet
|
- Insurance contract
liabilities for non-linked life insurance contracts are calculated
by local actuarial principles. Liabilities under unit-linked life
insurance contracts are at least equivalent to the surrender or
transfer value, by reference to the value of the relevant
underlying funds or indices. Grouping requirements follow local
regulations.
- An intangible asset
for the PVIF is recognised, representing the upfront recognition of
future profits associated with in-force insurance
contracts.
|
- Insurance contract
liabilities are measured for groups of insurance contracts at
current value, comprising the fulfilment cash flows and the
CSM.
- The fulfilment cash
flows comprise the best estimate of the present value of the future
cash flows, together with a risk adjustment for non-financial
risk.
- The CSM represents
the unearned profit.
|
Profit emergence / recognition
|
- The value of new
business is reported as revenue on Day 1 as an increase in
PVIF.
- The impact of the
majority of assumption changes is recognised immediately in the
income statement.
- Variances between
actual and expected cash flows are recognised in the period they
arise.
|
- The CSM is
systematically recognised in revenue as services are provided over
the expected coverage period of the group of contracts (i.e. no Day
1 profit).
- Contracts are
measured using the GMM or VFA model for insurance contracts with
direct participation features upon meeting the eligibility
criteria. Under the VFA model, the group's share of the investment
experience and assumption changes are absorbed by the CSM and
released over time to profit or loss. For contracts measured under
GMM, the group's share of the investment volatility is recorded in
profit or loss as it arises.
- Losses from onerous
contracts are recognised in the income statement
immediately.
|
Investment return assumptions (discount
rate)
|
- PVIF is calculated
based on long-term investment return assumptions based on assets
held. It therefore includes investment margins expected to be
earned in future.
|
- Under the market
consistent approach, expected future investment spreads are not
included in the investment return assumption. Instead, the discount
rate includes an illiquidity premium that reflects the nature of
the associated insurance contract liabilities.
|
Expenses
|
- Total expenses to
acquire and maintain the contract over its lifetime are included in
the PVIF calculation.
- Expenses are
recognised across operating expenses and fee expense as incurred
and the allowances for those costs are released from the PVIF
simultaneously.
|
- Projected lifetime
expenses that are directly attributable costs are included in the
insurance contract liabilities and recognised in the insurance
service result.
- Non-attributable
costs are reported in operating expenses.
|
Transition
In applying IFRS 17 for insurance
contracts retrospectively, the full retrospective approach ('FRA')
has been used unless it was impracticable. When the FRA is
impracticable such as when there is a lack of sufficient and
reliable data, an entity has an accounting policy choice to use
either the modified retrospective approach ('MRA') or the fair
value approach ('FVA'). The group has applied the MRA in France
prior to 2019, and the FVA for the UK insurance business prior to
2019. The FVA has been applied for all other businesses prior to
2020 when the FRA is impracticable to apply.
Under the FVA, the valuation of
insurance liabilities on transition is based on the applicable
requirements of IFRS 13 'Fair Value Measurement'. This requires
consideration of the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price). The
CSM is calculated as the difference between what a market
participant would demand for assuming the unexpired risk associated
with insurance contracts, including required profit, and the
fulfilment cash flows that are determined using IFRS 17
principles.
In determining the fair value, the
group considered the estimated profit margin that a market
participant would demand in return for assuming the insurance
liabilities with the consideration of the level of capital that a
market participant would be required to hold, and the discount rate
with an allowance for an illiquidity premium that takes into
account the level of 'matching' between the group's assets and
related liabilities. These assumptions were set taking into account
the assumptions that a hypothetical market participant operating in
each local jurisdiction would consider.
Amendments to IAS 12 'International Tax Reform - Pillar Two
Model Rules'
On 23 May 2023, the IASB issued
amendments to IAS 12 'International Tax Reform - Pillar Two Model
Rules', which became effective immediately and were approved for
adoption by all members of the UK Endorsement Board on 19 July 2023
and by the European Financial Reporting Advisory Group on 8
November 2023. On 20 June 2023, legislation was substantively
enacted in the UK to introduce the OECD's Pillar Two global minimum
tax rules and a UK qualified domestic minimum top-up tax, with
effect from 1 January 2024. The group has applied the IAS 12
exemption from recognising and disclosing information on associated
deferred tax assets and liabilities.
There were no other new standards
or amendments to standards that had an effect on these financial
statements.
(b) Future
accounting developments
Minor amendments to IFRS
Accounting Standards
The IASB has published a number of
minor amendments to IFRS Accounting Standards that are effective
from 1 January 2024. The group expects they will have an
insignificant effect, when adopted, on the consolidated financial
statements of the group and the separate financial statements of
HSBC Bank plc.
(c) Foreign
currencies
The functional currency of the
bank is sterling, which is also the presentational currency of the
consolidated financial statements of the group.
Transactions in foreign currencies
are recorded at the rate of exchange at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated at the rate of exchange at the balance
sheet date except non-monetary assets and liabilities measured at
historical cost, which are translated using the rate of exchange at
the initial transaction date. Exchange differences are included in
other comprehensive income or in the income statement depending on
where the gain or loss on the underlying item is
recognised.
In the consolidated financial
statements, the assets and liabilities of branches, subsidiaries,
joint ventures and associates whose functional currency is not
sterling are translated into the group's presentation currency at
the rate of exchange at the balance sheet date, while their results
are translated into sterling at the average rates of exchange for
the reporting period. Exchange differences arising are recognised
in other comprehensive income. On disposal of a foreign operation,
exchange differences previously recognised in other comprehensive
income are reclassified to the income statement.
(d)
Presentation of information
Certain disclosures required by
IFRS Accounting standards have been included in the audited
sections of this Annual Report
and Accounts 2023 as follows:
- disclosures
concerning the nature and extent of risks relating to financial
instruments and insurance contracts are included in the 'Report of
the Directors: Risk' on pages 22 to 86;
- the 'Own funds'
disclosure is included in the 'Report of the Directors: Capital
Risk in 2023' on page 73; and
- in publishing
the parent company financial statements together with the group
financial statements, the bank has taken advantage of the exemption
in section 408(3) of the Companies Act 2006 not to present its
individual income statement and related notes.
(e) Critical
estimates and judgements
The preparation of financial
information requires the use of estimates and judgements about
future conditions. In view of the inherent uncertainties and the
high level of subjectivity involved in the recognition or
measurement of items highlighted, as the 'critical estimates and
judgements' in section 1.2 below, it is possible that the outcomes
in the next financial year could differ from those on which
management's estimates are based. This could result in materially
different estimates and judgements from those reached by management
for the purposes of these financial statements. Management's
selection of the group's accounting policies that contain critical
estimates and judgements reflects the materiality of the items to
which the policies are applied and the high degree of judgement and
estimation uncertainty involved.
Management has considered the
impact of climate-related risks on HSBC's financial position and
performance. While the effects of climate change are a source of
uncertainty, as at 31 December 2023 management did not consider
there to be a material impact on our critical judgements and
estimates from the physical, transition and other climate-related
risks in the short to medium term. In particular management has
considered the known and observable potential impacts of
climate-related risks of associated judgements and estimates in our
value in use calculations.
(f) Going concern
The financial statements are
prepared on a going concern basis, as the Directors are satisfied
that the group and the company have the resources to continue in
business for the foreseeable future. In making this assessment, the
Directors have considered a wide range of information relating to
present and future conditions, including future projections of
profitability, cash flows, capital requirements and capital
resources. These considerations include stressed scenarios that
reflect the uncertainty in the macroeconomic environment following,
rising inflation and disrupted supply chains as a result of the
ongoing Russia-Ukraine and Israel-Hamas wars. They also considered
other top and emerging risks, including climate change, as well as
the related impacts on profitability, capital and
liquidity.
1.2 Summary of
material accounting policies
(a)
Consolidation and related policies
Investments in
subsidiaries
Where an entity is governed by
voting rights, the group consolidates when it holds - directly or
indirectly - the necessary voting rights to pass resolutions by the
governing body. In all other cases, the assessment of control is
more complex and requires judgement of other factors, including
having exposure to variability of returns, power to direct relevant
activities and whether power is held as agent or
principal.
Business combinations are
accounted for using the acquisition method. The amount of
non-controlling interest is measured either at fair value or at the
non-controlling interest's proportionate share of the acquiree's
identifiable net assets.
The bank's investments in
subsidiaries are stated at cost less impairment losses.
Impairment testing is performed
where there is an indication of impairment, by comparing the
recoverable amount of a cash-generating unit with its carrying
amount.
Critical estimates and judgements
Investments in subsidiaries are
tested for impairment when there is an indication that the
investment may be impaired, which involves estimations of value in
use reflecting management's best estimate of the future cash flows
of the investment and the rates used to discount these cash flows,
both of which are subject to uncertain factors as
follows:
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- The accuracy of
forecast cash flows is subject to a high degree of uncertainty in
volatile market conditions. Where such circumstances are determined
to exist, management re-tests for impairment more frequently than
once a year when indicators of impairment exist. This ensures that
the assumptions on which the cash flow forecasts are based continue
to reflect current market conditions and management's best estimate
of future business prospects.
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- The future cash flows
of each investment are sensitive to the cash flows projected for
the periods for which detailed forecasts are available and to
assumptions regarding the long-term pattern of sustainable cash
flows thereafter. Forecasts are compared with actual performance
and verifiable economic data, but they reflect management's view of
future business prospects at the time of the assessment.
- The rates used to
discount future expected cash flows can have a significant effect
on their valuation, and are based on the costs of equity assigned
to the investment. The cost of equity percentage is generally
derived from a capital asset pricing model and the market implied
cost of equity, which incorporates inputs reflecting a number of
financial and economic variables, including the risk-free interest
rate in the country concerned and a premium for the risk of the
business being evaluated. These variables are subject to
fluctuations in external market rates and economic conditions
beyond management's control.
- Key assumptions used
in estimating impairment in subsidiaries are described in Note
18.
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The group does not consider there
to be a significant risk of a material adjustment to the carrying
amount of investment in subsidiary in the next financial year but
does consider this to be an area that is inherently
judgemental.
Group sponsored structured
entities
The group is considered to sponsor
another entity if, in addition to ongoing involvement with the
entity, it had a key role in establishing that entity or in
bringing together relevant counterparties so the transaction that
is the purpose of the entity could occur. The group is generally
not considered a sponsor if the only involvement with the entity is
merely administrative.
Interests in associates and joint
arrangements
Joint arrangements are investments
in which the group, together with one or more parties, has joint
control. Depending on the group's rights and obligations, the joint
arrangement is classified as either a joint operation or a joint
venture. The group classifies investments in entities over which it
has significant influence, and those that are neither subsidiaries
nor joint arrangements, as associates.
The group recognises its share of
the assets, liabilities and results in a joint operation.
Investments in associates and interests in joint ventures are
recognised using the equity method. The attributable share of the
results and reserves of joint ventures and associates are included
in the consolidated financial statements of the group based on
either financial statements made up to 31 December or
pro-rated amounts adjusted for any material transactions or events
occurring between the date the financial statements are available
and 31 December.
Investments in associates and
joint ventures are assessed at each reporting date and tested for
impairment when there is an indication that the investment may be
impaired, by comparing the recoverable amount of the relevant
investment to its carrying amount. Goodwill on acquisition of
interests in joint ventures and associates is not tested separately
for impairment, but is assessed as part of the carrying amount of
the investment.
(b) Income
and expense
Operating income
Interest income and expense
Interest income and expense for
all financial instruments, excluding those classified as held for
trading or designated at fair value, are recognised in 'interest
income' and 'interest expense' in the income statement using the
effective interest method. However, as an exception to this,
interest on debt instruments issued by the group for funding
purposes that are designated under the fair value option to reduce
an accounting mismatch and on derivatives managed in conjunction
with those debt instruments is included in interest
expense.
Interest on credit-impaired
financial assets is recognised by applying the effective interest
rate to the amortised cost (i.e. gross carrying amount of the asset
less allowance for ECL).
Non-interest income and expense
The group generates fee income
from services provided over time, such as account service and card
fees, or when the group delivers a specific transaction at a point
in time, such as broking services and import/export services. With
the exception of certain fund management and performance fees, all
other fees are generated at a fixed price. Fund management and
performance fees can be variable depending on the size of the
customer portfolio and HSBC's performance as fund manager. Variable
fees are recognised when all uncertainties are resolved. Fee income
is generally earned from short-term contracts with payment terms
that do not include a significant financing component.
The group acts as principal in the
majority of contracts with customers, with the exception of broking
services. For most brokerage trades, the group acts as agent in the
transaction and recognises broking income net of fees payable to
other parties in the arrangement.
The group recognises fees earned
on transaction-based arrangements at a point in time when it has
fully provided the service to the customer. Where the contract
requires services to be provided over time, income is recognised on
a systematic basis over the life of the agreement. Where the group
offers a package of services that contains multiple non-distinct
performance obligations, such as those included in account service
packages, the promised services are treated as a single performance
obligation. If a package of services contains distinct performance
obligations, the corresponding transaction price is allocated to
each performance obligation based on the estimated stand-alone
selling prices.
Dividend income is recognised when
the right to receive payment is established. This is the
ex-dividend date for listed equity securities, and usually the date
when shareholders approve the dividend for unlisted equity
securities.
Net income/(expense) from
financial instruments measured at fair value through profit or loss
includes the following:
- 'Net income
from financial instruments held for trading or managed on a fair
value basis': This comprises net trading income, which includes all
gains and losses from changes in the fair value of financial assets
and financial liabilities held for trading and other financial
instruments managed on a fair value basis, together with the
related interest income, expense and dividends, excluding the
effect of changes in the credit risk of liabilities managed on a
fair value basis. It also includes all gains and losses from
changes in the fair value of derivatives that are managed in
conjunction with financial assets and liabilities measured at fair
value through profit or loss.
- 'Net
income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss': This includes all gains and losses from
changes in the fair value, together with related interest income,
interest expense and dividend income in respect of financial assets
and liabilities measured at fair value through profit or loss, and
those derivatives managed in conjunction with the above that can be
separately identifiable from other trading derivatives.
- 'Changes in
fair value of designated debt instruments and related derivatives':
Interest paid on the debt instruments and interest cash flows on
related derivatives is presented in interest expense where doing so
reduces an accounting mismatch.
- 'Changes in
fair value of other financial instruments mandatorily measured at
fair value through profit or loss': This includes interest on
instruments that fail the solely payments of principal and interest
('SPPI') test, see (d) below.
The accounting policies for
insurance service result and insurance finance income/(expense) are
disclosed in Note 1.2(j).
(c) Valuation
of financial instruments
All financial instruments are
initially recognised at fair value. Fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. The fair value of a financial instrument on
initial recognition is generally its transaction price (that is,
the fair value of the consideration given or received). However, if
there is a difference between the transaction price and the fair
value of financial instruments whose fair value is based on a
quoted price in an active market or a valuation technique that uses
only data from observable markets, the group recognises the
difference as a trading gain or loss at inception (a 'day 1 gain or
loss'). In all other cases, the entire day 1 gain or loss is
deferred and recognised in the income statement over the life of
the transaction either until the transaction matures or is closed
out or the valuation inputs become observable.
The fair value of financial
instruments is generally measured on an individual basis. However,
in cases where the group manages a group of financial assets and
liabilities according to its net market or credit risk exposure,
the fair value of the group of financial instruments is measured on
a net basis but the underlying financial assets and liabilities are
presented separately in the financial statements, unless they
satisfy the IFRS offsetting criteria. Financial instruments are
classified into one of three fair value hierarchy levels, described
in Note 11, 'Fair values of financial instruments carried at fair
value'.
Critical estimates and
judgements
The majority of valuation
techniques employ only observable market data. However, certain
financial instruments are classified on the basis of valuation
techniques that feature one or more significant market inputs that
are unobservable, and for them, the measurement of fair value is
more judgemental:
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- An instrument in its
entirety is classified as valued using significant unobservable
inputs if, in the opinion of management, greater than 5% of the
instrument's valuation is driven by unobservable inputs.
- 'Unobservable' in
this context means that there is little or no current market data
available from which to determine the price at which an arm's
length transaction would be likely to occur. It generally does not
mean that there is no data available at all upon which to base a
determination of fair value (consensus pricing data may, for
example, be used).
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- Details on the
group's level 3 financial instruments and the sensitivity of their
valuation to the effect of applying reasonably possible alternative
assumptions in determining their fair value are set out in Note
11.
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(d) Financial
instruments measured at amortised cost
Financial assets that are held to
collect the contractual cash flows and which contain contractual
terms that give rise on specified dates to cash flows that are
solely payments of principal and interest are measured at amortised
cost. Such financial assets include most loans and advances to
banks and customers and some debt securities. In addition, most
financial liabilities are measured at amortised cost. The group
accounts for regular way amortised cost financial instruments using
trade date accounting. The carrying amount of these financial
assets at initial recognition includes any directly attributable
transactions costs.
The group may commit to
underwriting loans on fixed contractual terms for specified periods
of time. When the loan arising from the lending commitment is
expected to be sold shortly after origination, the commitment to
lend is recorded as a derivative. When the group intends
to hold the loan, the loan commitment is included in the
impairment calculations set out below.
Non-trading reverse repurchase,
repurchase and similar agreements
When debt securities are sold
subject to a commitment to repurchase them at a predetermined price
('repos'), they remain on the balance sheet and a liability is
recorded in respect of the consideration received. Securities
purchased under commitments to resell ('reverse repos') are not
recognised on the balance sheet and an asset is recorded in respect
of the initial consideration paid. Non-trading repos and reverse
repos are measured at amortised cost. The difference between the
sale and repurchase price or between the purchase and resale price
is treated as interest and recognised in net interest income over
the life of the agreement.
Contracts that are economically
equivalent to reverse repo or repo agreements (such as sales or
purchases of debt securities entered into together with total
return swaps with the same counterparty) are accounted for
similarly to, and presented together with, reverse repo or repo
agreements.
(e) Financial
assets measured at fair value through other comprehensive
income
Financial assets managed within a
business model that is achieved by both collecting contractual cash
flows and selling and which contain contractual terms that give
rise on specified dates to cash flows that are solely payments of
principal and interest are measured at fair value through other
comprehensive income ('FVOCI'). These comprise primarily debt
securities. They are recognised on the trade date when HSBC enters
into contractual arrangements to purchase and are generally
derecognised when they are either sold or redeemed. They are
subsequently remeasured at fair value with changes therein (except
for those relating to impairment, interest income and foreign
currency exchange gains and losses) are recognised in other
comprehensive income until the assets are sold. Upon disposal, the
cumulative gains or losses in other comprehensive income are
recognised in the income statement as 'Gains less losses from
financial instruments'. Financial assets measured at FVOCI are
included in the impairment calculations set out below and
impairment is recognised in profit or loss.
(f)
Equity securities measured at fair value with fair value movements
presented in other comprehensive income
The equity securities for which
fair value movements are shown in other comprehensive income are
business facilitation and other similar investments where HSBC
holds the investments other than to generate a capital return.
Dividends from such investments are recognised in profit or loss.
Gains or losses on the derecognition of these equity securities are
not transferred to profit or loss. Otherwise, equity securities are
measured at fair value through profit or loss.
(g) Financial
instruments designated at fair value through profit or
loss
Financial instruments, other than
those held for trading, are classified in this category if they
meet one or more of the criteria set out below and are so
designated irrevocably at inception:
- the use of the
designation removes or significantly reduces an accounting
mismatch;
- a group of
financial assets and liabilities or a group of financial
liabilities is managed and its performance is evaluated on a fair
value basis, in accordance with a documented risk management or
investment strategy; and
- the financial
liability contains one or more non-closely related embedded
derivatives.
Designated financial assets are
recognised when HSBC enters into contracts with counterparties,
which is generally on trade date, and are normally derecognised
when the rights to the cash flows expire or are transferred.
Designated financial liabilities are recognised when HSBC enters
into contracts with counterparties, which is generally on
settlement date, and are normally derecognised when extinguished.
Subsequent changes in fair values are recognised in the income
statement in 'Net income from financial instruments held for
trading or managed on a fair value basis' or 'Net income/(expense)
from assets and liabilities of insurance businesses, including
related derivatives, measured at fair value through profit or loss'
or 'Changes in fair value of designated debt and related
derivatives' except for the effect of changes in the liabilities'
credit risk, which is presented in 'Other comprehensive income',
unless that treatment would create or enlarge an accounting
mismatch in profit or loss.
Under the above criterion, the
main classes of financial instruments designated by HSBC
are:
- Debt
instruments for funding purposes that are designated to reduce an
accounting mismatch: The interest and/or foreign exchange exposure
on certain fixed-rate debt securities issued has been matched with
the interest and/or foreign exchange exposure on certain swaps as
part of a documented risk management strategy.
- Financial
assets and financial liabilities under unit-linked and non-linked
investment contracts: A contract under which HSBC does not accept
significant insurance risk from another party is not classified as
an insurance contract, other than investment contracts with
discretionary participation features ('DPF'), but is accounted for
as a financial liability. Customer liabilities under linked and
certain non-linked investment contracts issued by insurance
subsidiaries are determined based on the fair value of the assets
held in the linked funds or by a valuation model. The related
financial assets and liabilities are managed and reported to
management on a fair value basis. Designation at fair value of the
financial assets and related liabilities allows changes in fair
values to be recorded in the income statement and presented in the
same line.
- Financial
liabilities that contain both deposit and derivative components:
These financial liabilities are managed and their performance
evaluated on a fair value basis.
(h)
Derivatives
Derivatives are financial
instruments that derive their value from the price of underlying
items such as equities, interest rates or other indices.
Derivatives are recognised initially and are subsequently measured
at fair value through profit or loss, with changes in fair value
generally recorded in the income statement. Derivatives are
classified as assets when their fair value is positive or as
liabilities when their fair value is negative. This includes
embedded derivatives in financial liabilities, which are bifurcated
from the host contract when they meet the definition of a
derivative on a stand-alone basis. Where the derivatives are
managed with debt securities issued by HSBC that are designated at
fair value where doing so reduces an accounting mismatch, the
contractual interest is shown in 'Interest expense' together with
the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of
fair value designated relationships, if held for risk management
purposes they are designated in hedge accounting relationships
where the required criteria for documentation and hedge
effectiveness are met. The group uses these derivatives or, where
allowed, other non-derivative hedging instruments in fair value
hedges, cash flow hedges or hedges of net investments in foreign
operations as appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does
not change the recording of gains and losses on derivatives and
other hedging instruments, but results in recognising changes in
the fair value of the hedged assets or liabilities attributable to
the hedged risk that would not otherwise be recognised in the
income statement. If a hedge relationship no longer meets the
criteria for hedge accounting, hedge accounting is discontinued and
the cumulative adjustment to the carrying amount of a hedged item
for which the effective interest rate method is used is amortised
to the income statement on a recalculated effective interest rate,
unless the hedged item has been derecognised, in which case it is
recognised in the income statement immediately.
Cash flow hedge
The effective portion of gains and
losses on hedging instruments is recognised in other comprehensive
income and the ineffective portion of the change in fair value of
derivative hedging instruments that are part of a cash flow hedge
relationship is recognised immediately in the income statement
within 'Net trading income'. The accumulated gains and losses
recognised in other comprehensive income are reclassified to the
income statement in the same periods in which the hedged item
affects profit or loss. When a hedge relationship is discontinued,
or partially discontinued, any cumulative gain or loss recognised
in other comprehensive income remains in equity until the forecast
transaction is recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or
loss previously recognised in other comprehensive income is
immediately reclassified to the income statement.
Derivatives that do not qualify
for hedge accounting
Non-qualifying hedges are
derivatives entered into as economic hedges of assets and
liabilities for which hedge accounting was not applied.
(i)
Impairment of amortised cost and FVOCI financial
assets
Expected credit losses are
recognised for loans and advances to banks and customers,
non-trading reverse repurchase agreements, other financial assets
held at amortised cost, debt instruments measured at FVOCI, and
certain loan commitments and financial guarantee contracts. At
initial recognition, an allowance (or provision in the case of some
loan commitments and financial guarantees) is recognised for ECL
resulting from possible default events within the next 12 months,
or less, where the remaining life is less than 12 months,
('12-month ECL'). In the event of a significant increase in credit
risk, an allowance (or provision) is recognised for ECL resulting
from all possible default events over the expected life of the
financial instrument ('lifetime ECL'). Financial assets where
12-month ECL is recognised are considered to be 'stage 1';
financial assets which are considered to have experienced a
significant increase in credit risk are in 'stage 2'; and financial
assets for which there is objective evidence of impairment, and so
are considered to be in default or otherwise credit impaired are in
'stage 3'. Purchased or originated credit-impaired financial assets
('POCI') are treated differently as set out below.
Credit-impaired (stage
3)
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, or the loan is otherwise
considered to be in default.
If such unlikeliness to pay is not
identified at an earlier stage, it is deemed to occur when an
exposure is 90 days past due. Therefore, the definitions of credit
impaired and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit-impaired.
Interest income is recognised by
applying the effective interest rate to the amortised cost (i.e.
gross carrying amount less allowance for ECL).
Write-off
Financial assets (and the related
impairment allowances) are normally written off, either partially
or in full, when there is no realistic prospect of recovery. Where
loans are secured, this is generally after receipt of any proceeds
from the realisation of security.
In circumstances where the net
realisable value of any collateral has been determined and there is
no reasonable expectation of further recovery, write-off may be
earlier.
Forbearance
Loans are identified as forborne
and classified as either performing or non-performing when the
group modifies the contractual terms due to financial difficulty of
the borrower. Non-performing forborne loans are stage 3 and
classified as non-performing until they meet the cure criteria, as
specified by applicable credit risk policy (for example, when the
loan is no longer in default and no other indicators of default
have been present for at least 12 months). Any amount written off
as a result of any modification of contractual terms upon entering
forbearance would not be reversed.
The group applies the EBA
Guidelines on the application of definition of default for our
retail portfolios, which affects credit risk policies and our
reporting in respect of the status of loans as credit impaired
principally due to forbearance (or curing thereof). Further details
are provided under 'Forborne loans and advances' on page
32.
Performing forborne loans are
initially stage 2 and remain classified as forborne until they meet
applicable cure criteria (for example, they continue to not be in
default and no other indicators of default are present for a period
of at least 24 months). At this point, the loan is either stage 1
or stage 2 as determined by comparing the risk of a default
occurring at the reporting date (based on the modified contractual
terms) and the risk of a default occurring at initial recognition
(based on the original, unmodified contractual terms).
A forborne loan is derecognised if
the existing agreement is cancelled and a new agreement is made on
substantially different terms, or if the terms of an existing
agreement are modified such that the forborne loan is a
substantially different financial instrument. Any new loans that
arise following derecognition events in these circumstances would
generally be classified as POCI and will continue to be disclosed
as forborne.
Loan modifications other than
forborne loans
Loan modifications that are not
identified as forborne are considered to be commercial
restructurings. Where a commercial restructuring results in a
modification (whether legalised through an amendment to the
existing terms or the issuance of a new loan contract) such that
HSBC's rights to the cash flows under the original contract have
expired, the old loan is derecognised and the new loan is
recognised at fair value. The rights to cash flows are generally
considered to have expired if the commercial restructuring is at
market rates and no payment-related concession has been provided.
Modifications of certain higher credit risk wholesale loans are
assessed for derecognition having regard to changes in contractual
terms that either individually or in combination are judged to
result in a substantially different financial instrument. Mandatory
and general offer loan modifications that are not borrower
specific, for example market-wide customer relief programmes
generally do not result in derecognition, but their stage
allocation is determined considering all available and supportable
information under our ECL impairment policy. Changes made to these
financial instruments that are economically equivalent and required
by interest rate benchmark reform do not result in the
derecognition or a change in the carrying amount of the financial
instrument, but instead require the effective interest rate to be
updated to reflect the change of the interest rate
benchmark.
Significant increase in credit
risk (stage 2)
An assessment of whether credit
risk has increased significantly since initial recognition is
performed at each reporting period by considering the change in the
risk of default occurring over the remaining life of the financial
instrument.
The assessment explicitly or
implicitly compares the risk of default occurring at the reporting
date compared with that at initial recognition, taking into account
reasonable and supportable information, including information about
past events, current conditions and future economic conditions. The
assessment is unbiased, probability-weighted, and to the extent
relevant, uses forward-looking information consistent with that
used in the measurement of ECL. The analysis of credit risk is
multifactor. The determination of whether a specific factor is
relevant and its weight compared with other factors depends on the
type of product, the characteristics of the financial instrument
and the borrower, and the geographical region. Therefore, it is not
possible to provide a single set of criteria that will determine
what is considered to be a significant increase in credit risk and
these criteria will differ for different types of lending,
particularly between retail and wholesale. However, unless
identified at an earlier stage, all financial assets are deemed to
have suffered a significant increase in credit risk when 30 days
past due. In addition, wholesale loans that are individually
assessed, which are typically corporate and commercial customers,
and included on a watch or worry list, are included in stage
2.
For wholesale portfolios, the
quantitative comparison assesses default risk using a lifetime
probability of default ('PD'), which encompasses a wide range of
information including the obligor's customer risk rating ('CRR'),
macro-economic condition forecasts and credit transition
probabilities. For origination CRRs up to 3.3, significant increase
in credit risk is measured by comparing the average PD for the
remaining term estimated at origination with the equivalent
estimation at reporting date. The quantitative measure of
significance varies depending on the credit quality at origination
as follows:
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0.1-1.2
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15bps
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2.1-3.3
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30bps
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For CRRs greater than 3.3 that are
not impaired, a significant increase in credit risk is considered
to have occurred when the origination PD has doubled. The
significance of changes in PD was informed by expert credit risk
judgement, referenced to historical credit migrations and to
relative changes in external market rates.
For loans originated prior to the
implementation of IFRS 9, the origination PD does not include
adjustments to reflect expectations of future macroeconomic
conditions since these are not available without the use of
hindsight. In the absence of this data, origination PD must be
approximated assuming through-the-cycle PDs and through-the-cycle
migration probabilities, consistent with the instrument's
underlying modelling approach and the CRR at origination. For these
loans, the quantitative comparison is supplemented with additional
CRR deterioration-based thresholds, as set out in the table
below:
|
|
0.1
|
5 notches
|
1.1-4.2
|
4 notches
|
4.3-5.1
|
3 notches
|
5.2-7.1
|
2 notches
|
7.2-8.2
|
1 notch
|
8.3
|
0 notch
|
Further information about the 23-grade scale used for CRR can
be found on page 31.
For Retail portfolios, default
risk is assessed using a reporting date 12-month PD derived from
internally developed statistical models, which incorporate all
available information about the customer. This PD is adjusted for
the effect of macroeconomic forecasts for periods longer than 12
months and is considered to be a reasonable approximation of a
lifetime PD measure. Retail exposures are first segmented into
homogenous portfolios, generally by country, product and brand.
Within each portfolio, the stage 2 accounts are defined as accounts
with an adjusted 12-month PD greater than the average 12-month PD
of loans in that portfolio 12 months before they become 30 days
past due. The expert credit risk judgement is that no prior
increase in credit risk is significant. This portfolio-specific
threshold therefore identifies loans with a PD higher than would be
expected from loans that are performing as originally expected and
higher than that which would have been acceptable at origination.
It therefore approximates a comparison of origination to reporting
date PDs.
We continue to refine the retail
transfer criteria approach for certain portfolios, as additional
data becomes available, in order to utilise a more relative
approach for certain portfolios. These enhancements take advantage
of the increase in origination related data in the assessment of
significant increases in credit risk by comparing remaining
lifetime PD to the comparable remaining term lifetime PD at
origination based on portfolio-specific origination
segments.
Unimpaired and without significant
increase in credit risk (stage 1)
ECL resulting from default events
that are possible within the next 12 months ('12-month ECL') are
recognised for financial instruments that remain in stage
1.
Purchased or originated credit
impaired
Financial assets that are
purchased or originated at a deep discount that reflects the
incurred credit losses are considered to be POCI. This population
includes new financial instruments recognised in most cases
following the derecognition of forborne loans. The amount of change
in lifetime ECL for a POCI loan is recognised in profit or loss
until the POCI loan is derecognised, even if the lifetime ECL are
less than the amount of ECL included in the estimated cash flows on
initial recognition.
Movement between stages
Financial assets can be
transferred between the different categories (other than POCI)
depending on their relative increase in credit risk since initial
recognition. Financial instruments are transferred out of stage 2
if their credit risk is no longer considered to be significantly
increased since initial recognition based on the assessments
described above. In the case of non-performing forborne loans such
financial instruments are transferred out of stage 3 when they no
longer exhibit any evidence of credit impairment and meet the
curing criteria as described above.
Measurement of ECL
The assessment of credit risk and
the estimation of ECL are unbiased and probability-weighted, and
incorporate all available information which is relevant to the
assessment including information about past events, current
conditions and reasonable and supportable forecasts of future
events and economic conditions at the reporting date. In addition,
the estimation of ECL should take into account the time value of
money and considers other factors such as climate-related
risks.
In general, HSBC calculates ECL
using three main components, a probability of default ('PD'), a
loss given default ('LGD') and the exposure at default
('EAD').
The 12-month ECL is calculated by
multiplying the 12-month PD, LGD, and EAD. Lifetime ECL is
calculated using the lifetime PD instead. The 12-month and lifetime
PDs represent the probability of default occurring over the next 12
months and the remaining maturity of the instrument
respectively.
The EAD represents the expected
balance at default, taking into account the repayment of principal
and interest from the balance sheet date to the default event
together with any expected drawdowns of committed facilities. The
LGD represents expected losses on the EAD given the event of
default, taking into account, among other attributes, the
mitigating effect of collateral value at the time it is expected to
be realised and the time value of money.
HSBC makes use of the IRB
framework where possible, with recalibration to meet the differing
IFRS 9 requirements as set out in the following table:
|
|
|
PD
|
- Through the cycle
(represents long-run average PD throughout a full economic
cycle).
- The definition of
default includes a backstop of 90+ days past due.
|
- Point in time (based
on current conditions, adjusted to take into account estimates
of future conditions that will impact PD).
- Default backstop of
90+ days past due for all portfolios.
|
EAD
|
- Cannot be lower than
current balance
|
- Amortisation captured
for term products
|
LGD
|
- Downturn LGD
(consistent losses expected to be suffered during a severe but
plausible economic downturn).
- Regulatory floors may
apply to mitigate risk of underestimating downturn LGD due to lack
of historical data.
- Discounted using cost
of capital.
- All collection costs
included.
|
- Expected LGD (based
on estimate of loss given default including the expected impact of
future economic conditions such as changes in value of
collateral).
- No floors.
- Discounted using the
original effective interest rate of the loan.
- Only costs associated
with obtaining/selling collateral included.
|
Other
|
|
- Discounted back from
point of default to balance sheet date.
|
While 12-month PDs are
recalibrated from Basel models where possible, the lifetime PDs are
determined by projecting the 12-month PD using a term structure.
For the Wholesale methodology, the lifetime PD also takes into
account credit migration, i.e. a customer migrating through the CRR
bands over its life.
The ECL for Wholesale stage 3 is
determined primarily on an individual basis using a discounted cash
flow ('DCF') methodology. The expected future cash flows are based
on estimates as of the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest.
Collateral is taken into account
if it is likely that the recovery of the outstanding amount will
include realisation of collateral based on its estimated fair value
of collateral at the time of expected realisation, less costs for
obtaining and selling the collateral.
The cash flows are discounted at a
reasonable approximation of the original effective interest rate.
For significant cases, cash flows under up to four different
scenarios are probability-weighted by reference to the status of
the borrower, economic scenarios applied more generally by HSBC
Group and judgement of in relation to the likelihood of the workout
strategy succeeding or receivership being required. For less
significant cases where an individual assessment is undertaken, the
effect of different economic scenarios and work-out strategies
results in an ECL calculation based on a most likely outcome which
is adjusted to capture losses resulting from less likely but
possible outcomes. For certain less significant cases, the bank may
use an LGD-based modelled approach to ECL assessment, which factors
in a range of economic scenarios.
Period over which ECL is
measured
Expected credit loss is measured
from the initial recognition of the financial asset. The maximum
period considered when measuring ECL (be it 12-month or lifetime
ECL) is the maximum contractual period over which HSBC is exposed
to credit risk. However, where the financial instrument includes
both a drawn and undrawn commitment and the contractual ability to
demand repayment and cancel the undrawn commitment does not serve
to limit HSBC's exposure to credit risk to the contractual notice
period, the contractual period does not determine the maximum
period considered. Instead, ECL is measured over the period HSBC
remains exposed to credit risk that is not mitigated by credit risk
management actions. This applies to retail overdrafts and credit
cards, where the period is the average time taken for stage 2
exposures to default or close as performing accounts, determined on
a portfolio basis and ranging from between two and six years. In
addition, for these facilities it is not possible to identify the
ECL on the loan commitment component separately from the financial
asset component. As a result, the total ECL is recognised in the
loss allowance for the financial asset unless the total ECL exceeds
the gross carrying amount of the financial asset, in which case the
ECL is recognised as a provision. For wholesale overdraft
facilities, credit risk management actions are taken no less
frequently than on an annual basis.
Forward-looking economic
inputs
HSBC applies multiple
forward-looking global economic scenarios determined with reference
to external forecast distributions representative of its view of
forecast economic conditions. This approach is considered
sufficient to calculate unbiased expected credit loss in most
economic environments. In certain economic environments, additional
analysis may be necessary and may result in additional scenarios or
adjustments, to reflect a range of possible economic outcomes
sufficient for an unbiased estimate. The detailed methodology is
disclosed in 'Measurement uncertainty and sensitivity analysis of
ECL estimates' on page 41.
Critical estimates and
judgements
The calculation of the group's ECL
under IFRS 9 requires the group to make a number of judgements,
assumptions and estimates. The most significant are set out
below:
|
|
|
- Defining what is
considered to be a significant increase in credit risk.
- Selecting and
calibrating the PD, LGD and EAD models, which support the
calculations, including making reasonable and supportable
judgements about how models react to current and future economic
conditions.
- Selecting model
inputs and economic forecasts, including determining whether
sufficient and appropriately weighted economic forecasts are
incorporated to calculate unbiased expected credit loss.
- Making management
judgemental adjustments to account for late breaking events, model
and data limitations and deficiencies, and expert credit
judgements.
- Selecting applicable
recovery strategies for certain wholesale credit-impaired
loans.
|
- The section
'Measurement uncertainty and sensitivity analysis of ECL
estimates', marked as audited from page 41
sets out the assumptions used in determining ECL, and provides an
indication of the sensitivity of the result to the application of
different weightings being applied to different economic
assumptions.
|
(j)
Insurance contracts
A contract is classified as an
insurance contract where the group accepts significant insurance
risk from another party by agreeing to compensate that party on the
occurrence of a specified uncertain future event. An insurance
contract may also transfer financial risk, but is accounted for as
an insurance contract if the insurance risk is significant. In
addition, the group issues investment contracts with discretionary
participation features ('DPF') which are also accounted for as
insurance contracts as required by IFRS 17 'Insurance
Contracts'.
Aggregation of insurance
contracts
Individual insurance contracts
that are managed together and subject to similar risks are
identified as a portfolio. Contracts that are managed together
usually belong to the same product group, and have similar
characteristics such as being subject to a similar pricing
framework or similar product management, and are issued by the same
legal entity. If a contract is exposed to more than one risk, the
dominant risk of the contract is used to assess whether the
contract features similar risks. Each portfolio is further
separated by the contract's expected profitability. The portfolios
are split by their profitability into: (i) contracts that are
onerous at initial recognition; (ii) contracts that at initial
recognition have no significant possibility of becoming onerous
subsequently; and (iii) the remaining contracts. These
profitability groups are then divided by issue date, with most
contracts the group issues after the transition date being grouped
into calendar quarter cohorts. For multi-currency groups of
contracts, the group considers its groups of contracts as being
denominated in a single currency.
The measurement of the insurance
contract liability is based on groups of insurance contracts as
established at initial recognition, and will include fulfilment
cash flows as well as the CSM representing the unearned profit. The
group has elected to update the estimates used in the measurement
on a year-to-date basis.
Fulfilment cash flows
The fulfilment cash flows comprise
the following:
Best estimates of future cash flows
These cash flows within the
contract boundary of each contract in the group include amounts
expected to be collected from premiums and payouts for claims,
benefits and expenses, and are projected using a range of scenarios
and assumptions in an unbiased way based on the group's demographic
and operating experience along with external mortality data where
the group's own experience data is not sufficiently large in size
to be credible.
Adjustment for the time value of money (i.e. discounting) and
financial risks associated with the future cash
flows
The estimates of future cash flows
are adjusted to reflect the time value of money and the financial
risks to derive an expected present value. The group generally
makes use of stochastic modelling techniques in the estimation for
products with options and guarantees.
A bottom-up approach is used to
determine the discount rate to be applied to a given set of
expected future cash flows. This is derived as the sum of the
risk-free yield and an illiquidity premium. The risk-free yield is
determined based on observable market data, where such markets are
considered to be deep, liquid and transparent. When information is
not available, management judgement is applied to determine the
appropriate risk-free yield. Illiquidity premiums reflect the
liquidity characteristics of the associated insurance
contracts.
Risk adjustment for non-financial risk
The risk adjustment reflects the
compensation required for bearing the uncertainty about the amount
and timing of future cash flows that arises from non-financial
risk. It is calculated as a 75th percentile level of stress over a
one-year period. The level of the stress is determined with
reference to external regulatory stresses and internal economic
capital stresses.
For the main insurance
manufacturing entity in the group, the one-year 75th percentile
level of stress corresponds to the 60th percentile (2022: 60th
percentile) based on an ultimate view of risk over all future
years.
The group does not disaggregate
changes in the risk adjustment between insurance service result
(comprising insurance revenue and insurance service expense) and
insurance finance income or expenses. All changes are included in
insurance service result.
Measurement models
The variable fee approach ('VFA')
measurement model is used for most of the contracts issued by the
group, which is mandatory upon meeting the following eligibility
criteria at inception:
- the contractual
terms specify that the policyholder participates in a share of a
clearly identified pool of underlying items;
- the group
expects to pay to the policyholder a substantial share of the fair
value returns on the underlying items. The group considers that a
substantial share is a majority of returns; and
- the group
expects a substantial proportion of any change in the amounts to be
paid to the policyholder to vary with the change in fair value of
the underlying items. The group considers that a substantial
proportion is a majority proportion of change on a present value
probability-weighted average of all scenarios.
For some contracts measured under
VFA, the other comprehensive income ('OCI') option is used. The OCI
option is applied where the underlying items held by the group are
not accounted for at fair value through profit or loss. Under this
option, only the amount that matches income or expenses recognised
in profit or loss on underlying items is included in finance income
or expenses for these insurance contracts, and hence results in the
elimination of accounting mismatches. The remaining amount of
finance income or expenses for these insurance contracts issued for
the period is recognised in OCI. In addition, the risk mitigation
option is used for a number of economic offsets against the
instruments that meet specific requirements.
The remaining contracts issued and
the reinsurance contracts held are accounted for under the general
measurement model ('GMM').
CSM and coverage units
The CSM represents the unearned
profit and results in no income or expense at initial recognition
when the group of contracts is profitable. The CSM is adjusted at
each subsequent reporting period for changes in fulfilment cash
flows relating to future service (e.g. changes in non-economic
assumptions, including mortality and morbidity rates). For initial
recognition of onerous groups of contracts and when groups of
contracts become onerous subsequently, losses are recognised in
insurance service expense immediately.
For groups of contracts measured
using the VFA, changes in the group's share of the underlying
items, and economic experience and economic assumption changes
adjust the CSM, whereas these changes do not adjust the CSM under
the GMM, but are recognised in profit or loss as they arise.
However, under the risk mitigation option for VFA contracts, the
changes in the fulfilment cash flows and the changes in the group's
share in the fair value return on underlying items that the
instruments mitigate are not adjusted in CSM but recognised in
profit or loss. The risk mitigating instruments are primarily
reinsurance contracts held.
The CSM is systematically
recognised in insurance revenue to reflect the insurance contract
services provided, based on the coverage units of the group of
contracts. Coverage units are determined by the quantity of
benefits and the expected coverage period of the
contracts.
The group identifies the quantity
of the benefits provided as follows:
- Insurance
coverage: This is based on the expected net policyholder insurance
benefit at each period after allowance for decrements, where net
policyholder insurance benefit refers to the amount of sum assured
less the fund value or surrender value.
- Investment
services (including both investment-return service and
investment-related service): This is based on a constant measure
basis which reflects the provision of access for the policyholder
to the facility.
For contracts that provide both
insurance coverage and investment services, coverage units are
weighted according to the expected present value of the future cash
outflows for each service.
Insurance service
result
Insurance revenue reflects the
consideration to which the group expects to be entitled in exchange
for the provision of coverage and other insurance contract services
(excluding any investment components). Insurance service expenses
comprise the incurred claims and other incurred insurance service
expenses (excluding any investment components), and losses on
onerous groups of contracts and reversals of such
losses.
Insurance finance income and
expenses
Insurance finance income or
expenses comprise the change in the carrying amount of the group of
insurance contracts arising from the effects of the time value of
money, financial risk and changes therein. For VFA contracts,
changes in the fair value of underlying items (excluding additions
and withdrawals) are recognised in insurance finance income or
expenses.
(k) Employee compensation and
benefits
Share-based payments
The group enters into both
equity-settled and cash-settled share-based payment arrangements
with its employees as compensation for the provision of their
services. The vesting period for these schemes may commence before
the legal grant date if the employees have started to render
services in respect of the award before the legal grant date, where
there is a shared understanding of the terms and conditions of the
arrangement. Expenses are recognised when the employee starts to
render service to which the award relates.
Cancellations result from the
failure to meet a non-vesting condition during the vesting period,
and are treated as an acceleration of vesting recognised
immediately in the income statement. Failure to meet a vesting
condition by the employee is not treated as a cancellation, and the
amount of expense recognised for the award is adjusted to reflect
the number of awards expected to vest.
Post-employment benefit
plans
The group operates a number of
pension schemes including defined benefit, defined contribution and
post-employment benefit schemes.
Payments to defined contribution
schemes are charged as an expense as the employees render
service.
Defined benefit pension
obligations are calculated using the projected unit credit method.
The net charge to the income statement mainly comprises the service
cost and the net interest on the net defined benefit asset or
liability, and is presented in operating expenses.
Remeasurements of the net defined
benefit asset or liability, which comprise actuarial gains and
losses, return on plan assets (excluding interest) and the effect
of the asset ceiling (if any, excluding interest), are recognised
immediately in other comprehensive income. The net defined benefit
asset or liability represents the present value of defined benefit
obligations reduced by the fair value of plan assets, after
applying the asset ceiling test, where the net defined benefit
surplus is limited to the present value of available refunds and
reductions in future contributions to the plan.
The costs of obligations arising
from other post-employment plans are accounted for on the same
basis as defined benefit pension plans.
(l)
Tax
Income tax comprises current tax
and deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised in other
comprehensive income or directly in equity, in which case the tax
is recognised in the same statement in which the related item
appears.
Current tax is the tax expected to
be payable on the taxable profit for the year and on any adjustment
to tax payable in respect of previous years. The group provides for
potential current tax liabilities that may arise on the basis of
the amounts expected to be paid to the tax authorities. Payments
associated with any incremental base erosion and anti-abuse tax are
reflected in tax expense in the period incurred.
Deferred tax is recognised on
temporary differences between the carrying amounts of assets and
liabilities in the balance sheet, and the amounts attributed to
such assets and liabilities for tax purposes. Deferred tax is
calculated using the tax rates expected to apply in the periods as
the assets will be realised or the liabilities settled.
In assessing the probability and
sufficiency of future taxable profit, we consider the availability
of evidence to support the recognition of deferred tax assets.
taking into account the inherent risks in long-term forecasting,
including climate change-related, and drivers of recent history of
tax losses where applicable. We also consider the future reversal
of existing taxable temporary differences and tax planning
strategies, including corporate reorganisations.
Current and deferred tax are
calculated based on tax rates and laws enacted, or substantively
enacted, by the balance sheet date.
Critical estimates and
judgements
The recognition of deferred tax
assets depends on judgements and estimates.
|
|
|
- Specific judgements
supporting deferred tax assets are described in
Note 7.
|
The recognition of deferred tax
assets is sensitive to estimates of future cash flows projected for
periods for which detailed forecasts are available and to
assumptions regarding the long-term pattern of cash flows
thereafter, on which forecasts of future taxable profit are based,
and which affect the expected recovery periods and the pattern of
utilisation of tax losses and tax credits.
|
The group does not consider there
to be a significant risk of a material adjustment to the carrying
amount of the deferred tax assets in the next financial year but
does consider this to be an area that is inherently
judgemental.
(m) Provisions, contingent liabilities and
guarantees
Provisions
Provisions are recognised when it
is probable that an outflow of economic benefits will be required
to settle a present legal or constructive obligation that has
arisen as a result of past events and for which a reliable estimate
can be made.
Critical estimates and
judgements
The recognition and measurement of
provisions requires the group to make a number of judgements,
assumptions and estimates. The most significant are set out
below:
|
|
|
- Determining whether a
present obligation exists. Professional advice is taken on the
assessment of litigation and similar obligations.
- Provisions for legal
proceedings and regulatory matters typically require a higher
degree of judgement than other types of provisions. When matters
are at an early stage, accounting judgements can be difficult
because of the high degree of uncertainty associated with
determining whether a present obligation exists, and estimating the
probability and amount of any outflows that may arise. As matters
progress, management and legal advisers evaluate on an ongoing
basis whether provisions should be recognised, revising previous
estimates as appropriate. At more advanced stages, it is typically
easier to make estimates around a better defined set of possible
outcomes.
|
- Provisions for legal
proceedings and regulatory matters remain very sensitive to the
assumptions used in the estimate. There could be a wider range of
possible outcomes for any pending legal proceedings, investigations
or inquiries. As a result, it is often not practicable to quantify
a range of possible outcomes for individual matters. It is also not
practicable to meaningfully quantify ranges of potential outcomes
in aggregate for these types of provisions, because of the diverse
nature and circumstances of such matters and the wide range of
uncertainties involved.
|
Contingent liabilities,
contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which
include certain guarantees and letters of credit pledged as
collateral security, and contingent liabilities related to legal
proceedings or regulatory matters, are not recognised in the
financial statements but are disclosed unless the probability of
settlement is remote.
Financial guarantee contracts
Liabilities under financial
guarantee contracts that are not classified as insurance contracts
are recorded initially at their fair value, which is generally the
fee received or present value of the fee receivable.
The bank has issued financial
guarantees and similar contracts to other group entities. The group
elects to account for certain guarantees as insurance contracts in
the bank's financial statements, in which case they are measured
and recognised as insurance liabilities. This election is made on a
contract by contract basis, and is irrevocable.
(n)
Impairment of non-financial assets
Software under development is
tested for impairment at least annually. Other non-financial assets
are property, plant and equipment, intangible assets (excluding
goodwill) and right-of-use assets. They are tested for impairment
at the individual asset level when there is indication of
impairment at that level, or at the CGU level for assets that do
not have a recoverable amount at the individual asset level. In
addition, impairment is also tested at the CGU level when there is
indication of impairment at that level. For this purpose, CGUs are
considered to be the principal operating legal entities divided by
global business.
Impairment testing compares the
carrying amount of the non-financial asset or CGU with its
recoverable amount, which is the higher of the fair value less
costs of disposal or the value in use. The carrying amount of a CGU
comprises the carrying amount of its assets and liabilities,
including non-financial assets that are directly attributable to it
and non-financial assets that can be allocated to it on a
reasonable and consistent basis. Non-financial assets that cannot
be allocated to an individual CGU are tested for impairment at an
appropriate grouping of CGUs. The recoverable amount of the CGU is
the higher of the fair value less costs of disposal of the CGU,
which is determined by independent and qualified valuers where
relevant, and the value in use, which is calculated based on
appropriate inputs. When the recoverable amount of a CGU is less
than its carrying amount, an impairment loss is recognised in the
income statement to the extent that the impairment can be allocated
on a pro-rata basis to the non-financial assets by reducing their
carrying amounts to the higher of their respective individual
recoverable amount or nil. Impairment is not allocated to the
financial assets in a CGU.
Impairment losses recognised in
prior periods for non-financial assets are reversed when there has
been a change in the estimate used to determine the recoverable
amount. The impairment loss is reversed to the extent that the
carrying amount of the non-financial assets would not exceed the
amount that would have been determined (net of amortisation or
depreciation) had no impairment loss been recognised in prior
periods.
(o)
Non-current assets and disposal groups held for
sale
HSBC classifies non-current assets
or disposal groups (including assets and liabilities) as held for
sale when their carrying amounts will be recovered principally
through sale rather than through continuing use. To be classified
as held for sale, the non-current asset or disposal group must be
available for immediate sale in its present condition subject only
to terms that are usual and customary for sales of such assets (or
disposal groups), and the sale must be highly probable. For a sale
to be highly probable, the appropriate level of management must be
committed to a plan to sell the asset (or disposal group) and an
active programme to locate a buyer and complete the plan must have
been initiated. Further, the asset (or disposal group) must be
actively marketed for sale at a price that is reasonable in
relation to its current fair value. In addition, the sale should be
expected to qualify as a completed sale within one year from the
date of classification and actions required to complete the plan
should indicate that it is unlikely that significant changes to the
plan will be made or that the plan will be withdrawn.
Held-for-sale assets and disposal
groups are measured at the lower of their carrying amount and fair
value less costs to sell except for those assets and liabilities
that are not within the scope of the measurement requirements of
IFRS 5. If the carrying amount of the non-current asset (or
disposal group) is greater than the fair value less costs to sell,
an impairment loss for any initial or subsequent write down of the
asset or disposal group to fair value less costs to sell is
recognised. Any such impairment loss is first allocated against the
non-current assets that are in scope of IFRS 5 for measurement.
This first reduces the carrying amount of any goodwill allocated to
the disposal group, and then to the other assets of the disposal
group pro rata on the basis of the carrying amount of each asset in
the disposal group. Thereafter, any impairment loss in excess of
the carrying amount of the non-current assets in scope of IFRS 5
for measurement is recognised against the total assets of the
disposal group.
Critical estimates and
judgements
The classification as held for
sale depends on certain judgements:
|
|
Management judgement is required
in determining whether the IFRS 5 held for sale criteria are met,
including whether a sale is highly probable and expected to
complete within one year of classification. The exercise of
judgement will normally consider the likelihood of successfully
securing any necessary regulatory or political approvals which are
almost always required for sales of banking businesses. For large
and complex plans judgement will also include an assessment of the
enforceability of any binding sale agreement, the nature and
magnitude of any disincentives for non-performance, and the ability
of the counterparty to undertake necessary pre-completion
preparatory work, comply with conditions precedent, and otherwise
be able to comply with contractual undertakings to achieve
completion within the expected timescale. Once classified as held
for sale, judgement is required to be applied on a continuous basis
to ensure that classification remains appropriate in future
accounting periods.
|
|
Net fee income by product
type
|
|
2023
|
20221
|
20211
|
|
£m
|
£m
|
£m
|
Net fee income by product
|
|
|
|
Account services
|
339
|
302
|
271
|
Funds under management
|
408
|
420
|
465
|
Cards
|
59
|
56
|
44
|
Credit facilities
|
278
|
235
|
246
|
Broking income
|
327
|
354
|
368
|
Underwriting
|
239
|
171
|
286
|
Imports/exports
|
35
|
44
|
40
|
Remittances
|
114
|
101
|
84
|
Global custody
|
190
|
203
|
200
|
Corporate finance
|
45
|
124
|
132
|
Securities others - (including
stock lending)
|
95
|
81
|
76
|
Trust income
|
55
|
49
|
43
|
Other
|
410
|
453
|
451
|
Fee income
|
2,594
|
2,593
|
2,706
|
Less: fee expense
|
(1,365)
|
(1,298)
|
(1,293)
|
Net fee income
|
1,229
|
1,295
|
1,413
|
Net fee income by global
business
|
|
MSS
|
GB
|
GBM
Other
|
CMB
|
WPB
|
Corporate
Centre
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Year ended 31 Dec 2023
|
|
|
|
|
|
|
|
Fee income
|
1,275
|
847
|
131
|
427
|
556
|
(642)
|
2,594
|
Less: fee expense
|
(1,496)
|
(177)
|
(102)
|
(19)
|
(207)
|
636
|
(1,365)
|
Net fee income/ (expense)
|
(221)
|
670
|
29
|
408
|
349
|
(6)
|
1,229
|
|
|
|
|
|
|
|
|
Year ended 31 Dec
20221
|
|
|
|
|
|
|
|
Fee income
|
1,301
|
817
|
69
|
425
|
580
|
(599)
|
2,593
|
Less: fee expense
|
(1,439)
|
(173)
|
(55)
|
(25)
|
(199)
|
593
|
(1,298)
|
Net fee income/
(expense)
|
(138)
|
644
|
14
|
400
|
381
|
(6)
|
1,295
|
|
|
|
|
|
|
|
|
Year ended 31 Dec
20211
|
|
|
|
|
|
|
|
Fee income
|
1,251
|
861
|
89
|
415
|
633
|
(543)
|
2,706
|
Less: fee expense
|
(1,245)
|
(188)
|
(83)
|
(54)
|
(255)
|
532
|
(1,293)
|
Net fee income/
(expense)
|
6
|
673
|
6
|
361
|
378
|
(11)
|
1,413
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly. Comparative data for the year ended 31
December 2021 is prepared on an IFRS 4
basis.
Net fee income includes £842m of
fees earned on financial assets that are not at fair value through
profit or loss (other than amounts included in determining the
effective interest rate) (2022: £778m; 2021: £935m), £247m of fees
payable on financial liabilities that are not at fair value through
profit of loss (other than amounts included in determining the
effective interest rate) (2022: £229m; 2021: £221m), £654m of fees
earned on trust and other fiduciary activities (2022: £673m; 2021:
£709m), and £83m of fees payable relating to trust and other
fiduciary activities (2022: £69m; 2021: £61m).
3
|
Net income from financial
instruments measured at fair value through profit or
loss
|
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
Net income arising on:
|
|
|
|
Net Trading activities
|
4,569
|
(2,840)
|
3
|
Other instruments managed on a
fair value basis
|
(1,174)
|
5,715
|
1,730
|
Net income from financial instruments held for trading or
managed on a fair value basis
|
3,395
|
2,875
|
1,733
|
Financial assets held to meet
liabilities under insurance and investment contracts
|
1,231
|
(1,429)
|
1,305
|
Liabilities to customers under
investment contracts
|
(63)
|
59
|
(91)
|
Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss
|
1,168
|
(1,370)
|
1,214
|
Derivatives managed in conjunction
with the group's issued debt securities
|
189
|
(736)
|
(337)
|
Other changes in fair
value
|
(252)
|
838
|
329
|
Changes in fair value of designated debt and related
derivatives
|
(63)
|
102
|
(8)
|
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss
|
284
|
143
|
493
|
Year ended 31 Dec
|
4,784
|
1,750
|
3,432
|
The table below represents an
analysis of the total insurance revenue and expenses recognised in
the period:
Insurance Service
result
|
|
Year ended 31 Dec 2023
|
Year
ended 31 Dec 20221
|
|
Life direct participating
and Investment DPF contracts2
|
Life other
contracts3
|
Total
|
Life
direct participating and Investment DPF
contracts2
|
Life
other contracts3
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Insurance revenue
|
|
|
|
|
|
|
Amounts relating to changes in
liabilities for remaining coverage
|
183
|
188
|
371
|
165
|
193
|
358
|
- Contractual service margin
recognised for services provided
|
77
|
43
|
120
|
78
|
36
|
114
|
- Change in risk adjustment
for non-financial risk for risk expired
|
6
|
6
|
12
|
5
|
7
|
12
|
- Expected incurred claims
and other insurance service expenses
|
100
|
139
|
239
|
82
|
150
|
232
|
Recovery of insurance acquisition
cash flows
|
2
|
6
|
8
|
1
|
2
|
3
|
Total insurance revenue
|
185
|
194
|
379
|
166
|
195
|
361
|
Insurance service expenses
|
|
|
|
|
|
|
Incurred claims and other
insurance service expenses
|
(88)
|
(120)
|
(208)
|
(88)
|
(132)
|
(220)
|
Losses and reversal of losses on
onerous contracts
|
(8)
|
(7)
|
(15)
|
(2)
|
(6)
|
(8)
|
Amortisation of insurance
acquisition cash flows
|
(2)
|
(6)
|
(8)
|
(1)
|
(2)
|
(3)
|
Adjustments to liabilities for
incurred claims
|
-
|
(24)
|
(24)
|
1
|
(10)
|
(9)
|
Total insurance service expenses
|
(98)
|
(157)
|
(255)
|
(90)
|
(150)
|
(240)
|
Total insurance service results
|
87
|
37
|
124
|
76
|
45
|
121
|
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.
Net investment return
|
|
Year ended 31 Dec 2023
|
Year
ended 31 Dec 20221
|
|
Life direct participating
and Investment DPF contracts
|
Life other
contracts
|
Total
|
Life
direct participating
and Investment DPF contracts
|
Life
other contracts
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Investment return
|
|
|
|
|
|
|
Amounts recognised in profit or
loss2
|
1,246
|
17
|
1,263
|
(1,086)
|
(4)
|
(1,090)
|
Amounts recognised in
OCI3
|
404
|
-
|
404
|
(1,899)
|
-
|
(1,899)
|
Total investment return (memorandum)
|
1,650
|
17
|
1,667
|
(2,985)
|
(4)
|
(2,989)
|
Net finance (expense)/income
|
|
|
|
|
|
|
Changes in fair value of
underlying items of direct participating contracts
|
(1,585)
|
-
|
(1,585)
|
2,979
|
-
|
2,979
|
Interest accreted
|
-
|
2
|
2
|
-
|
7
|
7
|
Effect of changes in interest
rates and other financial assumptions
|
-
|
1
|
1
|
-
|
19
|
19
|
Effect of measuring changes in
estimates at current rates and adjusting the CSM at rates on
initial recognition
|
-
|
(4)
|
(4)
|
-
|
(1)
|
(1)
|
Total net finance (expenses)/income from insurance
contracts
|
(1,585)
|
(1)
|
(1,586)
|
2,979
|
25
|
3,004
|
Represented by:
|
|
|
|
|
|
|
Amounts recognised in profit or
loss
|
(1,183)
|
(1)
|
(1,184)
|
1,081
|
25
|
1,106
|
Amounts recognised in
OCI
|
(402)
|
-
|
(402)
|
1,898
|
-
|
1,898
|
Total net investment results
|
65
|
16
|
81
|
(6)
|
21
|
15
|
Represented by:
|
|
|
|
|
|
|
Amounts recognised in profit or
loss
|
63
|
16
|
79
|
(5)
|
21
|
16
|
Amounts recognised in
OCI
|
2
|
-
|
2
|
(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 Total Bank 'Net income/(expense) from assets
and liabilities of insurance business, including related
derivatives, measured at fair value through profit or loss' gain of
£1,168m (2022: £1,370m loss) includes returns on assets and
liabilities supporting insurance policies of £1,082m (2022: £1,300m
loss) and on shareholder assets of £86m (2022: £70m loss).
Investment returns of £1,263m (2022: £1,090m loss) include gains of
£1,082m (2022: £1,300m loss) on underlying assets supporting
insurance liabilities reported in 'Net income/(expense) from assets
and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or loss', £187m
gains (2022: £210m gain) reported in 'Net interest income' and £6m
loss (2022: nil) reported in 'Other operating
income'.
3 'Amounts recognised in OCI' for the year ended
31 December 2023 included fair value gains of £407m (2022: £1,902m
losses) and impairment of £3m (2022: £3m impairment
reversal).
Reconciliation of amounts included
in other comprehensive income for financial assets measured at fair
value through other comprehensive income - Contracts measured under
the modified retrospective approach
|
|
2023
|
2022
|
|
£m
|
£m
|
Balance at 1 Jan
|
(808)
|
459
|
Net change in fair
value
|
363
|
(1,665)
|
Net amount reclassified to profit
or loss
|
(5)
|
(1)
|
Related income tax
|
(93)
|
430
|
Foreign exchange and
other
|
17
|
(31)
|
Balance at 31 Dec
|
(526)
|
(808)
|
Movements in carrying amounts of
insurance contracts - Analysis by remaining coverage and incurred
claims
|
|
Year ended 31 Dec 2023
|
|
Life direct participating
and Investment DPF contracts
|
Life other
contracts
|
|
|
Liabilities for remaining
coverage:
|
|
|
Liabilities for remaining
coverage:
|
|
|
|
|
Excluding loss
component
|
Loss
component
|
Incurred
claims
|
Total
|
Excluding loss
component
|
Loss
component
|
Incurred
claims
|
Total
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Opening assets
|
-
|
-
|
-
|
-
|
(49)
|
-
|
6
|
(43)
|
(43)
|
Opening liabilities
|
19,712
|
5
|
2
|
19,719
|
146
|
10
|
129
|
285
|
20,004
|
Net opening balance at 1 Jan 2023
|
19,712
|
5
|
2
|
19,719
|
97
|
10
|
135
|
242
|
19,961
|
Changes in the statement of profit or loss and other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Insurance revenue
|
|
|
|
|
|
|
|
|
|
Contracts under the fair value
approach
|
(11)
|
-
|
-
|
(11)
|
(78)
|
-
|
-
|
(78)
|
(89)
|
Contracts under the modified
retrospective approach
|
(119)
|
-
|
-
|
(119)
|
(17)
|
-
|
-
|
(17)
|
(136)
|
Other
contracts2
|
(55)
|
-
|
-
|
(55)
|
(99)
|
-
|
-
|
(99)
|
(154)
|
Total insurance revenue
|
(185)
|
-
|
-
|
(185)
|
(194)
|
-
|
-
|
(194)
|
(379)
|
Insurance service expenses
|
|
|
|
|
|
|
|
|
|
Incurred claims and other
insurance service expenses
|
-
|
(1)
|
89
|
88
|
-
|
(1)
|
121
|
120
|
208
|
Amortisation of insurance
acquisition cash flows
|
2
|
-
|
-
|
2
|
6
|
-
|
-
|
6
|
8
|
Losses and reversal of losses on
onerous contracts
|
-
|
8
|
-
|
8
|
-
|
7
|
-
|
7
|
15
|
Adjustments to liabilities for
incurred claims
|
-
|
-
|
-
|
-
|
-
|
-
|
24
|
24
|
24
|
Total insurance service expenses
|
2
|
7
|
89
|
98
|
6
|
6
|
145
|
157
|
255
|
Investment components
|
(1,879)
|
-
|
1,879
|
-
|
(3)
|
-
|
3
|
-
|
-
|
Insurance service result
|
(2,062)
|
7
|
1,968
|
(87)
|
(191)
|
6
|
148
|
(37)
|
(124)
|
Net finance (income)/expense from
insurance contracts3
|
1,585
|
-
|
-
|
1,585
|
-
|
-
|
1
|
1
|
1,586
|
Effect of movements in exchange
rates
|
(371)
|
-
|
-
|
(371)
|
(1)
|
-
|
-
|
(1)
|
(372)
|
Total changes in the statement of profit or loss and other
comprehensive income
|
(848)
|
7
|
1,968
|
1,127
|
(192)
|
6
|
149
|
(37)
|
1,090
|
Cash flows
|
|
|
|
|
|
|
|
|
|
Premiums received
|
1,471
|
-
|
-
|
1,471
|
218
|
-
|
-
|
218
|
1,689
|
Claims and other insurance service
expenses paid, including investment components
|
(51)
|
-
|
(1,968)
|
(2,019)
|
-
|
-
|
(116)
|
(116)
|
(2,135)
|
Insurance acquisition cash
flows
|
(15)
|
-
|
|
(15)
|
(28)
|
-
|
|
(28)
|
(43)
|
Total cash flows
|
1,405
|
-
|
(1,968)
|
(563)
|
190
|
-
|
(116)
|
74
|
(489)
|
Other movements
|
5
|
1
|
-
|
6
|
3
|
-
|
(17)
|
(14)
|
(8)
|
Net closing balance at 31 Dec 2023
|
20,274
|
13
|
2
|
20,289
|
98
|
16
|
151
|
265
|
20,554
|
Closing assets
|
-
|
-
|
-
|
-
|
(54)
|
4
|
9
|
(41)
|
(41)
|
Closing liabilities
|
20,274
|
13
|
2
|
20,289
|
152
|
12
|
142
|
306
|
20,595
|
Net closing balance at 31 Dec 2023
|
20,274
|
13
|
2
|
20,289
|
98
|
16
|
151
|
265
|
20,554
|
Movements in carrying amounts of
insurance contracts - Analysis by remaining coverage and incurred
claims (continued)
|
|
Year
ended 31 Dec 20221
|
|
Life
direct participating and Investment DPF contracts
|
Life
other contracts
|
|
|
Liabilities for:
|
|
Liabilities for:
|
|
|
|
Excluding loss component
|
Loss
component
|
Incurred
claims
|
Total
|
Excluding loss component
|
Loss
component
|
Incurred
claims
|
Total
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Opening assets
|
-
|
-
|
-
|
-
|
(53)
|
1
|
5
|
(47)
|
(47)
|
Opening liabilities
|
21,916
|
4
|
2
|
21,922
|
170
|
4
|
105
|
279
|
22,201
|
Net opening balance at 1 Jan
2022
|
21,916
|
4
|
2
|
21,922
|
117
|
5
|
110
|
232
|
22,154
|
Changes in the statement of profit
or loss and other comprehensive income
|
|
|
|
|
|
|
|
|
|
Insurance revenue
|
|
|
|
|
|
|
|
|
|
Contracts under the fair value
approach
|
(10)
|
-
|
-
|
(10)
|
(83)
|
-
|
-
|
(83)
|
(93)
|
Contracts under the modified
retrospective approach
|
(120)
|
-
|
-
|
(120)
|
(20)
|
-
|
-
|
(20)
|
(140)
|
Other
contracts2
|
(36)
|
-
|
-
|
(36)
|
(92)
|
-
|
-
|
(92)
|
(128)
|
Total insurance revenue
|
(166)
|
-
|
-
|
(166)
|
(195)
|
-
|
-
|
(195)
|
(361)
|
Insurance service
expenses
|
|
|
|
|
|
|
|
|
|
Incurred claims and other
insurance service expenses
|
-
|
(1)
|
89
|
88
|
-
|
-
|
132
|
132
|
220
|
Amortisation of insurance
acquisition cash flows
|
1
|
-
|
-
|
1
|
2
|
-
|
-
|
2
|
3
|
Losses and reversal of losses on
onerous contracts
|
-
|
2
|
-
|
2
|
-
|
6
|
-
|
6
|
8
|
Adjustments to liabilities for
incurred claims
|
-
|
-
|
(1)
|
(1)
|
-
|
-
|
10
|
10
|
9
|
Total insurance service
expenses
|
1
|
1
|
88
|
90
|
2
|
6
|
142
|
150
|
240
|
Investment components
|
(1,687)
|
-
|
1,687
|
-
|
(3)
|
-
|
3
|
-
|
-
|
Insurance service
result
|
(1,852)
|
1
|
1,775
|
(76)
|
(196)
|
6
|
145
|
(45)
|
(121)
|
Net finance income from insurance
contracts3
|
(2,979)
|
-
|
-
|
(2,979)
|
(19)
|
-
|
(6)
|
(25)
|
(3,004)
|
Effect of movements in exchange
rates
|
946
|
-
|
-
|
946
|
-
|
-
|
3
|
3
|
949
|
Total changes in the statement of
profit or loss and other comprehensive income
|
(3,885)
|
1
|
1,775
|
(2,109)
|
(215)
|
6
|
142
|
(67)
|
(2,176)
|
Cash flows
|
|
|
|
|
|
|
|
|
|
Premiums received
|
1,721
|
-
|
-
|
1,721
|
215
|
-
|
-
|
215
|
1,936
|
Claims and other insurance service
expenses paid, including investment components
|
(41)
|
-
|
(1,775)
|
(1,816)
|
-
|
-
|
(124)
|
(124)
|
(1,940)
|
Insurance acquisition cash
flows
|
(14)
|
-
|
-
|
(14)
|
(26)
|
-
|
-
|
(26)
|
(40)
|
Total cash flows
|
1,666
|
-
|
(1,775)
|
(109)
|
189
|
-
|
(124)
|
65
|
(44)
|
Other movements
|
15
|
-
|
-
|
15
|
6
|
(1)
|
7
|
12
|
27
|
Net closing balance at 31 Dec
2022
|
19,712
|
5
|
2
|
19,719
|
97
|
10
|
135
|
242
|
19,961
|
Closing assets
|
-
|
-
|
-
|
-
|
(49)
|
-
|
6
|
(43)
|
(43)
|
Closing liabilities
|
19,712
|
5
|
2
|
19,719
|
146
|
10
|
129
|
285
|
20,004
|
Net closing balance at 31 Dec
2022
|
19,712
|
5
|
2
|
19,719
|
97
|
10
|
135
|
242
|
19,961
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
2 'Other contracts' are those contracts measured
by applying IFRS 17 from inception of the contracts. This includes
contracts measured under the full retrospective approach at
Transition and contracts incepted after
Transition.
3 'Net finance (income)/expense from insurance
contracts' expense of £1,586m (2022: £3,004m income) comprises
expense of £1,184m (2022: £1,106m income) recognised in the
statement of profit or loss and expense of £402m (2022: £1,898m
income) recognised in the statement of other comprehensive
income.
Movements in carrying amounts of
insurance contracts - Analysis by measurement component
|
|
Year ended 31 Dec 2023
|
|
|
Life direct participating
and investment discretionary participating
contracts
|
Life other
contracts
|
|
|
Contractual service margin
|
|
|
Contractual service margin
|
|
|
Estimates of present value
of future cash flows and risk adjustment
|
Contracts under the fair
value approach
|
Contracts under the modified
retros-
pective
approach
|
Other
contracts2
|
Total
|
Estimates of present value
of future cash flows and risk adjustment
|
Contracts under the fair
value approach
|
Contracts under the modified
retros-
pective
approach
|
Other
contracts2
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Opening assets
|
-
|
-
|
-
|
-
|
-
|
(76)
|
6
|
-
|
27
|
(43)
|
Opening liabilities
|
18,771
|
29
|
657
|
262
|
19,719
|
134
|
114
|
15
|
22
|
285
|
Net opening balance at
1
Jan 2023
|
18,771
|
29
|
657
|
262
|
19,719
|
58
|
120
|
15
|
49
|
242
|
Changes in the statement of profit or loss and other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Changes that relate to current services
|
|
|
|
|
|
|
|
|
|
|
Contractual service margin
recognised for services provided
|
-
|
(3)
|
(57)
|
(17)
|
(77)
|
-
|
(19)
|
(5)
|
(19)
|
(43)
|
Change in risk adjustment for
non-financial risk expired
|
(6)
|
-
|
-
|
-
|
(6)
|
(6)
|
-
|
-
|
-
|
(6)
|
Experience adjustments
|
(12)
|
-
|
-
|
-
|
(12)
|
(19)
|
-
|
-
|
-
|
(19)
|
Changes that relate to future services
|
|
|
|
|
|
|
|
|
|
|
Contracts initially recognised in
the year
|
(48)
|
-
|
-
|
48
|
-
|
(24)
|
-
|
-
|
25
|
1
|
Changes in estimates that adjust
contractual service margin
|
133
|
(16)
|
(26)
|
(91)
|
-
|
(1)
|
9
|
5
|
(13)
|
-
|
Changes in estimates that result
in losses and reversal of losses on onerous contracts
|
8
|
-
|
-
|
-
|
8
|
6
|
-
|
-
|
-
|
6
|
Changes that relate to past services
|
|
|
|
|
|
|
|
|
|
|
Adjustments to liabilities for
incurred claims
|
-
|
-
|
-
|
-
|
-
|
24
|
-
|
-
|
-
|
24
|
Insurance service result
|
75
|
(19)
|
(83)
|
(60)
|
(87)
|
(20)
|
(10)
|
-
|
(7)
|
(37)
|
Net finance (income)/expense from
insurance contracts3
|
1,585
|
-
|
-
|
-
|
1,585
|
(1)
|
1
|
-
|
1
|
1
|
Effect of movements in exchange
rates
|
(352)
|
-
|
(14)
|
(5)
|
(371)
|
-
|
(1)
|
-
|
-
|
(1)
|
Total changes in the statement of profit or loss and other
comprehensive income
|
1,308
|
(19)
|
(97)
|
(65)
|
1,127
|
(21)
|
(10)
|
-
|
(6)
|
(37)
|
Cash flows
|
|
|
|
|
|
|
|
|
|
|
Premiums received
|
1,471
|
-
|
-
|
-
|
1,471
|
218
|
-
|
-
|
-
|
218
|
Claims, other insurance service
expenses paid (including investment components) and other cash
flows
|
(2,019)
|
-
|
-
|
-
|
(2,019)
|
(116)
|
-
|
-
|
-
|
(116)
|
Insurance acquisition cash
flows
|
(15)
|
-
|
-
|
-
|
(15)
|
(28)
|
-
|
-
|
-
|
(28)
|
Total cash flows
|
(563)
|
-
|
-
|
-
|
(563)
|
74
|
-
|
-
|
-
|
74
|
Other movements
|
1
|
-
|
1
|
4
|
6
|
(21)
|
-
|
-
|
7
|
(14)
|
Net closing balance at
31 Dec 2023
|
19,517
|
10
|
561
|
201
|
20,289
|
90
|
110
|
15
|
50
|
265
|
Closing assets
|
-
|
-
|
-
|
-
|
-
|
(63)
|
4
|
-
|
18
|
(41)
|
Closing liabilities
|
19,517
|
10
|
561
|
201
|
20,289
|
153
|
106
|
15
|
32
|
306
|
Net closing balance at
31 Dec 2023
|
19,517
|
10
|
561
|
201
|
20,289
|
90
|
110
|
15
|
50
|
265
|
Movements in carrying amounts of
insurance contracts - Analysis by measurement component
(continued)
|
|
Year
ended 31 Dec 2022
|
|
|
Life
direct participating and investment discretionary participating
contracts
|
Life
other contracts
|
|
|
Contractual service
margin
|
|
|
Contractual service
margin
|
|
|
Estimates of present value of future cash flows and risk
adjustment
|
Contracts under the fair value approach
|
Contracts under the modified retros-
pective
approach
|
Other
contracts2
|
Total
|
Estimates of present value of future cash flows and risk
adjustment
|
Contracts under the fair value approach
|
Contracts under the modified retros-
pective
approach
|
Other
contracts2
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Opening assets
|
-
|
-
|
-
|
-
|
-
|
(79)
|
17
|
-
|
15
|
(47)
|
Opening liabilities
|
21,172
|
34
|
520
|
196
|
21,922
|
139
|
94
|
19
|
27
|
279
|
Net opening balance at 1 Jan
2022
|
21,172
|
34
|
520
|
196
|
21,922
|
60
|
111
|
19
|
42
|
232
|
Changes in the statement of profit
or loss and other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Changes that relate to current
services
|
|
|
|
|
|
|
|
|
|
|
Contractual service margin
recognised for services provided
|
-
|
(3)
|
(57)
|
(18)
|
(78)
|
-
|
(21)
|
(5)
|
(10)
|
(36)
|
Change in risk adjustment for
non-financial risk expired
|
(5)
|
-
|
-
|
-
|
(5)
|
(7)
|
-
|
-
|
-
|
(7)
|
Experience adjustments
|
6
|
-
|
-
|
-
|
6
|
(20)
|
-
|
-
|
-
|
(20)
|
Changes that relate to future
services
|
|
|
|
|
|
|
|
|
|
|
Contracts initially recognised in
the year
|
(54)
|
-
|
-
|
54
|
-
|
(23)
|
-
|
-
|
25
|
2
|
Changes in estimates that adjust
contractual service margin
|
(178)
|
1
|
161
|
16
|
-
|
(8)
|
11
|
-
|
(3)
|
-
|
Changes in estimates that result
in losses and reversal of losses on onerous contracts
|
2
|
-
|
-
|
-
|
2
|
6
|
-
|
-
|
-
|
6
|
Changes that relate to past
services
|
|
|
|
|
|
|
|
|
|
|
Adjustments to liabilities for
incurred claims
|
(1)
|
-
|
-
|
-
|
(1)
|
10
|
-
|
-
|
-
|
10
|
Insurance service
result
|
(230)
|
(2)
|
104
|
52
|
(76)
|
(42)
|
(10)
|
(5)
|
12
|
(45)
|
Net finance income from insurance
contracts3
|
(2,979)
|
-
|
-
|
-
|
(2,979)
|
(26)
|
1
|
-
|
-
|
(25)
|
Effect of movements in exchange
rates
|
901
|
1
|
33
|
11
|
946
|
(2)
|
3
|
1
|
1
|
3
|
Total changes in the statement of
profit or loss and other comprehensive income
|
(2,308)
|
(1)
|
137
|
63
|
(2,109)
|
(70)
|
(6)
|
(4)
|
13
|
(67)
|
Cash flows
|
|
|
|
|
|
|
|
|
|
|
Premiums received
|
1,721
|
-
|
-
|
-
|
1,721
|
215
|
-
|
-
|
-
|
215
|
Claims, other insurance service
expenses paid (including investment components) and other cash
flows
|
(1,816)
|
-
|
-
|
-
|
(1,816)
|
(124)
|
-
|
-
|
-
|
(124)
|
Insurance acquisition cash
flows
|
(14)
|
-
|
-
|
-
|
(14)
|
(26)
|
-
|
-
|
-
|
(26)
|
Total cash flows
|
(109)
|
-
|
-
|
-
|
(109)
|
65
|
-
|
-
|
-
|
65
|
Other movements
|
16
|
(4)
|
-
|
3
|
15
|
3
|
15
|
-
|
(6)
|
12
|
Net closing balance at
31 Dec 2022
|
18,771
|
29
|
657
|
262
|
19,719
|
58
|
120
|
15
|
49
|
242
|
Closing assets
|
-
|
-
|
-
|
-
|
-
|
(76)
|
6
|
-
|
27
|
(43)
|
Closing liabilities
|
18,771
|
29
|
657
|
262
|
19,719
|
134
|
114
|
15
|
22
|
285
|
Net closing balance at
31 Dec 2022
|
18,771
|
29
|
657
|
262
|
19,719
|
58
|
120
|
15
|
49
|
242
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
2 'Other contracts' are those contracts measured
by applying IFRS 17 from inception of the contracts. These include
contracts measured under the full retrospective approach at
Transition and contracts incepted after
Transition.
3 'Net finance (income)/expense from insurance
contracts' expense of £1,586m (2022: £3,004m income) comprises
expense of £1,184m (2022: £1,106m income) recognised in the
statement of profit or loss and expense of £402m (2022: £1,898m
income) recognised in the statement of other comprehensive
income.
Effect of contracts initially
recognised in the year
|
|
Year ended 31 Dec 2023
|
Year
ended 31 Dec 20221
|
|
Profitable contracts
issued
|
Onerous contracts
issued
|
Total
|
Profitable contracts issued
|
Onerous
contracts issued
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Life direct participating and investment DPF
contracts
|
|
|
|
|
|
|
Estimates of present value of cash
outflows
|
1,169
|
15
|
1,184
|
1,377
|
12
|
1,389
|
- Insurance acquisition cash
flows
|
10
|
-
|
10
|
-
|
-
|
-
|
- Claims and other insurance
service expenses payable
|
1,159
|
15
|
1,174
|
1,377
|
12
|
1,389
|
Estimates of present value of cash
inflows
|
(1,222)
|
(15)
|
(1,237)
|
(1,437)
|
(12)
|
(1,449)
|
Risk adjustment for non-financial
risk
|
5
|
-
|
5
|
4
|
-
|
4
|
Contractual service
margin
|
48
|
-
|
48
|
56
|
-
|
56
|
Losses recognised on initial recognition
|
-
|
-
|
-
|
-
|
-
|
-
|
Life other contracts
|
|
|
|
|
|
|
Estimates of present value of cash
outflows
|
129
|
9
|
138
|
150
|
22
|
172
|
- Insurance acquisition cash
flows
|
1
|
-
|
1
|
-
|
-
|
-
|
- Claims and other insurance
service expenses payable
|
128
|
9
|
137
|
150
|
22
|
172
|
Estimates of present value of cash
inflows
|
(161)
|
(8)
|
(169)
|
(183)
|
(20)
|
(203)
|
Risk adjustment for non-financial
risk
|
7
|
-
|
7
|
7
|
1
|
8
|
Contractual service
margin
|
25
|
-
|
25
|
25
|
-
|
25
|
Losses recognised on initial recognition
|
-
|
(1)
|
(1)
|
-
|
(2)
|
(2)
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
Present value of expected future
cash flows of insurance contract liabilities and contractual
service margin
|
|
Less than 1
year
|
1-2 years
|
2-3 years
|
3-4 years
|
4-5 years
|
5-10 years
|
10-20
years
|
Over 20
years
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Insurance liability future cash flows
|
|
|
|
|
|
|
|
|
|
Life direct participating and
investment DPF contracts
|
614
|
660
|
648
|
612
|
555
|
1,809
|
(15)
|
14,536
|
19,419
|
Life other contracts
|
33
|
-
|
(4)
|
(5)
|
(4)
|
13
|
28
|
59
|
120
|
Insurance liability future cash flows at 31
Dec 2023
|
647
|
660
|
644
|
607
|
551
|
1,822
|
13
|
14,595
|
19,539
|
Remaining contractual service margin
|
|
|
|
|
|
|
|
|
|
Life direct participating and
investment DPF contracts
|
66
|
62
|
59
|
55
|
51
|
204
|
208
|
67
|
772
|
Life other contracts
|
28
|
24
|
19
|
16
|
14
|
42
|
29
|
3
|
175
|
Remaining contractual service margin at 31
Dec 2023
|
94
|
86
|
78
|
71
|
65
|
246
|
237
|
70
|
947
|
Insurance liability future cash
flows
|
|
|
|
|
|
|
|
|
|
Life direct participating and
investment DPF contracts
|
196
|
327
|
343
|
336
|
316
|
1,004
|
7
|
16,148
|
18,677
|
Life other contracts
|
46
|
(7)
|
(8)
|
(8)
|
(7)
|
(9)
|
33
|
59
|
99
|
Insurance liability future cash
flows at 31 Dec
20221
|
242
|
320
|
335
|
328
|
309
|
995
|
40
|
16,207
|
18,776
|
Remaining contractual service
margin
|
|
|
|
|
|
|
|
|
|
Life direct participating and
investment DPF contracts
|
78
|
74
|
70
|
66
|
61
|
248
|
261
|
90
|
948
|
Life other contracts
|
28
|
23
|
19
|
16
|
14
|
44
|
31
|
8
|
183
|
Remaining contractual service
margin at 31 Dec
20221
|
106
|
97
|
89
|
82
|
75
|
292
|
292
|
98
|
1,131
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
Discount rates
The discount rates applied to
expected future cash flows are determined through a bottom-up
approach as set out in Note 1.2(j) 'Summary of material accounting
policies - Insurance contracts' on page 127. The blended average of
discount rates used within our most material manufacturing entities
are as follows:
|
HSBC Life (UK)
Ltd
|
HSBC Assurances Vie
(France)
|
|
£
|
€
|
At 31 Dec 2023
|
|
|
10 year discount rate
(%)
|
3.28
|
2.96
|
20 year discount rate
(%)
|
3.43
|
2.97
|
At 31 Dec 2022
|
|
|
10 year discount rate
(%)
|
3.71
|
3.66
|
20 year discount rate
(%)
|
3.54
|
3.33
|
5
|
Employee compensation and
benefits
|
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
Wages and salaries
|
1,344
|
1,365
|
1,609
|
Social security costs
|
294
|
278
|
341
|
Post-employment
benefits1
|
68
|
55
|
73
|
Year ended 31 Dec
|
1,706
|
1,698
|
2,023
|
1 Includes £52m (2022: £42m; 2021: £37m) in
employer contributions to the defined contribution pension
plans.
Average number of persons employed
by the group during the year by global
business1
|
|
2023
|
2022
|
2021
|
MSS
|
3,954
|
3,722
|
4,322
|
GB
|
2,125
|
2,155
|
2,458
|
GBM Other
|
27
|
81
|
140
|
CMB
|
2,536
|
2,748
|
3,023
|
WPB
|
6,119
|
6,484
|
6,709
|
Corporate Centre
|
48
|
215
|
171
|
Year ended 31 Dec
|
14,809
|
15,405
|
16,823
|
1 Average numbers of headcount in corporate
centre are allocated in respective businesses on the basis of
amounts charged to the respective global
businesses.
Share-based payments
'Wages and salaries' includes the
effect of share-based payments arrangements, of which £58m were
equity settled (2022: £45m;
2021: £96m), as follows:
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
Restricted share awards
|
58
|
45
|
96
|
Savings-related and other share
award option plans
|
1
|
1
|
1
|
Year ended 31 Dec
|
59
|
46
|
97
|
HSBC share awards
|
|
|
Deferred share awards (including annual incentive awards,
long-term incentive ('LTI') awards delivered in shares) and Group
Performance Share Plan ('GPSP')
|
- An assessment of
performance over the relevant period ending on 31 December is
used to determine the amount of the award to be
granted.
- Deferred awards
generally require employees to remain in employment over the
vesting period and are generally not subject to performance
conditions after the grant date. An exception to these are the LTI
awards, which are subject to performance conditions.
- Deferred share awards
generally vest over a period of three,
four, five or
seven years.
- Vested shares may be
subject to a retention requirement post-vesting.
- Awards are subject to
malus and clawback.
|
International Employee Share Purchase Plan
('ShareMatch')
|
- The plan was first
introduced in Hong Kong in 2013 and now includes employees based in
31 jurisdictions.
- Shares are purchased
in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
- Matching awards are
added at a ratio of one free share for every three
purchased.
- Matching awards vest
subject to continued employment and the retention of the purchased
shares for a maximum period of two years and nine
months.
|
Movement on HSBC share
awards
|
|
2023
|
2022
|
|
Number
|
Number
|
|
(000s)
|
(000s)
|
Restricted share awards outstanding at 1
Jan
|
20,454
|
21,828
|
Additions during the
year1
|
10,998
|
11,651
|
Released in the
year1
|
(11,864)
|
(12,279)
|
Forfeited in the year
|
(383)
|
(746)
|
Restricted share awards outstanding at 31
Dec
|
19,205
|
20,454
|
Weighted average fair value of
awards granted (£)
|
4.74
|
4.96
|
1 Includes a number of share option plans
transferred from or to other subsidiaries of HSBC Holdings
plc.
HSBC share option plans
|
|
|
Savings-related share option plans
('Sharesave')
|
- From 2014, eligible
employees for the UK plan can save up to £500 per month with the option to use the savings to
acquire shares.
- These are generally
exercisable within six months following
either the third or fifth anniversary of the commencement of a
three years or five
years contract, respectively.
- The exercise price is
set at a 20% (2022: 20%) discount to the market value immediately
preceding the date of invitation.
|
Calculation of fair values
The fair values of share options
are calculated using a Black-Scholes model. The fair value of a
share award is based on the share price at the date of the
grant.
Movement on HSBC share option
plans
|
|
Savings-related
share option
plans
|
|
Number
|
WAEP1
|
|
(000s)
|
£
|
Outstanding at 1 Jan 2023
|
5,782
|
2.91
|
Granted during the
year2
|
1,348
|
4.57
|
Exercised during the
year
|
(2,428)
|
2.72
|
Expired during the year
|
(38)
|
4.73
|
Forfeited during the
year
|
(325)
|
2.94
|
Outstanding at 31 Dec 2023
|
4,339
|
3.51
|
Weighted average remaining contractual life
(years)
|
2.37
|
|
|
Outstanding at 1 Jan 2022
|
6,936
|
2.87
|
Granted during the
year2
|
(179)
|
3.96
|
Exercised during the
year
|
(173)
|
3.36
|
Expired during the year
|
(177)
|
4.72
|
Forfeited during the
year
|
(625)
|
2.98
|
Outstanding at 31 Dec 2022
|
5,782
|
2.91
|
Weighted average remaining
contractual life (years)
|
2.18
|
|
1 Weighted average exercise
price.
2 Includes a number of share option plans
transferred from or to other subsidiaries of HSBC Holdings
plc.
Post-employment benefit
plans
We operate a number of pension
plans throughout Europe for our employees. Some are defined benefit
plans, of which HSBC Germany Pension Plan is the most prominent
within the group.
The group's balance sheet includes
the net surplus or deficit, being the difference between the fair
value of plan assets and the discounted value of scheme liabilities
at the balance sheet date for each plan. Surpluses are only
recognised to the extent that they are recoverable through reduced
contributions in the future, or through potential future refunds
from the schemes. In assessing whether a surplus is recoverable,
the group has considered its current right to obtain a future
refund or a reduction in future contributions together with the
rights of third parties such as trustees.
HSBC Germany Pension Plan (HSBC Trinkaus & Burkhardt
Pension Plan)
HSBC Germany Pension Plan is a
final salary scheme and is calculated based on the employee length
of service multiplied by a predefined benefit accrual and earnings.
The pension is paid when the benefit falls due and is a specified
pension payment, lumpsum or combination thereof. The plan is
overseen by an independent corporate trustee, who has a fiduciary
responsibility for the operation of the plan. Its assets are held
separately from the assets of the group.
The strategic aim of the
investment is to achieve, as continuously as possible, an increase
in value over time. For this purpose, the fund invests mainly in
government bonds, corporate bonds, investment funds and equities.
It invests predominantly in developed regions. Overall, emphasis is
placed on having a high degree of diversification.
Plan assets were created to fund
the pension obligations and separated through what is known as a
contractual trust agreement (CTA). HSBC Trinkaus
Vermögenstreuhänder e.V. and HSBC Trinkaus Mitarbeitertreuhänder
e.V. assume the role of trustee. Active members of the trustee are
Bank employees.
The Bank regularly aims to
comprehensively finance the committed benefits externally. There is
no obligation to allocate contributions to the CTA. The Bank is
entitled to assets that are not needed to fund the committed
benefits. No further additions to the plan assets are envisaged at
the present time.
In accordance with the Memorandum
and Articles of Association, the revenues may only be used, for
example, for pension payments or for reinvestment. Similarly,
withdrawals may only be made in accordance with the Memorandum and
Articles of Association.
The latest measurement of the
defined benefit obligation of the plan at 31 December 2023 was
carried out by Hans-Peter Kieselmann (Fellow of the German
Association of Actuaries ('DAV')) and Helga Bader, at Willis Towers
Watson GmbH, using the projected unit credit method. The next
measurement will have an effective date of 31 December
2024.
Net assets/(liabilities)
recognised on the balance sheet in respect of defined benefit
plans
|
|
Fair value of plan
assets
|
Present value of defined
benefit obligations
|
Total
|
|
£m
|
£m
|
£m
|
Defined benefit pension
plans
|
459
|
(479)
|
(20)
|
Defined benefit healthcare
plans
|
-
|
(46)
|
(46)
|
At 31 Dec 2023
|
459
|
(525)
|
(66)
|
Total employee benefit liabilities
(within 'Accruals, deferred income and other
liabilities')
|
|
|
(117)
|
Total employee benefit assets (within 'Prepayments, accrued
income and other assets')
|
|
|
51
|
|
Defined benefit pension
plans
|
534
|
(531)
|
3
|
Defined benefit healthcare
plans
|
-
|
(51)
|
(51)
|
At 31 Dec 2022
|
534
|
(582)
|
(48)
|
Total employee benefit liabilities
(within 'Accruals, deferred income and other
liabilities')
|
|
|
(121)
|
Total employee benefit assets
(within 'Prepayments, accrued income and other assets')
|
|
|
73
|
Defined benefit pension
plans
Net asset/(liability) under
defined benefit pension plans
|
|
Fair value of plan
assets
|
Present value of defined
benefit obligations
|
Net defined benefit
asset/(liability)
|
|
HSBC Germany Pension
Plan2
|
Other
plans
|
HSBC Germany Pension
Plan2
|
Other
plans
|
HSBC Germany Pension
Plan2
|
Other
plans
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2023
|
405
|
129
|
(357)
|
(174)
|
48
|
(45)
|
Service cost
|
-
|
-
|
(7)
|
(5)
|
(7)
|
(5)
|
- current service
cost
|
-
|
-
|
(8)
|
(6)
|
(8)
|
(6)
|
- past service
gains
|
-
|
-
|
1
|
1
|
1
|
1
|
Net interest income/(cost) on the
net defined benefit asset/(liability)
|
11
|
6
|
(9)
|
(9)
|
2
|
(3)
|
Remeasurement effects recognised
in other comprehensive income
|
6
|
(6)
|
(29)
|
1
|
(23)
|
(5)
|
- return on plan assets
(excluding interest income)
|
6
|
(6)
|
-
|
-
|
6
|
(6)
|
- actuarial losses financial
assumptions
|
-
|
-
|
(29)
|
(8)
|
(29)
|
(8)
|
- actuarial gains
demographic assumptions
|
-
|
-
|
-
|
2
|
-
|
2
|
- actuarial gains experience
assumptions
|
-
|
-
|
-
|
7
|
-
|
7
|
- other changes
|
-
|
-
|
-
|
-
|
-
|
-
|
Exchange differences
|
(8)
|
-
|
7
|
1
|
(1)
|
1
|
Benefits paid
|
-
|
(7)
|
12
|
15
|
12
|
8
|
Other
movements1,3
|
(77)
|
-
|
79
|
(4)
|
2
|
(4)
|
At 31 Dec 2023
|
337
|
122
|
(304)
|
(175)
|
33
|
(53)
|
Net asset/(liability) under
defined benefit pension plans (continued)
|
|
Fair
value of plan assets
|
Present
value of defined benefit obligations
|
Net
defined benefit asset/(liability)
|
|
HSBC
Germany
Pension Plan2
|
Other
plans
|
HSBC
Germany
Pension Plan2
|
Other
plans
|
HSBC
Germany
Pension Plan2
|
Other
plans
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2022
|
434
|
234
|
(438)
|
(304)
|
(4)
|
(70)
|
Service cost
|
-
|
-
|
4
|
(8)
|
4
|
(8)
|
- current service
cost
|
-
|
-
|
3
|
(9)
|
3
|
(9)
|
- past service
gains
|
-
|
-
|
1
|
1
|
1
|
1
|
Net interest income/(cost) on the
net defined benefit asset/(liability)
|
(3)
|
5
|
(4)
|
(5)
|
(7)
|
-
|
Remeasurement effects recognised
in other comprehensive income
|
(51)
|
(99)
|
94
|
98
|
43
|
(1)
|
- return on plan assets
(excluding interest income)
|
(51)
|
(99)
|
-
|
-
|
(51)
|
(99)
|
- actuarial gains financial
assumptions
|
-
|
-
|
94
|
106
|
94
|
106
|
- actuarial losses
demographic assumptions
|
-
|
-
|
-
|
(2)
|
-
|
(2)
|
- actuarial losses
experience assumptions
|
-
|
-
|
-
|
(6)
|
-
|
(6)
|
- other changes
|
-
|
-
|
-
|
-
|
-
|
-
|
Exchange differences
|
22
|
1
|
(20)
|
(3)
|
2
|
(2)
|
Benefits paid
|
-
|
(7)
|
10
|
13
|
10
|
6
|
Other
movements1
|
3
|
(5)
|
(3)
|
35
|
-
|
30
|
At 31 Dec 2022
|
405
|
129
|
(357)
|
(174)
|
48
|
(45)
|
1 Other movements include contributions by the
group, contributions by employees, administrative costs and tax
paid by plan.
2 The HSBC Germany Pension Plan and its
comparatives have been disclosed as it is considered to be a
prominent plan within the group. Figures disclosed comprise this
prominent plan and other plans in Germany.
3 Other movements for HSBC Germany Pension Plan
include reclassification of Lebensarbeitszeitkonto (LAZK) plan to
long term employee benefits.
HSBC Germany does not expect to
make contributions to the HSBC Germany Pension Plan during 2024.
Benefits expected to be paid from the plans to retirees over each
of the next five years, and in aggregate for the five years
thereafter, are as follows:
Benefits expected to be paid from
plans
|
|
2024
|
2025
|
2026
|
2027
|
2028
|
2029-2033
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
HSBC Germany Pension Plan1
|
12
|
12
|
11
|
12
|
12
|
69
|
1 The duration of the defined benefit obligation
is 14.2 years for the HSBC Germany Pension Plan under the
disclosure assumptions adopted (2022: 13.7
years).
Fair value of plan assets by asset
classes
|
|
31 Dec
2023
|
31 Dec
2022
|
|
Value
|
Quoted
market
price
in
active
market
|
No quoted
market
price
in
active
market
|
Thereof
HSBC
|
Value
|
Quoted
market
price
in
active
market
|
No
quoted
market
price
in
active
market
|
Thereof
HSBC
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
HSBC Germany Pension Plan
|
|
|
|
|
|
|
|
|
Fair value of plan
assets
|
337
|
312
|
25
|
-
|
405
|
352
|
53
|
-
|
- equities
|
3
|
3
|
-
|
-
|
8
|
8
|
-
|
-
|
- bonds fixed
income
|
196
|
196
|
-
|
-
|
173
|
173
|
-
|
-
|
- bonds index
linked
|
6
|
6
|
-
|
-
|
26
|
26
|
-
|
-
|
- bonds other
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- property
|
3
|
-
|
3
|
-
|
-
|
-
|
-
|
-
|
- pooled investment
vehicle
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- other
|
129
|
107
|
22
|
-
|
198
|
145
|
53
|
-
|
Post-employment defined benefit plans' principal actuarial
financial assumptions
The group determines the discount
rates to be applied to its obligations in consultation with the
plans' local actuaries, on the basis of current average yields of
high quality (AA-rated or equivalent) debt instruments with
maturities consistent with those of the defined benefit
obligations.
Key actuarial
assumptions
|
|
Discount
rate
|
Inflation
rate
|
Rate of
increase
for
pensions
|
Rate of pay
increase
|
|
%
|
%
|
%
|
%
|
HSBC Germany Pension Plan
|
|
|
|
|
At 31 Dec 2023
|
3.17
|
2.25
|
2.25
|
2.25
|
At 31 Dec 2022
|
3.71
|
2.25
|
2.25
|
2.25
|
Mortality tables and average life
expectancy at age 60
|
|
Mortality
table
|
Life expectancy at age 60 for
a male member currently:
|
Life expectancy at age 60 for
a female member currently:
|
|
|
Aged 60
|
Aged 40
|
Aged 60
|
Aged 40
|
HSBC Germany Pension Plan
|
|
|
|
|
|
At 31 Dec 2023
|
RT
2018G11
|
25.4
|
28.3
|
29.1
|
31.3
|
At 31 Dec 2022
|
RT
2018G11
|
25.2
|
28.2
|
28.9
|
31.2
|
1 Heubeck tables: RT 2018G. These are generally
accepted and used mortality tables for occupational pension plans
in Germany, taking into account future mortality improvements and
lighter mortality for higher-paid pensioners.
The effect of changes in key
assumptions
|
|
HSBC
Germany Pension Plan Obligation
|
|
Financial impact of increase
|
Financial impact of decrease
|
|
2023
|
2022
|
2021
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Discount rate - increase/decrease
of 0.25%
|
(9)
|
(7)
|
(13)
|
9
|
8
|
13
|
Inflation rate - increase/decrease
of 0.25%
|
7
|
7
|
11
|
(6)
|
(5)
|
(9)
|
Pension payments and deferred
pensions - increase/decrease of 0.25%
|
6
|
5
|
9
|
(6)
|
(5)
|
(8)
|
Pay - increase/decrease of
0.25%
|
1
|
1
|
2
|
(1)
|
(1)
|
(2)
|
Change in mortality - increase of
1 Year
|
9
|
10
|
16
|
N/A
|
N/A
|
N/A
|
The above sensitivity analyses are
based on a change in an assumption while holding all other
assumptions constant. In practice, this in unlikely to occur, and
changes in some of the assumptions may be correlated. When
calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions the same method (present value of
the defined benefit obligation calculated with the projected unit
credit method at the end of the reporting period) has been applied
as when calculating the defined benefit asset recognised in the
balance sheet. The methods and types of assumptions used in
preparing the sensitivity analysis did not change compared with the
prior period.
Directors' emoluments
The aggregate emoluments of the
Directors of the bank, computed in accordance with the Companies
Act 2006 as amended by statutory instrument 2008 No.410,
were:
|
2023
|
2022
|
2021
|
|
£000
|
£000
|
£000
|
Fees1
|
1,427
|
1,410
|
1,525
|
Salaries and other
emoluments2
|
2,792
|
2,294
|
3,569
|
Annual
incentives3
|
1,163
|
979
|
694
|
Long-term
incentives4
|
1,193
|
779
|
511
|
Year ended 31 Dec
|
6,575
|
5,462
|
6,299
|
1 Fees paid to non-executive
Directors.
2 Salaries and other emoluments include Fixed Pay
Allowances.
3 Discretionary annual incentives for executive
Directors are based on a combination of individual and corporate
performance, and are determined by the Remuneration Committee of
the bank's parent company, HSBC Holdings plc. Incentive awards made
to executive directors are delivered in the form of cash and HSBC
Holdings plc shares. The total amount shown is comprised of
£581,561 (2022: £489,285) in cash and £581,561 (2022: £489,285) in
Restricted Shares, which is the upfront portion of the annual
incentive granted in respect of performance year
2023.
4 The amount shown is comprised of £493,868
(2022: £380,893) in deferred cash, £699,552 (2022: £398,162) in
deferred Restricted Shares. These amounts relate to the portion of
the awards that will vest following the substantial completion of
the vesting condition attached to these awards in 2023. The total
vesting period of deferred cash and share awards is no less than
three years, with 33% of the award vesting on each of the first and
second anniversaries of the date of the award, and the balance
vesting on the third anniversary of the date of the award. The
deferred share awards are subject to at least a six-month retention
period upon vesting. Details of the Plans are contained within the
Directors' Remuneration Report of HSBC Holdings plc. The cost of
any awards subject to service conditions under the HSBC Share Plan
2011 are recognised through an annual charge based on the fair
value of the awards, apportioned over the period of service to
which the award relates.
5 In addition to the amounts set out above, a
payment was also made to a Director relating to compensation for
loss of employment. As the payment related to a longer period of
employment with the Group (and not specifically to the
Directorship) it is not included in the tables. However, the amount
paid that related (on a time apportioned basis) to the period of
Directorship is £169,358.
No Director exercised share
options over HSBC Holdings plc ordinary shares during the
year.
No Director is accruing retirement
benefits under a money purchase scheme in respect of Directors'
qualifying services (2022: None).
In addition, there were payments
during 2023 under unfunded retirement benefit agreements to former
Directors of £410,403 (2022: £394,334). The provision at 31
December 2023 in respect of unfunded pension obligations to former
Directors amounted to £3,811,422 (2022: £4,286,951).
Of these aggregate figures, the
following amounts are attributable to the highest paid
Director:
|
2023
|
2022
|
2021
|
|
£000
|
£000
|
£000
|
Salaries and other
emoluments
|
1,641
|
1,641
|
1,399
|
Annual
incentives1
|
1,074
|
859
|
558
|
Long-term
incentives2
|
990
|
677
|
390
|
Year ended 31 Dec
|
3,705
|
3,177
|
2,347
|
1 Awards made to the highest paid Director
are delivered in the form of cash and HSBC Holdings plc shares. The
amount shown comprises £537,040 (2022: £429,285) in cash and
£537,040 (2022: £429,285) in Restricted Shares.
2 The amount shown comprises £408,439 (2022:
£330,687) in deferred cash, £581,165 (2022: £345,818) in deferred
Restricted Shares. These amounts relate to a portion of the awards
that will vest following the substantial completion of the vesting
condition attached to these awards in 2023. The
total vesting period of deferred cash and share awards is no
less than three years, with 33% of the award vesting on each of the
first and second anniversaries of the date of the award, and the
balance vesting on the third anniversary of the date of the award.
The share awards are subject to a six-month retention period upon
vesting.
No pension contributions were made
by the bank in respect of services by the highest paid Director
during the year (2022: £0).
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
Audit fees payable to
PwC
|
13.1
|
11.3
|
10.4
|
Other audit fees
payable
|
0.6
|
0.7
|
0.4
|
Year ended 31 Dec
|
13.7
|
12.0
|
10.8
|
Fees payable by the group to
PwC
|
|
|
2023
|
2022
|
2021
|
|
|
£m
|
£m
|
£m
|
Fees for HSBC Bank plc's statutory
audit1,5
|
|
5.3
|
5.5
|
4.8
|
Fees for other services provided
to the group
|
|
17.5
|
15.6
|
14.3
|
- audit of the group's
subsidiaries2
|
|
7.8
|
5.8
|
5.6
|
- audit-related assurance
services3
|
|
5.2
|
5.3
|
5.7
|
- other assurance
services4
|
|
4.5
|
4.5
|
3.0
|
Year ended 31 Dec
|
|
22.8
|
21.1
|
19.1
|
1 Fees payable to PwC for the statutory audit of
the consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc. They exclude amounts payable
for the statutory audit of the bank's subsidiaries which have been
included in 'Fees for other services provided to the
group'.
2 Including fees payable to PwC for the statutory
audit of the bank's subsidiaries.
3 Including services for assurance and other
services that relate to statutory and regulatory filings, including
interim reviews.
4 Including permitted services relating to
attestation reports on internal controls of a service organisation
primarily prepared for and used by third-party end user, including
comfort letters.
5 2023 Audit fees payable to PwC includes prior
year adjustments after finalisation of the 2022 financial
statements.
In addition to the above, the
estimated fees paid to PwC by third parties associated with HSBC
Bank plc amount to £0.6m. In these cases, HSBC Bank plc was
connected with the contracting party and may therefore have been
involved in appointing PwC. These fees arose from services such as
reviewing the financial position of corporate concerns that borrow
from HSBC Bank plc.
Fees payable for non-audit
services for HSBC Bank plc are not disclosed separately because
such fees are disclosed on a consolidated basis for the
group.
Tax expense
|
|
|
2023
|
20221
|
20211
|
|
£m
|
£m
|
£m
|
Current tax
|
386
|
(283)
|
(187)
|
- for this year
|
359
|
(243)
|
(245)
|
- adjustments in respect of
prior years
|
27
|
(40)
|
58
|
Deferred tax
|
41
|
(363)
|
164
|
- origination and reversal
of temporary differences
|
25
|
(529)
|
248
|
- effect of changes in tax
rates
|
-
|
33
|
(56)
|
- adjustments in respect of
prior years
|
16
|
133
|
(28)
|
Year ended 31 Dec2
|
427
|
(646)
|
(23)
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly. Comparative data for the year ended 31
December 2021 is prepared on an IFRS 4
basis.
2 In addition to amounts recorded in the income
statement, a tax charge of £334m (2022: credit of £393m; 2021
credit of £135m) was recorded directly to equity.
The group's profits are taxed at
different rates depending on the country in which they arise. The
key applicable corporate tax rates in 2023 included the UK and
France. The UK tax rate applying to HSBC Bank plc and its banking
subsidiaries in 2023 was a blended rate of 27.75% (2022: 27.00%),
comprising 23.50% corporation tax plus 4.25% surcharge on UK
banking profits, following an increase in the main rate of UK
corporation tax from 19% to 25% and a reduction in the UK banking
surcharge rate from 8% to 3% from 1 April 2023. The applicable tax
rate in France was 26% (2022: 26%). Other overseas subsidiaries and
overseas branches provided for taxation at the appropriate rates in
the countries in which they operate.
On 20 June 2023, legislation was
substantively enacted in the UK, the jurisdiction of the entity's
ultimate parent entity, HSBC Holdings plc, to introduce the 'Pillar
Two' global minimum tax model rules of the OECD's Inclusive
Framework on Base Erosion and Profit Shifting (BEPS), as well as a
qualified domestic minimum tax, with effect from 1 January 2024.
Under these rules, a top-up tax liability arises where the
effective tax rate of the HSBC Holdings plc operations in a
jurisdiction, calculated based on principles set out in the OECD's
Pillar Two model rules, is below 15%.
Based on the group's forecasts,
top-up tax liabilities are expected to arise in four jurisdictions,
in particular Jersey, due to low statutory tax rates. During 2023,
the government of Bermuda announced the introduction of a
corporation tax system to apply to Bermudian entities of large
multinational groups, with a statutory rate of 15%, with effect
from 1 January 2025. This is expected to apply to the HSBC Group's
operations in Bermuda.
Tax reconciliation
The tax charged to the income
statement differs from the tax expense that would apply if all
profits had been taxed at the UK corporation tax rate as
follows:
|
2023
|
20221
|
20211
|
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
Profit/(loss) before
tax
|
2,152
|
|
(1,199)
|
|
1,023
|
|
Tax expense
|
|
|
|
|
|
|
Taxation at UK corporation tax
rate
|
506
|
23.5
|
(228)
|
19.0
|
194
|
19.0
|
Impact of taxing overseas profits
at different rates
|
(20)
|
(0.9)
|
(75)
|
6.3
|
7
|
0.7
|
UK banking surcharge
|
5
|
0.2
|
(47)
|
3.9
|
(2)
|
(0.2)
|
Items increasing the tax charge in
2023:
|
|
|
|
|
|
|
- UK and European bank
levies
|
78
|
3.6
|
50
|
(4.2)
|
72
|
7.0
|
- adjustments in respect of
prior periods
|
58
|
2.7
|
93
|
(7.8)
|
30
|
2.9
|
- provisions for fines and
penalties
|
23
|
1.1
|
3
|
(0.3)
|
(2)
|
(0.2)
|
- local taxes and overseas
withholding taxes
|
19
|
0.9
|
4
|
(0.3)
|
(4)
|
(0.4)
|
- effect of losses (profits)
in associates and joint ventures
|
5
|
0.2
|
5
|
(0.4)
|
(43)
|
(4.2)
|
- other
|
25
|
1.2
|
(5)
|
0.4
|
(32)
|
3.0
|
- impact of changes in tax
rates
|
-
|
-
|
33
|
(2.8)
|
(56)
|
(5.5)
|
- impact of temporary
differences between French tax and IFRS
|
-
|
-
|
-
|
-
|
324
|
31.7
|
Items reducing the tax charge in
2023:
|
|
|
|
|
|
|
- movements in unrecognised
deferred tax
|
(81)
|
(3.8)
|
(268)
|
22.4
|
(47)
|
(4.6)
|
- non-taxable gain on
transfer of Guernsey branch
|
(74)
|
(3.4)
|
-
|
-
|
-
|
-
|
- deductions for AT1 coupon
payments
|
(60)
|
(2.8)
|
(55)
|
4.6
|
(53)
|
(5.2)
|
- impact of held for sale
adjustments
|
(25)
|
(1.2)
|
47
|
(3.9)
|
-
|
-
|
- non-taxable income and
gains
|
(21)
|
(1.0)
|
(93)
|
7.8
|
(92)
|
(9.0)
|
- movements in provisions
for uncertain tax positions
|
(11)
|
(0.5)
|
(110)
|
9.2
|
5
|
0.5
|
- tax impact of sale of
French retail banking business
|
-
|
-
|
-
|
-
|
(324)
|
(31.7)
|
Year ended 31 Dec
|
427
|
19.8
|
(646)
|
53.9
|
(23)
|
(2.2)
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly. Comparative data for the year ended 31
December 2021 is prepared on an IFRS 4 basis.
The effective tax rate for the
year was 19.8% (2022: 53.9%; 2021: (2.2)%). The 2023 effective tax
rate of 19.8% reflects the mix of profits and losses in different
jurisdictions and is decreased by the release of provisions for
uncertain tax positions, recognition of a deferred tax asset for
prior period excess expenses in HSBC Life (UK) and the non-taxable
gain arising on the transfer of the Guernsey branch to PBRS and
increased by non-deductible UK and European bank levy expenses and
charges in respect of prior periods.
The effective tax rate for 2022 of
53.9% represented a tax credit on a loss before tax and was
increased by non-recurring items, including recognition of
previously unrecognised deferred tax assets in France and a tax
credit of £110m from the release of provisions for uncertain tax
positions and reduced by charges in respect of prior periods and
non-deductible UK and European bank levy expenses.
In 2021, the signing of a
framework agreement for the sale of the French retail banking
business resulted in a tax deduction (tax value of £324m) for a
provision for loss on disposal which was recorded in the French tax
return. A deferred tax liability of the same amount arose as a
consequence of the temporary difference between the French tax
basis and IFRS in respect of this provision. This temporary
difference reversed in 2022 upon application of held for sale
accounting for IFRS, resulting in the reversal of this deferred tax
liability to the income statement.
Accounting for taxes involves some
estimation because tax law is uncertain and its application
requires a degree of judgement, which authorities may dispute.
Liabilities are recognised based on best estimates of the probable
outcome, taking into account external advice where appropriate. We
do not expect significant liabilities to arise in excess of the
amounts provided. The current tax asset includes an estimate of tax
recoverable from HMRC with regards to past dividends received from
EU resident companies. The ultimate resolution of this matter
involves litigation for which the outcome is uncertain.
Movement of deferred tax assets
and liabilities
|
|
Cash flow
hedges
|
Loan impairment
provisions
|
Property, plant and
equipment
|
FVOCI
investments
|
Relief for tax
losses3
|
Other2
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Assets
|
391
|
60
|
227
|
474
|
628
|
151
|
1,931
|
Liabilities
|
-
|
-
|
-
|
(351)
|
-
|
-
|
(351)
|
At 1 Jan 2023
|
391
|
60
|
227
|
123
|
628
|
151
|
1,580
|
Income statement
|
-
|
(4)
|
(36)
|
44
|
(17)
|
(28)
|
(41)
|
Other comprehensive
income
|
(252)
|
-
|
-
|
(43)
|
-
|
65
|
(230)
|
Foreign exchange and other
adjustments
|
(1)
|
3
|
-
|
8
|
(10)
|
(37)
|
(37)
|
At 31 Dec 2023
|
138
|
59
|
191
|
132
|
601
|
151
|
1,272
|
Assets4
|
138
|
59
|
191
|
329
|
601
|
204
|
1,522
|
Liabilities4
|
-
|
-
|
-
|
(197)
|
-
|
(53)
|
(250)
|
|
Assets
|
40
|
60
|
206
|
40
|
382
|
65
|
793
|
Liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
At 1 Jan
20221
|
40
|
60
|
206
|
40
|
382
|
65
|
793
|
Income statement
|
-
|
(2)
|
22
|
(124)
|
221
|
246
|
363
|
Other comprehensive
income
|
348
|
-
|
-
|
190
|
-
|
(151)
|
387
|
Foreign exchange and other
adjustments
|
3
|
2
|
(1)
|
17
|
25
|
(9)
|
37
|
At 31 Dec
20221
|
391
|
60
|
227
|
123
|
628
|
151
|
1,580
|
Assets4
|
391
|
60
|
227
|
474
|
628
|
151
|
1,931
|
Liabilities4
|
-
|
-
|
-
|
(351)
|
-
|
-
|
(351)
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly.
2 Other deferred tax assets and liabilities
relate to share-based payments, expense provisions and other
temporary differences.
3 The deferred tax asset recognised in respect of
tax losses mainly relates to France (£566m) and US State tax losses
of the New York branch of HSBC Bank plc (£28m), both of which are
supported by future profit forecasts.
4 After netting off balances within countries,
the balances as disclosed in the financial statements are as
follows: deferred tax assets £1,278m (2022: £1,583m); and deferred
tax liabilities £6m (2022: £3m).
Management has assessed the likely
availability of future taxable profits against which to recover the
deferred tax assets of the Company and the group, taking into
consideration the reversal of existing taxable temporary
differences, past business performance and forecasts of future
business performance.
The group's net deferred tax asset
of £1,272m (2022: £1,580m) included a net UK deferred tax asset of
£441m (2022: £597m) and a net deferred asset of £693m (2022: £797m)
in France, of which £566m (2022: £588m) related to tax losses which
are expected to be substantially recovered within 12
years.
Management is satisfied that
although the Company recorded a UK tax loss in the year, the
aforementioned evidence is sufficient to support recognition of all
UK deferred tax assets. These deferred tax assets are supported by
future profit forecasts for the whole of HSBC's UK tax group. This
includes a number of companies which are not part of the HSBC Bank
plc group, in particular HSBC UK Bank plc and its
subsidiaries.
Movement of deferred tax assets
and liabilities
|
|
Retirement
benefits
|
Property, plant and
equipment
|
FVOCI
|
Goodwill and
intangibles
|
Relief for tax
losses2
|
Other1
|
Total
|
The bank
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Assets2
|
14
|
231
|
75
|
-
|
28
|
260
|
608
|
Lliabilities2
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
At 1 Jan 2023
|
14
|
231
|
75
|
-
|
28
|
260
|
608
|
Income statement
|
(15)
|
(40)
|
-
|
-
|
-
|
38
|
(17)
|
Other comprehensive
income
|
10
|
-
|
(32)
|
-
|
-
|
(179)
|
(201)
|
Foreign exchange and other
adjustments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
At 31 Dec 2023
|
9
|
191
|
43
|
-
|
28
|
119
|
390
|
Assets3
|
9
|
191
|
43
|
-
|
28
|
120
|
391
|
Liabilities3
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
|
Assets
|
17
|
207
|
-
|
191
|
69
|
48
|
532
|
Liabilities
|
-
|
-
|
(23)
|
-
|
-
|
-
|
(23)
|
At 1 Jan 2022
|
17
|
207
|
(23)
|
191
|
69
|
48
|
509
|
Income statement
|
(4)
|
24
|
-
|
(191)
|
(41)
|
(6)
|
(218)
|
Other comprehensive
income
|
1
|
-
|
98
|
-
|
-
|
210
|
309
|
Foreign exchange and other
adjustments
|
-
|
-
|
-
|
-
|
-
|
8
|
8
|
At 31 Dec 2022
|
14
|
231
|
75
|
-
|
28
|
260
|
608
|
Assets3
|
14
|
231
|
75
|
-
|
28
|
260
|
608
|
Liabilities3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1 Other deferred tax assets and liabilities
relate to fair value of own debt, loan impairment allowances,
share-based payments and cash flow hedges.
2 The deferred tax asset recognised in respect of
losses mainly relates to US State tax losses of the New York branch
of HSBC Bank plc, which are supported by future profit
forecasts.
3 After netting off balances within countries,
the balances as disclosed in the accounts are as follows: deferred
tax assets £391m (2022: £608m) and deferred tax liabilities £1m
(2022: nil).
Unrecognised deferred tax
The group
The amount of temporary
differences, unused tax losses and tax credits for which no
deferred tax asset is recognised in the balance sheet was £673m
(2022: £1,017m). These amounts include unused tax losses, tax
credits and temporary differences of £668m (2022: £912m) arising in
the New York branch of HSBC Bank plc. The unrecognised losses
expire after 10 years or do not expire.
The bank
The amount of temporary
differences, unused tax losses and tax credits for which no
deferred tax asset is recognised in the balance sheet was £668m
(2022: £912m). These amounts include unused tax losses, tax credits
and temporary differences arising in the New York branch of HSBC
Bank plc of £668m (2022: £912m). The unrecognised losses expire
after 10 years or do not expire.
Deferred tax is not recognised in
respect of the group's investments in subsidiaries and branches
where HSBC Bank plc is able to control the timing of remittance or
other realisation and where remittance or realisation is not
probable in the foreseeable future. The aggregate temporary
differences relating to unrecognised deferred tax liabilities
arising on investments in subsidiaries and branches is £3.7bn
(2022: £3.3bn) and the corresponding unrecognised deferred tax
liability was £27m (2022: £26m).
Dividends to the parent
company
|
|
2023
|
2022
|
2021
|
|
£ per
share
|
£m
|
£ per
share
|
£m
|
£ per
share
|
£m
|
Dividends paid on ordinary shares
|
|
|
|
|
|
|
Current year:
|
|
|
|
|
|
|
- first special
dividend1
|
0.941
|
750
|
1.067
|
850
|
-
|
-
|
- second special
dividend
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
0.941
|
750
|
1.067
|
850
|
-
|
-
|
Dividends on preference shares classified as
equity
|
|
|
|
|
|
|
Dividend on HSBC Bank plc
non-cumulative third dollar preference shares
|
0.001
|
-
|
0.001
|
-
|
0.001
|
-
|
Total
|
0.001
|
-
|
0.001
|
-
|
0.001
|
-
|
Total coupons on capital
securities classified as equity
|
-
|
211
|
-
|
202
|
-
|
194
|
Dividends to parent
|
-
|
961
|
-
|
1,052
|
-
|
194
|
1 Special dividend declared/paid on CET1 capital
in 2023.
Total coupons on capital
securities classified as equity
|
|
|
2023
|
2022
|
2021
|
|
First
call date
|
£m
|
£m
|
£m
|
Undated Subordinated additional Tier 1
instruments
|
|
|
|
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2015
|
Dec
2020
|
85
|
87
|
84
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2016
|
Jan
2022
|
12
|
11
|
12
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2018
|
Mar
2023
|
28
|
28
|
10
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2018
|
Mar
2023
|
10
|
10
|
28
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2019
|
Nov
2024
|
24
|
24
|
24
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2019
|
Nov
2024
|
15
|
8
|
7
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2019
|
Dec
2024
|
19
|
20
|
20
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2019
|
Jan
2025
|
9
|
8
|
9
|
Undated Subordinated Resettable
Additional Tier 1 instrument 2022
|
Mar
2027
|
9
|
6
|
-
|
Total
|
|
211
|
202
|
194
|
The Chief Executive, supported by
the rest of the Executive Committee, is considered the Chief
Operating Decision Maker ('CODM') for the purposes of identifying
the group's reportable segments.
Our operations are closely
integrated and accordingly, the presentation of data includes
internal allocations of certain items of income and expense. These
allocations include the costs of certain support services and
global functions to the extent that they can be meaningfully
attributed to global businesses. While such allocations have been
made on a systematic and consistent basis, they necessarily involve
a degree of subjectivity. Costs that are not allocated to
businesses are included in Corporate Centre.
Where relevant, income and expense
amounts presented include the results of inter-segment funding
along with inter-company and inter-business line transactions. All
such transactions are undertaken on arm's length terms. Measurement
of segmental assets, liabilities, income and expenses is in
accordance with the group's accounting policies. Shared costs are
included in segments on the basis of actual recharges. The
intra-group elimination items for the global businesses are
presented in Corporate Centre.
The types of products and services
from which each reportable segment derives its revenue are
discussed in the 'Strategic Report - Our global businesses' on page
7.
By operating segment:
Profit/(loss) before
tax
|
|
2023
|
|
MSS
|
GB
|
GBM
Other
|
CMB
|
WPB
|
Corporate
Centre
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Net operating income before change in ECL and other credit
impairment charges1
|
1,996
|
2,092
|
13
|
1,746
|
1,339
|
320
|
7,506
|
- of which: net interest
income/(expense)
|
212
|
1,430
|
(13)
|
1,331
|
946
|
(1,755)
|
2,151
|
Change in ECL and other credit
impairment charges
|
(9)
|
(91)
|
3
|
(83)
|
12
|
(1)
|
(169)
|
Net operating income/(expense)
|
1,987
|
2,001
|
16
|
1,663
|
1,351
|
319
|
7,337
|
Total operating
expenses
|
(2,131)
|
(1,013)
|
(282)
|
(663)
|
(894)
|
(159)
|
(5,142)
|
Operating profit/(loss)
|
(144)
|
988
|
(266)
|
1,000
|
457
|
160
|
2,195
|
Share of loss in associates and
joint ventures
|
-
|
-
|
-
|
-
|
-
|
(43)
|
(43)
|
Profit/(loss) before tax
|
(144)
|
988
|
(266)
|
1,000
|
457
|
117
|
2,152
|
|
%
|
%
|
%
|
%
|
%
|
|
%
|
Cost efficiency ratio
|
106.8
|
48.4
|
n/a
|
38.0
|
66.8
|
|
68.5
|
|
|
20222
|
Net operating income/(expense)
before change in ECL and other credit impairment
charges1
|
2,446
|
1,571
|
(108)
|
1,433
|
(432)
|
(606)
|
4,304
|
- of which: net interest
income/(expense)
|
(54)
|
903
|
(16)
|
925
|
710
|
(564)
|
1,904
|
Change in ECL and other credit
impairment charges
|
(1)
|
(153)
|
(1)
|
(54)
|
(7)
|
(6)
|
(222)
|
Net operating
income/(expense)
|
2,445
|
1,418
|
(109)
|
1,379
|
(439)
|
(612)
|
4,082
|
Total operating
expenses
|
(1,936)
|
(932)
|
(406)
|
(663)
|
(834)
|
(480)
|
(5,251)
|
Operating profit/(loss)
|
509
|
486
|
(515)
|
716
|
(1,273)
|
(1,092)
|
(1,169)
|
Share of loss in associates and
joint ventures
|
-
|
-
|
(2)
|
-
|
-
|
(28)
|
(30)
|
Profit/(loss) before
tax
|
509
|
486
|
(517)
|
716
|
(1,273)
|
(1,120)
|
(1,199)
|
|
%
|
%
|
%
|
%
|
%
|
|
%
|
Cost efficiency ratio
|
79.1
|
59.3
|
n/a
|
46.3
|
n/a
|
|
122.0
|
|
|
|
|
|
|
|
|
|
20212
|
Net operating income before change
in ECL other credit impairment charges1
|
2,042
|
1,367
|
311
|
1,096
|
1,277
|
27
|
6,120
|
- of which: net interest
income/(expense)
|
(232)
|
568
|
224
|
649
|
567
|
(22)
|
1,754
|
Change in ECL and other credit
impairment charges
|
1
|
140
|
5
|
7
|
23
|
(2)
|
174
|
Net operating
income/(expense)
|
2,043
|
1,507
|
316
|
1,103
|
1,300
|
25
|
6,294
|
Total operating
expenses
|
(2,055)
|
(918)
|
(597)
|
(611)
|
(981)
|
(300)
|
(5,462)
|
Operating profit/(loss)
|
(12)
|
589
|
(281)
|
492
|
319
|
(275)
|
832
|
Share of profit in associates and
joint ventures
|
-
|
-
|
-
|
-
|
-
|
191
|
191
|
Profit/(loss) before
tax
|
(12)
|
589
|
(281)
|
492
|
319
|
(84)
|
1,023
|
|
%
|
%
|
%
|
%
|
%
|
|
%
|
Cost efficiency ratio
|
100.6
|
67.2
|
192.0
|
55.7
|
76.8
|
|
89.2
|
1 Net operating income before change in expected
credit losses and other credit impairment charges, also referred to
as revenue. It includes inter-segment revenue which is eliminated
in Corporate centre, amounting to £62m (2022: £108m; 2021:
£127m).
2 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly. Comparative data for the year ended 31
December 2021 is prepared on an IFRS 4 basis.
External net operating income is
attributed to countries on the basis of the location of the branch
responsible for reporting the results or advancing the
funds:
|
2023
|
20221
|
2021
|
|
£m
|
£m
|
£m
|
External net operating income by country
|
7,506
|
4,304
|
6,120
|
- United Kingdom
|
3,609
|
3,068
|
2,937
|
- France
|
1,819
|
(70)
|
1,677
|
- Germany
|
836
|
732
|
887
|
- Other countries
|
1,242
|
574
|
619
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data of the financial year ended 31 December 2022 have
been restated accordingly. Comparative data for the year ended 31
December 2021 is prepared on an IFRS 4
basis.
Balance sheet by
business
|
|
MSS
|
GB
|
GBM
Other
|
CMB
|
WPB
|
Corporate
Centre
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
31 Dec 2023
|
|
|
|
|
|
|
|
Loans and advances to
customers
|
2,718
|
34,723
|
67
|
24,226
|
13,666
|
91
|
75,491
|
Customer accounts
|
41,102
|
85,303
|
9,434
|
58,620
|
28,337
|
145
|
222,941
|
|
|
|
|
|
|
|
|
31 Dec 2022
|
|
|
|
|
|
|
|
Loans and advances to
customers
|
2,785
|
37,523
|
115
|
25,219
|
6,826
|
146
|
72,614
|
Customer accounts
|
45,320
|
79,606
|
5,903
|
55,749
|
29,211
|
159
|
215,948
|
|
The
group
|
The
bank
|
|
2023
|
2022
|
2023
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
Treasury and other eligible
bills
|
4,808
|
3,712
|
4,353
|
3,061
|
Debt securities
|
27,724
|
21,873
|
16,071
|
13,960
|
Equity securities
|
50,020
|
38,330
|
47,498
|
35,407
|
Trading securities
|
82,552
|
63,915
|
67,922
|
52,428
|
Loans and advances to
banks1
|
5,094
|
3,987
|
5,060
|
3,872
|
Loans and advances to
customers1
|
13,050
|
11,976
|
12,784
|
11,323
|
At 31 Dec
|
100,696
|
79,878
|
85,766
|
67,623
|
1 Loans and advances to banks and customers
include reverse repos, stock borrowing and other
accounts.
11
|
Fair values of financial
instruments carried at fair value
|
Control framework
Fair values are subject to a
control framework designed to ensure that they are either
determined or validated by a function independent of the risk
taker.
For all financial instruments
where fair values are determined by reference to externally quoted
prices or observable pricing inputs to models, independent price
determination or validation is utilised. In inactive markets, the
group will source alternative market information to validate the
financial instrument's fair value, with greater weight given to
information that is considered to be more relevant and reliable.
The factors that are considered in this regard are, inter alia:
- the extent to
which prices may be expected to represent genuine traded or
tradable prices;
- the degree of
similarity between financial instruments;
- the degree of
consistency between different sources;
- the process
followed by the pricing provider to derive the data;
- the elapsed
time between the date to which the market data relates and the
balance sheet date; and
- the manner in
which the data was sourced.
For fair values determined using
valuation models, the control framework may include, as applicable,
development or validation by independent support functions of: (i)
the logic within valuation models; (ii) the inputs to these models;
(iii) any adjustments required outside the valuation models;
and (iv) where possible, model outputs. Valuation models are
subject to a process of due diligence and calibration before
becoming operational and are calibrated against external market
data on an ongoing basis.
Financial liabilities measured at fair
value
In certain circumstances, the
group records its own debt in issue at fair value, based on quoted
prices in an active market for the specific instrument. When quoted
market prices are unavailable, the own debt in issue is valued
using valuation techniques, the inputs for which are based either
on quoted prices in an inactive market for the instrument or are
estimated by comparison with quoted prices in an active market for
similar instruments. In both cases, the fair value includes the
effect of applying the credit spread that is appropriate to the
group's liabilities.
Structured notes issued and
certain other hybrid instruments are included within trading
liabilities and are measured at fair value. The spread applied
to these instruments is derived from the spreads at which the group
issues structured notes.
Fair value hierarchy
Fair values of financial assets
and liabilities are determined according to the following
hierarchy:
- Level 1 -
valuation technique using quoted market price: financial
instruments with quoted prices for identical instruments in active
markets that HSBC can access at the measurement date.
- Level 2 -
valuation technique using observable inputs: financial instruments
with quoted prices for similar instruments in active markets or
quoted prices for identical or similar instruments in inactive
markets and financial instruments valued using models where all
significant inputs are observable.
- Level 3 -
valuation technique with significant unobservable inputs: financial
instruments valued using valuation techniques where one or more
significant inputs are unobservable.
-
Financial instruments carried at
fair value and bases of valuation
|
|
2023
|
20221
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Total
|
The group
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Recurring fair value measurements at 31 Dec
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Trading assets
|
72,164
|
26,482
|
2,050
|
100,696
|
52,493
|
24,647
|
2,738
|
79,878
|
Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss
|
7,008
|
9,178
|
2,882
|
19,068
|
6,183
|
6,380
|
3,318
|
15,881
|
Derivatives
|
428
|
171,865
|
1,823
|
174,116
|
2,296
|
221,205
|
1,737
|
225,238
|
Financial investments
|
25,857
|
10,743
|
907
|
37,507
|
19,007
|
8,902
|
1,447
|
29,356
|
Liabilities
|
|
|
|
|
|
|
|
|
Trading liabilities
|
29,791
|
12,233
|
252
|
42,276
|
26,258
|
14,592
|
415
|
41,265
|
Financial liabilities designated
at fair value
|
992
|
27,595
|
3,958
|
32,545
|
933
|
23,888
|
2,461
|
27,282
|
Derivatives
|
994
|
168,145
|
2,335
|
171,474
|
1,744
|
214,645
|
2,478
|
218,867
|
The bank
|
Recurring fair value measurements at 31 Dec
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Trading assets
|
58,152
|
25,772
|
1,842
|
85,766
|
41,524
|
23,940
|
2,159
|
67,623
|
Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss
|
206
|
2,910
|
65
|
3,181
|
252
|
1,094
|
272
|
1,618
|
Derivatives
|
152
|
151,661
|
1,952
|
153,765
|
2,037
|
192,778
|
1,899
|
196,714
|
Financial investments
|
15,074
|
1,233
|
55
|
16,362
|
11,214
|
976
|
71
|
12,261
|
Liabilities
|
|
|
|
|
|
|
|
|
Trading liabilities
|
13,177
|
11,503
|
252
|
24,932
|
11,771
|
13,591
|
403
|
25,765
|
Financial liabilities designated
at fair value
|
-
|
20,811
|
2,635
|
23,446
|
-
|
17,565
|
1,850
|
19,415
|
Derivatives
|
601
|
149,850
|
2,348
|
152,799
|
1,691
|
189,908
|
1,737
|
193,336
|
1 From 1 January 2023, we adopted IFRS 17
'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'.
Comparative data have been restated accordingly.
Transfers between Level 1 and
Level 2 fair values
|
|
Assets
|
Liabilities
|
|
Financial
investments
|
Trading
assets
|
Designated and
otherwise mandatorily
measured at fair value
through profit or loss
|
Derivatives
|
Trading
liabilities
|
Designated
at fair
value
|
Derivatives
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 31 Dec 2023
|
|
|
|
|
|
|
|
Transfers from Level 1 to Level
2
|
26
|
252
|
-
|
-
|
4
|
-
|
-
|
Transfers from Level 2 to Level
1
|
121
|
408
|
-
|
-
|
41
|
-
|
-
|
|
At 31 Dec 2022
|
|
|
|
|
|
|
|
Transfers from Level 1 to Level
2
|
126
|
1,194
|
-
|
39
|
-
|
-
|
-
|
Transfers from Level 2 to Level
1
|
189
|
682
|
-
|
32
|
-
|
-
|
-
|
Transfers between levels of the
fair value hierarchy are deemed to occur at the end of each
quarterly reporting period. Transfers into and out of levels of the
fair value hierarchy are normally attributable to observability of
valuation inputs and price transparency.
Fair value adjustments
Fair value adjustments are adopted
when the group determines there are additional factors considered
by market participants that are not incorporated within the
valuation model. Movements in the level of fair value adjustments
do not necessarily result in the recognition of profits or losses
within the income statement, such as when models are enhanced and
fair value adjustments may no longer be required.
Fair value adjustments
|
|
2023
|
2022
|
|
MSS
|
Corporate
Centre
|
MSS
|
Corporate Centre
|
|
£m
|
£m
|
£m
|
£m
|
Type of adjustment
|
|
|
|
|
Risk-related
|
327
|
32
|
359
|
33
|
- bid-offer
|
155
|
-
|
188
|
-
|
- uncertainty
|
42
|
2
|
50
|
-
|
- credit valuation
adjustment
|
61
|
27
|
98
|
29
|
- debt valuation
adjustment
|
(20)
|
-
|
(64)
|
-
|
- funding fair value
adjustment
|
89
|
3
|
87
|
4
|
- other
|
-
|
-
|
-
|
-
|
Model-related
|
41
|
-
|
31
|
-
|
- model
limitation
|
41
|
-
|
31
|
-
|
- other
|
-
|
-
|
-
|
-
|
Inception profit (Day 1 P&L
reserves)
|
54
|
-
|
64
|
-
|
At 31 Dec
|
422
|
32
|
454
|
33
|
Bid-offer
IFRS 13 'Fair value measurement'
requires use of the price within the bid-offer spread that is most
representative of fair value. Valuation models will typically
generate mid-market values. The bid-offer adjustment reflects the
extent to which bid-offer costs would be incurred if
substantially all residual net portfolio market risks were closed
using available hedging instruments or by disposing of or unwinding
the position.
Uncertainty
Certain model inputs may be less
readily determinable from market data, and/or the choice of model
itself may be more subjective. In these circumstances, an
adjustment may be necessary to reflect the likelihood that market
participants would adopt more conservative values for uncertain
parameters and/or model assumptions than those used in the
valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the
valuation of over-the-counter ('OTC') derivative contracts to
reflect the possibility that the counterparty may default, and that
the group may not receive the full market value of the
transactions.
The DVA is an adjustment to the
valuation of OTC derivative contracts to reflect the possibility
that HSBC may default, and that it may not pay the full market
value of the transactions.
HSBC calculates a separate CVA and
DVA for each legal entity, and for each counterparty to
which the entity has exposure. With the exception of central
clearing parties, all third-party counterparties are included in
the CVA and DVA calculations, and these adjustments are not netted
across the HSBC Group's entities.
HSBC calculates the CVA by
applying the probability of default ('PD') of the counterparty,
conditional on the non-default of HSBC, to HSBC's expected positive
exposure to the counterparty and multiplying the result by the loss
expected in the event of default.
Conversely, HSBC calculates the
DVA by applying the PD of HSBC, conditional on the non-default of
the counterparty, to the expected positive exposure of the
counterparty to HSBC and multiplying the result by the proportional
loss expected in the event of default. Both calculations are
performed over the life of the potential exposure.
For most products, HSBC uses a
simulation methodology, which incorporates a range of potential
exposures over the life of the portfolio, to calculate the expected
positive exposure to a counterparty. The simulation methodology
includes credit mitigants, such as counterparty netting agreements
and collateral agreements with the counterparty. The methodologies
do not, in general, account for 'wrong-way risk', which arises when
the underlying value of the derivative prior to any CVA is
positively correlated to the PD of the counterparty. When there is
significant wrong-way risk, a trade-specific approach is applied to
reflect this risk in the valuation.
Funding fair value adjustment
The FFVA is calculated by applying
future market funding spreads to the expected future funding
exposure of any uncollateralised component of the OTC derivative
portfolio. The expected future funding exposure is calculated by a
simulation methodology, where available, and is adjusted for events
that may terminate the exposure, such as the default of HSBC or the
counterparty. The FFVA and DVA are calculated
independently.
Model limitation
Models used for portfolio
valuation purposes may be based upon a simplified set of
assumptions that do not capture all current and future
material market characteristics. In these circumstances, model
limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are
adopted when the fair value estimated by a valuation model is based
on one or more significant unobservable inputs. The accounting for
inception profit adjustments is discussed in Note 1.
Fair value valuation
bases
Financial instruments measured at
fair value using a valuation technique with significant
unobservable inputs - Level 3
|
|
Assets
|
Liabilities
|
|
Financial
Investments
|
Held for
trading
|
Designated and otherwise
mandatorily measured at fair value through profit or
loss
|
Derivatives
|
Total
|
Held for
trading
|
Designated at fair
value
|
Derivatives
|
Total
|
The group
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Private equity including strategic
investments
|
66
|
1
|
2,656
|
-
|
2,723
|
8
|
1
|
-
|
9
|
Asset-backed securities
|
160
|
97
|
6
|
-
|
263
|
-
|
-
|
-
|
-
|
Structured notes
|
-
|
-
|
-
|
-
|
-
|
-
|
3,490
|
-
|
3,490
|
Derivatives
|
-
|
-
|
-
|
1,823
|
1,823
|
-
|
-
|
2,335
|
2,335
|
Other portfolios
|
681
|
1,952
|
220
|
-
|
2,853
|
244
|
467
|
-
|
711
|
At 31 Dec 2023
|
907
|
2,050
|
2,882
|
1,823
|
7,662
|
252
|
3,958
|
2,335
|
6,545
|
|
Private equity including strategic
investments
|
85
|
59
|
3,058
|
-
|
3,202
|
104
|
-
|
-
|
104
|
Asset-backed securities
|
275
|
170
|
78
|
-
|
523
|
-
|
-
|
-
|
-
|
Structured notes
|
-
|
-
|
-
|
-
|
-
|
-
|
2,461
|
-
|
2,461
|
Derivatives
|
-
|
-
|
-
|
1,737
|
1,737
|
-
|
-
|
2,478
|
2,478
|
Other portfolios
|
1,087
|
2,509
|
182
|
-
|
3,778
|
311
|
-
|
-
|
311
|
At 31 Dec 2022
|
1,447
|
2,738
|
3,318
|
1,737
|
9,240
|
415
|
2,461
|
2,478
|
5,354
|
The bank
|
|
|
|
|
|
|
|
|
|
Private equity including strategic
investments
|
55
|
-
|
65
|
-
|
120
|
8
|
-
|
-
|
8
|
Asset-backed securities
|
-
|
97
|
-
|
-
|
97
|
-
|
-
|
-
|
-
|
Structured notes
|
-
|
-
|
-
|
-
|
-
|
-
|
2,635
|
-
|
2,635
|
Derivatives
|
-
|
-
|
-
|
1,952
|
1,952
|
-
|
-
|
2,343
|
2,343
|
Other portfolios
|
-
|
1,745
|
-
|
-
|
1,745
|
244
|
-
|
5
|
249
|
At 31 Dec 2023
|
55
|
1,842
|
65
|
1,952
|
3,914
|
252
|
2,635
|
2,348
|
5,235
|
|
Private equity including strategic
investments
|
54
|
58
|
272
|
-
|
384
|
103
|
-
|
-
|
103
|
Asset-backed securities
|
17
|
170
|
-
|
-
|
187
|
-
|
-
|
-
|
-
|
Structured notes
|
-
|
-
|
-
|
-
|
-
|
-
|
1,850
|
-
|
1,850
|
Derivatives
|
-
|
-
|
-
|
1,899
|
1,899
|
-
|
-
|
1,728
|
1,728
|
Other portfolios
|
-
|
1,931
|
-
|
-
|
1,931
|
300
|
-
|
9
|
309
|
At 31 Dec 2022
|
71
|
2,159
|
272
|
1,899
|
4,401
|
403
|
1,850
|
1,737
|
3,990
|
Level 3 instruments are present in
both ongoing and legacy businesses. Loans held for securitisation,
certain derivatives and predominantly all Level 3 Asset-backed
securities are legacy positions. HSBC has the capability to hold
these positions.
Private equity including strategic
investments
The investment's fair value is
estimated: on the basis of an analysis of the investee's financial
position and results, risk profile, prospects and other factors; by
reference to market valuations for similar entities quoted in an
active market; the price at which similar companies have changed
ownership; or from published net asset values ('NAVs') received. If
necessary, adjustments are made to the NAV of funds to obtain the
best estimate of fair value.
Asset-backed securities
While quoted market prices are
generally used to determine the fair value of these securities,
valuation models are used to substantiate the reliability of the
limited market data available and to identify whether any
adjustments to quoted market prices are required. For certain ABSs,
such as residential mortgage-backed securities, the valuation uses
an industry standard model with assumptions relating to prepayment
speeds, default rates and loss severity based on collateral type,
and performance, as appropriate. The valuations output is
benchmarked for consistency against observable data for securities
of a similar nature.
Structured notes
The fair value of Level 3
structured notes is derived from the fair value of the
underlying debt security, and the fair value of the embedded
derivative is determined as described in the paragraph below
on derivatives. These structured notes comprise principally
equity-linked notes, issued by HSBC, which provide the counterparty
with a return linked to the performance of equity securities and
other portfolios. Examples of the unobservable parameters include
long-dated equity volatilities and correlations between equity
prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models
calculate the present value of expected future cash flows, based
upon 'no-arbitrage' principles. For many vanilla derivative
products, the modelling approaches used are standard across
the industry. For more complex derivative products, there may
be some differences in market practice. Inputs to valuation models
are determined from observable market data, wherever possible,
including prices available from exchanges, dealers, brokers or
providers of consensus pricing. Certain inputs may not be
observable in the market directly, but can be determined from
observable prices through model calibration procedures or estimated
from historical data or other sources.
Reconciliation of fair value
measurements in Level 3 of the fair value hierarchy
Movement in Level 3 financial
instruments
|
|
Assets
|
Liabilities
|
|
Financial
Investments
|
Trading
assets
|
Designated
and
otherwise
mandatorily
measured at
fair
value
through
profit or
loss
|
Derivatives
|
Trading
liabilities
|
Designated
at fair
value
|
Derivatives
|
The group
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2023
|
1,447
|
2,738
|
3,318
|
1,737
|
415
|
2,461
|
2,478
|
Total gains or losses) on assets
and total gains or losses on liabilities recognised in profit
or loss
|
(1)
|
189
|
8
|
851
|
(268)
|
60
|
1,008
|
- net income from financial
instruments held for trading or managed on a fair value
basis
|
-
|
189
|
-
|
851
|
(268)
|
-
|
1,008
|
- changes in fair value of
other financial instruments mandatorily measured at fair value
through profit or loss
|
-
|
-
|
8
|
-
|
-
|
60
|
-
|
- gains less losses from
financial investments at fair value through other comprehensive
income
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
Total total gains or losses
recognised in other comprehensive income
('OCI')1
|
(1)
|
(28)
|
(92)
|
(2)
|
-
|
(8)
|
(5)
|
- financial investments:
fair value total gains or losses
|
29
|
-
|
-
|
-
|
-
|
-
|
-
|
- exchange
differences
|
(30)
|
(28)
|
(92)
|
(2)
|
-
|
(8)
|
(5)
|
Purchases
|
51
|
1,004
|
305
|
-
|
233
|
-
|
-
|
New issuances
|
-
|
1
|
-
|
-
|
2
|
3,005
|
-
|
Sales
|
(213)
|
(1,675)
|
(484)
|
-
|
(253)
|
(2)
|
-
|
Settlements
|
(38)
|
(79)
|
(72)
|
(1,009)
|
138
|
(1,169)
|
(1,295)
|
Transfers out
|
(451)
|
(561)
|
(120)
|
(233)
|
(30)
|
(660)
|
(339)
|
Transfers in
|
113
|
461
|
19
|
479
|
15
|
271
|
488
|
At 31 Dec 2023
|
907
|
2,050
|
2,882
|
1,823
|
252
|
3,958
|
2,335
|
Unrealised gains/(losses)
recognised in profit or loss relating to assets and liabilities
held at 31 Dec 2023
|
-
|
-
|
(75)
|
520
|
-
|
(217)
|
(823)
|
- trading income/(expense)
excluding net interest income
|
-
|
-
|
-
|
520
|
-
|
-
|
(823)
|
- net income/(expense) from
other financial instruments designated at fair value
|
-
|
-
|
(75)
|
-
|
-
|
(217)
|
-
|
|
|
|
|
|
|
|
|
At 1 Jan 2022
|
1,387
|
1,344
|
3,171
|
1,816
|
580
|
2,121
|
2,454
|
Total gains/(losses) on assets and
total (gains)/losses on liabilities recognised in profit
or loss
|
(6)
|
(415)
|
(84)
|
564
|
(223)
|
(638)
|
723
|
- net income from financial
instruments held for trading or managed on a fair value
basis
|
-
|
(415)
|
-
|
564
|
(223)
|
-
|
723
|
- changes in fair value of
other financial instruments mandatorily measured at fair value
through profit or loss
|
-
|
-
|
(84)
|
-
|
-
|
(638)
|
-
|
- gains less losses from
financial investments at fair value through other comprehensive
income
|
(6)
|
-
|
-
|
-
|
-
|
-
|
-
|
Total gains/(losses) recognised in
other comprehensive income ('OCI')1
|
(145)
|
12
|
238
|
3
|
1
|
29
|
17
|
- financial investments:
fair value gains/(losses)
|
(232)
|
-
|
-
|
-
|
-
|
-
|
-
|
- exchange
differences
|
87
|
12
|
238
|
3
|
1
|
29
|
17
|
Purchases
|
601
|
2,067
|
562
|
-
|
151
|
-
|
-
|
New issuances
|
-
|
-
|
-
|
-
|
7
|
1,705
|
-
|
Sales
|
(142)
|
(716)
|
(594)
|
-
|
(120)
|
(78)
|
-
|
Settlements
|
(90)
|
(323)
|
(51)
|
(731)
|
(407)
|
(575)
|
(701)
|
Transfers out
|
(199)
|
(283)
|
(2)
|
(473)
|
(15)
|
(564)
|
(582)
|
Transfers in
|
41
|
1,052
|
78
|
558
|
441
|
461
|
567
|
At 31 Dec 2022
|
1,447
|
2,738
|
3,318
|
1,737
|
415
|
2,461
|
2,478
|
Unrealised gains/(losses)
recognised in profit or loss relating to assets and liabilities
held at 31 Dec 2022
|
-
|
(5)
|
49
|
565
|
2
|
30
|
2,339
|
- trading income/(expense)
excluding net interest income
|
-
|
(5)
|
-
|
565
|
2
|
-
|
2,339
|
- net income from other
financial instruments designated at fair value
|
-
|
-
|
49
|
-
|
-
|
30
|
-
|
1 Included in 'financial investments: fair value
gains/(losses)' in the current year and 'exchange differences' in
the consolidated statement of comprehensive
income.
Transfers between levels of the
fair value hierarchy are deemed to occur at the end of each
quarterly reporting period. Transfers into and out of levels of the
fair value hierarchy are primarily attributable to observability of
valuation inputs and price transparency.
Movement in Level 3 financial
instruments (continued)
|
|
Assets
|
Liabilities
|
|
Financial
Investments
|
Trading
Assets
|
Designated
and
otherwise
mandatorily
measured at
fair
value
through
profit or
loss
|
Derivatives
|
Trading
Liabilities
|
Designated
at fair
value
|
Derivatives
|
The bank
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 Jan 2023
|
71
|
2,159
|
272
|
1,899
|
403
|
1,850
|
1,737
|
Total gains/(losses) on assets and
total (gains)/losses on liabilities recognised in profit
or loss
|
-
|
192
|
22
|
1,025
|
(271)
|
13
|
1,222
|
- net income from financial
instruments held for trading or managed on a fair value
basis
|
-
|
192
|
-
|
1,025
|
(271)
|
-
|
1,222
|
- changes in fair value of
other financial instruments mandatorily measured at fair value
through profit or loss
|
-
|
-
|
22
|
-
|
-
|
13
|
-
|
- gains less losses from
financial investments at fair value through other comprehensive
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Total gains/(losses) recognised in
other comprehensive income ('OCI')1
|
-
|
(18)
|
(7)
|
-
|
-
|
-
|
-
|
- financial investments:
fair value gains/(losses)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- exchange
differences
|
-
|
(18)
|
(7)
|
-
|
-
|
-
|
-
|
Purchases
|
-
|
930
|
-
|
-
|
233
|
-
|
-
|
New issuances
|
-
|
-
|
-
|
-
|
-
|
2,548
|
-
|
Sales
|
-
|
(1,280)
|
(154)
|
-
|
(252)
|
-
|
-
|
Settlements
|
(1)
|
(72)
|
(69)
|
(1,192)
|
154
|
(1,580)
|
(746)
|
Transfers out
|
(15)
|
(490)
|
-
|
(287)
|
(30)
|
(449)
|
(400)
|
Transfers in
|
-
|
421
|
1
|
507
|
15
|
253
|
535
|
At 31 Dec 2023
|
55
|
1,842
|
65
|
1,952
|
252
|
2,635
|
2,348
|
Unrealised gains/(losses)
recognised in profit or loss relating to assets and liabilities
held at 31 Dec 2023
|
-
|
-
|
(1)
|
511
|
-
|
(180)
|
(818)
|
- trading income/(expense)
excluding net interest income
|
-
|
-
|
-
|
511
|
-
|
-
|
(818)
|
- net income/(expense) from
other financial instruments designated at fair value
|
-
|
-
|
(1)
|
-
|
-
|
(180)
|
-
|
|
|
|
|
|
|
|
|
At 1 Jan 2022
|
53
|
1,334
|
361
|
1,952
|
554
|
1,563
|
2,722
|
Total gains/(losses) on assets and
total (gains)/losses on liabilities recognised in profit
or loss
|
2
|
(419)
|
(91)
|
665
|
(216)
|
(569)
|
45
|
- net income from financial
instruments held for trading or managed on a fair value
basis
|
-
|
(419)
|
-
|
665
|
(216)
|
-
|
45
|
- changes in fair value of
other financial instruments mandatorily measured at fair value
through profit or loss
|
-
|
-
|
(91)
|
-
|
-
|
(569)
|
-
|
- gains less losses from
financial investments at fair value through other comprehensive
income
|
2
|
-
|
-
|
-
|
-
|
-
|
-
|
Total gains/(losses) recognised in
other comprehensive income ('OCI')1
|
1
|
-
|
24
|
-
|
-
|
-
|
-
|
- financial investments:
fair value gains/(losses)
|
1
|
-
|
-
|
-
|
-
|
-
|
-
|
- exchange
differences
|
-
|
-
|
24
|
-
|
-
|
-
|
-
|
Purchases
|
-
|
1,495
|
-
|
-
|
151
|
-
|
-
|
New issuances
|
-
|
-
|
-
|
-
|
-
|
1,682
|
-
|
Sales
|
-
|
(659)
|
(12)
|
-
|
(120)
|
-
|
-
|
Settlements
|
-
|
(323)
|
(8)
|
(850)
|
(392)
|
(557)
|
(1,025)
|
Transfers out
|
-
|
(283)
|
(2)
|
(541)
|
(15)
|
(471)
|
(606)
|
Transfers in
|
15
|
1,014
|
-
|
673
|
441
|
202
|
601
|
At 31 Dec 2022
|
71
|
2,159
|
272
|
1,899
|
403
|
1,850
|
1,737
|
Unrealised gains/(losses)
recognised in profit or loss relating to assets and liabilities
held at 31 Dec 2022
|
-
|
-
|
-
|
688
|
-
|
19
|
3,020
|
- trading income/(expense)
excluding net interest income
|
-
|
-
|
-
|
688
|
-
|
-
|
3,020
|
- net income from other
financial instruments designated at fair value
|
-
|
-
|
-
|
-
|
-
|
19
|
-
|
1 Included in 'financial investments: fair value
gains/(losses)' in the current year and 'exchange differences' in
the consolidated statement of comprehensive
income.
Transfers between levels of the
fair value hierarchy are deemed to occur at the end of each
quarterly reporting period. Transfers into and out of levels of the
fair value hierarchy are primarily attributable to observability of
valuation inputs and price transparency.
Effect of changes in significant
unobservable assumptions to reasonably possible
alternatives
Sensitivity of Level 3 fair values
to reasonably possible alternative assumptions
|
|
2023
|
2022
|
|
Reflected
in
profit or
loss
|
Reflected in
OCI
|
Reflected in
profit or loss
|
Reflected in OCI
|
|
Favourable
changes
|
Un-
favourable
changes
|
Favourable
changes
|
Un-
favourable
changes
|
Favourable
changes
|
Un-
favourable
changes
|
Favourable
changes
|
Un-
favourable
changes
|
The group
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Derivatives, trading assets and
trading liabilities1
|
478
|
(225)
|
-
|
-
|
201
|
(261)
|
-
|
-
|
Designated and otherwise
mandatorily measured at fair value through profit or
loss
|
193
|
(194)
|
-
|
-
|
236
|
(235)
|
-
|
-
|
Financial investments
|
10
|
(9)
|
23
|
(25)
|
9
|
(9)
|
27
|
(19)
|
Year ended 31 Dec
|
681
|
(428)
|
23
|
(25)
|
446
|
(505)
|
27
|
(19)
|
The bank
|
Derivatives, trading assets and
trading liabilities1
|
478
|
(225)
|
-
|
-
|
193
|
(253)
|
-
|
-
|
Designated and otherwise
mandatorily measured at fair value through profit or
loss
|
11
|
(11)
|
-
|
-
|
45
|
(45)
|
-
|
-
|
Financial investments
|
1
|
-
|
6
|
(6)
|
0
|
-
|
14
|
(6)
|
Year ended 31 Dec
|
490
|
(236)
|
6
|
(6)
|
238
|
(298)
|
14
|
(6)
|
1 Derivatives, trading assets
and trading liabilities are presented as one category to reflect
the manner in which these instruments are risk
managed.
1
Sensitivity of Level 3 fair values
to reasonably possible alternative assumptions by instrument
type
|
|
2023
|
2022
|
|
Reflected
in
profit or
loss
|
Reflected in
OCI
|
Reflected in
profit or loss
|
Reflected in OCI
|
|
Favourable
changes
|
Un-favourable
changes
|
Favourable
changes
|
Un-favourable
changes
|
Favourable
changes
|
Un-favourable changes
|
Favourable
changes
|
Un-favourable changes
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Private equity including strategic
investments
|
182
|
(184)
|
6
|
(6)
|
225
|
(389)
|
8
|
(7)
|
Asset-backed securities
|
28
|
(16)
|
2
|
(2)
|
28
|
(17)
|
12
|
(5)
|
Structured notes
|
5
|
(5)
|
-
|
-
|
5
|
(5)
|
-
|
-
|
Derivatives
|
237
|
(182)
|
-
|
-
|
44
|
(44)
|
-
|
-
|
Other portfolios
|
229
|
(41)
|
15
|
(17)
|
144
|
(50)
|
7
|
(7)
|
Total
|
681
|
(428)
|
23
|
(25)
|
446
|
(505)
|
27
|
(19)
|
The sensitivity analysis aims to
measure a range of fair values consistent with the application of a
95% confidence interval. Methodologies take account of the nature
of the valuation technique employed, as well as the availability
and reliability of observable proxy and historical data.
When the fair value of a financial
instrument is affected by more than one unobservable assumption,
the above table reflects the most favourable or the most
unfavourable change from varying the assumptions
individually.
Key unobservable inputs to Level 3
financial instruments
Quantitative information about
significant unobservable inputs in Level 3 valuations
|
|
Fair value
|
|
|
2023
|
2022
|
|
Assets
|
Liabilities
|
Valuation
techniques
|
Key unobservable
inputs
|
Full range of
inputs
|
Full
range of inputs
|
|
£m
|
£m
|
Lower
|
Higher
|
Lower
|
Higher
|
Private equity including strategic
investments
|
2,723
|
9
|
See below
|
See below
|
N/A
|
N/A
|
N/A
|
N/A
|
Asset-backed securities
|
263
|
-
|
|
|
|
|
|
|
-
CLO/CDO1
|
34
|
-
|
Market proxy
|
Bid quotes
|
-
|
94
|
-
|
92
|
- Other ABSs
|
229
|
-
|
Market proxy
|
Bid quotes
|
|
220
|
-
|
99
|
Structured notes
|
-
|
3,490
|
|
|
|
|
|
|
- equity-linked
notes
|
-
|
3,050
|
Model - Option model
|
Equity Volatility
|
6%
|
154%
|
6%
|
99%
|
|
Equity Correlation
|
35%
|
100%
|
32%
|
99%
|
- fund-linked
notes
|
-
|
-
|
Model - Option model
|
Fund Volatility
|
|
|
|
|
- FX-linked notes
|
-
|
11
|
Model - Option model
|
FX Volatility
|
1%
|
18%
|
3%
|
20%
|
- other
|
-
|
429
|
|
|
|
|
|
|
Derivatives
|
1,823
|
2,335
|
|
|
|
|
|
|
Interest rate
derivatives:
|
621
|
616
|
|
|
|
|
|
|
- securitisation
swaps
|
114
|
106
|
Model - Discounted cash flow
|
Constant Prepayment Rate
|
5%
|
10%
|
5%
|
10%
|
- long-dated
swaptions
|
44
|
54
|
Model - Option model
|
IR Volatility
|
11%
|
34%
|
9%
|
33%
|
- other
|
463
|
456
|
|
|
|
|
|
|
FX derivatives:
|
299
|
358
|
|
|
|
|
|
|
- FX options
|
250
|
311
|
Model - Option model
|
FX Volatility
|
3%
|
31%
|
3%
|
46%
|
- other
|
49
|
47
|
|
|
|
|
|
|
Equity derivatives:
|
658
|
1,044
|
|
|
|
|
|
|
- long-dated single stock
options
|
305
|
400
|
Model - Option model
|
Equity Volatility
|
7%
|
87%
|
7%
|
153%
|
-
other2
|
353
|
644
|
|
|
|
|
|
|
Credit derivatives:
|
245
|
317
|
|
|
|
|
|
|
- other
|
245
|
317
|
|
|
|
|
|
|
Other portfolios
|
2,853
|
711
|
|
|
|
|
|
|
- repurchase
agreements
|
553
|
243
|
Model - Discounted cash flow
|
IR Curve
|
3%
|
8%
|
1%
|
9%
|
-
other3
|
2,300
|
468
|
|
|
|
|
|
|
At 31 Dec
|
7,662
|
6,545
|
|
|
|
|
|
|
1 Collateralised loan obligation/collateralised
debt obligation.
2 Other Equity Derivatives consists mainly of
Swaps and OTC Options.
3 Other consists of various instruments including
investment in funds, repurchase agreement and
bonds.
Private equity including strategic
investments
Given the bespoke nature of the
analysis in respect of each holding, it is not practical to quote
a range of key unobservable inputs. The key unobservable
inputs would be price and correlation. The valuation approach
includes using a range of inputs that include company specific
financials, traded comparable companies multiples, published net
asset values and qualitative assumptions, which are not directly
comparable or quantifiable.
Prepayment rates
Prepayment rates are a measure of
the anticipated future speed at which a loan portfolio will be
repaid in advance of the due date. They vary according to the
nature of the loan portfolio and expectations of future market
conditions, and may be estimated using a variety of evidence, such
as prepayment rates implied from proxy observable security prices,
current or historical prepayment rates and macroeconomic
modelling.
Market proxy
Market proxy pricing may be used
for an instrument when specific market pricing is not available,
but there is evidence from instruments with common characteristics.
In some cases, it might be possible to identify a specific proxy,
but more generally evidence across a wider range of instruments
will be used to understand the factors that influence current
market pricing and the manner of that influence.
Volatility
Volatility is a measure of the
anticipated future variability of a market price. It varies by
underlying reference market price, and by strike and maturity of
the option.
Certain volatilities, typically
those of a longer-dated nature, are unobservable and estimated from
observable data. The range of unobservable volatilities reflects
the wide variation in volatility inputs by reference market price.
The core range is significantly narrower than the full range
because these examples with extreme volatilities occur relatively
rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the
inter-relationship between two market prices, and is expressed as a
number between minus one and one. It is used to value more complex
instruments where the payout is dependent upon more than one market
price. There is a wide range of instruments for which
correlation is an input, and consequently a wide range of both
same-asset correlations and cross-asset correlations is used. In
general, the range of same-asset correlations will be narrower than
the range of cross-asset correlations.
Unobservable correlations may be
estimated based upon a range of evidence, including consensus
pricing services, HSBC trade prices, proxy correlations and
examination of historical price relationships. The range of
unobservable correlations quoted in the table reflects the wide
variation in correlation inputs by market price pair.
Credit spread
Credit spread is the premium over
a benchmark interest rate required by the market to accept lower
credit quality. In a discounted cash flow model, the credit
spread increases the discount factors applied to future cash flows,
thereby reducing the value of an asset. Credit spreads may be
implied from market prices and may not be observable in more
illiquid markets.
Inter-relationships between key
unobservable inputs
Key unobservable inputs to Level 3
financial instruments may not be independent of each other. As
described above, market variables may be correlated. This
correlation typically reflects the manner in which different
markets tend to react to macroeconomic or other events.
Furthermore, the effect of changing market variables on the HSBC
portfolio will depend on HSBC's net risk position in respect of
each variable.
12
|
Fair values of financial
instruments not carried at fair value
|
Fair values of financial
instruments not carried at fair value and bases of
valuation
|
|
|
Fair value
|
|
Carrying
amount
|
Quoted
market
price
Level
1
|
Observable
inputs
Level
2
|
Significant
unobservable
inputs
Level 3
|
Total
|
The group
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 31 Dec 2023
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
14,371
|
-
|
14,371
|
-
|
14,371
|
Loans and advances to
customers
|
75,491
|
-
|
-
|
74,904
|
74,904
|
Reverse repurchase agreements -
non-trading
|
73,494
|
-
|
73,494
|
-
|
73,494
|
Financial investments - at
amortised cost
|
8,861
|
7,173
|
1,660
|
4
|
8,837
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
22,943
|
-
|
22,950
|
-
|
22,950
|
Customer accounts
|
222,941
|
-
|
223,067
|
-
|
223,067
|
Repurchase agreements -
non-trading
|
53,416
|
-
|
53,416
|
-
|
53,416
|
Debt securities in
issue
|
13,443
|
-
|
13,320
|
138
|
13,458
|
Subordinated
liabilities
|
14,920
|
-
|
15,219
|
-
|
15,219
|
|
At 31 Dec 2022
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
17,109
|
-
|
17,112
|
-
|
17,112
|
Loans and advances to
customers
|
72,614
|
-
|
-
|
72,495
|
72,495
|
Reverse repurchase agreements -
non-trading
|
53,949
|
-
|
53,949
|
-
|
53,949
|
Financial investments - at
amortised cost
|
3,248
|
2,336
|
848
|
8
|
3,192
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
20,836
|
-
|
20,900
|
-
|
20,900
|
Customer accounts
|
215,948
|
-
|
215,955
|
-
|
215,955
|
Repurchase agreements -
non-trading
|
32,901
|
-
|
32,901
|
-
|
32,901
|
Debt securities in
issue
|
7,268
|
-
|
7,124
|
132
|
7,256
|
Subordinated
liabilities
|
14,528
|
-
|
14,434
|
-
|
14,434
|
Fair values of selected financial
instruments not carried at fair value and bases of valuation -
assets and disposal groups held for sale
|
|
|
Fair value
|
|
Carrying
amount
|
Quoted
market
price
Level
1
|
Observable
inputs
Level
2
|
Significant
unobservable
inputs Level
3
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 31 Dec 2023
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
8,103
|
-
|
8,103
|
-
|
8,103
|
Loans and advances to
customers
|
13,345
|
-
|
-
|
12,902
|
12,902
|
Reverse repurchase agreements -
non-trading
|
-
|
-
|
-
|
-
|
-
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
-
|
-
|
-
|
-
|
-
|
Customer accounts
|
17,587
|
-
|
17,587
|
-
|
17,587
|
Debt securities in
issue
|
1,080
|
-
|
1,066
|
-
|
1,066
|
|
|
|
|
|
|
At 31 Dec 2022
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
127
|
-
|
131
|
-
|
131
|
Loans and advances to
customers
|
21,067
|
-
|
-
|
19,481
|
19,481
|
Reverse repurchase agreements -
non-trading
|
208
|
-
|
208
|
-
|
208
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
2
|
-
|
2
|
-
|
2
|
Customer accounts
|
20,478
|
-
|
20,393
|
-
|
20,393
|
Debt securities in
issue
|
1,100
|
-
|
1,100
|
-
|
1,100
|
Fair values of financial
instruments not carried at fair value and bases of
valuation
|
|
|
Fair value
|
|
Carrying
amount
|
Quoted
market
price
Level
1
|
Observable
inputs
Level
2
|
Significant
unobservable
inputs Level
3
|
Total
|
The bank
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 31 Dec 2023
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
11,670
|
-
|
11,688
|
-
|
11,688
|
Loans and advances to
customers
|
32,443
|
-
|
-
|
32,359
|
32,359
|
Reverse repurchase agreements -
non-trading
|
56,973
|
-
|
56,973
|
-
|
56,973
|
Financial investments - at
amortised cost
|
12,029
|
5,738
|
6,328
|
-
|
12,066
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
18,775
|
-
|
18,796
|
-
|
18,796
|
Customer accounts
|
133,373
|
-
|
133,373
|
-
|
133,373
|
Repurchase agreements -
non-trading
|
48,842
|
-
|
48,842
|
-
|
48,842
|
Debt securities in
issue
|
7,353
|
-
|
7,372
|
-
|
7,372
|
Subordinated
liabilities
|
14,658
|
-
|
15,015
|
-
|
15,015
|
|
|
|
|
|
|
At 31 Dec 2022
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Loans and advances to
banks
|
14,486
|
-
|
14,508
|
-
|
14,508
|
Loans and advances to
customers
|
36,992
|
-
|
-
|
36,875
|
36,875
|
Reverse repurchase agreements -
non-trading
|
43,055
|
-
|
43,055
|
-
|
43,055
|
Financial investments - at
amortised cost
|
6,378
|
1,984
|
4,305
|
-
|
6,289
|
Liabilities
|
|
|
|
|
|
Deposits by banks
|
13,594
|
-
|
13,594
|
-
|
13,594
|
Customer accounts
|
141,714
|
-
|
141,714
|
-
|
141,714
|
Repurchase agreements -
non-trading
|
29,638
|
-
|
29,638
|
-
|
29,638
|
Debt securities in
issue
|
4,656
|
-
|
4,656
|
-
|
4,656
|
Subordinated
liabilities
|
14,252
|
-
|
14,139
|
-
|
14,139
|
Other financial instruments not
carried at fair value are typically short-term in nature and
reprice to current market rates frequently. Accordingly, their
carrying amount is a reasonable approximation of fair value. They
include cash and balances at central banks and items in the course
of collection from and transmission to other banks, all of which
are measured at amortised cost.
Fair value is an estimate of the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. It does not reflect the economic benefits and
costs that HSBC expects to flow from an instrument's cash flow over
its expected future life. Our valuation methodologies and
assumptions in determining fair values for which no observable
market prices are available may differ from those of other
companies.
Loans and advances to banks and customers
To determine the fair value of
loans and advances to banks and customers, loans are segregated, as
far as possible, into portfolios of similar characteristics. Fair
values are based on observable market transactions, when available.
When they are unavailable, fair values are estimated using
valuation models incorporating a range of input assumptions. These
assumptions may include: value estimates from third-party brokers
reflecting over-the-counter trading activity; forward-looking
discounted cash flow models, taking account of expected customer
prepayment rates, using assumptions that HSBC believes are
consistent with those that would be used by market participants in
valuing such loans; new business rates estimates for similar loans;
and trading inputs from other market participants including
observed primary and secondary trades. From time to time, we may
engage a third-party valuation specialist to measure the fair value
of a pool of loans.
The fair value of loans reflects
expected credit losses at the balance sheet date and estimates of
market participants' expectations of credit losses over the life of
the loans, and the fair value effect of repricing between
origination and the balance sheet date. For credit impaired loans,
fair value is estimated by discounting the future cash flows over
the time period they are expected to be recovered.
Financial investments
The fair values of listed
financial investments are determined using bid market prices. The
fair values of unlisted financial investments are determined using
valuation techniques that incorporate the prices and future
earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand
deposits are approximated by their carrying amount. For deposits
with longer-term maturities, fair values are estimated using
discounted cash flows, applying current rates offered for deposits
of similar remaining maturities.
Debt securities in issue and subordinated
liabilities
Fair values are determined using
quoted market prices at the balance sheet date where available, or
by reference to quoted market prices for similar
instruments.
Repurchase and reverse repurchase agreements -
non-trading
Fair values of repurchase and
reverse repurchase agreements that are held on a non-trading basis
provide approximate carrying amounts. This is due to the fact that
balances are generally short dated.