RNS Number : 0668Q
HSBC Holdings PLC
23 February 2021
 
 

 

Personal lending

This section presents further disclosures related to personal lending. It provides details of the regions, countries and products that are driving the change observed in personal loans and advances to customers, with the impact of foreign exchange separately identified. Additionally, Hong Kong and UK mortgage book LTV data is provided.

This section also provides a reconciliation of the opening 1 January 2020 to 31 December 2020 closing gross carrying/nominal amounts and associated allowance for ECL.

Further product granularity is also provided by stage, with geographical data presented for loans and advances to customers, loan and other credit-related commitments and financial guarantees.

At 31 December 2020, total personal lending for loans and advances to customers of $461bn increased by $26.5bn compared with 31 December 2019. This increase included favourable foreign exchange movements of $11.5bn. Excluding foreign exchange movements, there was growth of $15.1bn, primarily driven by $10.1bn in Europe and $3.4bn in Asia. The allowance for ECL attributable to personal lending, excluding off-balance sheet loan commitments and guarantees, and foreign exchange movements, increased $1.6bn to $4.7bn at 31 December 2020.

Excluding foreign exchange movements, total personal lending was primarily driven by mortgage growth, which grew by $21.5bn. Mortgages grew $12.3bn in the UK; $6.4bn in Asia, notably $4.7bn in Hong Kong and $1.6bn in Australia; and $1.8bn in Canada. The allowance for ECL, excluding foreign exchange, attributable to mortgages of $0.8bn increased $0.2bn compared with
31 December 2019.

The quality of both our Hong Kong and UK mortgage books remained high, with low levels of impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 61%, compared with an estimated 45% for the overall mortgage portfolio. The average LTV ratio on new lending in the UK was 70%, compared with an estimated 51% for the overall mortgage portfolio.

Excluding foreign exchange movements, other personal lending balances at 31 December 2020 declined by $6.5bn compared with 31 December 2019. The decline was attributable to a $3.8bn decline in credit cards and a $2.4bn decline in loans and overdrafts.

The $3.8bn decrease in credit card lending was attributable to declines of $2.1bn in the UK, $0.5bn in Hong Kong and $0.3bn in the US. The $2.4bn decrease in loans and overdrafts was attributable to declines of $1.1bn in Hong Kong, $1.4bn in the UK, $0.5bn in Singapore and $0.3bn in MENA. These declines were partly offset by growth of $1bn in France, primarily in other personal lending guaranteed by Crédit Logement and $0.5bn in Switzerland.

The allowance for ECL, excluding foreign exchange, attributable to other personal lending of $4.0bn increased $1.4bn compared with 31 December 2019. Excluding foreign exchange, the allowance for ECL attributable to credit cards increased by $0.7bn while loans and overdrafts increased by $0.7bn.

 

Total personal lending for loans and advances to customers at amortised cost by stage distribution

 

Gross carrying amount

 

Allowance for ECL

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

By portfolio

 

 

 

 

 

 

 

 

First lien residential mortgages

336,666 

 

12,233 

 

3,383 

 

352,282 

 

(125)

 

(188)

 

(442)

 

(755)

 

-  of which: interest only (including offset)

29,143 

 

3,074 

 

351 

 

32,568 

 

(9)

 

(19)

 

(88)

 

(116)

 

-  affordability (including US adjustable rate mortgages)

13,265 

 

2,209 

 

606 

 

16,080 

 

(11)

 

(11)

 

(5)

 

(27)

 

Other personal lending

93,468 

 

12,831 

 

2,228 

 

108,527 

 

(702)

 

(2,214)

 

(1,060)

 

(3,976)

 

-  other

74,174 

 

7,288 

 

1,489 

 

82,951 

 

(305)

 

(914)

 

(665)

 

(1,884)

 

-  credit cards

17,327 

 

5,292 

 

680 

 

23,299 

 

(386)

 

(1,281)

 

(380)

 

(2,047)

 

-  second lien residential mortgages

593 

 

100 

 

51 

 

744 

 

(3)

 

(9)

 

(10)

 

(22)

 

-  motor vehicle finance

1,374 

 

151 

 

 

1,533 

 

(8)

 

(10)

 

(5)

 

(23)

 

At 31 Dec 2020

430,134 

 

25,064 

 

5,611 

 

460,809 

 

(827)

 

(2,402)

 

(1,502)

 

(4,731)

 

By geography

 

 

 

 

 

 

 

 

Europe

200,120 

 

11,032 

 

2,511 

 

213,663 

 

(247)

 

(1,271)

 

(826)

 

(2,344)

 

-  of which: UK

163,338 

 

9,476 

 

1,721 

 

174,535 

 

(223)

 

(1,230)

 

(545)

 

(1,998)

 

Asia

178,175 

 

7,969 

 

1,169 

 

187,313 

 

(234)

 

(446)

 

(241)

 

(921)

 

-  of which: Hong Kong

118,252 

 

5,133 

 

206 

 

123,591 

 

(102)

 

(237)

 

(48)

 

(387)

 

MENA

4,879 

 

403 

 

251 

 

5,533 

 

(54)

 

(112)

 

(152)

 

(318)

 

North America

40,387 

 

4,613 

 

1,378 

 

46,378 

 

(93)

 

(200)

 

(132)

 

(425)

 

Latin America

6,573 

 

1,047 

 

302 

 

7,922 

 

(199)

 

(373)

 

(151)

 

(723)

 

At 31 Dec 2020

430,134 

 

25,064 

 

5,611 

 

460,809 

 

(827)

 

(2,402)

 

(1,502)

 

(4,731)

 

 

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution

 

Nominal amount

Allowance for ECL

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

Europe

56,920 

 

719 

 

96 

 

57,735 

 

(22)

 

(2)

 

 

(24)

 

-  of which: UK

54,348 

 

435 

 

92 

 

54,875 

 

(21)

 

(2)

 

 

(23)

 

Asia

156,057 

 

790 

 

11 

 

156,858 

 

 

 

 

 

-  of which: Hong Kong

118,529 

 

10 

 

10 

 

118,549 

 

 

 

 

 

MENA

2,935 

 

46 

 

 

2,989 

 

(1)

 

 

 

(1)

 

North America

15,835 

 

124 

 

38 

 

15,997 

 

(11)

 

 

 

(11)

 

Latin America

3,462 

 

28 

 

 

3,491 

 

(5)

 

 

 

(5)

 

At 31 Dec 2020

235,209 

 

1,707 

 

154 

 

237,070 

 

(39)

 

(2)

 

 

(41)

 

 

Total personal lending for loans and advances to customers at amortised cost by stage distribution (continued)

 

Gross carrying amount

 

Allowance for ECL

 

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

By portfolio

 

 

 

 

 

 

 

 

First lien residential mortgages

312,031 

 

7,077 

 

3,070 

 

322,178 

 

(39)

 

(68)

 

(422)

 

(529)

 

-  of which: interest only (including offset)

31,201 

 

1,602 

 

376 

 

33,179 

 

(6)

 

(15)

 

(91)

 

(112)

 

-  affordability (including US adjustable rate mortgages)

14,222 

 

796 

 

514 

 

15,532 

 

(3)

 

(3)

 

(3)

 

(9)

 

Other personal lending

101,638 

 

8,674 

 

1,781 

 

112,093 

 

(544)

 

(1,268)

 

(793)

 

(2,605)

 

-  other

77,031 

 

4,575 

 

1,193 

 

82,799 

 

(229)

 

(451)

 

(491)

 

(1,171)

 

-  credit cards

22,285 

 

3,959 

 

524 

 

26,768 

 

(310)

 

(801)

 

(284)

 

(1,395)

 

-  second lien residential mortgages

750 

 

84 

 

55 

 

889 

 

(1)

 

(6)

 

(10)

 

(17)

 

-  motor vehicle finance

1,572 

 

56 

 

 

1,637 

 

(4)

 

(10)

 

(8)

 

(22)

 

At 31 Dec 2019

413,669 

 

15,751 

 

4,851 

 

434,271 

 

(583)

 

(1,336)

 

(1,215)

 

(3,134)

 

By geography

 

 

 

 

 

 

 

 

Europe

186,561 

 

6,854 

 

2,335 

 

195,750 

 

(112)

 

(538)

 

(578)

 

(1,228)

 

-  of which: UK

153,313 

 

5,455 

 

1,612 

 

160,380 

 

(104)

 

(513)

 

(370)

 

(987)

 

Asia

173,523 

 

5,855 

 

717 

 

180,095 

 

(223)

 

(339)

 

(170)

 

(732)

 

-  of which: Hong Kong

117,013 

 

2,751 

 

189 

 

119,953 

 

(90)

 

(220)

 

(44)

 

(354)

 

MENA

5,671 

 

247 

 

299 

 

6,217 

 

(50)

 

(58)

 

(189)

 

(297)

 

North America

41,148 

 

1,930 

 

1,238 

 

44,316 

 

(56)

 

(119)

 

(141)

 

(316)

 

Latin America

6,766 

 

865 

 

262 

 

7,893 

 

(142)

 

(282)

 

(137)

 

(561)

 

At 31 Dec 2019

413,669 

 

15,751 

 

4,851 

 

434,271 

 

(583)

 

(1,336)

 

(1,215)

 

(3,134)

 

 

 

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)

 

Nominal amount

Allowance for ECL

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

Europe

51,575 

 

604 

 

110 

 

52,289 

 

(10)

 

(2)

 

 

(12)

 

-  of which: UK

49,322 

 

493 

 

105 

 

49,920 

 

(8)

 

(1)

 

 

(9)

 

Asia

149,336 

 

682 

 

 

150,027 

 

 

 

 

 

-  of which: Hong Kong

115,025 

 

27 

 

 

115,055 

 

 

 

 

 

MENA

3,150 

 

46 

 

53 

 

3,249 

 

 

 

 

 

North America

13,919 

 

256 

 

20 

 

14,195 

 

(1)

 

 

 

(1)

 

Latin America

4,312 

 

43 

 

 

4,358 

 

(3)

 

 

 

(3)

 

At 31 Dec 2019

222,292 

 

1,631 

 

195 

 

224,118 

 

(14)

 

(2)

 

 

(16)

 

 

 

Exposure to UK interest-only mortgage loans

The following information is presented for HSBC branded UK interest-only mortgage loans with balances of $15.0bn. This excludes offset mortgages in the first direct brand and Private Bank mortgages. 

At the end of 2020, the average LTV ratio in the portfolio was 41% and 99% of mortgages had an LTV ratio of 75% or less.

 

 

Of the interest-only mortgages that expired in 2018, 89% were repaid within 12 months of expiry with a total of 98% being repaid within 24 months of expiry. For interest-only mortgages expiring during 2019, 89% were fully repaid within 12 months of expiry.

The profile of maturing UK interest-only loans is as follows:

 

UK interest-only mortgage loans

 

$m

Expired interest-only mortgage loans

169 

 

Interest-only mortgage loans by maturity

 

- 2021

356 

 

- 2022

392 

 

- 2023

500 

 

- 2024

407 

 

- 2025-2029

3,317 

 

- Post 2029

9,914 

 

At 31 Dec 2020

15,055 

 

 

 

Exposure to offset mortgage in first direct

The offset mortgage in first direct is a flexible way for our customers to take control of their finances. It works by grouping together the customer's mortgage, savings and current accounts

 

to off-set their credit and debit balances against their mortgage exposure which at the end of 2020 is of $8.6bn with an average LTV ratio of 37%. 

 

Personal lending - reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to

customers including loan commitments and financial guarantees

(Audited)

 

 

 

Non-credit impaired

Credit impaired

 

 

Stage 1

Stage 2

Stage 3

Total

 

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

 

$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2020

635,961 

 

(597)

 

17,382 

 

(1,338)

 

5,046 

 

(1,215)

 

658,389 

 

(3,150)

 

Transfers of financial instruments

(16,019)

 

(629)

 

13,370 

 

1,181 

 

2,649 

 

(552)

 

 

 

Net remeasurement of ECL arising from transfer of stage

 

431 

 

 

(555)

 

 

(8)

 

 

(132)

 

Net new and further lending/repayments

30,891 

 

101 

 

(5,407)

 

408 

 

(677)

 

150 

 

24,807 

 

659 

 

Change in risk parameters - credit quality

 

(147)

 

 

(2,025)

 

 

(1,258)

 

 

(3,430)

 

Changes to models used for ECL calculation

 

(3)

 

 

(9)

 

 

 

 

(7)

 

Assets written off

 

 

 

 

(1,409)

 

1,407 

 

(1,409)

 

1,407 

 

Foreign exchange and other

14,513 

 

(22)

 

1,425 

 

(67)

 

153 

 

(32)

 

16,091 

 

(121)

 

At 31 Dec 2020

665,346 

 

(866)

 

26,770 

 

(2,405)

 

5,762 

 

(1,503)

 

697,878 

 

(4,774)

 

ECL income statement change for the period

 

382 

 

 

(2,181)

 

 

(1,111)

 

 

(2,910)

 

Recoveries

 

 

 

 

 

 

 

280 

 

Other

 

 

 

 

 

 

 

(25)

 

Total ECL income statement change for the period

 

 

 

 

 

 

 

(2,655)

 

 

 

As shown in the above table, the allowance for ECL for loans and advances to customers and banks and relevant loan commitments and financial guarantees increased $1,624m during the period from $3,150m at 31 December 2019 to $4,774m at 31 December 2020.

This increase was primarily driven by:

•    $3,430m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages;   

 

 

•    $132m relating to the net remeasurement impact of stage transfers;

•    foreign exchange and other movements of $121m; and

•    $7m due to changes to models used for ECL calculation.

These were partly offset by:

•   $1,407m of assets written off;

•   $659m relating to volume movements, which included the ECL allowance associated with new originations, assets derecognised and further lending/repayments.

The ECL charge for the period of $2,910m presented in the above table consisted of $3,430m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages, $132m relating to the

 

net remeasurement impact of stage transfers and $7m in changes to models used for ECL calculation. This was partly offset by $659m relating to underlying net book volume movements.

 

Personal lending - reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers

including loan commitments and financial guarantees (continued)

(Audited)

 

Non-credit impaired

Credit impaired

 

 

Stage 1

Stage 2

Stage 3

Total

 

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

 

$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2019

580,784 

 

(547)

 

16,838 

 

(1,266)

 

4,993 

 

(1,148)

 

602,615 

 

(2,961)

 

Transfers of financial instruments

(4,751)

 

(374)

 

2,645 

 

858 

 

2,106 

 

(484)

 

 

 

Net remeasurement of ECL arising from transfer of stage

 

446 

 

 

(408)

 

 

(76)

 

 

(38)

 

Net new and further lending/repayments

50,946 

 

 

(2,348)

 

453 

 

(758)

 

281 

 

47,840 

 

737 

 

Change in risk parameters - credit quality

 

(100)

 

 

(1,015)

 

 

(1,190)

 

 

(2,305)

 

Changes to models used for ECL calculation

 

(6)

 

 

60 

 

 

14 

 

 

68 

 

Assets written off

 

 

 

 

(1,345)

 

1,345 

 

(1,345)

 

1,345 

 

Foreign exchange and other

8,982 

 

(19)

 

247 

 

(20)

 

50 

 

43 

 

9,279 

 

 

At 31 Dec 2019

635,961 

 

(597)

 

17,382 

 

(1,338)

 

5,046 

 

(1,215)

 

658,389 

 

(3,150)

 

ECL income statement change for the period

 

343 

 

 

(910)

 

 

(971)

 

 

(1,538)

 

Recoveries

 

 

 

 

 

 

 

314 

 

Other

 

 

 

 

 

 

 

 

Total ECL income statement change for the period

 

 

 

 

 

 

 

(1,220)

 

 

Personal lending - credit risk profile by internal PD band for loans and advances to customers at amortised cost

 

 

Gross carrying amount

 

Allowance for ECL

 

 

PD range1

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

ECL coverage

 

%

$m

$m

$m

$m

$m

$m

$m

$m

%

First lien residential mortgages

 

336,666 

 

12,233 

 

3,383 

 

352,282 

 

(125)

 

(188)

 

(442)

 

(755)

 

0.2 

 

-  Band 1

0.000 to 0.250

284,252 

 

1,283 

 

 

285,535 

 

(36)

 

(3)

 

 

(39)

 

 

-  Band 2

0.251 to 0.500

16,259 

 

302 

 

 

16,561 

 

(9)

 

(3)

 

 

(12)

 

0.1 

 

-  Band 3

0.501 to 1.500

27,055 

 

1,755 

 

 

28,810 

 

(64)

 

(8)

 

 

(72)

 

0.2 

 

-  Band 4

1.501 to 5.000

8,858 

 

5,134 

 

 

13,992 

 

(15)

 

(32)

 

 

(47)

 

0.3 

 

-  Band 5

5.001 to 20.000

238 

 

1,806 

 

 

2,044 

 

(1)

 

(41)

 

 

(42)

 

2.1 

 

-  Band 6

20.001 to 99.999

 

1,953 

 

 

1,957 

 

 

(101)

 

 

(101)

 

5.2 

 

-  Band 7

100.000

 

 

3,383 

 

3,383 

 

 

 

(442)

 

(442)

 

13.1 

 

Other personal lending

 

93,468 

 

12,831 

 

2,228 

 

108,527 

 

(702)

 

(2,214)

 

(1,060)

 

(3,976)

 

3.7 

 

-  Band 1

0.000 to 0.250

41,565 

 

589 

 

 

42,154 

 

(96)

 

(8)

 

 

(104)

 

0.2 

 

-  Band 2

0.251 to 0.500

13,053 

 

518 

 

 

13,571 

 

(31)

 

(63)

 

 

(94)

 

0.7 

 

-  Band 3

0.501 to 1.500

23,802 

 

1,280 

 

 

25,082 

 

(108)

 

(37)

 

 

(145)

 

0.6 

 

-  Band 4

1.501 to 5.000

11,787 

 

2,175 

 

 

13,962 

 

(270)

 

(112)

 

 

(382)

 

2.7 

 

-  Band 5

5.001 to 20.000

3,234 

 

5,288 

 

 

8,522 

 

(197)

 

(821)

 

 

(1,018)

 

11.9 

 

-  Band 6

20.001 to 99.999

27 

 

2,981 

 

 

3,008 

 

 

(1,173)

 

 

(1,173)

 

39.0 

 

-  Band 7

100.000

 

 

2,228 

 

2,228 

 

 

 

(1,060)

 

(1,060)

 

47.6 

 

At 31 Dec 2020

 

430,134 

 

25,064 

 

5,611 

 

460,809 

 

(827)

 

(2,402)

 

(1,502)

 

(4,731)

 

1.0 

 

 

First lien residential mortgages

 

312,031 

 

7,077 

 

3,070 

 

322,178 

 

(39)

 

(68)

 

(422)

 

(529)

 

0.2 

 

-  Band 1

0.000 to 0.250

268,490 

 

284 

 

 

268,774 

 

(16)

 

 

 

(16)

 

 

-  Band 2

0.251 to 0.500

22,293 

 

301 

 

 

22,594 

 

(4)

 

 

 

(4)

 

 

-  Band 3

0.501 to 1.500

17,247 

 

2,313 

 

 

19,560 

 

(13)

 

(3)

 

 

(16)

 

0.1 

 

-  Band 4

1.501 to 5.000

3,796 

 

1,970 

 

 

5,766 

 

(5)

 

(7)

 

 

(12)

 

0.2 

 

-  Band 5

5.001 to 20.000

198 

 

1,383 

 

 

1,581 

 

(1)

 

(23)

 

 

(24)

 

1.5 

 

-  Band 6

20.001 to 99.999

 

826 

 

 

833 

 

 

(35)

 

 

(35)

 

4.2 

 

-  Band 7

100.000

 

 

3,070 

 

3,070 

 

 

 

(422)

 

(422)

 

13.7 

 

Other personal lending

 

101,638 

 

8,674 

 

1,781 

 

112,093 

 

(544)

 

(1,268)

 

(793)

 

(2,605)

 

2.3 

 

-  Band 1

0.000 to 0.250

46,533 

 

60 

 

 

46,593 

 

(120)

 

 

 

(120)

 

0.3 

 

-  Band 2

0.251 to 0.500

16,435 

 

65 

 

 

16,500 

 

(38)

 

(26)

 

 

(64)

 

0.4 

 

-  Band 3

0.501 to 1.500

25,160 

 

317 

 

 

25,477 

 

(110)

 

(13)

 

 

(123)

 

0.5 

 

-  Band 4

1.501 to 5.000

10,951 

 

3,483 

 

 

14,434 

 

(144)

 

(329)

 

 

(473)

 

3.3 

 

-  Band 5

5.001 to 20.000

2,421 

 

3,434 

 

 

5,855 

 

(132)

 

(440)

 

 

(572)

 

9.8 

 

-  Band 6

20.001 to 99.999

138 

 

1,315 

 

 

1,453 

 

 

(460)

 

 

(460)

 

31.7 

 

-  Band 7

100.000

 

 

1,781 

 

1,781 

 

 

 

(793)

 

(793)

 

44.5 

 

At 31 Dec 2019

 

413,669 

 

15,751 

 

4,851 

 

434,271 

 

(583)

 

(1,336)

 

(1,215)

 

(3,134)

 

0.7 

 

1     12-month point in time adjusted for multiple economic scenarios.

 

Collateral on loans and advances

(Audited)

The following table provides a quantification of the value of fixed charges we hold over specific assets where we have a history of enforcing, and are able to enforce, collateral in satisfying a debt in the event of the borrower failing to meet its contractual obligations, and where the collateral is cash or can be realised by sale in an established market. The collateral valuation excludes any adjustments for obtaining and selling the collateral and, in particular, loans shown as not collateralised or partially collateralised may also benefit from other forms of credit mitigants.

 

 

Personal lending - residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage

(Audited)

 

 

 

Of which:

 

Total

UK

Hong Kong

 

Gross carrying/nominal amount

ECL coverage

Gross carrying/nominal amount

ECL coverage

Gross carrying/nominal amount

ECL coverage

 

$m

%

$m

%

$m

%

Stage 1

 

 

 

 

 

 

Fully collateralised

354,102 

 

 

159,562 

 

 

90,733 

 

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

174,370 

 

 

76,535 

 

 

54,866 

 

 

-  51% to 60%

60,180 

 

 

23,967 

 

 

14,253 

 

 

-  61% to 70%

48,159 

 

 

23,381 

 

 

6,042 

 

 

-  71% to 80%

40,395 

 

0.1 

 

20,846 

 

 

4,288 

 

 

-  81% to 90%

23,339 

 

0.1 

 

12,936 

 

 

6,837 

 

 

-  91% to 100%

7,659 

 

0.1 

 

1,897 

 

0.1 

 

4,447 

 

 

Partially collateralised (A):

973 

 

0.4

289 

 

 

336 

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

592 

 

0.4

84 

 

 

334 

 

 

-  111% to 120%

101 

 

0.5

45 

 

 

 

 

-  greater than 120%

280 

 

0.3

160 

 

 

 

 

-  collateral value on A

847 

 

 

212 

 

 

328 

 

 

Total

355,075 

 

 

159,851 

 

 

91,069 

 

 

Stage 2

 

 

 

 

 

 

Fully collateralised

12,252 

 

1.5

4,229 

 

1.4

1,802 

 

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

6,694 

 

1.1

2,442 

 

1.2

1,256 

 

 

-  51% to 60%

2,223 

 

1.1

730 

 

1.3

253 

 

 

-  61% to 70%

1,779 

 

1.6

606 

 

1.3

83 

 

 

-  71% to 80%

987 

 

2.8

244 

 

2.9

111 

 

 

-  81% to 90%

400 

 

4.9

139 

 

3.6

60 

 

 

-  91% to 100%

169 

 

5.7

68 

 

3.3

39 

 

 

Partially collateralised (B):

53 

 

13.6

 

3.3

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

28 

 

11.9

 

1.5

 

 

-  111% to 120%

 

16.8

 

-

 

 

-  greater than 120%

16 

 

14.8

 

8.5

 

 

-  collateral value on B

47 

 

 

 

 

 

 

Total

12,305 

 

1.5

4,233 

 

1.4

1,811 

 

 

Stage 3

 

 

 

 

 

 

Fully collateralised

3,083 

 

9.8

1,050 

 

12.3

63

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

1,472 

 

8.0

676 

 

10.9

53 

 

 

-  51% to 60%

505 

 

8.7

144 

 

15.1

 

 

-  61% to 70%

435 

 

9.2

112 

 

12.9

 

 

-  71% to 80%

378 

 

11.5

81 

 

13.7

 

 

-  81% to 90%

195 

 

17.3

28 

 

22.4

 

 

-  91% to 100%

98 

 

24.3

 

17.8

 

 

Partially collateralised (C):

328 

 

42.7

17 

 

22.9

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

75 

 

30.4

 

16.7

 

 

-  111% to 120%

56 

 

38.8

 

17.6

 

 

-  greater than 120%

197 

 

48.5

 

50.3

 

 

-  collateral value on C

228 

 

 

10 

 

 

 

 

Total

3,411 

 

13.0

1,067 

 

12.5

63

 

At 31 Dec 2020

370,791 

 

0.2

165,151 

 

0.1

92,943 

 

 

 

 

Personal lending - residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage

(continued)

(Audited)

 

 

 

Of which:

 

Total

UK

Hong Kong

 

Gross carrying/nominal amount

ECL coverage

Gross carrying/nominal amount

ECL coverage

Gross carrying/nominal amount

ECL coverage

 

$m

%

$m

%

$m

%

Stage 1

 

 

 

 

 

 

Fully collateralised

326,510 

 

 

143,772 

 

 

86,049 

 

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

168,923 

 

 

70,315 

 

 

57,043 

 

 

-  51% to 60%

55,287 

 

 

21,898 

 

 

13,169 

 

 

-  61% to 70%

44,208 

 

 

19,903 

 

 

6,478 

 

 

-  71% to 80%

33,049 

 

 

17,649 

 

 

3,195 

 

 

-  81% to 90%

18,157 

 

 

11,127 

 

 

3,685 

 

 

-  91% to 100%

6,886 

 

 

2,880 

 

 

2,479 

 

 

Partially collateralised (A):

1,384 

 

0.1 

 

326 

 

 

284 

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

843 

 

0.1 

 

89 

 

 

281 

 

 

-  111% to 120%

195 

 

0.2 

 

48 

 

 

 

 

-  greater than 120%

346 

 

0.1 

 

189 

 

 

 

 

-  collateral value on A

1,232 

 

 

232 

 

 

279 

 

 

Total

327,894 

 

 

144,098 

 

 

86,333 

 

 

Stage 2

 

 

 

 

 

 

Fully collateralised

7,087 

 

0.9 

 

1,941 

 

1.0 

 

1,116 

 

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

3,781 

 

0.5 

 

1,146 

 

0.7 

 

892 

 

 

-  51% to 60%

923 

 

1.1 

 

233 

 

1.5 

 

95 

 

 

-  61% to 70%

909 

 

1.2 

 

262 

 

1.2 

 

59 

 

 

-  71% to 80%

894 

 

1.1 

 

231 

 

1.0 

 

32 

 

 

-  81% to 90%

425 

 

1.6 

 

36 

 

2.9 

 

25 

 

 

-  91% to 100%

155 

 

4.4 

 

33 

 

1.8 

 

13 

 

 

Partially collateralised (B):

76 

 

7.2 

 

23 

 

1.8 

 

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

45 

 

5.4 

 

20 

 

1.5 

 

 

 

-  111% to 120%

10 

 

11.1 

 

 

4.8 

 

 

 

-  greater than 120%

21 

 

9.0 

 

 

3.0 

 

 

 

-  collateral value on B

69 

 

 

20 

 

 

 

 

Total

7,163 

 

1.0 

 

1,964 

 

1.0 

 

1,117 

 

 

Stage 3

 

 

 

 

 

 

Fully collateralised

2,725 

 

9.0 

 

1,177 

 

9.9 

 

44 

 

0.5 

 

LTV ratio:

 

 

 

 

 

 

-  less than 50%

1,337 

 

7.1 

 

711 

 

7.8 

 

39 

 

0.5 

 

-  51% to 60%

410 

 

7.0 

 

159 

 

10.0 

 

 

0.2 

 

-  61% to 70%

358 

 

7.9 

 

136 

 

10.6 

 

 

 

-  71% to 80%

309 

 

13.4 

 

100 

 

18.9 

 

 

 

-  81% to 90%

178 

 

13.8 

 

47 

 

12.3 

 

 

 

-  91% to 100%

133 

 

21.8 

 

24 

 

26.3 

 

 

 

Partially collateralised (C):

371 

 

47.6 

 

25 

 

27.3 

 

 

 

LTV ratio:

 

 

 

 

 

 

-  101% to 110%

97 

 

36.4 

 

11 

 

19.1 

 

 

 

-  111% to 120%

62 

 

37.8 

 

 

22.7 

 

 

 

-  greater than 120%

212 

 

55.6 

 

 

42.0 

 

 

 

-  collateral value on C

305 

 

 

24 

 

 

 

 

Total

3,096 

 

13.7 

 

1,202 

 

10.3 

 

44 

 

0.5 

 

At 31 Dec 2019

338,153 

 

0.2 

 

147,264 

 

0.1 

 

87,494 

 

 

 

 

 

 

Supplementary information

 

 

Wholesale lending - loans and advances to customers at amortised cost by country/territory

 

Gross carrying amount

Allowance for ECL

 

Corporate and commercial

Of which: real estate1

Non-bank financial institutions

Total

Corporate and commercial

Of which: real estate1

Non-bank financial institutions

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

Europe

179,104 

 

26,505 

 

22,176 

 

201,280 

 

(3,918)

 

(632)

 

(185)

 

(4,103)

 

-  UK

128,933 

 

18,890 

 

16,165 

 

145,098 

 

(2,958)

 

(574)

 

(147)

 

(3,105)

 

-  France

32,278 

 

5,740 

 

3,557 

 

35,835 

 

(645)

 

(40)

 

(26)

 

(671)

 

-  Germany

8,309 

 

364 

 

1,156 

 

9,465 

 

(125)

 

 

(3)

 

(128)

 

-  Switzerland

1,489 

 

576 

 

513 

 

2,002 

 

(14)

 

 

 

(14)

 

-  other

8,095 

 

935 

 

785 

 

8,880 

 

(176)

 

(18)

 

(9)

 

(185)

 

Asia

257,942 

 

82,359 

 

31,637 

 

289,579 

 

(2,766)

 

(162)

 

(38)

 

(2,804)

 

-  Hong Kong

162,039 

 

64,216 

 

18,406 

 

180,445 

 

(1,180)

 

(83)

 

(15)

 

(1,195)

 

-  Australia

9,769 

 

1,813 

 

1,348 

 

11,117 

 

(95)

 

(2)

 

 

(95)

 

-  India

7,223 

 

1,951 

 

3,075 

 

10,298 

 

(90)

 

(18)

 

(4)

 

(94)

 

-  Indonesia

3,699 

 

81 

 

246 

 

3,945 

 

(229)

 

(2)

 

 

(229)

 

-  mainland China

28,443 

 

6,251 

 

7,128 

 

35,571 

 

(187)

 

(23)

 

(18)

 

(205)

 

-  Malaysia

7,228 

 

1,968 

 

123 

 

7,351 

 

(86)

 

(27)

 

 

(86)

 

-  Singapore

18,859 

 

4,637 

 

362 

 

19,221 

 

(782)

 

(2)

 

 

(782)

 

-  Taiwan

6,115 

 

50 

 

60 

 

6,175 

 

 

 

 

 

-  other

14,567 

 

1,392 

 

889 

 

15,456 

 

(117)

 

(5)

 

(1)

 

(118)

 

Middle East and North Africa (excluding Saudi Arabia)

24,625 

 

1,839 

 

379 

 

25,004 

 

(1,512)

 

(187)

 

(9)

 

(1,521)

 

-  Egypt

2,162 

 

37 

 

13 

 

2,175 

 

(157)

 

(7)

 

(3)

 

(160)

 

-  UAE

13,485 

 

1,690 

 

170 

 

13,655 

 

(1,019)

 

(176)

 

(2)

 

(1,021)

 

-  other

8,978 

 

112 

 

196 

 

9,174 

 

(336)

 

(4)

 

(4)

 

(340)

 

North America

53,386 

 

14,491 

 

9,292 

 

62,678 

 

(637)

 

(73)

 

(23)

 

(660)

 

-  US

30,425 

 

7,722 

 

7,708 

 

38,133 

 

(367)

 

(38)

 

(3)

 

(370)

 

-  Canada

22,361 

 

6,645 

 

1,440 

 

23,801 

 

(243)

 

(27)

 

(9)

 

(252)

 

-  other

600 

 

124 

 

144 

 

744 

 

(27)

 

(8)

 

(11)

 

(38)

 

Latin America

12,031 

 

1,833 

 

1,096 

 

13,127 

 

(661)

 

(113)

 

(10)

 

(671)

 

-  Mexico

10,244 

 

1,832 

 

1,083 

 

11,327 

 

(589)

 

(113)

 

(10)

 

(599)

 

-  other

1,787 

 

 

13 

 

1,800 

 

(72)

 

 

 

(72)

 

At 31 Dec 2020

527,088 

 

127,027 

 

64,580 

 

591,668 

 

(9,494)

 

(1,167)

 

(265)

 

(9,759)

 

 

Europe

175,215 

 

26,587 

 

26,497 

 

201,712 

 

(2,304)

 

(354)

 

(81)

 

(2,385)

 

-  UK

126,760 

 

18,941 

 

18,545 

 

145,305 

 

(1,629)

 

(303)

 

(26)

 

(1,655)

 

-  France

27,885 

 

5,643 

 

4,899 

 

32,784 

 

(423)

 

(28)

 

(52)

 

(475)

 

-  Germany

9,771 

 

390 

 

1,743 

 

11,514 

 

(60)

 

 

 

(60)

 

-  Switzerland

1,535 

 

554 

 

406 

 

1,941 

 

(1)

 

 

 

(1)

 

-  other

9,264 

 

1,059 

 

904 

 

10,168 

 

(191)

 

(23)

 

(3)

 

(194)

 

Asia

267,709 

 

85,556 

 

32,157 

 

299,866 

 

(1,449)

 

(94)

 

(52)

 

(1,501)

 

-  Hong Kong

168,380 

 

67,856 

 

19,776 

 

188,156 

 

(750)

 

(51)

 

(40)

 

(790)

 

-  Australia

11,428 

 

1,993 

 

1,743 

 

13,171 

 

(70)

 

(3)

 

 

(70)

 

-  India

6,657 

 

1,565 

 

2,622 

 

9,279 

 

(49)

 

(3)

 

(1)

 

(50)

 

-  Indonesia

4,346 

 

63 

 

353 

 

4,699 

 

(222)

 

(1)

 

(2)

 

(224)

 

-  mainland China

26,594 

 

5,304 

 

5,911 

 

32,505 

 

(198)

 

(29)

 

(8)

 

(206)

 

-  Malaysia

6,914 

 

1,597 

 

230 

 

7,144 

 

(40)

 

(2)

 

 

(40)

 

-  Singapore

19,986 

 

5,235 

 

618 

 

20,604 

 

(60)

 

(2)

 

 

(60)

 

-  Taiwan

6,384 

 

28 

 

82 

 

6,466 

 

(2)

 

 

 

(2)

 

-  other

17,020 

 

1,915 

 

822 

 

17,842 

 

(58)

 

(3)

 

(1)

 

(59)

 

Middle East and North Africa (excluding Saudi Arabia)

23,447 

 

1,816 

 

288 

 

23,735 

 

(1,087)

 

(181)

 

(13)

 

(1,100)

 

-  Egypt

1,889 

 

35 

 

16 

 

1,905 

 

(132)

 

 

(3)

 

(135)

 

-  UAE

13,697 

 

1,695 

 

122 

 

13,819 

 

(683)

 

(179)

 

(7)

 

(690)

 

-  other

7,861 

 

86 

 

150 

 

8,011 

 

(272)

 

(2)

 

(3)

 

(275)

 

North America

59,680 

 

15,128 

 

10,078 

 

69,758 

 

(274)

 

(43)

 

(11)

 

(285)

 

-  US

34,477 

 

8,282 

 

8,975 

 

43,452 

 

(116)

 

(14)

 

(2)

 

(118)

 

-  Canada

24,427 

 

6,556 

 

979 

 

25,406 

 

(136)

 

(10)

 

(4)

 

(140)

 

-  other

776 

 

290 

 

124 

 

900 

 

(22)

 

(19)

 

(5)

 

(27)

 

Latin America

14,448 

 

1,665 

 

1,685 

 

16,133 

 

(324)

 

(8)

 

(3)

 

(327)

 

-  Mexico

12,352 

 

1,664 

 

1,625 

 

13,977 

 

(221)

 

(8)

 

(3)

 

(224)

 

-  other

2,096 

 

 

60 

 

2,156 

 

(103)

 

 

 

(103)

 

At 31 Dec 2019

540,499 

 

130,752 

 

70,705 

 

611,204 

 

(5,438)

 

(680)

 

(160)

 

(5,598)

 

1     Real estate lending within this disclosure corresponds solely to the industry of the borrower. Commercial real estate on page 150 includes borrowers in multiple industries investing in income-producing assets and to a lesser extent, their construction and development.
 

Personal lending - loans and advances to customers at amortised cost by country/territory

 

Gross carrying amount

Allowance for ECL

 

First lien residential mortgages

Other personal

Of which: credit cards

Total

First lien residential mortgages

Other personal

Of which: credit cards

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

Europe

162,630 

 

51,033 

 

8,471 

 

213,663 

 

(364)

 

(1,980)

 

(859)

 

(2,344)

 

-  UK

154,839 

 

19,696 

 

8,064 

 

174,535 

 

(236)

 

(1,762)

 

(852)

 

(1,998)

 

-  France1

3,623 

 

23,982 

 

358 

 

27,605 

 

(43)

 

(120)

 

(5)

 

(163)

 

-  Germany

 

368 

 

 

368 

 

 

 

 

 

-  Switzerland

1,195 

 

6,641 

 

 

7,836 

 

 

(79)

 

 

(79)

 

-  other

2,973 

 

346 

 

49 

 

3,319 

 

(85)

 

(19)

 

(2)

 

(104)

 

Asia

141,581 

 

45,732 

 

11,186 

 

187,313 

 

(80)

 

(841)

 

(563)

 

(921)

 

-  Hong Kong

91,997 

 

31,594 

 

7,573 

 

123,591 

 

 

(387)

 

(265)

 

(387)

 

-  Australia

20,320 

 

602 

 

514 

 

20,922 

 

(12)

 

(47)

 

(45)

 

(59)

 

-  India

933 

 

544 

 

215 

 

1,477 

 

(9)

 

(45)

 

(34)

 

(54)

 

-  Indonesia

71 

 

288 

 

167 

 

359 

 

 

(37)

 

(26)

 

(37)

 

-  mainland China

9,679 

 

1,155 

 

644 

 

10,834 

 

(6)

 

(81)

 

(73)

 

(87)

 

-  Malaysia

2,797 

 

2,964 

 

841 

 

5,761 

 

(41)

 

(102)

 

(35)

 

(143)

 

-  Singapore

7,394 

 

6,537 

 

375 

 

13,931 

 

 

(55)

 

(17)

 

(55)

 

-  Taiwan

5,407 

 

1,069 

 

277 

 

6,476 

 

 

(15)

 

(5)

 

(15)

 

-  other

2,983 

 

979 

 

580 

 

3,962 

 

(12)

 

(72)

 

(63)

 

(84)

 

Middle East and North Africa (excluding Saudi Arabia)

2,192 

 

3,341 

 

863 

 

5,533 

 

(43)

 

(275)

 

(142)

 

(318)

 

-  Egypt

 

360 

 

89 

 

360 

 

 

(8)

 

(3)

 

(8)

 

-  UAE

1,841 

 

1,158 

 

432 

 

2,999 

 

(37)

 

(163)

 

(92)

 

(200)

 

-  other

351 

 

1,823 

 

342 

 

2,174 

 

(6)

 

(104)

 

(47)

 

(110)

 

North America

41,826 

 

4,552 

 

1,373 

 

46,378 

 

(159)

 

(266)

 

(193)

 

(425)

 

-  US

18,430 

 

2,141 

 

1,091 

 

20,571 

 

(26)

 

(226)

 

(182)

 

(252)

 

-  Canada

22,241 

 

2,230 

 

244 

 

24,471 

 

(36)

 

(31)

 

(10)

 

(67)

 

-  other

1,155 

 

181 

 

38 

 

1,336 

 

(97)

 

(9)

 

(1)

 

(106)

 

Latin America

4,053 

 

3,869 

 

1,406 

 

7,922 

 

(109)

 

(614)

 

(290)

 

(723)

 

-  Mexico

3,901 

 

3,351 

 

1,119 

 

7,252 

 

(107)

 

(578)

 

(268)

 

(685)

 

-  other

152 

 

518 

 

287 

 

670 

 

(2)

 

(36)

 

(22)

 

(38)

 

At 31 Dec 2020

352,282 

 

108,527 

 

23,299 

 

460,809 

 

(755)

 

(3,976)

 

(2,047)

 

(4,731)

 

 

Europe

145,382 

 

50,368 

 

10,246 

 

195,750 

 

(266)

 

(962)

 

(438)

 

(1,228)

 

-  UK

137,985 

 

22,395 

 

9,816 

 

160,380 

 

(159)

 

(828)

 

(434)

 

(987)

 

-  France1

3,520 

 

21,120 

 

376 

 

24,640 

 

(39)

 

(101)

 

(3)

 

(140)

 

-  Germany

 

325 

 

 

325 

 

 

 

 

 

-  Switzerland

1,183 

 

6,165 

 

 

7,348 

 

(6)

 

(17)

 

 

(23)

 

-  other

2,694 

 

363 

 

54 

 

3,057 

 

(62)

 

(16)

 

(1)

 

(78)

 

Asia

131,864 

 

48,231 

 

12,144 

 

180,095 

 

(42)

 

(690)

 

(463)

 

(732)

 

-  Hong Kong

86,892 

 

33,061 

 

8,043 

 

119,953 

 

(1)

 

(353)

 

(242)

 

(354)

 

-  Australia

16,997 

 

693 

 

603 

 

17,690 

 

(5)

 

(34)

 

(33)

 

(39)

 

-  India

1,047 

 

528 

 

219 

 

1,575 

 

(5)

 

(21)

 

(15)

 

(26)

 

-  Indonesia

67 

 

329 

 

204 

 

396 

 

 

(24)

 

(18)

 

(24)

 

-  mainland China

8,966 

 

1,190 

 

656 

 

10,156 

 

(2)

 

(74)

 

(68)

 

(76)

 

-  Malaysia

2,840 

 

3,200 

 

980 

 

6,040 

 

(22)

 

(73)

 

(33)

 

(95)

 

-  Singapore

6,687 

 

7,033 

 

452 

 

13,720 

 

(1)

 

(60)

 

(19)

 

(61)

 

-  Taiwan

5,286 

 

1,004 

 

297 

 

6,290 

 

 

(14)

 

(4)

 

(14)

 

-  other

3,082 

 

1,193 

 

690 

 

4,275 

 

(6)

 

(37)

 

(31)

 

(43)

 

Middle East and North Africa (excluding Saudi Arabia)

2,303 

 

3,914 

 

1,042 

 

6,217 

 

(62)

 

(235)

 

(111)

 

(297)

 

-  Egypt

 

346 

 

88 

 

346 

 

 

(3)

 

(1)

 

(3)

 

-  UAE

1,920 

 

1,462 

 

517 

 

3,382 

 

(59)

 

(121)

 

(54)

 

(180)

 

-  other

383 

 

2,106 

 

437 

 

2,489 

 

(3)

 

(111)

 

(56)

 

(114)

 

North America

39,065 

 

5,251 

 

1,742 

 

44,316 

 

(122)

 

(194)

 

(142)

 

(316)

 

-  US

17,870 

 

2,551 

 

1,424 

 

20,421 

 

(8)

 

(160)

 

(134)

 

(168)

 

-  Canada

19,997 

 

2,495 

 

271 

 

22,492 

 

(21)

 

(25)

 

(7)

 

(46)

 

-  other

1,198 

 

205 

 

47 

 

1,403 

 

(93)

 

(9)

 

(1)

 

(102)

 

Latin America

3,564 

 

4,329 

 

1,594 

 

7,893 

 

(37)

 

(524)

 

(241)

 

(561)

 

-  Mexico

3,419 

 

3,780 

 

1,308 

 

7,199 

 

(31)

 

(488)

 

(224)

 

(519)

 

-  other

145 

 

549 

 

286 

 

694 

 

(6)

 

(36)

 

(17)

 

(42)

 

At 31 Dec 2019

322,178 

 

112,093 

 

26,768 

 

434,271 

 

(529)

 

(2,605)

 

(1,395)

 

(3,134)

 

1     Included in other personal lending at 31 December 2020 is $20,625m (31 December 2019: $17,585m) guaranteed by Crédit Lodgement.

 

 

 

Change in reportable segments

Effective from 30 June 2020, we made the following realignments within our internal reporting:

•    We simplified our matrix organisational structure by merging Global Private Banking and Retail Banking and Wealth Management to form Wealth and Personal Banking ('WPB'). As a result, the gross carrying/nominal values and the associated allowance for ECL of Global Private Banking and Retail Banking and Wealth Management have been merged into WPB.

•    We reallocated Markets Treasury from Corporate Centre to the global businesses. As a result, Market Treasury's gross carrying/nominal values and the associated allowance for ECL have been transferred from the Corporate Centre into the other global businesses.

Comparative data have been re-presented accordingly. There is no impact upon total gross carrying/nominal values, total allowance for ECL or the staging of financial instruments.

 

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied - by global business

 

Gross carrying/nominal amount

Allowance for ECL

 

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers at amortised cost

869,920 

 

163,185 

 

19,095 

 

277 

 

1,052,477 

 

(1,974)

 

(4,965)

 

(7,439)

 

(112)

 

(14,490)

 

-  WPB

442,641 

 

25,694 

 

5,753 

 

 

474,088 

 

(854)

 

(2,458)

 

(1,590)

 

 

(4,902)

 

-  CMB

238,517 

 

101,960 

 

10,408 

 

212 

 

351,097 

 

(917)

 

(2,029)

 

(4,874)

 

(96)

 

(7,916)

 

-  GBM

187,564 

 

35,461 

 

2,934 

 

65 

 

226,024 

 

(203)

 

(465)

 

(975)

 

(16)

 

(1,659)

 

-  Corporate Centre

1,198 

 

70 

 

 

 

1,268 

 

 

(13)

 

 

 

(13)

 

Loans and advances to banks at amortised cost

79,654 

 

2,004 

 

 

 

81,658 

 

(33)

 

(9)

 

 

 

(42)

 

-  WPB

16,837 

 

519 

 

 

 

17,356 

 

(2)

 

(2)

 

 

 

(4)

 

-  CMB

12,253 

 

222 

 

 

 

12,475 

 

(2)

 

 

 

 

(2)

 

-  GBM

33,361 

 

1,166 

 

 

 

34,527 

 

(23)

 

(7)

 

 

 

(30)

 

-  Corporate Centre

17,203 

 

97 

 

 

 

17,300 

 

(6)

 

 

 

 

(6)

 

Other financial assets measured at amortised cost

768,216 

 

3,975 

 

177 

 

40 

 

772,408 

 

(80)

 

(44)

 

(42)

 

(9)

 

(175)

 

-  WPB

167,053 

 

1,547 

 

50 

 

39 

 

168,689 

 

(41)

 

(22)

 

(7)

 

(9)

 

(79)

 

-  CMB

111,299 

 

1,716 

 

65 

 

 

113,081 

 

(17)

 

(19)

 

(25)

 

 

(61)

 

-  GBM

391,967 

 

705 

 

56 

 

 

392,728 

 

(22)

 

(3)

 

(10)

 

 

(35)

 

-  Corporate Centre

97,897 

 

 

 

 

97,910 

 

 

 

 

 

 

Total gross carrying amount on-balance sheet at 31 Dec 2020

1,717,790 

 

169,164 

 

19,272 

 

317 

 

1,906,543 

 

(2,087)

 

(5,018)

 

(7,481)

 

(121)

 

(14,707)

 

Loans and other credit-related commitments

604,485 

 

54,217 

 

1,080 

 

 

659,783 

 

(290)

 

(365)

 

(78)

 

(1)

 

(734)

 

-  WPB

232,027 

 

2,591 

 

136 

 

 

234,754 

 

(41)

 

(2)

 

 

 

(43)

 

-  CMB

111,800 

 

29,150 

 

779 

 

 

141,730 

 

(157)

 

(203)

 

(72)

 

(1)

 

(433)

 

-  GBM

260,527 

 

22,476 

 

165 

 

 

283,168 

 

(92)

 

(160)

 

(6)

 

 

(258)

 

-  Corporate Centre

131 

 

 

 

 

131 

 

 

 

 

 

 

Financial guarantees

14,090 

 

4,024 

 

269 

 

 

18,384 

 

(37)

 

(62)

 

(26)

 

 

(125)

 

-  WPB

1,048 

 

23 

 

 

 

1,073 

 

 

 

 

 

 

-  CMB

5,556 

 

2,519 

 

146 

 

 

8,222 

 

(19)

 

(36)

 

(12)

 

 

(67)

 

-  GBM

7,482 

 

1,482 

 

121 

 

 

9,085 

 

(17)

 

(26)

 

(14)

 

 

(57)

 

-  Corporate Centre

 

 

 

 

 

(1)

 

 

 

 

(1)

 

Total nominal amount off-balance sheet at 31 Dec 2020

618,575 

 

58,241 

 

1,349 

 

 

678,167 

 

(327)

 

(427)

 

(104)

 

(1)

 

(859)

 

 

 

 

 

 

 

 

 

 

 

 

WPB

159,988 

 

625 

 

154 

 

39 

 

160,806 

 

(27)

 

(10)

 

(15)

 

(8)

 

(60)

 

CMB

95,182 

 

313 

 

51 

 

10 

 

95,556 

 

(22)

 

(3)

 

(2)

 

(2)

 

(29)

 

GBM

136,909 

 

126 

 

93 

 

 

137,128 

 

(24)

 

(1)

 

(3)

 

 

(28)

 

Corporate Centre

5,838 

 

389 

 

 

 

6,227 

 

(17)

 

(6)

 

(1)

 

 

(24)

 

Debt instruments measured at FVOCI at
31 Dec 2020

397,917 

 

1,453 

 

298 

 

49 

 

399,717 

 

(90)

 

(20)

 

(21)

 

(10)

 

(141)

 

 

 

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied - by global business (continued)1

 

Gross carrying/nominal amount

Allowance for ECL

 

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

 

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers at amortised cost

951,583 

 

80,182 

 

13,378 

 

332 

 

1,045,475 

 

(1,297)

 

(2,284)

 

(5,052)

 

(99)

 

(8,732)

 

-  WPB

424,342 

 

16,797 

 

5,131 

 

 

446,270 

 

(602)

 

(1,330)

 

(1,312)

 

 

(3,244)

 

-  CMB

297,364 

 

46,423 

 

6,649 

 

212 

 

350,648 

 

(520)

 

(765)

 

(3,190)

 

(68)

 

(4,543)

 

-  GBM

228,770 

 

16,934 

 

1,598 

 

120 

 

247,422 

 

(173)

 

(177)

 

(550)

 

(31)

 

(931)

 

-  Corporate Centre

1,107 

 

28 

 

 

 

1,135 

 

(2)

 

(12)

 

 

 

(14)

 

Loans and advances to banks at amortised cost

67,769 

 

1,450 

 

 

 

69,219 

 

(14)

 

(2)

 

 

 

(16)

 

-  WPB

14,636 

 

393 

 

 

 

15,029 

 

(1)

 

(1)

 

 

 

(2)

 

-  CMB

8,842 

 

219 

 

 

 

9,061 

 

(2)

 

 

 

 

(2)

 

-  GBM

30,391 

 

818 

 

 

 

31,209 

 

(9)

 

(1)

 

 

 

(10)

 

-  Corporate Centre

13,900 

 

20 

 

 

 

13,920 

 

(2)

 

 

 

 

(2)

 

Other financial assets measured at amortised cost

613,200 

 

1,827 

 

151 

 

 

615,179 

 

(38)

 

(38)

 

(42)

 

 

(118)

 

-  WPB

109,423 

 

548 

 

41 

 

 

110,012 

 

(21)

 

(30)

 

(5)

 

 

(56)

 

-  CMB

64,586 

 

904 

 

51 

 

 

65,542 

 

(10)

 

(7)

 

(26)

 

 

(43)

 

-  GBM

361,541 

 

374 

 

37 

 

 

361,952 

 

(7)

 

(1)

 

(11)

 

 

(19)

 

-  Corporate Centre

77,650 

 

 

22 

 

 

77,673 

 

 

 

 

 

 

Total gross carrying amount on-balance sheet at
31 Dec 2019

1,632,552 

 

83,459 

 

13,529 

 

333 

 

1,729,873 

 

(1,349)

 

(2,324)

 

(5,094)

 

(99)

 

(8,866)

 

Loans and other credit-related commitments

577,631 

 

21,618 

 

771 

 

 

600,029 

 

(137)

 

(133)

 

(59)

 

 

(329)

 

-  WPB

213,093 

 

1,945 

 

185 

 

 

215,223 

 

(15)

 

(1)

 

 

 

(16)

 

-  CMB

117,703 

 

11,403 

 

558 

 

 

129,673 

 

(69)

 

(65)

 

(56)

 

 

(190)

 

-  GBM

246,805 

 

8,270 

 

28 

 

 

255,103 

 

(53)

 

(67)

 

(3)

 

 

(123)

 

-  Corporate Centre

30 

 

 

 

 

30 

 

 

 

 

 

 

Financial guarantees

17,684 

 

2,340 

 

186 

 

 

20,214 

 

(16)

 

(22)

 

(10)

 

 

(48)

 

-  WPB

972 

 

 

 

 

977 

 

 

 

 

 

 

-  CMB

7,446 

 

1,442 

 

105 

 

 

8,997 

 

(9)

 

(12)

 

(6)

 

 

(27)

 

-  GBM

9,263 

 

894 

 

80 

 

 

10,237 

 

(7)

 

(10)

 

(4)

 

 

(21)

 

-  Corporate Centre

 

 

 

 

 

 

 

 

 

 

Total nominal amount off-balance sheet at
31 Dec 2019

595,315 

 

23,958 

 

957 

 

13 

 

620,243 

 

(153)

 

(155)

 

(69)

 

 

(377)

 

 

 

 

 

 

 

 

 

 

 

 

WPB

144,632 

 

378 

 

 

 

145,010 

 

(13)

 

(81)

 

 

 

(94)

 

CMB

85,353 

 

62 

 

 

 

85,416 

 

(5)

 

(19)

 

 

 

(24)

 

GBM

118,571 

 

68 

 

 

 

118,639 

 

(9)

 

(16)

 

 

 

(25)

 

Corporate Centre

6,093 

 

506 

 

 

 

6,599 

 

(12)

 

(11)

 

 

 

(23)

 

Debt instruments measured at FVOCI at
31 Dec 2019

354,649 

 

1,014 

 

 

 

355,664 

 

(39)

 

(127)

 

 

 

(166)

 

1     2019 figures are restated for the change in reportable segments.
 

Loans and advances to customers and banks metrics

 

Gross carrying amount

Of which: stage 3 and POCI

Allowance for ECL

Of which: stage 3 and POCI

Change in ECL

Write-offs

Recoveries

 

$m

$m

$m

$m

$m

$m

$m

First lien residential mortgages

352,282 

 

3,383 

 

(755)

 

(442)

 

(259)

 

(92)

 

35 

 

Other personal lending

108,527 

 

2,228 

 

(3,976)

 

(1,060)

 

(2,363)

 

(1,315)

 

245 

 

Personal lending

460,809 

 

5,611 

 

(4,731)

 

(1,502)

 

(2,622)

 

(1,407)

 

280 

 

-  agriculture, forestry and fishing

7,445 

 

332 

 

(207)

 

(150)

 

(28)

 

(3)

 

 

-  mining and quarrying

11,947 

 

813 

 

(365)

 

(220)

 

(513)

 

(311)

 

 

-  manufacturing

93,906 

 

2,163 

 

(1,588)

 

(945)

 

(652)

 

(375)

 

 

-  electricity, gas, steam and air-conditioning supply

16,200 

 

53 

 

(73)

 

(8)

 

(7)

 

(14)

 

 

-  water supply, sewerage, waste management and remediation

3,174 

 

47 

 

(37)

 

(22)

 

(8)

 

 

 

-  construction

14,600 

 

777 

 

(590)

 

(430)

 

(151)

 

(135)

 

13 

 

-  wholesale and retail trade, repair of motor vehicles and motorcycles

90,663 

 

3,208 

 

(2,532)

 

(2,032)

 

(1,560)

 

(280)

 

11 

 

-  transportation and storage

29,433 

 

780 

 

(493)

 

(240)

 

(308)

 

(62)

 

 

-  accommodation and food

26,071 

 

537 

 

(491)

 

(130)

 

(365)

 

(28)

 

 

-  publishing, audiovisual and broadcasting

19,979 

 

164 

 

(189)

 

(59)

 

(94)

 

(2)

 

 

-  real estate

127,027 

 

1,908 

 

(1,167)

 

(738)

 

(424)

 

(47)

 

 

-  professional, scientific and technical activities

24,072 

 

531 

 

(398)

 

(193)

 

(219)

 

(36)

 

 

-  administrative and support services

26,423 

 

977 

 

(534)

 

(315)

 

(298)

 

(61)

 

 

-  public administration and defence, compulsory social security

2,008 

 

 

(14)

 

(1)

 

(5)

 

 

 

-  education

2,122 

 

29 

 

(41)

 

(9)

 

(26)

 

(6)

 

 

-  health and care

5,510 

 

269 

 

(186)

 

(120)

 

(127)

 

(2)

 

 

-  arts, entertainment and recreation

3,437 

 

236 

 

(158)

 

(87)

 

(170)

 

(2)

 

 

-  other services

13,110 

 

410 

 

(408)

 

(249)

 

(360)

 

(168)

 

 

-  activities of households

802 

 

 

(1)

 

 

 

 

 

-  extra-territorial organisations and bodies activities

10 

 

 

 

 

 

 

 

-  government

8,538 

 

 

(9)

 

(1)

 

 

(5)

 

 

-  asset-backed securities

611 

 

 

(13)

 

 

 

 

 

Corporate and commercial

527,088 

 

13,238 

 

(9,494)

 

(5,949)

 

(5,311)

 

(1,537)

 

44 

 

Non-bank financial institutions

64,580 

 

523 

 

(265)

 

(100)

 

(146)

 

(30)

 

 

Wholesale lending

591,668 

 

13,761 

 

(9,759)

 

(6,049)

 

(5,457)

 

(1,567)

 

46 

 

Loans and advances to customers

1,052,477 

 

19,372 

 

(14,490)

 

(7,551)

 

(8,079)

 

(2,974)

 

326 

 

Loans and advances to banks

81,658 

 

 

(42)

 

 

(23)

 

 

 

At 31 Dec 2020

1,134,135 

 

19,372 

 

(14,532)

 

(7,551)

 

(8,102)

 

(2,974)

 

326 

 

 

First lien residential mortgages

322,178 

 

3,070 

 

(529)

 

(422)

 

(107)

 

(139)

 

54 

 

Other personal lending

112,093 

 

1,781 

 

(2,605)

 

(793)

 

(1,114)

 

(1,206)

 

260 

 

Personal lending

434,271 

 

4,851 

 

(3,134)

 

(1,215)

 

(1,221)

 

(1,345)

 

314 

 

-  agriculture, forestry and fishing

6,696 

 

280 

 

(182)

 

(140)

 

(15)

 

(6)

 

 

-  mining and quarrying

14,435 

 

323 

 

(226)

 

(134)

 

(31)

 

(4)

 

 

-  manufacturing

104,380 

 

1,717 

 

(1,210)

 

(856)

 

(392)

 

(332)

 

 

-  electricity, gas, steam and air-conditioning supply

15,040 

 

175 

 

(80)

 

(25)

 

14 

 

(54)

 

 

-  water supply, sewerage, waste management and remediation

3,501 

 

30 

 

(28)

 

(18)

 

(4)

 

 

 

-  construction

15,287 

 

884 

 

(564)

 

(499)

 

(171)

 

(191)

 

12 

 

-  wholesale and retail trade, repair of motor vehicles and motorcycles

94,681 

 

1,633 

 

(1,184)

 

(936)

 

(330)

 

(389)

 

13 

 

-  transportation and storage

25,580 

 

617 

 

(237)

 

(158)

 

(93)

 

(37)

 

 

-  accommodation and food

24,656 

 

263 

 

(146)

 

(63)

 

(49)

 

(81)

 

 

-  publishing, audiovisual and broadcasting

19,971 

 

162 

 

(87)

 

(34)

 

(17)

 

(31)

 

 

-  real estate

130,752 

 

1,330 

 

(680)

 

(475)

 

(34)

 

(168)

 

 

-  professional, scientific and technical activities

24,122 

 

350 

 

(209)

 

(145)

 

(47)

 

(10)

 

 

-  administrative and support services

25,714 

 

527 

 

(270)

 

(179)

 

(80)

 

(22)

 

 

-  public administration and defence, compulsory social security

2,377 

 

 

(8)

 

 

 

 

 

-  education

1,900 

 

16 

 

(18)

 

(6)

 

 

(3)

 

 

-  health and care

4,465 

 

111 

 

(57)

 

(28)

 

(6)

 

(13)

 

 

-  arts, entertainment and recreation

2,824 

 

30 

 

(25)

 

(11)

 

 

(4)

 

 

-  other services

14,276 

 

192 

 

(199)

 

(133)

 

(79)

 

(102)

 

 

-  activities of households

791 

 

 

 

 

 

 

 

-  extra-territorial organisations and bodies activities

 

 

 

 

 

 

 

-  government

8,313 

 

 

(14)

 

(6)

 

(8)

 

 

 

-  asset-backed securities

736 

 

 

(14)

 

 

 

 

 

Corporate and commercial

540,499 

 

8,647 

 

(5,438)

 

(3,846)

 

(1,331)

 

(1,447)

 

46 

 

Non-bank financial institutions

70,705 

 

212 

 

(160)

 

(90)

 

(71)

 

(5)

 

 

Wholesale lending

611,204 

 

8,859 

 

(5,598)

 

(3,936)

 

(1,402)

 

(1,452)

 

47 

 

Loans and advances to customers

1,045,475 

 

13,710 

 

(8,732)

 

(5,151)

 

(2,623)

 

(2,797)

 

361 

 

Loans and advances to banks

69,219 

 

 

(16)

 

 

(6)

 

 

 

At 31 Dec 2019

1,114,694 

 

13,710 

 

(8,748)

 

(5,151)

 

(2,629)

 

(2,797)

 

361 

 

 

 

 

HSBC Holdings

(Audited)

Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and Liability Management Committee ('Holdings ALCO'). The major risks faced by HSBC Holdings are credit risk, liquidity risk and market risk (in the form of interest rate risk and foreign exchange risk).

Credit risk in HSBC Holdings primarily arises from transactions with Group subsidiaries and its investments in those subsidiaries.

In HSBC Holdings, the maximum exposure to credit risk arises from two components:

•    financial instruments on the balance sheet (see page 285); and

•    financial guarantees and similar contracts, where the maximum exposure is the maximum that we would have to pay if the guarantees were called upon (see Note 32).

In the case of our derivative balances, we have amounts with a legally enforceable right of offset in the case of counterparty default that are not included in the carrying value. These offsets also include collateral received in cash and other financial assets.

The total offset relating to our derivative balances was $1.7bn at 31 December 2020 (2019: $0.1bn).

The credit quality of loans and advances and financial investments, both of which consist of intra-Group lending and US Treasury bills and bonds, is assessed as 'strong', with 100% of the exposure being neither past due nor impaired (2019: 100%). For further details of credit quality classification, see page 121.

 

 

 

Treasury risk

 

Page

Overview

180

Treasury risk management

180

Capital risk in 2020

184

Structural foreign exchange risk in 2020

194

Interest rate risk in the banking book in 2020

194

 

Overview

Treasury risk is the risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, together with the financial risks arising from the provision of pensions and other post-employment benefits to staff and their dependants. Treasury risk also includes the risk to our earnings or capital due to structural foreign exchange exposures and changes in market interest rates.

Treasury risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment.

 

Approach and policy

(Audited)

Our objective in the management of treasury risk is to maintain appropriate levels of capital, liquidity, funding, foreign exchange and market risk to support our business strategy, and meet our regulatory and stress testing-related requirements.

Our approach to treasury management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment. We aim to maintain a strong capital and liquidity base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory requirements at all times.

Our policy is underpinned by our risk management framework, our internal capital adequacy assessment process ('ICAAP') and our internal liquidity adequacy assessment process ('ILAAP'). The risk framework incorporates a number of measures aligned to our assessment of risks for both internal and regulatory purposes. These risks include credit, market, operational, pensions, structural foreign exchange, banking book foreign exchange risk and interest rate risk in the banking book.

The ICAAP and ILAAP provide an assessment of the Group's capital and liquidity adequacy with consideration of HSBC's risk metrics, business model, strategy, performance and planning, risks to capital, and the implications of stress testing to capital.

For further details, refer to our Pillar 3 Disclosures at 31 December 2020.

 

Treasury risk management

 

Key developments in 2020

In 2020, we established the Treasury Risk Management function. This function is a dedicated second line of defence, providing independent oversight of treasury activities across capital risk, liquidity and funding risk, structural foreign exchange risk, banking book foreign exchange risk, and interest rate risk in the banking book, together with pension risk. The approach to treasury risk management is evolving. This will operate across the Group focusing on both adequacy of capital and sufficiency of returns. In 2020, we carried out several initiatives focused on treasury risk:

•    We focused on the management of capital and liquidity to ensure we responded to the unprecedented customer and capital demands arising from the Covid-19 outbreak.

•    In response to a written request from the PRA, we cancelled the fourth interim dividend for 2019 of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that we would make no quarterly or interim dividend payments or accruals in respect of ordinary shares until the end of 2020. In December 2020, the PRA announced a temporary approach to shareholder distributions for 2020. After considering the requirements of the temporary approach, the Board announced an interim dividend for 2020 of $0.15 per ordinary share.

•    In our response to the Covid-19 outbreak, we liaised with governments, central banks and regulatory authorities globally,  to ensure there was continued support and provision of financial services to the real economy. The Bank of England's Financial Policy Committee announced a reduction of the UK countercyclical buffer rate to 0% effective from March 2020. This change was reflected in the Group's risk appetite statement, and together with other regulatory relief, resulted in a reduction to Group common equity tier 1 ('CET1') and leverage ratio requirements.

•    We implemented the acceleration of some of the beneficial elements of the amendments to the Capital Requirements Regulation ('CRR II') that were originally scheduled for June 2021. The relevant changes impacting the fourth quarter of 2020 positions included a resetting of the transitional provisions in relation to recognising IFRS 9 provisions and the application of the revised small and medium-sized enterprises ('SME') supporting factor. It also included changes in the capital treatment of software intangible assets and the netting of the leverage ratio exposure measure of regular-way purchases and sales. Additionally, there were changes that enabled more favourable prudential treatment for investments in infrastructure, beneficial changes to prudent valuation adjustments and exemptions of market risk back-testing exceptions that arose due to the extraordinary market dislocations.

•    The Group's CET1 ratio was 15.9% at 31 December 2020 and the leverage ratio was 5.5%. The Group also continues to maintain the appropriate resources required for the risks to which it is exposed, while continuing to support local economies. This has been further informed by additional internal stress tests carried out in response to the Covid-19 outbreak. Capital risk management practices continued to be enhanced across the Group through the Treasury Risk Management function, focusing on both adequacy of capital and sufficiency of returns.

•    The Group's liquidity levels were impacted by the drawdown of committed facilities and buy-backs of short-term debt. However, this was offset by increases in deposits, use of central bank facilities where appropriate, and the ability to issue in the short-term markets as they stabilised. As a result of these liability enhancing actions, the Group and all entities had significant surplus liquidity, resulting in heightened liquidity coverage ratios throughout 2020. At 31 December 2020, all of the Group's material operating entities were above regulatory minimum levels of liquidity and funding.

•    Declines in interest rates and the flattening of interest rate yield curves combined to put downwards pressure on net interest income ('NII'). Balance sheet composition changed, with a significant build-up of liquidity that was deployed in short-term investments, which were predominantly cash, hold-to-collect-and-sell securities and reverse repos. This factor, together with the lower level of interest rates, increased the sensitivity of NII to future changes in interest rates. In the scenario where interest rates fall significantly from current levels, contractual floors would dampen the effect on the average rate that would be paid on liabilities whereas the asset side of the balance sheet would be more likely to reprice lower, reducing commercial margin.

•    During 2020 we worked with the fiduciaries of all our pension plans to ensure robust and timely actions were taken in response to the Covid-19 outbreak, including the smooth transition to remote working for plan providers and dealing appropriately with affected plan members. Our de-risking programmes provided protection against the volatility in financial markets that resulted from the outbreak's economic impact.

For quantitative disclosures on capital ratios, own funds and RWAs, see pages 173 to 174. For quantitative disclosures on liquidity and funding metrics, see pages 176 to 178. For quantitative disclosures on interest rate risk in the banking book, see pages 179 to 180.

 

Governance and structure

The Global Head of Treasury Risk Management and Global Risk Analytics is the accountable risk steward for all treasury risks, the Group Head of Performance and Reward is the risk owner for pensions and the Group Treasurer is the risk owner for remaining treasury risks.

Capital and liquidity are the responsibility of the Group Executive Committee and directly addressed by the Group Risk Committee ('GRC'). Treasury risks are generally managed through the Holdings Asset and Liability Management Committee ('ALCO') and local ALCOs and overseen by the Risk Management Meeting ('RMM').

The Asset, Liability and Capital Management ('ALCM') function is responsible for managing interest rate risk in the banking book. It maintains the transfer pricing framework and informs the Holdings ALCO of the Group's overall banking book interest rate exposure. Banking book interest rate positions may be transferred to be managed by the Markets Treasury business, previously known as Balance Sheet Management, within the market risk limits approved by the RMM. Effective governance of Markets Treasury is supported by the dual reporting lines it has to the Chief Executive Officer of Global Banking and Markets and to the Group Treasurer, with the Global Risk function acting as a second line of defence.

Pension risk is managed by a network of local and regional pension risk forums. The Global Pensions Oversight Forum provides oversight of all pension plans sponsored by HSBC globally and is co-chaired by the Group Treasurer and the Global Head of Treasury Risk Management and Global Risk Analytics.

 

Capital, liquidity and funding risk management processes

 

Assessment and risk appetite

Our capital management policy is underpinned by a capital management framework and our ICAAP. The framework incorporates key capital risk appetites for CET1, total capital, minimum requirements for own funds and eligible liabilities ('MREL'), and double leverage. The ICAAP is an assessment of the Group's capital position, outlining both regulatory and internal capital resources and requirements resulting from HSBC's business model, strategy, risk profile and management, performance and planning, risks to capital, and the implications of stress testing. Our assessment of capital adequacy is driven by an assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange and interest rate risk in the banking book. The Group ICAAP supports the determination of the consolidated capital risk appetite and target ratios as well as enables the assessment and determination of capital requirements by regulators. Subsidiaries prepare ICAAPs based on their local regulatory regimes in order to determine their own risk appetites and ratios.

HSBC Holdings is the provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings' own capital issuance and profit retention.

HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investments in subsidiaries, including management of double leverage. Double leverage reflects the extent to which equity investments in operating entities are funded by holding company debt. Where Group capital requirements are less than the aggregate of operating entity capital requirements, double leverage can be used to improve Group capital efficiency provided it is managed appropriately and prudently in accordance with risk appetite. Double leverage is a constraint on managing our capital position, given the complexity of the Group's subsidiary structure and the multiple regulatory regimes under which we operate. As a matter of long-standing policy, the holding company retains a substantial portfolio of high-quality liquid assets ('HQLA'), which at 31 December 2020 was in excess of $14bn. The portfolio of HQLA helps to mitigate holding company cash flow risk arising from double leverage, and underpins the strength of support the holding company can offer its subsidiaries in times of stress. Further mitigation is provided by additional tier 1 ('AT1') securities issued in excess of the regulatory requirements of our subsidiaries.

We maintain a comprehensive liquidity and funding risk management framework ('LFRF'), which aims to enable us to withstand very severe liquidity stresses. The LFRF comprises policies, metrics and controls designed to ensure that Group and entity management have oversight of our liquidity and funding risks in order to manage them appropriately. We manage liquidity and funding risk at an operating entity level to ensure that obligations can be met in the jurisdiction where they fall due, generally without reliance on other parts of the Group. Operating entities are required to meet internal minimum requirements and any applicable regulatory requirements at all times. These requirements are assessed through the ILAAP, which ensures that operating entities have robust strategies, policies, processes and systems for the identification, measurement, management and monitoring of liquidity risk over an appropriate set of time horizons, including intra-day. The ILAAP informs the validation of risk tolerance and the setting of risk appetite. It also assesses the capability to manage liquidity and funding effectively in each major entity. These metrics are set and managed locally but are subject to robust global review and challenge to ensure consistency of approach and application of the LFRF across the Group.

 

Planning and performance

Capital and risk-weighted asset ('RWA') plans form part of the annual operating plan that is approved by the Board. Capital and RWA forecasts are submitted to the Group Executive Committee on a monthly basis, and capital and RWAs are monitored and managed against the plan. The responsibility for global capital allocation principles rests with the Group Chief Financial Officer supported by the Group Capital Management Meeting. This is a specialist forum addressing capital management, reporting into Holdings ALCO.

Through our internal governance processes, we seek to strengthen discipline over our investment and capital allocation decisions, and to ensure that returns on investment meet management's objectives. Our strategy is to allocate capital to businesses and entities to support growth objectives where returns above internal hurdle levels have been identified and in order to meet their regulatory and economic capital needs. We evaluate and manage business returns by using a return on average tangible equity measure.

Funding and liquidity plans form part of the annual operating plan that is approved by the Board. The critical Board-level appetite measures are the liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR'). An appropriate funding and liquidity profile is managed through a wider set of measures:

•    a minimum LCR requirement;

•    a minimum NSFR requirement or other appropriate metric;

•    a legal entity depositor concentration limit;

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

•    a minimum LCR requirement by currency;

•    intra-day liquidity;

•    the application of liquidity funds transfer pricing; and

•    forward-looking funding assessments.

The LCR and NSFR metrics are to be supplemented by an internal liquidity metric in 2021.

 

Risks to capital and liquidity

Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs and/or capital position. Downside and Upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary. We closely monitor future regulatory changes and continue to evaluate the impact of these upon our capital requirements. This includes the UK's implementation of amendments to the Capital Requirements Regulation, the Basel III Reforms, and the regulatory impact from the UK's withdrawal from the EU, as well as other regulatory statements including changes to IRB modelling requirements. 

We currently estimate that these regulatory changes could potentially increase RWAs, before any mitigating actions, by approximately 5% over 2022-23. We plan to take action to substantially mitigate a significant proportion of the increase. 

The Basel III Reforms introduce an output floor that will be introduced in 2023 with a five-year transitional provision. We estimate that there will be an additional RWA impact as a result of the output floor from 2027. 

In parallel with regulatory developments in the EU, the UK's PRA is reviewing the requirements for the capitalisation of structural foreign exchange risk to align to a Pillar 1 approach.

There remains a significant degree of uncertainty in the impact of the regulatory changes due to the number of national discretions and the need for further supporting technical standards to be developed. Furthermore, the impact does not take into consideration the possibility of offsets against Pillar 2, which may arise as shortcomings within Pillar 1 are addressed. 

We have applied the revised regulatory treatment of software assets that became law in the EU following its publication in December 2020. We are aware that the PRA intends to consult on this change with a view to returning to full deduction. In line with the PRA's guidance, we have therefore excluded the capital benefit of $2.1bn from our decisions about distributions.

Regulatory reporting processes and controls

There is a continued focus on the quality of regulatory reporting by the PRA and other regulators globally. We continue to strengthen our processes and controls, including commissioning independent external reviews of various aspects of regulatory reporting. As a result, there may be impacts on some of our regulatory ratios such as the CET1 and LCR. We continue to keep the PRA and other relevant regulators informed of adverse findings from external reviews and our progress in strengthening the control environment.

Further details can be found in the 'Regulatory developments' section of the Group's Pillar 3 Disclosures at 31 December 2020.

 

Stress testing and recovery planning

The Group uses stress testing to evaluate the robustness of plans and risk portfolios, and to meet the requirements for stress testing set by supervisors. Stress testing also informs the ICAAP and ILAAP and supports recovery planning in many jurisdictions. It is an important output used to evaluate how much capital and liquidity the Group requires in setting risk appetite for capital and liquidity risk. It is also used to re-evaluate business plans where analysis shows capital, liquidity and/or returns do not meet their target.

In addition to a range of internal stress tests, we are subject to supervisory stress testing in many jurisdictions. These include the programmes of the Bank of England, the US Federal Reserve Board, the European Banking Authority, the European Central Bank and the Hong Kong Monetary Authority, as well as stress tests undertaken in other jurisdictions. The results of regulatory stress testing and our internal stress tests are used when assessing our internal capital requirements through the ICAAP. The outcomes of stress testing exercises carried out by the PRA and other regulators feed into the setting of regulatory minimum ratios and buffers.

The Group and subsidiaries have established recovery plans, which set out potential options management could take in a range of stress scenarios that could result in a breach of our internal capital buffers. This is to help ensure that our capital and liquidity position can be recovered even in an extreme stress event.

During 2020, in light of the Covid-19 outbreak, we carried out additional internal testing on baseline and stressed scenarios. The results of these stress tests were considered in determining capital actions to manage the Group's position.

Additionally, further stress testing was carried out to include scenarios relating to the impact of the UK's withdrawal from the EU and elevated tensions between the US and China.

All entities monitor internal and external triggers that could threaten their capital, liquidity or funding positions. Entities have established recovery plans providing detailed actions that management would consider taking in a stress scenario should their positions deteriorate and threaten to breach risk appetite and regulatory minimum levels.

Details of HSBC's liquidity and funding risk management framework ('LFRF') can be found in the Group's Pillar 3 Disclosures at 31 December 2020.

 

Measurement of interest rate risk in the banking book processes

 

Assessment and risk appetite

Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is generated by our non-traded assets and liabilities, specifically loans, deposits and financial instruments that are not held for trading intent or held in order to hedge positions held with trading intent. Interest rate risk that can be economically hedged may be transferred to the Markets Treasury business. Hedging is generally executed through interest rate derivatives or fixed-rate government bonds. Any interest rate risk that Markets Treasury cannot economically hedge is not transferred and will remain within the global business where the risks originate.

The ALCM function uses a number of measures to monitor and control interest rate risk in the banking book, including:

•    net interest income sensitivity;

•    economic value of equity sensitivity; and

•    hold-to-collect-and-sell stressed value at risk.

•   

 

Net interest income sensitivity

A principal part of our management of non-traded interest rate risk is to monitor the sensitivity of expected net interest income ('NII') under varying interest rate scenarios (i.e. simulation modelling), where all other economic variables are held constant. This monitoring is undertaken at an entity level by local ALCOs, where entities forecast both one-year and five-year NII sensitivities across a range of interest rate scenarios.

Projected NII sensitivity figures represent the effect of pro forma movements in projected yield curves based on a static balance sheet size and structure. The exception to this is where the size of the balances or repricing is deemed interest rate sensitive, for example, non-interest-bearing current account migration and fixed-rate loan early prepayment. These sensitivity calculations do not incorporate actions that would be taken by Markets Treasury or in the business that originates the risk to mitigate the effect of interest rate movements.

The NII sensitivity calculations assume that interest rates of all maturities move by the same amount in the 'up-shock' scenario. The sensitivity calculations in the 'down-shock' scenarios reflect no floors to the shocked market rates. However, customer product-specific interest rate floors are recognised where applicable. This is a change from the NII sensitivity methodology applied in the Annual Report and Accounts 2019, where market rates were floored to zero, unless the central bank rate was already negative as in the case of the euro, Swiss franc and Japanese yen.

 

Economic value of equity sensitivity

Economic value of equity ('EVE') represents the present value of the future banking book cash flows that could be distributed to equity providers under a managed run-off scenario. This equates to the current book value of equity plus the present value of future NII in this scenario. EVE can be used to assess the economic capital required to support interest rate risk in the banking book. An EVE sensitivity represents the expected movement in EVE due to pre-specified interest rate shocks, where all other economic variables are held constant. Operating entities are required to monitor EVE sensitivities as a percentage of capital resources.

Hold-to-collect-and-sell stressed value at risk

Hold-to-collect-and-sell stressed value at risk ('VaR') is a quantification of the potential losses to a 99% confidence level of the portfolio of securities held under a held-to-collect-and-sell business model in the Markets Treasury business. The portfolio is accounted for at fair value through other comprehensive income together with the derivatives held in designated hedging relationships with these securities. This is quantified based on the worst losses over a one-year period going back to the beginning of 2007 and the assumed holding period is 60 days.

Hold-to-collect-and-sell stressed VaR uses the same models as those used for trading book capitalisation and covers only the portfolio managed by Markets Treasury under this business model.

 

Other Group risks

 

Structural foreign exchange exposures

Structural foreign exchange exposures represent net investments in subsidiaries, branches and associates, the functional currencies of which are currencies other than the US dollar. An entity's functional currency is normally that of the primary economic environment in which the entity operates.

Exchange differences on structural exposures are recognised in other comprehensive income ('OCI'). We use the US dollar as our presentation currency in our consolidated financial statements because the US dollar and currencies linked to it form the major currency bloc in which we transact and fund our business. Therefore, our consolidated balance sheet is affected by exchange differences between the US dollar and all the non-US dollar functional currencies of underlying subsidiaries.

Our structural foreign exchange exposures are managed with the primary objective of ensuring, where practical, that our consolidated capital ratios and the capital ratios of individual banking subsidiaries are largely protected from the effect of changes in exchange rates. We hedge structural foreign exchange exposures only in limited circumstances.

For further details of our structural foreign exchange exposures, see page 179.

 

 

 

Banking book foreign exchange exposures

Banking book foreign exchange exposures arise from transactions in the banking book generating profit and loss or OCI reserves in a currency other than the reporting currency of the operating entity. Transactional foreign exchange exposure is transferred to Markets and Securities Services or Markets Treasury and managed within limits, with the exception of both exposure generating OCI reserves and limited residual foreign exchange exposure arising from timing differences or for other reasons.

HSBC Holdings risk management

As a financial services holding company, HSBC Holdings has limited market risk activities. Its activities predominantly involve maintaining sufficient capital resources to support the Group's diverse activities; allocating these capital resources across the Group's businesses; earning dividend and interest income on its investments in the businesses; payment of operating expenses; providing dividend payments to its equity shareholders and interest payments to providers of debt capital; and maintaining a supply of short-term liquid assets for deployment under extraordinary circumstances.

The main market risks to which HSBC Holdings is exposed are banking book interest rate risk and foreign currency risk. Exposure to these risks arises from short-term cash balances, funding positions held, loans to subsidiaries, investments in long-term financial assets and financial liabilities including debt capital issued. The objective of HSBC Holdings' market risk management strategy is to manage volatility in capital resources, cash flows and distributable reserves that could be caused by movements in market parameters. Market risk for HSBC Holdings is monitored by Holdings ALCO in accordance with its risk appetite statement.

HSBC Holdings uses interest rate swaps and cross-currency interest rate swaps to manage the interest rate risk and foreign currency risk arising from its long-term debt issues.

During 2020, HSBC Holdings undertook a variety of liability management exercises, including the issuance of fixed-rate eligible liabilities. Group Treasury generally hedged out the fixed-rate interest rate risk on these liabilities in previous years, but as major interest rate markets remained at very low levels during 2020, this was assessed on a case-by-case basis and in some cases the decision was made to retain the fixed-rate risk.

For quantitative disclosures on interest rate risk in the banking book, see pages 179 to 180.

 

Pension risk management processes

Our global pensions strategy is to move from defined benefit to defined contribution plans, where local law allows and it is considered competitive to do so. In 2020 we reviewed our risk appetite metrics and in 2021 we will continue to enhance and expand these to further assist the internal monitoring of our de-risking programmes.

In defined contribution pension plans, the contributions that HSBC is required to make are known, while the ultimate pension benefit will vary, typically with investment returns achieved by investment choices made by the employee. While the market risk to HSBC of defined contribution plans is low, the Group is still exposed to operational and reputational risk.

In defined benefit pension plans, the level of pension benefit is known. Therefore, the level of contributions required by HSBC will vary due to a number of risks, including:

•    investments delivering a return below that required to provide the projected plan benefits;

•    the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset values (both equity and debt);

•    a change in either interest rates or inflation expectations, causing an increase in the value of plan liabilities; and

•    plan members living longer than expected (known as longevity risk).

Pension risk is assessed using an economic capital model that takes into account potential variations in these factors. The impact of these variations on both pension assets and pension liabilities is assessed using a one-in-200-year stress test. Scenario analysis and other stress tests are also used to support pension risk management. To fund the benefits associated with defined benefit plans, sponsoring Group companies, and in some instances employees, make regular contributions in accordance with advice from actuaries and in consultation with the plan's trustees where relevant. These contributions are normally set to ensure that there are sufficient funds to meet the cost of the accruing benefits for the future service of active members. However, higher contributions are required when plan assets are considered insufficient to cover the existing pension liabilities. Contribution rates are typically revised annually or once every three years, depending on the plan.

The defined benefit plans invest contributions in a range of investments designed to limit the risk of assets failing to meet a plan's liabilities. Any changes in expected returns from the investments may also change future contribution requirements. In pursuit of these long-term objectives, an overall target allocation is established between asset classes of the defined benefit plan. In addition, each permitted asset class has its own benchmarks, such as stock-market or property valuation indices or liability characteristics. The benchmarks are reviewed at least once every three to five years and more frequently if required by local legislation or circumstances. The process generally involves an extensive asset and liability review.

In addition, some of the Group's pension plans hold longevity swap contracts. These arrangements provide long-term protection to the relevant plans against costs resulting from pensioners or their dependants living longer than initially expected. The most sizeable plan to do this is the HSBC Bank (UK) Pension Scheme, which holds longevity swaps covering approximately three-quarters of the plan's pensioner liabilities (50% with The Prudential Insurance Company of America and 25% with Swiss Re).

 

Capital risk in 2020

 

Capital overview

 

 

Capital adequacy metrics

 

At

 

31 Dec

31 Dec

 

2020

2019

Risk-weighted assets ('RWAs') ($bn)

 

 

Credit risk

691.9 

 

 

Counterparty credit risk

42.8 

 

 

Market risk

28.5 

 

 

Operational risk

94.3 

 

 

Total RWAs

857.5 

 

 

Capital on a transitional basis ($bn)

 

 

Common equity tier 1 ('CET1') capital

136.1 

 

 

Tier 1 capital

160.2 

 

 

Total capital

184.4 

 

 

Capital ratios on a transitional basis (%)

 

 

Common equity tier 1 ratio

15.9 

 

 

Tier 1 ratio

18.7 

 

 

Total capital ratio

21.5 

 

 

Capital on an end point basis ($bn)

 

 

Common equity tier 1 ('CET1') capital

136.1 

 

 

Tier 1 capital

158.5 

 

 

Total capital

173.2 

 

 

Capital ratios on an end point basis (%)

 

 

Common equity tier 1 ratio

15.9 

 

 

Tier 1 ratio

18.5 

 

 

Total capital ratio

20.2 

 

 

Liquidity coverage ratio ('LCR')

 

 

Total high-quality liquid assets ($bn)

677.9

 

Total net cash outflow ($bn)

487.3

 

LCR ratio (%)

139.1 

 

 

 

 

Following the end of the transition period following the UK's withdrawal from the EU, any reference to EU regulations and directives (including technical standards) should be read as a reference to the UK's version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, as amended.

Capital figures and ratios in the previous table are calculated in accordance with the revised Capital Requirements Regulation and Directive, as implemented ('CRR II'). The table presents them under the transitional arrangements in CRR II for capital instruments and after their expiry, known as the end point. The end point figures in the table above include the benefit of the regulatory transitional arrangements in CRR II for IFRS 9, which are more fully described below.

Where applicable, they also reflect government relief schemes intended to mitigate the impact of the Covid-19 outbreak.

 

 

Regulatory transitional arrangements for IFRS 9 'Financial Instruments'

We have adopted the regulatory transitional arrangements in CRR II for IFRS 9, including paragraph four of article 473a. Our capital and ratios are presented under these arrangements throughout the table above, including in the end point figures. Without their application, our CET1 ratio would be 15.7%.

The IFRS 9 regulatory transitional arrangements allow banks to add back to their capital base a proportion of the impact that
IFRS 9 has upon their loan loss allowances during the first five years of use. The impact is defined as:

•     the increase in loan loss allowances on day one of IFRS 9 adoption; and

•  any subsequent increase in ECL in the non-credit-impaired book thereafter.

Any add-back must be tax affected and accompanied by a recalculation of exposure and RWAs. The impact is calculated separately for portfolios using the standardised ('STD') and internal ratings-based ('IRB') approaches. For IRB portfolios, there is no add-back to capital unless loan loss allowances exceed regulatory 12-month expected losses.

The EU's CRR II 'Quick Fix' relief package enacted in June 2020 increased from 70% to 100% the relief that banks may take for loan loss allowances recognised since 1 January 2020 on the
non-credit-impaired book.

In the current period, the add-back to CET1 capital amounted to $1.6bn under the STD approach with a tax impact of $0.4bn. At 31 December 2019, the add-back to the capital base under the STD approach was $1.0bn with a tax impact of $0.2bn. 

 

Own funds

 

Own funds disclosure

(Audited)

 

 

 

 

At

 

 

31 Dec

31 Dec

 

 

2020

2019

Ref*

 

$m

$m

 

Common equity tier 1 ('CET1') capital: instruments and reserves

 

 

1

Capital instruments and the related share premium accounts

23,219 

 

22,873 

 

 

-  ordinary shares

23,219 

 

22,873 

 

2

Retained earnings

128,665 

 

127,188 

 

3

Accumulated other comprehensive income (and other reserves)1

9,768 

 

1,735 

 

5

Minority interests (amount allowed in consolidated CET1)

4,079 

 

4,865 

 

5a

Independently reviewed interim net profits net of any foreseeable charge or dividend

(252)

 

(3,381)

 

6

Common equity tier 1 capital before regulatory adjustments

165,479 

 

153,280 

 

28

Total regulatory adjustments to common equity tier 1

(29,429)

 

(29,314)

 

29

Common equity tier 1 capital

136,050 

 

123,966 

 

36

Additional tier 1 capital before regulatory adjustments

24,183 

 

24,453 

 

43

Total regulatory adjustments to additional tier 1 capital

(60)

 

(60)

 

44

Additional tier 1 capital

24,123 

 

24,393 

 

45

Tier 1 capital

160,173 

 

148,359 

 

51

Tier 2 capital before regulatory adjustments

25,722 

 

25,192 

 

57

Total regulatory adjustments to tier 2 capital

(1,472)

 

(1,401)

 

58

Tier 2 capital

24,250 

 

23,791 

 

59

Total capital

184,423 

 

172,150 

 

 

*     The references identify the lines prescribed in the European Banking Authority ('EBA') template, which are applicable and where there is a value.

1   Following the call and subsequent redemption of HSBC Holdings' non-cumulative preference shares, the remaining share premium that related to such preference shares is now treated as an 'other reserve' and included in CET1.

 

 

Throughout 2020, we complied with the PRA's regulatory capital adequacy requirements, including those relating to stress testing. At 31 December 2020, our CET1 ratio increased to 15.9% from 14.7% at 31 December 2019.

CET1 capital increased during the year by $12.1bn, mainly as a result of:

•     the cancellation of the fourth interim dividend of $3.4bn for 2019;

•     favourable foreign currency translation differences of $3.4bn;

•     capital generation of $2.8bn net of dividends relating to other equity instruments;

•     a fall of $2.1bn in the deduction for other intangible assets due to changes to the capital treatment of software assets;

•     a $1.8bn increase in fair value through other comprehensive income reserve; and

•     a $1.8bn fall in the deduction for excess expected loss.

 

 

These increases were partly offset by:

•     an interim dividend for 2020 of $3.1bn; and

•     a $0.8bn fall in allowable non-controlling interest in CET1. This partly reflected the acquisition in May 2020 of additional shares representing 18.66% of the capital of HSBC Trinkaus and Burkhardt from Landesbank Baden-Württemberg, the principal minority shareholder.

We have applied the revised regulatory treatment of software assets, which became a UK requirement in December 2020. Subsequently, the PRA announced its intention to consult on a reversal of this change in due course and recommended firms do not base their distribution decision on any capital increase from applying this requirement. As a result, we have not considered the related capital benefit in our distributions. The impact of the change on our CET1 ratio was 0.2 percentage points.

Our Pillar 2A requirement at 31 December 2020, as per the PRA's Individual Capital Requirement based on a point-in-time assessment, was equivalent to  3.0% of RWAs, of which 1.7% was met by CET1.

 

 

Risk-weighted assets

RWAs by global business

 

WPB

CMB

GBM

Corporate Centre

Total

 

$bn

$bn

$bn

$bn

$bn

Credit risk

135.9 

 

300.0 

 

168.6 

 

87.4 

 

691.9 

 

Counterparty credit risk

0.7 

 

0.2 

 

41.2 

 

0.7 

 

42.8 

 

Market risk

1.6 

 

0.9 

 

22.9 

 

3.1 

 

28.5 

 

Operational risk

34.6 

 

26.6 

 

32.4 

 

0.7 

 

94.3 

 

At 31 Dec 2020

172.8 

 

327.7 

 

265.1 

 

91.9 

 

857.5 

 

 
 

RWAs by geographical region

 

 

Europe

Asia

MENA

North
America

Latin
America

Total

 

Footnotes

$bn

$bn

$bn

$bn

$bn

$bn

Credit risk

 

211.2 

 

307.3 

 

50.2 

 

96.1 

 

27.1 

 

691.9 

 

Counterparty credit risk

 

23.7 

 

10.7 

 

1.4 

 

5.3 

 

1.7 

 

42.8 

 

Market risk

1

23.5 

 

20.9 

 

2.4 

 

4.7 

 

1.2 

 

28.5 

 

Operational risk

 

25.9 

 

45.3 

 

6.2 

 

11.7 

 

5.2 

 

94.3 

 

At 31 Dec 2020

 

284.3 

 

384.2 

 

60.2 

 

117.8 

 

35.2 

 

857.5 

 

1     RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

RWA movement by global business by key driver

 

Credit risk, counterparty credit risk and operational risk

 

 

 

WPB

CMB

GBM

Corporate Centre

Market
risk

Total
RWAs

 

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jan 2020

161.4 

 

325.1 

 

248.7 

 

78.3 

 

29.9 

 

843.4 

 

Asset size

2.2 

 

(12.3)

 

(3.1)

 

2.4 

 

1.1 

 

(9.7)

 

Asset quality

0.3 

 

14.5 

 

9.3 

 

0.4 

 

 

24.5 

 

Model updates

2.7 

 

0.9 

 

(2.2)

 

 

(2.0)

 

(0.6)

 

Methodology and policy

2.6 

 

(8.6)

 

(13.9)

 

6.2 

 

(0.5)

 

(14.2)

 

Acquisitions and disposals

 

 

 

1.0 

 

 

1.0 

 

Foreign exchange movements

2.0 

 

7.2 

 

3.4 

 

0.5 

 

 

13.1 

 

Total RWA movement

9.8 

 

1.7 

 

(6.5)

 

10.5 

 

(1.4)

 

14.1 

 

RWAs at 31 Dec 2020

171.2 

 

326.8 

 

242.2 

 

88.8 

 

28.5 

 

857.5 

 

 

RWA movement by geographical region by key driver

 

Credit risk, counterparty credit risk and operational risk

 

 

 

Europe

Asia

MENA

North
America

Latin
America

Market risk

Total
 RWAs

 

$bn

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jan 2020

257.9 

 

345.9 

 

55.5 

 

117.6 

 

36.6 

 

29.9 

 

843.4 

 

Asset size

(9.9)

 

3.4 

 

1.1 

 

(6.1)

 

0.7 

 

1.1 

 

(9.7)

 

Asset quality

7.2 

 

10.9 

 

1.3 

 

4.6 

 

0.5 

 

 

24.5 

 

Model updates

1.7 

 

0.3 

 

 

(0.6)

 

 

(2.0)

 

(0.6)

 

Methodology and policy

(6.8)

 

(3.0)

 

(0.2)

 

(3.2)

 

(0.5)

 

(0.5)

 

(14.2)

 

Acquisitions and disposals

 

 

1.0 

 

 

 

 

1.0 

 

Foreign exchange movements

10.7 

 

5.8 

 

(0.9)

 

0.8 

 

(3.3)

 

 

13.1 

 

Total RWA movement

2.9 

 

17.4 

 

2.3 

 

(4.5)

 

(2.6)

 

(1.4)

 

14.1 

 

RWAs at 31 Dec 2020

260.8 

 

363.3 

 

57.8 

 

113.1 

 

34.0 

 

28.5 

 

857.5 

 

 

 

Risk-weighted assets ('RWAs') rose by $14.1bn during the year, including an increase of $13.1bn due to foreign currency translation differences. The $1.0bn increase (excluding foreign currency translation differences) is described in the commentary below. During the period we recognised RWA reductions through our transformation programme of $51.5bn. These are included within the movements described below, primarily under asset size movements and methodology and policy changes.

Asset size

The $9.7bn fall in RWAs due to asset size movements was due to reductions in CMB and GBM, partly offset by increases in Corporate Centre, WPB and market risk.

The $12.3bn decrease in CMB RWAs was primarily due to management initiatives under our transformation programme, most notably in Europe, North America and Asia.

The $3.1bn fall in GBM RWAs was driven by $16.4bn of reductions under the transformation programme, largely in North America, Europe, Asia and Latin America. This was partly offset by lending growth, mostly in Asia and MENA, and mark-to-market movements in counterparty credit risk RWAs.

In Asia, an increase in the value of material holdings and lending growth in the property market drove increases in Corporate Centre and WPB RWAs of $2.4bn and $2.2bn respectively.

Market risk RWAs increased by $1.1bn, largely due to market conditions, partly offset by management initiatives.

Asset quality

Changes in asset quality led to an RWA increase of $24.5bn, mostly in CMB and GBM. This included credit migration of

 

$29.7bn, largely caused by the Covid-19 outbreak. These downgrades were mostly in Asia, North America and Europe, partly offset by decreases due to portfolio mix changes.

Model updates

The $0.6bn fall in RWAs due to model updates comprised decreases in GBM and market risk, partly offset by increases in WPB and CMB.

The $2.2bn reduction in GBM RWAs was due to corporate model updates in our major regions, most significantly in North America.

Market risk RWAs fell by $2.0bn primarily as a result of changes to the calculation of risks not in VaR, and the implementation of a new model for an options portfolio.

The increases in WPB and CMB credit risk RWAs were mainly due to updates to French, Hong Kong and North American models.

Methodology and policy

The $14.2bn reduction in RWAs due to methodology and policy changes included reductions as a result of risk parameter refinements and regulatory responses to the Covid-19 outbreak, offset by changes in approach to credit risk exposures.

GBM and CMB reduced RWAs by $23.8bn, of which $11.5bn were under the transformation programme. These reductions stem from a variety of actions, including risk parameter refinements, improved collateral linkage, and data enhancement.

Changes under the CRR 'Quick Fix' relief package also reduced CMB and GBM RWAs. Implementation of the revised small and medium-sized enterprise supporting factor led to a $3.4bn fall in RWAs for CMB while the new infrastructure supporting factor caused a $0.5bn fall in GBM. Partly offsetting these reductions, the recent change in the regulatory treatment of software assets caused a $2.3bn increase in Corporate Centre RWAs.

At the start of 2020, we implemented two changes that led to a $6.4bn increase in our wholesale credit risk exposures. Application of the new securitisation framework to the pre-existing book caused RWAs to rise by $3.4bn, mainly in Corporate Centre and GBM. Following the conclusion of discussions with the PRA, we also transferred several UK corporate portfolios onto a Foundation IRB approach, causing a $3bn rise in RWAs in CMB and GBM.

Corporate Centre and WPB RWAs increased by $5bn as a result of updates to exposures in Asia and the French retail business.

The $0.5bn fall in market risk largely comprised reductions from updates to the calculation of stressed VaR and foreign exchange risk, partly offset by increases due to risks not in VaR.

Acquisitions and disposals

The increase in our shareholding of The Saudi British Bank from 29.2% to 31.0% led to $1.0bn additional Corporate Centre RWAs.

 

 

Leverage ratio1

 

 

 

At

 

 

 

31 Dec

31 Dec

 

 

 

2020

2019

Ref*

 

Footnotes

$bn

$bn

20

Tier 1 capital

 

158.5 

 

144.8 

 

21

Total leverage ratio exposure

 

2,897.1 

 

2,726.5 

 

 

 

 

%

%

22

Leverage ratio

 

5.5 

 

5.3 

 

EU-23

Choice of transitional arrangements for the definition of the capital measure

 

Fully phased-in

Fully phased-in

 

UK leverage ratio exposure - quarterly average

2

2,555.5 

 

2,535.4 

 

 

 

 

%

%

 

UK leverage ratio - quarterly average

2

6.1 

 

5.8 

 

 

UK leverage ratio - quarter end

2

6.2 

 

5.7 

 

*     The references identify the lines prescribed in the EBA template.

1     The CRR II regulatory transitional arrangements for IFRS 9 are applied in both leverage ratio calculations.

2     UK leverage ratio denotes the Group's leverage ratio calculated under the PRA's UK leverage framework. This measure excludes qualifying central bank balances and loans under the UK Bounce Back Loan Scheme from the calculation of exposure.

 

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 5.5% at 31 December 2020, up from 5.3% at 31 December 2019, due to an increase in tier 1 capital, offset by an increase in exposure primarily due to growth in central bank deposits and financial investments. The change in treatment of software assets benefited our leverage ratio by 0.1 percentage points.

At 31 December 2020, our UK minimum leverage ratio requirement of 3.25% under the PRA's UK leverage framework was supplemented by an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.1%. These additional buffers translated into capital values of $17.9bn and $1.8bn respectively. We exceeded these leverage requirements.

 

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more transparent by requiring publication of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures at 31 December 2020 is published on our website, www.hsbc.com/investors.

 

 

 

Liquidity and funding risk in 2020

Liquidity metrics

At 31 December 2020, all of the Group's material operating entities were above regulatory minimum liquidity and funding levels.

Each entity maintains sufficient unencumbered liquid assets to comply with local and regulatory requirements. The liquidity value of these liquidity assets for each entity is shown in the following table along with the individual LCR levels on a European Commission ('EC') basis. This basis may differ from local LCR measures due to differences in the way non-EU regulators have implemented the Basel III standards.

Each entity maintains sufficient stable funding relative to the required stable funding assessed using the NSFR or other appropriate metrics.

Given our continued focus on the quality of regulatory reporting, liquidity reporting processes are undergoing a detailed review, which may lead to impacts on some of our regulatory ratios, including LCR and NSFR. All entities are above regulatory minimums and are expected to continue to remain above risk appetite.

The Group liquidity and funding position at the end of 2020 is analysed in the following sections.

 

 

Operating entities' liquidity

 

 

At 31 December 2020

 

 

LCR

HQLA

Net outflows

NSFR

 

Footnotes

%

$bn

$bn

%

HSBC UK Bank plc (ring-fenced bank)

1

198 

 

121 

 

61 

 

164 

 

HSBC Bank plc (non-ring-fenced bank)

2

136 

 

138 

 

102 

 

124 

 

The Hongkong and Shanghai Banking Corporation - Hong Kong branch

3

195 

 

146 

 

75 

 

146 

 

The Hongkong and Shanghai Banking Corporation - Singapore branch

3

162 

 

16 

 

10 

 

135 

 

Hang Seng Bank

 

212 

 

50 

 

24 

 

151 

 

HSBC Bank China

 

232 

 

24 

 

10 

 

158 

 

HSBC Bank USA

 

130 

 

106 

 

82 

 

130 

 

HSBC Continental Europe

4

143 

 

48 

 

34 

 

130 

 

HSBC Middle East - UAE branch

 

280 

 

11 

 

 

164 

 

HSBC Canada

4

165 

 

30 

 

18 

 

136 

 

HSBC Mexico

 

198 

 

10 

 

 

139 

 

 

 

Operating entities' liquidity (continued)

 

 

At 31 December 2019

 

 

LCR

HQLA

Net outflows

NSFR

 

Footnotes

%

$m

$m

%

HSBC UK Bank plc (ring-fenced bank)

1

 

75

45

150

HSBC Bank plc (non-ring-fenced bank)

2

 

103

72

106

The Hongkong and Shanghai Banking Corporation - Hong Kong branch

3

 

109

67

128

The Hongkong and Shanghai Banking Corporation - Singapore branch

3

 

14

10

120

Hang Seng Bank

 

 

42

23

148

HSBC Bank China

 

 

21

11

151

HSBC Bank USA

 

 

73

59

122

HSBC Continental Europe

4

 

44

29

117

HSBC Middle East - UAE branch

 

 

11

5

159

HSBC Canada

4

 

18

14

124

HSBC Mexico

 

 

9

4

136

1   HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc (including the Dublin branch), Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the PRA.

2   HSBC Bank plc includes oversea branches and special purpose entities consolidated by HSBC for financial statements purposes.

3   The Hongkong and Shanghai Banking Corporation - Hong Kong branch and The Hongkong and Shanghai Banking Corporation - Singapore branch represent the material activities of The Hongkong and Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.

4   HSBC Continental Europe and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC Continental Europe and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.

 

 

At 31 December 2020, all of the Group's principal operating entities were well above regulatory minimum levels.

The most significant movements in 2020 are explained below:

•    HSBC UK Bank plc improved its liquidity ratio to 198%, mainly driven by growth in commercial and retail deposits. 

•    HSBC Bank plc and HSBC Continental Europe maintained a strong liquidity position, with an increase in HQLA mainly due to deposit growth. However the LCR declined, reflecting a reassessment of potential outflows, particularly with respect to committed facilities.

•   The Hongkong and Shanghai Banking Corporation - Hong Kong branch, Hang Seng Bank and HSBC Bank China remained in a strong liquidity position, mainly as result of an increase in customer deposits.

•    HSBC Bank USA remained in a strong liquidity position, mainly driven by an increase in deposits and a reduction in illiquid assets.

•   HSBC Bank Middle East - UAE branch remained in a strong liquidity position, with a liquidity ratio of 280%.

•   HSBC Canada increased its LCR to 165%, mainly driven by increased customer deposits and covered bond issuance.

 Liquid assets

At 31 December 2020, the Group had a total of $678bn of highly liquid unencumbered LCR eligible liquid assets (31 December 2019: $601bn) held in a range of asset classes and currencies. Of these, 90% were eligible as level 1 (31 December 2019: 90%).

The following tables reflect the composition of the liquidity pool by asset type and currency at 31 December 2020:

Liquidity pool by asset type

 

Liquidity pool

Cash

Level 11

Level 21

 

$bn

$bn

$bn

$bn

Cash and balance at central bank

307 

 

307 

 

 

 

Central and local government bonds

312 

 

 

263 

 

49 

 

Regional government public sector entities

12 

 

 

11 

 

 

International organisation and multilateral developments banks

14 

 

 

14 

 

 

Covered bonds

11 

 

 

 

 

Other

22 

 

 

10 

 

12 

 

Total at 31 Dec 2020

678 

 

307 

 

301 

 

70 

 

Total at 31 Dec 2019

601

158

383

60

1     As defined in EU regulations, level 1 assets means 'assets of extremely high liquidity and credit quality', and level 2 assets means 'assets of high liquidity and credit quality'.