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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Hsbc Holdings Plc | LSE:HSBA | London | Ordinary Share | GB0005405286 | ORD $0.50 (UK REG) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
1.70 | 0.26% | 663.60 | 663.70 | 663.80 | 665.80 | 661.10 | 663.10 | 15,524,054 | 16:35:22 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Offices-bank Holding Company | 65.91B | 23.53B | 1.2338 | 22.65 | 533.13B |
TIDMHSBA
RNS Number : 0391I
HSBC Holdings PLC
25 August 2016
Financial summary
Financial summary Use of non-GAAP financial measures 18 Adjusted performance 18 Foreign currency translation differences 18 Significant items 18 Consolidated income statement 19 ==================================================================================== Group performance by income and expense item 20 Net interest income 20 Net fee income 21 Net trading income 22 Net income from financial instruments designated at fair value 23 Gains less losses from financial investments 24 Net insurance premium income 24 Other operating income 25 Net insurance claims and benefits paid and movement in liabilities to policyholders 26 Loan impairment charges and other credit risk provisions 27 Operating expenses 28 Share of profit in associates and joint ventures 30 Tax expense 30 ==================================================================================== Consolidated balance sheet 31 Movement from 31 December 2015 to 30 June 2016 32 ==================================================================================== Reconciliation of RoRWA measures 34 ====================================================================================
Use of non-GAAP financial measures
Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 101. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures.
Non-GAAP financial measures that we use throughout this Interim Report 2016 are described below. Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.
Adjusted performance
Adjusted performance is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items which distort period-on-period comparisons.
We use 'significant items' to collectively describe the group of individual adjustments that are excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance in order to better understand underlying trends in the business.
We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant and providing insight into how management assesses period-on-period performance.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies for 1H16. We exclude the translation differences when deriving constant currency data because using these data allows us to assess balance sheet and income statement performance on a like-for-like basis to better understand the underlying trends in the business.
Foreign currency translation differences Foreign currency translation differences for the half-years to 30 June 2015 and 31 December 2015 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates: -- the income statements for the half-years to 30 June 2015 and 31 December 2015 at the average rates of exchange for the half--year to 30 June 2016; and -- the balance sheets at 30 June 2015 and 31 December 2015 at the prevailing rates of exchange on 30 June 2016. No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
Significant items
The tables on pages 53 to 58 detail the effect of significant items on each of our geographical segments and global businesses during 1H16 and the two halves of 2015.
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Financial summary (continued)
Consolidated income statement
Summary consolidated income statement
Half-year to -------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Net interest income 15,760 16,444 16,087 ============================================================================ Net fee income 6,586 7,725 6,980 ============================================================================ Net trading income 5,324 4,573 4,150 ============================================================================ Net income/(expense) from financial instruments designated at fair value 561 2,666 (1,134) ============================================================================ Gains less losses from financial investments 965 1,874 194 ============================================================================ Dividend income 64 68 55 ============================================================================ Net insurance premium income 5,356 5,607 4,748 ============================================================================ Other operating income 644 836 219 ============================================================================ ------- ------- ------- Total operating income 35,260 39,793 31,299 ============================================================================ Net insurance claims and benefits paid and movement in liabilities to policyholders (5,790) (6,850) (4,442) ============================================================================ ------- ------- ------- Net operating income before loan impairment charges and other credit risk provisions 29,470 32,943 26,857 ============================================================================ Loan impairment charges and other credit risk provisions (2,366) (1,439) (2,282) ============================================================================ ------- ------- ------- Net operating income 27,104 31,504 24,575 ============================================================================ Total operating expenses (18,628) (19,187) (20,581) ============================================================================ ------- ------- ------- Operating profit 8,476 12,317 3,994 ============================================================================ Share of profit in associates and joint ventures 1,238 1,311 1,245 ============================================================================ ------- ------- ------- Profit before tax 9,714 13,628 5,239
============================================================================ Tax expense (2,291) (2,907) (864) ============================================================================ ------- ------- ------- Profit for the period 7,423 10,721 4,375 ============================================================================ ------- ------- ------- Profit attributable to shareholders of the parent company 6,912 9,618 3,904 ============================================================================ Profit attributable to non-controlling interests 511 1,103 471 ============================================================================ Average foreign exchange translation rates to $: $1: GBP 0.698 0.657 0.652 ============================================================================ $1: EUR 0.896 0.897 0.906 ============================================================================
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Group performance by income and expense item
For further financial performance data for each geographical region and global business, see pages 35 to 45 and 46 to 58, respectively.
Net interest income
Half-year to ------------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Interest income 23,011 24,019 23,170 ====================================== Interest expense (7,251) (7,575) (7,083) ====================================== --------- --------- --------- Net interest income 1 15,760 16,444 16,087 ====================================== --------- --------- --------- Average interest-earning assets 1,733,961 1,730,663 1,723,296 ====================================== Gross interest yield 2 2.67% 2.80% 2.67% ====================================== Cost of funds (1.01%) (1.03%) (0.97%) ====================================== Net interest spread 3 1.66% 1.77% 1.70% ====================================== Net interest margin 4 1.83% 1.92% 1.85% Net interest margin excluding Brazil 1.75% 1.82% 1.77% ======================================
For footnotes, see page 59.
In 1H16, we recorded $974m of net interest income in Brazil (1H15: $1,214m; 2H15: $1,011m) and average interest earning assets were $37,390m (1H15: $43,684m; 2H15: $36,409m).
Reported net interest income of $15.8bn decreased by $0.7bn or 4% compared with 1H15. This included the significant items and currency translation summarised in the table below.
On a reported basis, net interest margin of 1.83% fell by 9 basis points ('bps'), driven by currency movements. On
1 July 2016, we completed the sale of our operations in Brazil. During 1H16, our net interest margin excluding our operations in Brazil was 1.75%, 8 basis points ('bps') lower than the group's total net interest margin for this period, reflecting the impact of relatively higher interest rates in Brazil compared with the rest of our portfolio.
Significant items and currency translation
Half-year to ------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act 2 12 (22) ================================================================================= 2 12 (22) Currency translation 946 457 ================================================================================= ------ ------ ------ Total 2 958 435 ================================================================================= ------ ------ ------
Excluding the currency impact tabulated above, net interest income rose $0.3bn, as increases in Hong Kong, Mexico and Argentina were partly offset by a reduction in the UK and mainland China. However, net interest spread and margin decreased slightly. This was due to a number of factors, including reduced yields on customer lending in Europe and increased costs of debt issued by HSBC Holdings, although we benefited from lower costs of funds on customer accounts in Hong Kong and increased yields in Mexico and Argentina.
Interest income
Reported interest income fell by $1.0bn compared with 1H15, notably driven by currency movements in Latin
America and Europe. Excluding these, total interest income rose by $0.6bn, notably in Mexico, Argentina and the US. Interest income also rose in our operations in Brazil, although this was more than offset by an increase in interest expense.
Interest income on loans and advances to customers was higher. In Mexico and Argentina, this was due to higher yields following central bank interest rate rises. In Europe, the increase was mainly driven by balance growth in term lending in the UK despite lower yields on mortgages in line with competitive pricing, and the effect of downward movements in market interest rates in the eurozone. In Asia, although yields on lending increased marginally in Hong Kong and Singapore, customer lending income was broadly unchanged as the increase in yields was offset by the impact
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Financial summary (continued)
of central bank rate decreases in various countries, notably mainland China, and from a decrease in average balances. However, in North America, interest income from customer lending fell from continued run-off and sales in the US CML run-off portfolio.
Interest income on short-term funds and financial investments marginally increased. This was driven by a change in product mix in North America towards higher-yielding, mortgage-backed securities in order to maximise the effectiveness of the portfolio and, to a lesser extent, in Argentina from balance growth. These increases were partly offset by reductions in Europe from lower yields.
Interest income on reverse repurchase agreements - non--trading was higher, driven by higher balances and market rates in North America.
Interest expense
Reported interest expense fell by $0.3bn compared with 1H15 driven by currency translation, primarily in Latin America and Europe.
Excluding this, interest expense rose $0.4bn as decreases in Asia were partly offset by an increase in cost in North America, Europe and Argentina.
Interest expense on customer accounts fell despite growth in average balances. This reflected a change in mix towards lower cost accounts in Hong Kong and central bank rate reductions in a number of markets, notably mainland China and Australia. This was partly offset by higher interest expense on customer accounts in North America, in line with promotional deposit offerings, and in Argentina from central bank rate rises.
Interest expense on debt issued rose, due to a rise in the cost of funds, despite a fall in average balances as redemptions across the Group were more than offset by issuances of senior debt from HSBC Holdings plc. The increase in the cost of debt was driven by a combination of market sentiment as well as longer maturities and the structural subordination of our new issuances. In addition, Interest expense rose on repos, notably in North America, reflecting higher balances and market rates.
Net fee income
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Account services 1,310 1,383 1,362 ========================================== Funds under management 1,172 1,310 1,260 ========================================== Cards 1,010 1,120 1,161 ========================================== Credit facilities 908 989 930 ========================================== Broking income 530 817 624 ========================================== Imports/exports 436 485 486 ========================================== Unit trusts 412 595 412 ========================================== Underwriting 372 450 312 ========================================== Remittances 371 387 385 ========================================== Global custody 330 371 350 ========================================== Insurance agency commission 228 284 235 ========================================== Other 1,123 1,181 1,127 ========================================== ------ ------ ------ Fee income 8,202 9,372 8,644 ========================================== Less: fee expense (1,616) (1,647) (1,664) ========================================== ------ ------ ------ Net fee income 6,586 7,725 6,980 ========================================== ------ ------ ------
Reported net fee income fell by $1.1bn compared with 1H15, partly reflecting the adverse effects of currency
translation between the periods of $0.3bn, notably in Asia and Europe.
Significant items and currency translation
Half-year to ----------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - - - ========================== Currency translation 295 132 ============================================== ------ ------ Total - 295 132 =========================== ------ ------
On an adjusted basis, net fee income decreased by $844m, driven by a reduction in Hong Kong, primarily within RBWM. This partly reflected the effect of weaker equity markets and
risk-averse investor sentiment in Asia. Net fee income also decreased in Switzerland within GPB.
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Fee income from broking and unit trusts fell by $443m, compared with a strong performance in 1H15. The decrease was mainly in Hong Kong, driven by lower securities broking income and falling fund sales in RBWM, in part reflecting a reduction in stock market turnover of 46%.
Fee income from funds under management also decreased, by $108m. This was partly driven by lower fees in our Global Asset Management business in RBWM following a reduction in funds under management balances as a result of adverse market conditions, notably in Europe. Fee income from funds under management also decreased in Switzerland in GPB.
Net trading income
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Trading activities 5,020 3,553 3,732 ========================================================= Net interest income on trading activities 730 1,053 722 ========================================================= Loss on termination of hedges - (8) (3) ========================================================= Other trading income/(expense) - hedge ineffectiveness: - on cash flow hedges 4 4 11 ========================================================= - on fair value hedges (41) 26 (37) ========================================================= Fair value movement on non-qualifying hedges (389) (55) (275) ========================================================= ------ ------ ------ Net trading income 5,324 4,573 4,150 ========================================================= ------ ------ ------
Reported net trading income of $5.3bn was $0.8bn higher than in 1H15. This included significant items and currency translation summarised in the table below.
Significant items and currency translation
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Included within trading activities: - favourable debit valuation adjustment on derivative contracts 151 165 65 ===================================================================== Other significant items: - adverse fair value movements on non-qualifying hedges (397) (45) (282) ===================================================================== ------ ------ ------ (246) 120 (217) Currency translation 237 210 ===================================================================== ------ ------ ------ Total (246) 357 (7) ===================================================================== ------ ------ ------
On an adjusted basis, net trading income from trading activities increased by $1.4bn, primarily driven by favourable movements of $1.3bn in the period compared with adverse movements of $0.6bn in 1H15 on assets held as economic hedges of foreign currency debt designated at fair value. Both these movements were offset by adverse movements on foreign currency debt designated at fair value in 'Net income from financial instruments designated at fair value'.
Excluding these movements, trading income decreased by $0.6bn, primarily in GB&M. Income decreased in Equities and Foreign Exchange, due to market volatility that led to reduced client activity. This was partly offset by an increase in revenue from our Rates business which benefited from increased client activity.
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Financial summary (continued)
Net income from financial instruments designated at fair value
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Net income/(expense) arising from: - financial assets held to meet liabilities under insurance and investment contracts 209 1,615 (1,084) =============================================================================== - liabilities to customers under investment contracts 30 (301) 335 =============================================================================== - HSBC's long-term debt issued and related derivatives 270 1,324 (461) =============================================================================== - change in own credit spread on long-term debt (significant item) 1,226 650 352 =============================================================================== - other changes in fair value (956) 674 (813) =============================================================================== ------ ------ ------ - other instruments designated at fair value and related derivatives 52 28 76 =============================================================================== ------ ------ ------ Net income from financial instruments designated at fair value 561 2,666 (1,134) =============================================================================== ------ ------ ------
Assets and liabilities from which net income from financial instruments designated at fair value arose
At ---------------- 30 Jun 31 Dec 2016 2015 $m $m Financial assets designated at fair value 23,901 23,852 ======================================================================== Financial liabilities designated at fair value 78,882 66,408 ======================================================================== Including: Financial assets held to meet liabilities under: - insurance contracts and investment contracts with DPF 11,438 11,119 ======================================================================== - unit-linked insurance and other insurance and investment contracts 11,206 11,153 ======================================================================== Long-term debt issues designated at fair value 72,660 60,188 ========================================================================
The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.
These liabilities are discussed further on page 359 of the Annual Report and Accounts 2015.
Reported net income from financial instruments designated at fair value was $0.6bn in 1H16, compared with $2.7bn in 1H15. The former included favourable movements in the fair value of our own long-term debt of $1.2bn due to changes in credit spread, compared with favourable movements of $650m in 1H15.
Significant items and currency translation
Half-year to ------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - own credit spread 1,226 650 352 =========================== Currency translation 152 (60) =========================== ------ ------ ------ Total 1,226 802 292 =========================== ------ ------ ------
On an adjusted basis, which excludes changes in our own credit spread and the net adverse effect of currency translation shown above, net income from financial instruments designated at fair value decreased by $2.5bn.
Net income from financial assets held to meet liabilities under insurance and investment contracts of $209m was $1.4bn lower than in 1H15. This was primarily driven by weaker equity markets in France, Hong Kong and the UK.
The $1.4bn change was, however, broadly offset by 'liabilities to customers under investment contracts', and by 'Net insurance claims and benefits paid and movements in liabilities to policyholders' which are described on page 26.
Investment gains or losses arising from equity markets result in a corresponding movement in liabilities to customers. This reflects the extent to which unit-linked policyholders, in particular, participate in the investment performance of the associated asset portfolio.
Where the gains or losses are recorded depends on the contract type. When gains or losses relate to assets held to back investment contracts, the corresponding movement in liabilities to customers is recorded in 'Net income/(expense) from financial instruments designated at fair value'.
When gains or losses related to assets held to back insurance contracts or investment contracts with discretionary participation features ('DPF'), any corresponding movement
HSBC HOLDINGS PLC
23
in liabilities to customers is recorded in 'Net insurance claims and benefits paid and movement in liabilities to policyholders', which is detailed on page 26.
Other changes in fair value on our long-term debt and related derivatives primarily reflected:
-- In GB&M, adverse movements of $1.3bn, compared to favourable movements of $0.6bn in 1H15, on foreign
currency debt designated at fair value and issued as part of our overall funding strategy (offset by assets held as economic hedges in 'Net trading income').
This was partly offset by:
-- In 'Other', favourable fair value movements of $0.4bn, compared with minimal movements in 1H15, relating to the economic hedging of interest and exchange rate risk on our long-term debt.
Gains less losses from financial investments
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Net gains from disposal of: - debt securities 280 310 35 ==================================================== - equity securities 693 1,578 251 ==================================================== - other financial investments 4 4 1 ==================================================== ------ ------ ------ 977 1,892 287 Impairment of available-for-sale equity securities (12) (18) (93) ==================================================== ------ ------ ------ Gains less losses from financial investments 965 1,874 194 ==================================================== ------ ------ ------
In 1H16, gains less losses from financial investments decreased by $0.9bn on a reported basis compared with 1H15. This was driven by the significant items and currency translation tabulated below, notably the non-recurrence of
the gain on the partial sale of our shareholding in Industrial Bank of $1.4bn in 1H15, and in 1H16 a gain on disposal of our membership interest in Visa Europe.
Significant items and currency translation
Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - gain on disposal of our membership interest in Visa Europe 584 - - ================================================================= - gain on the partial sale of shareholding in Industrial Bank - 1,372 - ================================================================= ------ ------ ------ 584 1,372 - Currency translation 19 8 ================================================================= ------ ------ ------ Total 584 1,391 8 ================================================================= ------ ------ ------
On an adjusted basis, excluding all significant items and currency translation tabulated above, gains less losses from financial investments decreased by $102m, driven by GB&M.
This was primarily driven by lower gains on equity securities in both Markets and Principal Investments.
Net insurance premium income
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Gross insurance premium income 5,728 5,855 5,157 ========================================== Reinsurance premiums (372) (248) (409) ========================================== ------ ------ ------ Net insurance premium income 5,356 5,607 4,748 ========================================== ------ ------ ------
Reported net insurance premium income was $0.3bn lower than in 1H15, largely due to adverse effects of currency translation $159m.
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Financial summary (continued)
Significant items and currency translation
Half-year to ------------------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - - - ========================== Currency translation 159 20 =============================================== ------ ------ Total - 159 20 =========================== ------------------ ------ ------
On an adjusted basis, excluding the effects of currency translation, net insurance premium income fell by $92m or 2%. This was largely driven by the disposal of our UK pensions business in 2H15, following our decision to exit the UK commercial pension market in 2014, and lower participating contract premiums in France.
In Asia, increased premiums in Singapore and Hong Kong on participating contracts were partly offset by the impact of new reinsurance agreements in Hong Kong.
Other operating income
Half-year to -------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Rent received 82 84 87 =========================================================================== Gains/(losses) recognised on assets held for sale 57 34 (278) =========================================================================== (Losses)/gains on investment properties (3) 33 28 =========================================================================== Gains on disposal of property, plant and equipment, intangible assets and non-financial investments 28 26 27 =========================================================================== Change in present value of in-force long-term insurance business 351 438 361 =========================================================================== Other 129 221 (6) =========================================================================== ------ ------ ------ Other operating income 644 836 219 =========================================================================== ------ ------ ------
Change in present value of in-force long-term insurance business
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Value of new business 458 438 371 ================================================================== Expected return (266) (279) (273) ================================================================== Assumption changes and experience variances 172 241 263 ================================================================== Other adjustments (13) 38 - ================================================================== ------ ------ ------ Change in present value of in-force long-term insurance business 351 438 361 ================================================================== ------ ------ ------
Reported other operating income decreased by $192m from 1H15. This included the effects of the significant items recorded in the table below.
Significant items and currency translation
Half-year to -------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items Included within gains recognised on assets held for sale: 36 17 (249) ================================================================================ - disposal costs of Brazilian operations (32) - (18) ================================================================================ - gain/(loss) on sale of several tranches of real estate secured accounts in the US 68 17 (231) ================================================================================ ------ ------ ------ Currency translation 39 23 ================================================================================ ------- ------ ------ Total 36 56 (226) ================================================================================ ------ ------ ------
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Excluding the significant items and currency translation tabulated above, other operating income decreased by $172m compared with 1H15. This was primarily from lower favourable movements in present value of in-force ('PVIF') long-term insurance business and minimal movement in valuations on investment properties compared with gains in 1H15, mainly in Asia.
The lower favourable movement in PVIF in 2016 was primarily driven by decreasing yields in France, partly offset by the favourable effects of changes to interest rate assumptions in Singapore.
In addition, 1H15 included a change in interest rate assumption in France which had the effect of increasing PVIF.
Net insurance claims and benefits paid and movement in liabilities to policyholders
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Insurance claims and benefits paid and movement in liabilities to policyholders: - gross 6,192 7,099 4,773 =============================================================================== - reinsurers' share (402) (249) (331) =============================================================================== ------ ------ ------ Net total 5,790 6,850 4,442 =============================================================================== ------ ------ ------
Reported net insurance claims and benefits paid and movement in liabilities to policy holders were $1.1bn lower
than in 1H15, in part reflecting the currency translation movements of $0.2bn.
Significant items and currency translation
Half-year to --------------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - - - ========================== Currency translation 217 19 ====================================== --------------- --------------- Total - 217 19 =========================== --------- --------------- ---------------
Excluding the effects of currency translation, net insurance claims and benefits paid and movements in liabilities to policyholders were $0.8bn lower than in 1H15.
This reduction was primarily in Europe, and to a lesser extent Hong Kong, reflecting a decrease in returns on financial assets supporting liabilities to policyholders where the policyholder is exposed to investment risk. This decrease in returns reflected weaker equity market performance in France, Hong Kong and the UK.
Other drivers were reduced surrenders in Hong Kong and the impact of the sale of the UK pensions business in 2015. These reductions were partly offset by increases in liabilities to policyholders in Singapore, as a result of changes to interest rate assumptions.
The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income from financial instruments designated at fair value' on page 23.
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Financial summary (continued)
Loan impairment charges and other credit risk provisions
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Loan impairment charges - new allowances net of allowance releases 2,623 1,797 2,603 ======================================================================= - recoveries of amounts previously written off (340) (350) (458) ======================================================================= ------ ------ ------ 2,283 1,447 2,145 - individually assessed allowances 1,263 480 1,025 ======================================================================= - collectively assessed allowances 1,020 967 1,120 ======================================================================= ------ ------ ------ Impairment allowances/(release) of available-for-sale debt securities 34 (38) 21 ======================================================================= Other credit risk provisions 49 30 116 ======================================================================= ------ ------ ------ Loan impairment charges and other credit risk provisions 2,366 1,439 2,282 ======================================================================= ------ ------ ------ % % % Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers (annualised) 0.52 0.31 0.47 =======================================================================
Reported loan impairment charges and other credit risk provisions ('LICs') of $2.4bn were $927m higher than
in 1H15. This included favourable currency translation of $160m.
Significant items and currency translation
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - - - ========================== Currency translation 160 19 ====================================== ------ ------ Total - 160 19 =========================== --------- ------ ------
Excluding the effects of currency translation, LICs were $1.1bn higher than in 1H15. This was due to an increase in Brazil (up by $346m) reflecting a deterioration in local economic conditions, as well as higher individually assessed charges in a small number of countries, notably in the oil and gas sector.
On an adjusted basis, individually assessed LICs were $1.3bn, an increase of $822m compared with 1H15. This primarily reflected increases in our GB&M and CMB businesses and included the following:
-- In North America (up by $495m), individually assessed LICs increased in our GB&M business in the US. This was primarily related to a significant specific charge on a mining related corporate exposure, as well as charges in the oil and gas sector. In addition, individually assessed LICs also increased in CMB in both Canada and the US, mainly in the oil and gas sector. -- In Asia (up by $125m), individually assessed charges increased, notably in our GB&M business in Australia, primarily driven by a small number of charges related to metals and mining exposures. In addition, the comparative period benefited from a release of allowances in Hong Kong. -- In Europe (up by $140m), individually assessed charges increased. This was mainly in the UK in our RBWM business due to net charges on individually assessed mortgage balances, compared with a net release in 1H15. Also, in Spain there were higher charges in CMB related to the construction sector. -- In Latin America (up by $47m), individually assessed charges increased, primarily in Brazil due to the deterioration of economic conditions.
On an adjusted basis, collectively assessed LICs rose by $173m, mainly in RBWM and, to a lesser extent, in CMB. The increase arose from:
-- In Latin America collectively assessed LICs increased by $281m. This was mainly in Brazil (up by $217m) in both our RBWM and CMB businesses, where delinquency rates increased following the deterioration of economic conditions. In addition, LICs rose in Mexico in our RBWM business in line with our strategic focus on growing unsecured lending.
This was partly offset by:
-- In North America (down by $45m) LICs decreased in our CMB and GB&M businesses as collectively assessed provisions related to the oil and gas sector were replaced with individually assessed LICs against specific clients in this sector (as discussed earlier). This was partly offset by an increase in our RBWM US CML run-off portfolio. -- In Europe, collectively assessed LICs decreased by $26m, mainly our RBWM business. This reflected a reduction in Turkey from favourable credit performance on unsecured lending, as well as net release of allowances in Greece. This was partly offset by an increase in our CMB business in the UK, primarily reflecting new allowances against exposures in the oil and gas sector.
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In 1H16, we recorded net impairment allowances on available-for-sale debt securities compared with net releases
in 1H15. Both primarily related to asset-backed securities ('ABSs') in our UK GB&M business.
Operating expenses
In business-as-usual addition activity to to detailing enhance operating future expense operating items capabilities. by category, -- as set 'Costs-to-achieve' out comprise in those the specific table costs below, relating we to also the categorise achievement adjusted of expenses the as strategic follows: actions set -- out in 'Run-the-bank' the costs Investor comprise Update business-as-usual in running June costs 2015. that They keep comprise operations costs functioning incurred at between the 1 required July quality 2015 and and standard 31 year December on 2017 year, and maintain do IT not infrastructure include and ongoing support initiatives revenue such growth. as Run-the-bank Global costs Standards. are Any split costs between arising front within office this and category back have office, been reflecting incurred the as way part the of Group a is significant organised transformation into programme. four Costs-to-achieve global are businesses included ('front within office') significant supported items by and global incorporate functions restructuring
('back costs office'). which were -- identified as 'Change-the-bank' a costs separate comprise significant expenses item relating prior to to the 1 implementation July of 2015. mandatory regulatory -- changes and The other UK investment bank costs levy incurred is relating reported to as projects a to separate change category. Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m By expense category Employee compensation and benefits 9,354 10,041 9,859 ================================================================== Premises and equipment (excluding depreciation and impairment) 1,901 1,939 1,891 ================================================================== General and administrative expenses 5,566 6,190 7,642 ================================================================== ------ ------ ------ Administrative expenses 16,821 18,170 19,392 ================================================================== Depreciation and impairment of property, plant and equipment 605 604 665 ================================================================== Amortisation and impairment of intangible assets and goodwill 1,202 413 524 ================================================================== ------ ------ ------ Operating expenses 18,628 19,187 20,581 ================================================================== ------ ------ ------ Half-year to -------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m By expense group Run-the-bank - front office 7,583 7,756 7,511 ========================================== Run-the-bank - back office 7,036 7,161 7,307 ========================================== Change-the-bank 1,454 1,733 1,739 ========================================== Bank levy (128) (44) 1,465 ========================================== Significant items 2,683 1,544 2,040 ========================================== Currency translation 1,037 519 ========================================== Operating expenses 18,628 19,187 20,581 ========================================== ------ ------ ------
Staff numbers (full-time equivalents)
At --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Geographical regions Europe 65,387 69,867 67,509 ========================================== Asia 119,699 120,588 120,144 ========================================== Middle East and North Africa 7,693 8,208 8,066 ========================================== North America 18,838 20,338 19,656 ========================================== Latin America 39,719 40,787 39,828 ========================================== ------- ------- ------- Staff numbers 251,336 259,788 255,203 ========================================== ------- ------- -------
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Financial summary (continued)
Reported operating expenses of $18.6bn were $0.6bn or 3% lower than in 1H15, which included an impairment of $0.8bn relating to the goodwill in our GPB business in Europe (please see Note 20 for further details). The lower operating
expenses benefited from the favourable effects of currency translation of $1.0bn, partly offset by a $1.1bn increase in significant items.
Significant items and currency translation
Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Significant items - costs-to-achieve 1,018 - 908 ================================================================= - costs to establish UK ring-fenced bank 94 - 89 ================================================================= - disposal costs of Brazilian operations 11 - 110 ================================================================= - impairment of Global Private Banking - Europe goodwill 800 - - ================================================================= - regulatory provisions in GPB 4 147 25 - restructuring and other related costs - 117 - ================================================================= - settlements and provisions in connection with legal matters 723 1,144 505 - UK customer redress programmes 33 137 404 ================================================================= ------ ------ ------ 2,683 1,545 2,041 Currency translation 1,037 519 ================================================================= ------ ------ ------ Total 2,683 2,582 2,560 ================================================================= ------ ------ ------
On an adjusted basis, operating expenses of $15.9bn were $0.7bn lower than in 1H15, despite inflationary pressures and increases in regulatory programmes and compliance costs. This primarily reflected transformational cost savings of $0.9bn achieved in 1H16. On a run-rate basis, we are now approximately 40% of the way towards achieving the cost savings target we committed to in our Investor Update in June 2015.
Run-the-bank costs of $14.6bn were $0.3bn lower than in 1H15 and change-the-bank costs of $1.5bn were $0.3bn lower than in 1H15. This reflected the following factors:
-- In RBWM, costs were $0.3bn lower, reflecting the effects of our transformational cost initiatives, which included our branch optimisation programme. -- In GB&M, costs were $0.2bn lower, reflecting lower performance-related costs, primarily in Europe and Asia, and the effects of our transformational cost initiatives, including significantly lower headcount and better use of our shared global service centres. -- In GPB, costs were $0.1bn lower, reflecting a fall in staff costs from lower FTEs, primarily in Europe and Asia. -- In CMB, costs remained broadly unchanged due to strong cost discipline and delivery of transformation initiatives, including a more simplified organisation structure and process optimisation within our lending, on-boarding and servicing platforms. -- The cost savings in the global businesses noted above were also supported by the benefits of transformational activities in our technology, operations and other functions, primarily from process automation and organisational re-design.
Included within the above, our total expenditure on regulatory programmes and compliance, comprising both run-the-bank and change-the-bank elements, was $1.5bn, up $0.2bn or 14% from 1H15. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.
Excluding investment in regulatory programmes and compliance, and credits relating to the prior year bank levy in both periods, adjusted operating expenses declined by $0.8bn or 5% compared with 1H15.
The number of employees expressed in FTEs at 30 June 2016 was 251,336, a decrease of 3,867 from 31 December 2015. This was driven by reductions in global businesses and global functions, partly offset by investment related to financial crime risk of 540 FTEs, and cost-to-achieve FTEs of 3,918.
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Reported cost efficiency ratios
Half-year to ---------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 % % % HSBC 63.2 58.2 76.6 ========================================== Geographical regions Europe 82.2 78.3 112.2 ========================================== Asia 44.6 38.8 48.3 ========================================== Middle East and North Africa 41.9 48.4 47.8 ========================================== North America 83.1 79.7 91.0 ========================================== Latin America 68.8 67.6 78.5 ========================================== Global businesses Retail Banking and Wealth Management 70.2 67.1 78.3 ========================================== Commercial Banking 41.9 44.1 46.7 ========================================== Global Banking and Markets 53.3 56.4 63.3 ========================================== Global Private Banking 158.8 85.0 83.5 ==========================================
Share of profit in associates and joint ventures
Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Associates Bank of Communications Co., Limited 974 1,021 990 ================================================== The Saudi British Bank 244 240 222 ================================================== Other 8 25 20 ================================================== ------ ------ ------ Share of profit in associates 1,226 1,286 1,232 ================================================== Share of profit in joint ventures 12 25 13 ================================================== ------ ------ ------ Share of profit in associates and joint ventures 1,238 1,311 1,245 ================================================== ------ ------ ------
Our reported share of profit in associates and joint ventures was $1.2bn, a decrease of $73m or 6%, largely from adverse effects of currency translation of $55m.
On an adjusted basis, share of profit in associates and joint ventures fell by $18m or 1%, primarily relating to HSBC Saudi Arabia, reflecting challenging stock market and economic conditions.
Tax expense
Half-year to ---------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $m $m $m Profit before tax 9,714 13,628 5,239 ========================================== Tax expense (2,291) (2,907) (864) ========================================== ------ ---------------- ------ Profit after tax 7,423 10,721 4,375 ========================================== ------ ---------------- ------ Effective tax rate 23.6% 21.3% 16.5% ==========================================
The effective tax rate for 1H16 of 23.6% was higher than the 21.3% in 1H15, principally due to the 8% surcharge on UK banking profits.
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Financial summary (continued)
Consolidated balance sheet
Summary consolidated balance sheet
At ---------------------- 30 Jun 31 Dec 2016 2015 $m $m Assets Cash and balances at central banks 128,272 98,934 ================================================ Trading assets 280,295 224,837 ================================================ Financial assets designated at fair value 23,901 23,852 ================================================ Derivatives 369,942 288,476 ================================================ Loans and advances to banks 92,199 90,401 ================================================ Loans and advances to customers 887,556 924,454 ================================================ Reverse repurchase agreements - non-trading 187,826 146,255 ================================================ Financial investments 441,399 428,955 ================================================ Assets held for sale 50,305 43,900 ================================================ Other assets 146,454 139,592 ================================================ --------- --------- Total assets 2,608,149 2,409,656 ================================================ --------- --------- Liabilities and equity Liabilities Deposits by banks 69,900 54,371 ================================================ Customer accounts 1,290,958 1,289,586 ================================================ Repurchase agreements - non-trading 98,342 80,400 ================================================ Trading liabilities 188,698 141,614 ================================================ Financial liabilities designated at fair value 78,882 66,408 ================================================ Derivatives 368,414 281,071 ================================================ Debt securities in issue 87,673 88,949 ================================================ Liabilities under insurance contracts 73,416 69,938 ================================================ Liabilities of disposal groups held for sale 43,705 36,840 ================================================ Other liabilities 109,864 102,961 ================================================ --------- --------- Total liabilities 2,409,852 2,212,138 ================================================ --------- --------- Equity Total shareholders' equity 191,257 188,460 ================================================ Non-controlling interests 7,040 9,058 ================================================ --------- --------- Total equity 198,297 197,518 ================================================ --------- --------- Total liabilities and equity 2,608,149 2,409,656 ================================================ --------- ---------
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Selected financial information
At -------------------------- 30 Jun 31 Dec 2016 2015 $m $m Called up share capital 9,906 9,842 ==================================================================== Capital resources 186,793 189,833 ==================================================================== Undated subordinated loan capital 1,968 2,368 ==================================================================== Preferred securities and dated subordinated loan capital 42,170 42,844 ==================================================================== Risk-weighted assets 1,082,184 1,102,995 ==================================================================== Financial statistics Loans and advances to customers as a percentage of customer accounts 68.8 71.7 ====================================================================
Average total shareholders' equity to average total assets 7.44 7.31 ==================================================================== Net asset value per ordinary share at period end ($) 8.75 8.73 ==================================================================== Number of $0.50 ordinary shares in issue (millions) 19,813 19,685 ==================================================================== Closing foreign exchange translation rates to $: $1: GBP 0.744 0.675 ==================================================================== $1: EUR 0.900 0.919 ====================================================================
A more detailed consolidated balance sheet is contained in the Financial Statements on page 101.
Combined view of customer lending and customer deposits
At ---------------------- 30 Jun 31 Dec 2016 2015 Footnotes $m $m Loans and advances to customers 887,556 924,454 ============================================================================= Loans and advances to customers reported in 'Assets held for sale' 20,711 19,021 ============================================================================= - Brazil 5 19,203 17,001 ============================================================================= - other 1,508 2,020 ============================================================================= --------- --------- Combined customer lending 908,267 943,475 ============================================================================= --------- --------- Customer accounts 1,290,958 1,289,586 ============================================================================= Customer accounts reported in 'Liabilities of disposal groups held for sale' 20,531 16,682 ============================================================================= - Brazil 5 19,357 15,094 ============================================================================= - other 1,174 1,588 ============================================================================= --------- --------- Combined customer deposits 1,311,489 1,306,268 ============================================================================= --------- ---------
For footnote, see page 59.
Movement from 31 December 2015 to 30 June 2016
Total reported assets of $2.6tn were 8% higher than at 31 December 2015 on a reported basis and 11% higher on a constant currency basis. This was driven by increased derivative assets and trading assets, notably settlement accounts.
Our ratio of customer advances to customer accounts was 69%. Loans and advances to customers fell on a reported basis while customer accounts increased on a reported basis. These changes included:
-- adverse currency translation movement of $24bn on loans and advances to customers and $31bn on customer accounts; and -- an $8bn reduction in corporate overdraft and current account balances relating to a small number of clients in our Global Liquidity and Cash Management business in the UK who settled their overdraft and deposit balances on a net basis, with these customers increasing the frequency with which they settled their positions.
Excluding these movements, customer lending decreased by $5bn, partly due to reductions in our legacy portfolios.
Assets
Derivative assets increased by $81bn or 28%, driven by valuation movements in interest rate contracts, reflecting downward shifts in major yield curves, notably in the UK and to a lesser extent in France.
Trading assets increased by $55bn, driven by higher settlement account balances in Europe and North America and an increase in holding of debt securities, primarily in Asia. By contrast, Europe was affected by decreases in equity securities.
Reverse repurchase agreements - non-trading increased by $42bn, notably in Europe and North America, the latter reflecting deployment of surplus liquidity from cash balances.
Loans and advances to customers decreased by $37bn on a reported basis, driven by Europe and to a lesser extent Asia. This included:
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Financial summary (continued)
-- adverse currency translation movements of $24bn; and -- an $8bn reduction in corporate overdraft balances in Europe, with a corresponding fall in corporate customer accounts.
Excluding these factors, customer lending balances decreased by $5bn, partly reflecting our strategic focus on reducing our legacy portfolio. In North America this included a $5.7bn transfer to 'Assets held for sale' of US first lien mortgage balances in RBWM. We disposed of most of these transferred loans during 1H16.
Balances also fell in Asia by $6bn, although they stabilised in the second quarter of 2016. Lending fell in CMB by $5bn, notably in Hong Kong and Singapore, particularly in trade lending. The fall in Hong Kong reflected weakened client demand and corporates in mainland China reverting back to mainland China from Hong Kong for financing as interest rates between Hong Kong and mainland China narrowed. By contrast, balances increased in Europe by $8bn, primarily reflecting higher term lending in CMB and GB&M, notably in the UK.
Liabilities
Derivative liabilities increased by $87bn in line with the movements of derivative assets as the underlying risk was broadly matched.
Trading liabilities increased by $47bn, primarily in Europe and North America, partly driven by an increase in settlement accounts.
Customer accounts were broadly in line with balances at 31 December 2015 and included:
-- adverse currency translation movements of $31bn; and -- an $8bn reduction in corporate current account balances, in line with a fall in corporate overdraft positions.
Excluding these factors, customer accounts grew by $38bn, mainly in the UK, driven by increases in GB&M and RBWM, and in Hong Kong, notably in RBWM.
Equity
Total shareholders' equity was broadly unchanged. The effects of profits generated in the period and the issue of new contingent convertible securities of $2.0bn were broadly offset by the effects of dividends paid and an increase in accumulated foreign exchange losses. Movements in the foreign exchange reserves reflected the depreciation of sterling against the US dollar, although this was partly offset by appreciation in other currencies, including the euro and Canadian dollar.
Customer accounts by country
At ---------------------- 30 Jun 31 Dec 2016 2015 $m $m Europe 482,992 497,876 ============================== - UK 383,958 404,084 ============================== - France 39,896 35,635 ============================== - Germany 16,141 13,873 ============================== - Switzerland 8,820 10,448 ============================== - other 34,177 33,836 ============================== --------- --------- Asia 610,200 598,620 ============================== - Hong Kong 433,136 421,538 ============================== - Australia 18,655 17,703 ============================== - India 12,159 11,795 ============================== - Indonesia 5,738 5,366 ============================== - Mainland China 41,897 46,177 ============================== - Malaysia 14,233 14,114 ============================== - Singapore 43,578 41,307 ============================== - Taiwan 12,321 11,812 ============================== - other 28,483 28,808 ============================== --------- --------- Middle East and North Africa (excluding Saudi Arabia) 35,094 36,468 ============================== - Egypt 6,255 6,602 ============================== - United Arab Emirates 17,641 18,281 ============================== - other 11,198 11,585 ============================== --------- --------- North America 142,152 135,152 ============================== - US 90,646 86,322
============================== - Canada 42,355 39,727 ============================== - other 9,151 9,103 ============================== --------- --------- Latin America 20,520 21,470 ============================== - Mexico 14,854 15,798 ============================== - other 5,666 5,672 ============================== --------- --------- At end of period 1,290,958 1,289,586 ============================== --------- ---------
Risk-weighted assets
Risk-weighted assets totalled $1,082bn at 30 June 2016, a decrease of $21bn or 2% from 31 December 2015, reflecting targeted RWA initiatives and the effects of currency translation, partly offset by balance sheet growth and RWA increases as a result of credit quality deterioration. In 1H16, RWA initiatives resulted in a reduction of $48bn and included asset sales in the GB&M legacy and US CML run-off portfolios, reduced exposures, refined calculations and process improvements.
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Reconciliation of RoRWA measures
Performance management We target a return on average ordinary shareholders' equity of greater than 10%. For internal management purposes we monitor global businesses and geographical regions by pre-tax return on average risk-weighted assets ('RoRWA'), a metric which combines return on equity and regulatory capital efficiency objectives. This metric is calibrated against return on equity ('ROE') and capital requirements to ensure that we are best placed to achieve capital strength and business profitability combined with regulatory capital efficiency objectives.
In addition to the pre-tax return on average risk-weighted assets ('RoRWA'), we measure our performance internally using the non-GAAP measure of adjusted RoRWA, which is adjusted profit before tax as a percentage of average risk-weighted assets adjusted for the effects of foreign currency translation differences and significant items. Excluded from adjusted RoRWA are certain items which distort period-on-period performance as explained on page 18.
Reconciliation of adjusted RoRWA
Half-year to 30 Jun 2016 ------------------------------ Pre-tax Average return RWAs RoRWA(6) Footnotes $m $bn % Reported 9,714 1,100 1.8 ====================================== -------- -------- Adjusted 6 10,795 1,100 2.0 ====================================== Half-year to 30 Jun 2015 Half-year to 31 Dec 2015 ----------------------------------- ------------------------------------- Pre-tax Average Pre-tax Average return RWAs RoRWA(6) return RWAs RoRWA(6) Footnotes $m $bn % $m $bn % Reported 13,628 1,208 2.3 5,239 1,147 0.9 ================= ---------- ------- ---------- ------- Adjusted 6 12,550 1,163 2.2 7,161 1,129 1.3 =================
For footnote, see page 59.
Reconciliation of reported and adjusted average risk-weighted assets
Half-year to ---------------------------------------------------- 30 Jun 30 Jun 30 Jun 31 Dec 2016 2015 Change 2016 2015 Change Footnotes $bn $bn % $bn $bn % Average reported RWAs 1,100 1,208 (9) 1,100 1,147 (4) =============================== Currency translation adjustment 7 - (40) - (18) =============================== Acquisitions, disposals and dilutions - (5) - - =============================== ------ ------ ------ ------ Average adjusted RWAs 1,100 1,163 (5) 1,100 1,129 (3) =============================== ------ ------ ------ ------
For footnote, see page 59.
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Global businesses
Global businesses Summary 35 ===================================== Retail Banking and Wealth Management 36 ===================================== Commercial Banking 38 ===================================== Global Banking and Markets 39 ===================================== Global Private Banking 41 ===================================== Other 42 =====================================
Summary
HSBC reviews operating activity on a number of bases, including by geographical region and by global business.
We present global businesses followed by geographical regions because certain strategic themes, business initiatives and trends affect more than one geographical region.
Basis of preparation The results of our global businesses are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated and, accordingly, the presentation of global business data includes internal allocations of certain items of income and expense. These allocations include the costs of some support services and global functions to the extent that they can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Those costs which are not allocated to global businesses are included in 'Other'. Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The expense of the UK bank levy is included in the Europe geographical region as we regard the levy as a cost of being headquartered in the UK. For the purposes of the segmentation by global businesses, the cost of the levy is included in 'Other'.
Profit/(loss) before tax
Half-year to --------------------- ------------------ ----------------------- 30 Jun 30 Jun 2016 2015 31 Dec 2015 Footnotes $m % $m % $m % Retail Banking and Wealth Management 2,382 24.5 3,362 24.7 1,605 30.6 ========================= Commercial Banking 4,304 44.3 4,523 33.2 3,450 65.9 ========================= Global Banking and Markets 4,006 41.2 4,754 34.9 3,156 60.2 ========================= Global Private Banking (557) (5.7) 180 1.3 164 3.1 ========================= Other 8 (421) (4.3) 809 5.9 (3,136) (59.8) ========================= ------- ------- -------- -------- -------- ------ 9,714 100.0 13,628 100.0 5,239 100.0 ------- ------- -------- -------- -------- ------
Total assets(9)
At 30 Jun 2016 31 Dec 2015 $m % $m % Retail Banking and Wealth Management 470,245 18.0 473,284 19.6 ======================================== Commercial Banking 355,388 13.6 365,290 15.2 ======================================== Global Banking and Markets 1,873,474 71.8 1,616,704 67.1 ======================================== Global Private Banking 79,068 3.0 81,448 3.4 ======================================== Other 179,853 7.0 147,417 6.1 ======================================== Intra-HSBC items (349,879) (13.4) (274,487) (11.4) ======================================== --------- ----- --------- ----- 2,608,149 100.0 2,409,656 100.0 --------- ----- --------- -----
Risk-weighted assets
At 30 Jun 2016 31 Dec 2015 $bn % $bn % Retail Banking and Wealth Management 176.1 16.3 189.5 17.2 ======================================== Commercial Banking 414.8 38.3 421.0 38.2 ======================================== Global Banking and Markets 437.1 40.4 440.6 39.9 ======================================== Global Private Banking 18.5 1.7 19.3 1.7 ======================================== Other 35.7 3.3 32.6 3.0 ======================================== ------- ----- ------- ----- 1,082.2 100.0 1,103.0 100.0 ------- ----- ------- -----
For footnotes, see page 59.
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Retail Banking and Wealth Management
RBWM provides banking and wealth management services for our personal customers to help them secure their future prosperity and realise their ambitions.
Principal RBWM consists of ------------------------------------------ US Total run-off Principal Banking Insurance Asset RBWM portfolio RBWM(10) operations manufacturing management Footnotes $m $m $m $m $m $m Half-year to 30 Jun 2016 Net interest income 7,724 388 7,336 6,433 901 2 ================== Net fee income/(expense) 2,576 (2) 2,578 2,418 (304) 464 ================== Other income/(loss) 11 817 (19) 836 769 46 21 ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 12 11,117 367 10,750 9,620 643 487 ================== LICs 13 (1,120) (97) (1,023) (1,023) - - ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 9,997 270 9,727 8,597 643 487 ================== Total operating expenses (7,808) (846) (6,962) (6,413) (210) (339) ================== ------ --------- --------- ---------- ------------- ---------- Operating profit/(loss) 2,189 (576) 2,765 2,184 433 148 ================== Income from associates 14 193 - 193 173 14 6 ================== ------ --------- --------- ---------- ------------- ---------- Profit/(loss) before tax 2,382 (576) 2,958 2,357 447 154 ================== ------ --------- --------- ---------- ------------- ---------- RoRWA 2.6% (3.3)% 4.0% ================== Half-year to 30 Jun 2015 Net interest income 8,054 536 7,518 6,664 850 4 ================== Net fee income/(expense) 3,334 (2) 3,336 3,079 (282) 539 ================== Other income 11 1,054 46 1,008 397 595 16 ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 12 12,442 580 11,862 10,140 1,163 559 ================== LICs 13 (934) (47) (887) (887) - - ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 11,508 533 10,975 9,253 1,163 559 ================== Total operating expenses (8,354) (688) (7,666) (7,076) (219) (371) ================== ------ --------- --------- ---------- ------------- ---------- Operating profit/(loss) 3,154 (155) 3,309 2,177 944 188 ================== Income from associates 14 208 - 208 178 11 19 ================== ------ --------- --------- ---------- ------------- ---------- Profit/(loss) before tax 3,362 (155) 3,517 2,355 955 207 ================== ------ --------- --------- ---------- ------------- ---------- RoRWA 3.3% (0.6)% 4.6% ================== Half-year to 31 Dec 2015 Net interest income 7,872 497 7,375 6,463 907 5 ================== Net fee income/(expense) 2,884 (2) 2,886 2,647 (278) 517 ================== Other income/(loss) 11 318 (249) 567 479 85 3 ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 12 11,074 246 10,828 9,589 714 525 ================== LICs 13 (1,005) (15) (990) (990) - - ================== ------ --------- --------- ---------- ------------- ---------- Net operating income 10,069 231 9,838 8,599 714 525 ================== Total operating expenses (8,666) (696) (7,970) (7,383) (213) (374) ================== ------ --------- --------- ---------- ------------- ---------- Operating profit/(loss) 1,403 (465) 1,868 1,216 501 151 ================== Income from associates 14 202 - 202 180 13 9 ================== ------ --------- --------- ---------- ------------- ---------- Profit/(loss) before tax 1,605 (465) 2,070 1,396 514 160 ================== ------ --------- --------- ---------- ------------- ---------- RoRWA 1.6% (2.0)% 2.7% ==================
For footnotes, see page 59.
RBWM comprises the Principal RBWM business and the US run-off portfolio. We believe that highlighting Principal RBWM (and its constituent business streams, Banking Operations, Insurance Manufacturing and Asset Management) allows management to identify more readily the causes of material changes from year to year in the
ongoing business and to assess the factors and trends that are expected to have a material effect on the business in future years.
Insurance manufacturing for RBWM excludes other global businesses which contribute net operating income of $199m in 1H16 (1H15: $189m; 2H15: $97m) and profit before tax of
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Global businesses (continued)
$159m (1H15: $144m); 2H15: $57m) to overall insurance manufacturing. In 1H16, insurance manufacturing net operating income for RBWM included $575m within Wealth
Management (1H15: $1,080m) and $58m within other products (1H15: $83m).
Principal RBWM(10) performance
Management view of adjusted revenue(12)
Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Current accounts, savings and deposits 2,856 2,633 2,668 ======================================== Wealth Management products 2,578 3,485 2,620 ======================================== - investment distribution 1,516 1,909 1,522 ======================================== - life insurance manufacturing 575 1,038 581 ======================================== - asset management 487 538 517 ======================================== Personal lending 4,668 4,704 4,731 ========================================
- mortgages 1,349 1,372 1,390 ======================================== - credit cards 1,767 1,850 1,811 ======================================== - other personal lending 1,552 1,482 1,530 ======================================== Other 321 295 497 ======================================== Net operating income 12 10,423 11,116 10,516 ======================================== ------ ------ ------
For footnotes, see page 59.
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Commercial Banking
CMB serves approximately two million customers in 55 countries and territories. Our customers range from small enterprises focused primarily on their domestic markets through to corporates operating globally.
Half-year to ---------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 4,809 4,892 4,967 ====================================== Net fee income 1,965 2,168 2,022 ====================================== Other income 11 735 474 347 ====================================== ------ ------ ------ Net operating income 12 7,509 7,534 7,336 ====================================== LICs 13 (833) (511) (1,259) ====================================== ------ ------ ------ Net operating income 6,676 7,023 6,077 ====================================== Total operating expenses (3,143) (3,321) (3,423) ====================================== ------ ------ ------ Operating profit 3,533 3,702 2,654 ====================================== Income from associates 14 771 821 796 ====================================== ------ ------ ------ Profit before tax 4,304 4,523 3,450 ====================================== ------ ------ ------ RoRWA 2.1% 2.1% 1.6% ======================================
Management view of adjusted revenue(12)
Half-year to ------------------------ 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Global Trade and Receivables Finance 1,071 1,167 1,156 ======================================================= Credit and Lending 2,821 2,747 2,864 ======================================================= Global Liquidity and Cash Management 2,332 2,215 2,302 ======================================================= Markets products, Insurance and Investments and Other 1,055 1,012 818 ======================================================= ------ ------ ------ Net operating income 12 7,279 7,141 7,140 ======================================================= ------ ------ ------
For footnotes, see page 59. For details of significant items, see pages 53 to 58.
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Global businesses (continued)
Global Banking and Markets
GB&M supports major government, corporate and institutional clients worldwide in achieving their long-term strategic goals through tailored and innovative solutions.
GB&M Total client-facing GB&M Legacy and BSM Footnotes $m $m $m Half-year to 30 Jun 2016 Net interest income 3,434 2 3,432 ====================================== Net fee income/(expense) 1,641 (3) 1,644 ====================================== Net trading income/(expense) 1 4,760 (65) 4,825 ====================================== Other expense 11 (922) (34) (888) ====================================== ------ ------ -------------- Net operating income/(loss) 12 8,913 (100) 9,013 ====================================== LICs 13 (425) 12 (437) ====================================== ------ ------ -------------- Net operating income/(loss) 8,488 (88) 8,576 ====================================== Total operating expenses (4,749) (38) (4,711) ====================================== ------ ------ -------------- Operating profit/(loss) 3,739 (126) 3,865 ====================================== ------ -------------- - Income from associates 14 267 ====================================== ------ Profit before tax 4,006 ====================================== ------ RoRWA 1.8% (1.0)% 2.0% ====================================== Half-year to 30 Jun 2015 Net interest income 3,629 114 3,515 ====================================== Net fee income/(expense) 1,711 (6) 1,717 ====================================== Net trading income/(expense) 1 3,743 (1) 3,744 ====================================== Other income/(expense) 11 1,178 (10) 1,188 ====================================== ------ ------ -------------- Net operating income 12 10,261 97 10,164 ====================================== LICs 13 11 15 (4) ====================================== ------ ------ -------------- Net operating income 10,272 112 10,160 ====================================== Total operating expenses (5,790) (41) (5,749) ====================================== ------ ------ -------------- Operating profit 4,482 71 4,411 ====================================== ------ -------------- Income from associates 14 272 ====================================== ------ Profit before tax 4,754 ====================================== ------ RoRWA 1.9% 0.4% 2.0% ====================================== Half-year to 31 Dec 2015 Net interest income 3,302 13 3,289 ====================================== Net fee income/(expense) 1,664 (5) 1,669 ====================================== Net trading income 1 3,426 10 3,416 ====================================== Other expense 11 (420) (54) (366) ====================================== ------ ------ -------------- Net operating income/(loss) 12 7,972 (36) 8,008 ====================================== LICs 13 (11) 22 (33) ====================================== ------ ------ -------------- Net operating income/(loss) 7,961 (14) 7,975 ====================================== Total operating expenses (5,044) (62) (4,982) ====================================== ------ ------ -------------- Operating profit/(loss) 2,917 (76) 2,993 ====================================== ------ -------------- Income from associates 14 239
====================================== ------ Profit before tax 3,156 ====================================== ------ RoRWA 1.4% (0.5)% 1.5% ======================================
For footnotes, see page 59.
The GB&M client-facing and Balance Sheet Management ('BSM') businesses measure excludes the effects of the legacy credit portfolio and income from associates. This allows GB&M management to identify more readily the cause of material changes from year to year in the ongoing businesses and assess the factors and trends that are expected to have a material effect on the businesses in future years.
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Management view of adjusted revenue(12)
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Global Markets 3,588 4,188 2,448 ====================================== - Legacy credit (100) 96 (32) ====================================== - Credit 506 478 164 ====================================== - Rates 1,116 961 612 ====================================== - Foreign Exchange 1,491 1,584 1,227 ====================================== - Equities 575 1,069 477 ====================================== ------ ------ ------ Global Banking 1,776 1,813 1,859 ====================================== Global Liquidity and Cash Management 924 854 876 ====================================== Securities Services 786 835 818 ====================================== Global Trade and Receivables Finance 352 349 344 ====================================== Balance Sheet Management 1,448 1,506 1,312 ====================================== Principal Investments (5) 125 109 ====================================== Other 16 (87) (16) (57) ====================================== ------ ------ ------ Net operating income 12 8,782 9,654 7,709 ====================================== ------ ------ ------
For footnotes, see page 59.
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Global businesses (continued)
Global Private Banking
GPB serves high net worth individuals and families with complex and international needs within the Group's priority markets.
Half-year to ---------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 395 454 416 ====================================== Net fee income 386 527 432 ====================================== Other income 11 192 196 147 ====================================== ------ ------ ------ Net operating income 12 973 1,177 995 ====================================== LICs 13 11 (5) (7) ====================================== ------ ------ ------ Net operating income 984 1,172 988 ====================================== Total operating expenses (1,545) (1,001) (831) ====================================== ------ ------ ------ Operating (loss)/profit (561) 171 157 ====================================== Income from associates 14 4 9 7 ====================================== ------ ------ ------ Profit before tax (557) 180 164 ====================================== ------ ------ ------ RoRWA (5.9)% 1.8% 1.6% ======================================
Client assets(17)
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 $bn $bn $bn At beginning of period 349 365 370 ========================================= Net new money (7) (1) 1 ========================================= Of which: areas targeted for growth 5 7 7 ========================================= ------ ------ ------ Value change (6) 9 (8) ========================================= Exchange and other (19) (3) (14) ========================================= ------ ------ ------ At end of period 317 370 349 ========================================= ------ ------ ------
For footnotes, see page 59. For details of significant items, see pages 53 to 58.
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Other(8)
'Other' contains the results of HSBC's holding company and financing operations, central support and functional costs with associated recoveries, unallocated investment activities, centrally held investment companies, certain property transactions, movements in fair value of own debt and the UK bank levy.
Half-year to --------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest expense (392) (397) (313) ==================================================================== Net fee income/(expense) 18 (15) (22) ==================================================================== Net trading expense (146) (123) (69) ==================================================================== Changes in fair value of long-term debt issued and related derivatives 270 1,324 (461) ==================================================================== Changes in other financial instruments designated at fair value 1,320 (661) 722 ==================================================================== ------ ------ ------ Net income from financial instruments designated at fair value 1,590 663 261 ==================================================================== Other income 2,959 4,559 3,060 ==================================================================== ------ ------ ------ Net operating income 4,029 4,687 2,917 ==================================================================== Total operating expenses (4,453) (3,879) (6,054) ==================================================================== ------ ------ ------ Operating (loss)/profit (424) 808 (3,137) ==================================================================== Income from associates 14 3 1 1 ==================================================================== ------ ------ ------ (Loss)/profit before tax (421) 809 (3,136) ==================================================================== ------ ------ ------
For footnotes, see page 59. For details of significant items, see pages 53 to 58.
HSBC HOLDINGS PLC
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Global businesses (continued)
Analysis by global business
HSBC profit/(loss) before tax and balance sheet data
Half-year to 30 Jun 2016 ------------------------------------------------------------------------------------------------ Retail Global Banking Banking Global Inter- and Wealth Commercial and Private segment Management Banking Markets Banking Other(8) elimination(18) Total Footnotes $m $m $m $m $m $m $m Profit/(loss) before tax Net interest income/(expense) 7,724 4,809 3,434 395 (392) (210) 15,760 ====================== Net fee income 2,576 1,965 1,641 386 18 - 6,586 ====================== Trading income/(expense) excluding net interest income 73 286 4,228 157 (150) - 4,594 ====================== Net interest (expense)/income on trading activities (8) (8) 532 - 4 210 730 ====================== ---------- ---------- --------- ------ ---------- ---- --------------- --------- Net trading income/(expense) 1 65 278 4,760 157 (146) 210 5,324 ====================== Net income/(expense) from financial instruments designated at fair value 185 74 (1,283) (5) 1,590 - 561 ====================== Gains less losses from financial investments 383 264 307 11 - - 965 ====================== Dividend income 10 8 16 3 27 - 64 ====================== Net insurance premium income/(expense) 4,748 601 2 8 (3) - 5,356 ====================== Other operating income/(expense) 503 214 36 24 2,937 (3,070) 644 ====================== ---------- ---------- --------- ------- ---------- ---- --------------- --------- Total operating income/(expense) 16,194 8,213 8,913 979 4,031 (3,070) 35,260 ====================== Net insurance claims 19 (5,077) (704) - (6) (3) - (5,790) ====================== ---------- ---------- --------- ------- ---------- --- --------------- --------- Net operating income/(expense) 12 11,117 7,509 8,913 973 4,028 (3,070) 29,470 ====================== Loan impairment (charges)/recoveries and other credit risk provisions (1,120) (833) (425) 11 1 - (2,366) ====================== ---------- ---------- --------- ------- ---------- ---- --------------- --------- Net operating income/(expense) 9,997 6,676 8,488 984 4,029 (3,070) 27,104 ====================== Employee expenses 20 (2,353) (1,117) (1,785) (309) (3,790) - (9,354) ====================== Other operating expenses (5,455) (2,026) (2,964) (1,236) (663) 3,070 (9,274) ====================== ---------- ---------- --------- ------- ---------- --- --------------- --------- Total operating (expense)/income (7,808) (3,143) (4,749) (1,545) (4,453) 3,070 (18,628) ====================== ---------- ---------- --------- ------- ---------- --- --------------- --------- Operating profit/(loss) 2,189 3,533 3,739 (561) (424) - 8,476 ====================== Share of profit in associates and joint ventures 193 771 267 4 3 - 1,238 ====================== ---------- ---------- --------- ------ ---------- ---- --------------- --------- Profit/(loss) before tax 2,382 4,304 4,006 (557) (421) - 9,714 ====================== ---------- ---------- --------- ------- ---------- --- --------------- --------- % % % % % % Share of HSBC's profit before tax 24.5 44.3 41.2 (5.7) (4.3) 100.0 ====================== Cost efficiency ratio 70.2 41.9 53.3 158.8 110.6 63.2 ====================== Balance sheet data 9 $m $m $m $m $m $m $m Loans and advances to customers (net) 326,699 298,641 219,186 39,923 3,107 887,556 ====================== Reported in held for sale 7,304 8,472 4,279 623 33 20,711 ====================== Total assets 470,245 355,388 1,873,474 79,068 179,853 (349,879) 2,608,149 ====================== Customer accounts 588,864 347,842 274,095 77,981 2,176 1,290,958 ====================== Reported in held for sale 9,749 4,446 3,467 2,869 - 20,531 ======================
HSBC HOLDINGS PLC
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HSBC profit/(loss) before tax and balance sheet data (continued)
Half-year to 30 Jun 2015 ----------------------------------------------------------------------------------------- Retail Global Banking Banking Global Inter- and Wealth Commercial and Private segment Management Banking Markets Banking Other(8) elimination(18) Total Footnotes $m $m $m $m $m $m $m Profit/(loss) before tax Net interest income/(expense) 8,054 4,892 3,629 454 (397) (188) 16,444 ====================== Net fee income/(expense) 3,334 2,168 1,711 527 (15) - 7,725 ====================== Trading income/(expense) excluding net interest income 295 308 2,880 175 (138) - 3,520 ====================== Net interest (expense)/income on trading activities (5) (7) 863 (1) 15 188 1,053 ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net trading income/(expense) 1 290 301 3,743 174 (123) 188 4,573 ====================== Net income from financial instruments designated at fair value 1,237 128 638 - 663 - 2,666 ====================== Gains less losses from financial investments 51 27 402 24 1,370 - 1,874 ====================== Dividend income 11 10 17 4 26 - 68 ====================== Net insurance premium income 4,950 624 3 30 - - 5,607 ====================== Other operating income/(expense) 609 100 120 2 3,163 (3,158) 836 ====================== ---------- ---------- --------- ------ -------- --------------- --------- Total operating income/(expense) 18,536 8,250 10,263 1,215 4,687 (3,158) 39,793 ====================== Net insurance claims 19 (6,094) (716) (2) (38) - - (6,850) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net operating
income/(expense) 12 12,442 7,534 10,261 1,177 4,687 (3,158) 32,943 ====================== Loan impairment (charges)/recoveries and other credit risk provisions (934) (511) 11 (5) - - (1,439) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net operating income/(expense) 11,508 7,023 10,272 1,172 4,687 (3,158) 31,504 ====================== Employee expenses 20 (2,571) (1,171) (1,994) (350) (3,955) - (10,041) ====================== Other operating expenses (5,783) (2,150) (3,796) (651) 76 3,158 (9,146) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Total operating (expense)/income (8,354) (3,321) (5,790) (1,001) (3,879) 3,158 (19,187) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Operating profit 3,154 3,702 4,482 171 808 - 12,317 ====================== Share of profit in associates and joint ventures 208 821 272 9 1 - 1,311 ====================== ---------- ---------- --------- ------ -------- --------------- --------- Profit before tax 3,362 4,523 4,754 180 809 - 13,628 ====================== ---------- ---------- --------- ------- -------- --------------- --------- % % % % % % Share of HSBC's profit before tax 24.7 33.2 34.9 1.3 5.9 100.0 ====================== Cost efficiency ratio 67.1 44.1 56.4 85.0 82.8 58.2 ====================== Balance sheet data 9 $m $m $m $m $m $m $m Loans and advances to customers (net) 352,189 310,256 244,321 44,242 2,977 953,985 ====================== Reported in held for sale 6,640 10,325 4,016 43 - 21,024 ====================== Total assets 497,199 378,641 1,790,461 85,740 167,946 (348,274) 2,571,713 ====================== Customer accounts 589,715 362,069 299,181 82,878 1,957 1,335,800 ====================== Reported in held for sale 9,549 4,694 3,438 1,751 - 19,432 ======================
HSBC HOLDINGS PLC
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Global businesses (continued)
Half-year to 31 Dec 2015 ----------------------------------------------------------------------------------------- Retail Global Banking Banking Global Inter- and Wealth Commercial and Private segment Management Banking Markets Banking Other(8) elimination(18) Total Footnotes $m $m $m $m $m $m $m Profit/(loss) before tax Net interest income/(expense) 7,872 4,967 3,302 416 (313) (157) 16,087 ====================== Net fee income/(expense) 2,884 2,022 1,664 432 (22) - 6,980 ====================== Trading income/(expense) excluding net interest income 245 263 2,834 152 (66) - 3,428 ====================== Net interest (expense)/income on trading activities (14) (9) 592 (1) (3) 157 722 ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net trading income/(expense) 1 231 254 3,426 151 (69) 157 4,150 ====================== Net (expense)/income from financial instruments designated at fair value (681) (18) (696) - 261 - (1,134) ====================== Gains less losses from financial investments 17 10 196 (1) (28) - 194 ====================== Dividend income 12 6 23 7 7 - 55 ====================== Net insurance premium income/(expense) 4,254 482 2 12 (2) - 4,748 ====================== Other operating income/(expense) 363 152 57 1 3,083 (3,437) 219 ====================== ---------- ---------- --------- ------ -------- --------------- --------- Total operating income/(expense) 14,952 7,875 7,974 1,018 2,917 (3,437) 31,299 ====================== Net insurance claims 19 (3,878) (539) (2) (23) - - (4,442) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net operating income/(expense) 12 11,074 7,336 7,972 995 2,917 (3,437) 26,857 ====================== Loan impairment (charges)/recoveries and other credit risk provisions (1,005) (1,259) (11) (7) - - (2,282) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Net operating income/(expense) 10,069 6,077 7,961 988 2,917 (3,437) 24,575 ====================== Employee expenses 20 (2,395) (1,272) (1,741) (304) (4,147) - (9,859) ====================== Other operating expenses (6,271) (2,151) (3,303) (527) (1,907) 3,437 (10,722) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Total operating (expense)/income (8,666) (3,423) (5,044) (831) (6,054) 3,437 (20,581) ====================== ---------- ---------- --------- ------- -------- --------------- --------- Operating profit/(loss) 1,403 2,654 2,917 157 (3,137) - 3,994 ====================== Share of profit in associates and joint ventures 202 796 239 7 1 - 1,245 ====================== ---------- ---------- --------- ------ -------- --------------- --------- Profit/(loss) before tax 1,605 3,450 3,156 164 (3,136) - 5,239 ====================== ---------- ---------- --------- ------- -------- --------------- --------- % % % % % % Share of HSBC's profit before tax 30.6 65.9 60.2 3.1 (59.8) 100.0 ====================== Cost efficiency ratio 78.3 46.7 63.3 83.5 207.5 76.6 ====================== Balance sheet data 9 $m $m $m $m $m $m $m Loans and advances to customers (net) 340,009 302,240 236,932 42,942 2,331 924,454 ====================== Reported in held for sale 5,258 8,010 3,689 85 1,979 19,021 ====================== Total assets 473,284 365,290 1,616,704 81,448 147,417 (274,487) 2,409,656 ====================== Customer accounts 584,872 361,701 261,728 80,404 881 1,289,586 ====================== Reported in held for sale 7,758 3,363 2,551 3,010 - 16,682 ======================
For footnotes, see page 59.
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Geographical regions
Geographical regions Summary 46 Europe 47 Asia 47 Middle East and North Africa 48 North America 48 Latin America 49 Analysis by country 50 =============================
Summary
HSBC reviews operating activity on a number of bases, including by geographical region and by global business.
In the analysis of profit and loss by geographical region that follows, operating income and operating expenses include intra-HSBC items of $1,615m (1H15: $1,564m; 2H15: $1,811m).
All tables are on a reported basis unless otherwise stated.
Basis of preparation The results of the geographical regions are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated, and accordingly, the presentation of the geographical data includes internal allocation of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to geographical regions. While such allocations have been done on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company transactions. All such transactions are undertaken on an arm's length basis. The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK.
Profit/(loss) before tax
Half-year to ------------------------------------------------- 30 Jun 2016 30 Jun 2015 31 Dec 2015 $m % $m % $m % Europe 1,579 16.3 2,205 16.2 (1,562) (29.8) ============================== Asia 7,155 73.7 9,400 69.0 6,363 121.5 ============================== Middle East and North Africa 985 10.1 901 6.6 636 12.1 ============================== North America 50 0.5 690 5.1 (76) (1.5) ============================== Latin America (55) (0.6) 432 3.1 (122) (2.3) ============================== ------ ----- ------ ----- ------ ----- Profit before tax 9,714 100.0 13,628 100.0 5,239 100.0 ============================== ------ ----- ------ ----- ------ -----
Total assets(9)
At 30 Jun 2016 At 31 Dec 2015 ------------------ -------------------- $m % $m % Europe 1,251,513 47.9 1,129,365 46.9 ======================================== Asia 946,998 36.3 889,747 36.9 ======================================== Middle East and North Africa 58,802 2.3 59,236 2.5 ======================================== North America 438,658 16.8 393,960 16.3 ======================================== Latin America 93,067 3.6 86,262 3.6 ======================================== Intra-HSBC items (180,889) (6.9) (148,914) (6.2) ======================================== --------- ----- --------- ----- Total assets 2,608,149 100.0 2,409,656 100.0 ======================================== --------- ----- --------- -----
Risk-weighted assets(21)
At 30 Jun 2016 At 31 Dec 2015 ---------------- ------------------ $bn % $bn % Total RWAs 1082.2 100.0 1,103.0 100.0 ======================================== -------- ------ --------- ----- Europe 331.2 30.6 337.4 30.6 ======================================== Asia 462.3 42.7 459.7 41.7 ======================================== Middle East and North Africa 59.7 5.5 60.4 5.5 ======================================== North America 175.1 16.2 191.6 17.4 ======================================== Latin America 78.6 7.3 73.4 6.7 ========================================
For footnotes, see page 59.
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Geographical regions (continued)
Europe
Our principal banking operations in Europe are HSBC Bank plc in the UK, HSBC France, HSBC Private Bank (Suisse) SA and HSBC Trinkaus & Burkhardt AG in Germany. Through these operations we provide a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.
In total, we operate in 24 countries and territories in Europe.
Half-year to ------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 4,653 5,115 4,890 ======================================= Net fee income 2,250 2,447 2,444 ======================================= Net trading income 2,886 1,913 2,147 ======================================= Other income 1,333 1,994 108 ======================================= ------- ------- ------- Net operating income 12 11,122 11,469 9,589 ======================================= LICs 13 (398) (288) (402) ======================================= ------- ------- ------- Net operating income 10,724 11,181 9,187 ======================================= Total operating expenses (9,144) (8,978) (10,755) ======================================= ------- ------- ------- Operating profit/(loss) 1,580 2,203 (1,568) ======================================= Income from associates 14 (1) 2 6 ======================================= ------- ------- ------- Profit/(loss) before tax 1,579 2,205 (1,562) ======================================= ------- ------- ------- Loans and advances to customers (net) 365,325 400,452 392,041 ======================================= Customer accounts 482,992 536,251 497,876 ======================================= RoRWA 0.9% 1.2% (0.9)% ======================================= Cost efficiency ratio 82.2% 78.3% 112.2 % ======================================= Period-end staff numbers 65,387 69,867 67,509 =======================================
For footnotes, see page 59.
Asia
Our principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited, and Hang Seng Bank Limited. The former is the largest bank incorporated in Hong Kong and is our flagship bank in Asia.
We offer a wide range of banking and financial services in mainland China through our local subsidiaries, HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications Co., Limited ('BoCom').
Outside Hong Kong and mainland China, we conduct business in 18 countries and territories in Asia, with particularly strong coverage in Australia, India, Indonesia, Malaysia, Singapore and Taiwan.
Half-year to ------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 6,141 6,060 6,124 Net fee income 2,571 3,291 2,741 Net trading income 1,703 1,779 1,311 Other income 1,337 2,935 1,062 ======================================= ------- ------- ------- Net operating income 12 11,752 14,065 11,238 ======================================= LICs 13 (344) (246) (447)
======================================= ------- ------- ------- Net operating income 11,408 13,819 10,791 ======================================= Total operating expenses (5,245) (5,457) (5,432) ======================================= ------- ------- ------- Operating profit 6,163 8,362 5,359 ======================================= Income from associates 14 992 1,038 1,004 ======================================= ------- ------- ------- Profit before tax 7,155 9,400 6,363 ======================================= ------- ------- ------- Loans and advances to customers (net) 352,404 371,639 356,375 ======================================= Customer accounts 610,200 599,940 598,620 ======================================= RoRWA 3.1% 3.8% 2.7% ======================================= Cost efficiency ratio 44.6% 38.8% 48.3% ======================================= Period-end staff numbers 119,699 120,588 120,144 =======================================
For footnotes, see page 59.
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Middle East and North Africa
The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us wide coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the Kingdom's sixth largest bank by total assets.
Half-year to ---------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 786 758 773 ======================================= Net fee income 311 325 308 ======================================= Net trading income 185 167 158 ======================================= Other income 52 39 37 ======================================= ------ ------ ------ Net operating income 12 1,334 1,289 1,276 ======================================= LICs 13 (40) (31) (268) ======================================= ------ ------ ------ Net operating income 1,294 1,258 1,008 ======================================= Total operating expenses (559) (624) (610) ======================================= ------ ------ ------ Operating profit 735 634 398 ======================================= Income from associates 14 250 267 238 ======================================= ------ ------ ------ Profit before tax 985 901 636 ======================================= ------ ------ ------ Loans and advances to customers (net) 29,774 31,207 29,894 ======================================= Customer accounts 35,094 38,186 36,468 ======================================= RoRWA 3.3% 2.9% 2.0% ======================================= Cost efficiency ratio 41.9% 48.4% 47.8% ======================================= Period-end staff numbers 7,693 8,208 8,066 =======================================
For footnotes, see page 59.
North America
Our North American businesses are principally located in the US and Canada. Operations in the US are primarily conducted through HSBC Bank USA, N.A. and HSBC Finance Corporation, a national consumer finance company. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC Securities (USA) Inc. Canadian operations are conducted through HSBC Bank Canada.
Half-year to ------------------------------------- 30 Jun 30 Jun 31 Dec 2016 2015 2015 Footnotes $m $m $m Net interest income 2,236 2,278 2,254 ======================================= Net fee income 970 1,057 961 ======================================= Net trading income 221 296 249 ======================================= Other income 525 495 67 ======================================= ------- ------- ------- Net operating income 12 3,952 4,126 3,531 ======================================= LICs 13 (617) (153) (391) ======================================= ------- ------- ------- Net operating income 3,335 3,973 3,140 ======================================= Total operating expenses (3,283) (3,287) (3,214) ======================================= ------- ------- ------- Operating profit/(loss) 52 686 (74) ======================================= ------- Income from associates 14 (2) 4 (2) ======================================= ------- ------- ------- Profit/(loss) before tax 50 690 (76) ======================================= ------- ------- ------- Loans and advances to customers (net) 122,509 132,340 128,851 ======================================= Customer accounts 142,152 137,296 135,152 ======================================= RoRWA 0.1% 0.6% (0.1)% ======================================= Cost efficiency ratio 83.1% 79.7% 91.0% ======================================= Period-end staff numbers 18,838 20,338 19,656 =======================================
For footnotes, see page 59.
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Geographical regions (continued)
Latin America
In 1H16, our operations in Latin America principally comprised HSBC Bank Brasil S.A.-Banco Múltiplo and HSBC México, S.A. In addition to banking services, we operated insurance businesses in Brazil, Mexico and Argentina. During 2015 our operations in Brazil were classified as held for sale. On 1 July, we completed the sale of our operations in Brazil.
Half-year to ---------------------------------------------------------------------------------------------------------------- 30 Jun 2016 30 Jun 2015 31 Dec 2015 ------------------------------------ ------------------------------------ ------------------------------------ Total Other Total Other Total Other Latin Latin Latin Latin Latin Latin America Brazil America America Brazil America America Brazil America Footnotes $m $m $m $m $m $m $m $m $m Net interest income 1,976 974 1,002 2,249 1,214 1,035 2,069 1,011 1,058 =============== Net fee income 484 233 251 605 307 298 526 253 273 =============== Net trading income 297 144 153 402 242 160 262 128 134 =============== Other income 168 112 56 302 279 23 177 150 27 =============== ------- ------ ------- ------- ------ ------- ------- ------ ------- Net operating income 12 2,925 1,463 1,462 3,558 2,042 1,516 3,034 1,542 1,492
=============== LICs 13 (967) (748) (219) (721) (498) (223) (774) (467) (307) =============== ------- ------ ------- ------- ------ ------- ------- ------ ------- Net operating income 1,958 715 1,243 2,837 1,544 1,293 2,260 1,075 1,185 =============== Total operating expenses (2,012) (1,070) (942) (2,405) (1,353) (1,052) (2,381) (1,260) (1,121) =============== ------- ------ ------- ------- ------ ------- ------- ------ ------- Operating (loss)/profit (54) (355) 301 432 191 241 (121) (185) 64 =============== Income from associates 14 (1) (1) - - - - (1) (1) - =============== ------- ------ ------- ------- ------ ------- ------- ------ ------- (Loss)/profit before tax (55) (356) 301 432 191 241 (122) (186) 64 =============== ------- ------ ------- ------- ------ ------- ------- ------ ------- Loans and advances to customers (net) 17,544 - 17,544 18,347 - 18,347 17,293 - 17,293 =============== - reported in held for sale 19,203 19,203 - 20,827 20,827 - 17,001 17,001 - =============== Customer accounts 20,520 - 20,520 24,127 - 24,127 21,470 - 21,470 =============== - reported in held for sale 19,357 19,357 - 19,432 19,432 - 15,094 15,094 - =============== RoRWA (0.1)% (1.6)% 1.9% 1.0% 0.8% 1.3% (0.3)% (0.9)% 0.4% =============== Cost efficiency ratio 68.8% 73.1% 64.4% 67.6% 66.3% 69.4% 78.5% 81.7% 75.1% =============== Period-end staff numbers 39,719 18,835 20,884 40,787 19,641 21,146 39,828 19,145 20,683 ===============
For footnotes, see page 59.
HSBC HOLDINGS PLC
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Analysis by country
Profit/(loss) before tax by priority growth markets within global businesses
Retail Global Banking Banking Global and Wealth Commercial and Private Management Banking Markets Banking Other Total Footnotes $m $m $m $m $m $m Europe 853 1,326 594 (744) (450) 1,579 ================= - UK 872 1,136 196 87 (314) 1,977 ================= - France 8 138 134 4 (72) 212 ================= - Germany 10 36 94 5 (16) 129 ================= - Switzerland - - - (53) (23) (76) ================= - other (37) 16 170 (787) (25) (663) ================= ---------- ---------- --------- -------- ----- ------ Asia 2,081 2,356 2,512 123 83 7,155 ================= - Hong Kong 1,811 1,198 1,092 91 (22) 4,170 ================= - Australia 50 25 59 - (2) 132 ================= - India 11 81 236 6 68 402 ================= - Indonesia (3) 51 67 - (6) 109 ================= - Mainland China 112 754 459 (2) 49 1,372 ================= - Malaysia 29 44 107 - 11 191 ================= - Singapore 26 63 145 28 (2) 260 ================= - Taiwan 14 10 62 - (2) 84 ================= - other 31 130 285 - (11) 435 ================= ---------- ---------- --------- -------- ----- ------ Middle East and North Africa 161 322 506 5 (9) 985 ================= - Egypt 34 62 139 - - 235 ================= - UAE 72 114 184 - (10) 360 ================= - Saudi Arabia 45 79 119 5 3 251 ================= - other 10 67 64 - (2) 139 ================= ---------- ---------- --------- -------- ----- ------ North America (515) 310 159 53 43 50 ================= - US (571) 204 (18) 31 64 (290) ================= - Canada 27 93 148 - (23) 245 ================= - other 29 13 29 22 2 95 ================= ---------- ---------- --------- -------- ----- ------ Latin America (198) (10) 235 6 (88) (55) ================= - Mexico 47 52 51 1 (21) 130 ================= - other (245) (62) 184 5 (67) (185) ================= ---------- ---------- --------- -------- ----- ------ included in other: Brazil 5 (281) (140) 111 4 (51) (357) ================= ---------- ---------- --------- -------- ----- ------ Half-year to 30 Jun 2016 2,382 4,304 4,006 (557) (421) 9,714 ================= ---------- ---------- --------- -------- ----- ------ Europe 863 1,287 905 (23) (827) 2,205 ================= - UK 633 1,115 398 100 (821) 1,425 ================= - France 284 83 241 10 5 623 ================= - Germany 12 30 74 12 (14) 114 ================= - Switzerland - 3 1 (162) - (158) ================= - other (66) 56 191 17 3 201 ================= ---------- ---------- --------- -------- ----- ------ Asia 2,531 2,404 2,683 156 1,626 9,400 ================= - Hong Kong 2,172 1,239 1,238 120 1,464 6,233 ================= - Australia 24 61 128 - (7) 206 ================= - India (3) 46 195 7 90 335 ================= - Indonesia - (29) 38 - 17 26 ================= - Mainland China 184 817 544 (1) 38 1,582 ================= - Malaysia 67 60 105 - 8 240 ================= - Singapore 45 63 139 31 (17) 261 ================= - Taiwan 11 12 66 - (5) 84 ================= - other 31 135 230 (1) 38 433 ================= ---------- ---------- --------- -------- ----- ------
HSBC HOLDINGS PLC
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Geographical regions (continued)
Retail Global Banking Banking Global and Wealth Commercial and Private Management Banking Markets Banking Other Total $m $m $m $m $m $m Middle East and North Africa Footnotes 172 273 470 8 (22) 901 ================= -------- - Egypt 26 50 128 - (1) 203 ================= - UAE 83 76 157 (1) (21) 294 ================= - Saudi Arabia 54 82 118 10 - 264 ================= - other 9 65 67 (1) - 140 ================= ---------- ---------- -------- -------- ------ ------ North America (172) 423 356 37 46 690 ================= - US (219) 204 190 37 70 282 ================= - Canada 33 206 142 - (17) 364 ================= - other 14 13 24 - (7) 44 ================= ---------- ---------- -------- -------- ------ ------ Latin America (32) 136 340 2 (14) 432 ================= - Mexico 33 28 56 - 1 118 ================= - other (65) 108 284 2 (15) 314 ================= ---------- ---------- -------- -------- ------ ------ included in other: Brazil 5 (74) 32 208 2 23 191 ================= ---------- ---------- -------- -------- ------ ------ Half-year to 30 Jun 2015 3,362 4,523 4,754 180 809 13,628 ================= ---------- ---------- -------- -------- ------ ------ Europe 331 1,032 143 37 (3,105) (1,562) ================= - UK 331 925 (14) 69 (3,036) (1,725) ================= - France 104 69 (129) 4 (32) 16 ================= - Germany 11 36 83 8 (13) 125 ================= - Switzerland - 5 (1) (58) (4) (58) ================= - other (115) (3) 204 14 (20) 80 ================= ---------- ---------- -------- -------- ------ ------ Asia 1,855 2,104 2,251 96 57 6,363 ================= - Hong Kong 1,627 1,145 881 57 (137) 3,573 ================= - Australia 37 18 110 - 2 167 ================= - India (22) 51 184 7 51 271 ================= - Indonesia (6) (83) 42 - 14 (33) ================= - Mainland China 113 752 518 (2) 97 1,478 ================= - Malaysia 52 35 110 - 5 202 ================= - Singapore 35 59 120 34 (2) 246 ================= - Taiwan - 12 67 - (8) 71 ================= - other 19 115 219 - 35 388 ================= ---------- ---------- -------- -------- ------ ------ Middle East and North Africa 100 135 403 8 (10) 636 ================= - Egypt 24 51 128 - 4 207 ================= - UAE 8 (57) 135 1 (14) 73 ================= - Saudi Arabia 58 87 84 6 1 236 ================= - other 10 54 56 1 (1) 120 ================= ---------- ---------- -------- -------- ------ ------ North America (473) 150 237 22 (12) (76) ================= - US (517) 98 165 28 (15) (241) ================= - Canada 25 53 47 - (4) 121 ================= - other 19 (1) 25 (6) 7 44 ================= ---------- ---------- -------- -------- ------ ------ Latin America (208) 29 122 1 (66) (122) ================= ---------- - Mexico 40 (33) (71) (3) (19) (86) ================= - other (248) 62 193 4 (47) (36) ================= included in other: Brazil 5 (270) (21) 128 4 (27) (186) ================= ---------- ---------- -------- -------- ------ ------ Half-year to 31 Dec 2015 1,605 3,450 3,156 164 (3,136) 5,239 ================= ---------- ---------- -------- -------- ------ ------
For footnote, see page 59.
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Other information
Other information
Funds under management
Half-year to -------------------------------- 30 Jun 31 Dec 2016 30 Jun 2015 2015 $bn $bn $bn Funds under management by business Global Asset Management 426 440 419 ======================================== Global Private Banking 232 280 261 ======================================== Affiliates 3 6 4 ======================================== Other 209 237 212 ======================================== ------ ----------- ------ 870 963 896 ------ ----------- ------ At beginning of period 896 954 963 ======================================== Net new money (8) 3 (6) ======================================== Value change 6 32 (30) ======================================== Exchange and other (24) (26) (31) ======================================== ------ ----------- ------ At end of period 870 963 896 ======================================== ------ ----------- ------
HSBC HOLDINGS PLC
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Other information (continued)
Reconciliation of reported results to adjusted performance
Reconciliation of reported results to adjusted performance - geographical regions
Half-year to 30 Jun 2016 -------------------------------------------------------------------------- North Latin Hong Europe Asia MENA America America Total UK Kong Footnotes $m $m $m $m $m $m $m $m Revenue 12 Reported 15 11,122 11,752 1,334 3,952 2,925 29,470 8,450 7,061 ==================== Significant items (1,522) (66) (5) (74) 65 (1,602) (1,391) (22) ==================== - debit valuation adjustment ('DVA') on derivative contracts (110) (63) - (13) 35 (151) (100) (25) ==================== - disposal costs of Brazilian operations - - - - 32 32 - - ==================== - fair value movements on non-qualifying hedges 22 277 13 - 109 (2) 397 239 16 ==================== - gain on sale of several tranches of real estate secured accounts in the US - - - (68) - (68) - - ==================== - gain on disposal of our membership interest in Visa
Europe (584) - - - - (584) (441) - ==================== - own credit spread 23 (1,103) (16) (5) (102) - (1,226) (1,087) (13) ==================== - releases arising from the ongoing review of compliance with the UK Consumer Credit Act (2) - - - - (2) (2) - ==================== ------ ------ ----- ------- ------- ------- ------ ------ Adjusted 15 9,600 11,686 1,329 3,878 2,990 27,868 7,059 7,039 ==================== ------ ------ ----- ------- ------- ------- ------ ------ LICs 13 Reported (398) (344) (40) (617) (967) (2,366) (261) (143) ==================== ------ ------ ----- ------- ------- ------- ------ ------ Adjusted (398) (344) (40) (617) (967) (2,366) (261) (143) ==================== ------ ------ ----- ------- ------- ------- ------ ------ Operating expenses Reported 15 (9,144) (5,245) (559) (3,283) (2,012) (18,628) (6,210) (2,760) ==================== Significant items 1,841 114 3 708 17 2,683 873 62 - costs-to-achieve 774 114 3 121 6 1,018 674 62 ==================== - costs to establish UK ring-fenced bank 94 - - - - 94 94 - ==================== - disposal costs of Brazilian operations - - - - 11 11 - - ==================== - impairment of Global Private Banking - Europe goodwill 800 - - - - 800 - - ==================== - regulatory provisions in GPB 4 - - - - 4 - - ==================== - settlements and provisions in connection with legal matters 136 - - 587 - 723 72 - ==================== - UK customer redress programmes 33 - - - - 33 33 - ==================== Adjusted 15 (7,303) (5,131) (556) (2,575) (1,995) (15,945) (5,337) (2,698) ==================== ------ ------ ----- ------- ------- ------- ------ ------ Share of profit in associates and joint ventures Reported (1) 992 250 (2) (1) 1,238 (2) 12 ==================== ------ ------ ----- ------- ------- ------- ------ ------ Adjusted (1) 992 250 (2) (1) 1,238 (2) 12 ==================== ------ ------ ----- ------- ------- ------- ------ ------ Profit before tax Reported 1,579 7,155 985 50 (55) 9,714 1,977 4,170 ==================== Significant items 319 48 (2) 634 82 1,081 (518) 40 ==================== - revenue (1,522) (66) (5) (74) 65 (1,602) (1,391) (22) ==================== - operating expenses 1,841 114 3 708 17 2,683 873 62 ==================== ------ ------ ----- ------- ------- ------- ------ ------ Adjusted 1,898 7,203 983 684 27 10,795 1,459 4,210 ==================== ------ ------ ----- ------- ------- ------- ------ ------
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Half-year to 30 Jun 2015 ---------------------------------------------------------------------------- North Latin Hong Europe Asia MENA America America Total UK Kong Footnotes $m $m $m $m $m $m $m $m Revenue 12 Reported 15 11,469 14,065 1,289 4,126 3,558 32,943 8,246 9,130 ================== Currency translation 15 (523) (252) (33) (61) (758) (1,594) (449) (16) ================== Significant items (580) (1,419) (3) (157) (12) (2,171) (539) (1,380) ================== ------ ------ ----- ------- --------- ------- ------ ------ - DVA on derivative contracts (79) (50) (1) (22) (13) (165) (67) (14) ================== - fair value movements on non-qualifying hedges 22 23 - - 21 1 45 44 5 ================== - gain on sale of several tranches of real estate secured accounts in the US - - - (17) - (17) - - ================== - gain on the partial sale of shareholding in Industrial Bank - (1,372) - - - (1,372) - (1,372) ================== - own credit spread 23 (512) 3 (2) (139) - (650) (504) 1 ================== - releases arising from the ongoing review of compliance with the UK Consumer Credit Act (12) - - - - (12) (12) - ================== ------ ------ ----- ------- --------- ------- ------ ------ Adjusted 15 10,366 12,394 1,253 3,908 2,788 29,178 7,258 7,734 ================== ------ ------ ----- ------- --------- ------- ------ ------ LICs 13 Reported (288) (246) (31) (153) (721) (1,439) (72) (58) ================== Currency translation 13 8 - 3 136 160 6 1 ================== ------ ------ ----- ------- --------- ------- ------ ------ Adjusted (275) (238) (31) (150) (585) (1,279) (66) (57) ================== ------ ------ ----- ------- --------- ------- ------ ------ Operating expenses Reported 15 (8,978) (5,457) (624) (3,287) (2,405) (19,187) (6,753) (2,855) ================== Currency translation 15 387 144 9 32 498 1,037 327 5 ================== Significant items 1,132 8 1 398 6 1,545 967 6 ================== - regulatory provisions in GPB 147 - - - - 147 - - ================== - restructuring and other related costs 68 8 1 34 6 117 50 6 ================== - settlement and provisions in connection with legal matters 780 - - 364 - 1,144 780 - ================== - UK customer redress programmes 137 - - - - 137 137 - ================== ------ ------ ----- ------- --------- ------- ------ ------ Adjusted 15 (7,459) (5,305) (614) (2,857) (1,901) (16,605) (5,459) (2,844) ================== ------ ------ ----- ------- --------- ------- ------ ------ Share of profit in associates and joint ventures Reported 2 1,038 267 4 - 1,311 4 16 ================== Currency translation 2 (55) - (1) (1) (55) (1) - ================== ------ ------ ----- ------- --------- ------- ------ ------ Adjusted 4 983 267 3 (1) 1,256 3 16 ================== ------ ------ ----- ------- --------- ------- ------ ------ Profit before tax Reported 2,205 9,400 901 690 432 13,628 1,425 6,233 ================== Currency translation (121) (155) (24) (27) (125) (452) (117) (10) Significant items 552 (1,411) (2) 241 (6) (626) 428 (1,374) - revenue (580) (1,419) (3) (157) (12) (2,171) (539) (1,380) ================== - operating expenses 1,132 8 1 398 6 1,545 967 6 ================== ------ ------ ----- ------- --------- ------- ------ ------ Adjusted 2,636 7,834 875 904 301 12,550 1,736 4,849
================== ------ ------ ----- ------- --------- ------- ------ ------
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Other information (continued)
Reconciliation of reported results to adjusted performance - geographical regions (continued)
Half-year to 31 Dec 2015 --------------------------------------------------------------------------- North Latin Hong Europe Asia MENA America America Total UK Kong Footnotes $m $m $m $m $m $m $m $m Revenue 12 Reported 15 9,589 11,238 1,276 3,531 3,034 26,857 7,247 6,486 ==================== Currency translation 15 (439) (50) (21) (7) (267) (763) (446) (14) ==================== Significant items (76) (12) (7) 255 (24) 136 (56) (3) ==================== - DVA on derivative contracts (16) (8) - 1 (42) (65) (11) 1 ==================== - disposal costs of Brazilian operations - - - - 18 18 - - ==================== - fair value movements on non-qualifying hedges 22 177 2 - 103 - 282 160 1 ==================== - loss on sale of several tranches of real estate secured accounts in the US - - - 231 - 231 - - ==================== - own credit spread 23 (259) (6) (7) (80) - (352) (227) (5) ==================== - provisions arising from the ongoing review of compliance with the UK Consumer Credit Act 22 - - - - 22 22 - ==================== ------- ------ ----- ------- ------- ------- ------ ------ Adjusted 15 9,074 11,176 1,248 3,779 2,743 26,230 6,745 6,469 ==================== ------- ------ ----- ------- ------- ------- ------ ------ LICs 13 Reported (402) (447) (268) (391) (774) (2,282) (176) (97) ==================== Currency translation 7 (5) 1 (3) 19 19 9 - ==================== ------- ------ ----- ------- ------- ------- ------ ------ Adjusted (395) (452) (267) (394) (755) (2,263) (167) (97) ==================== ------- ------ ----- ------- ------- ------- ------ ------ Operating expenses Reported 15 (10,755) (5,432) (610) (3,214) (2,381) (20,581) (8,802) (2,831) ==================== Currency translation 15 337 26 6 2 169 519 357 6 ==================== Significant items 1,273 122 14 453 179 2,041 1,184 43 ==================== - costs-to-achieve 600 122 14 103 69 908 536 43 ==================== - costs to establish UK ring-fenced bank 89 - - - - 89 89 - ==================== - disposal costs of Brazilian operations - - - - 110 110 - - ==================== - regulatory provisions in GPB 25 - - - - 25 - - ==================== - settlements and provisions in connection with legal matters 155 - - 350 - 505 155 - ==================== - UK customer redress programmes 404 - - - - 404 404 - ==================== ------- ------ ----- ------- ------- ------- ------ ------ Adjusted 15 (9,145) (5,284) (590) (2,759) (2,033) (18,021) (7,261) (2,782) ==================== ------- ------ ----- ------- ------- ------- ------ ------ Share of profit in associates and joint ventures Reported 6 1,004 238 (2) (1) 1,245 6 15 ==================== Currency translation - (30) (1) - 1 (30) 1 - ==================== ------- ------ ----- ------- ------- ------- ------ ------ Adjusted 6 974 237 (2) - 1,215 7 15 ==================== ------- ------ ----- ------- ------- ------- ------ ------ Profit before tax Reported (1,562) 6,363 636 (76) (122) 5,239 (1,725) 3,573 ==================== Currency translation (95) (59) (15) (8) (78) (255) (79) (8) ==================== Significant items 1,197 110 7 708 155 2,177 1,128 40 ==================== - revenue (76) (12) (7) 255 (24) 136 (56) (3) ==================== - operating expenses 1,273 122 14 453 179 2,041 1,184 43 ==================== ------- ------ ----- ------- ------- ------- ------ ------ Adjusted (460) 6,414 628 624 (45) 7,161 (676) 3,605 ==================== ------- ------ ----- ------- ------- ------- ------ ------
For footnotes, see page 59.
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Reconciliation of reported results to adjusted performance - global businesses
Half-year to 30 Jun 2016 ------------------------------------------------------- RBWM CMB GB&M GPB Other Total Footnotes $m $m $m $m $m $m Revenue 12 Reported 15 11,117 7,509 8,913 973 4,028 29,470 ============================ Significant items (280) (230) (131) (2) (959) (1,602) - debit value adjustment ('DVA') on derivative contracts - - (151) - - (151) ============================ - disposal costs of Brazilian operations - - - - 32 32 ============================ - fair value movements on non-qualifying hedges 22 142 - 20 - 235 397 ============================ - gain on sale of several tranches of real estate secured accounts in the US (68) - - - - (68) ============================ - gain on disposal of our membership interest in Visa Europe (354) (230) - - - (584) ============================ - own credit spread 23 - - - - (1,226) (1,226) ============================ - releases arising from the ongoing review of compliance with the UK Consumer Credit Act - - - (2) - (2) ============================ ------ ------ ------ ------ ------ ------- Adjusted 15 10,837 7,279 8,782 971 3,069 27,868 ============================ ------ ------ ------ ------ ------ ------- LICs 13 Reported (1,120) (833) (425) 11 1 (2,366) ============================ ------ ------ ------ ------ ------ ------- Adjusted (1,120) (833) (425) 11 1 (2,366) ============================ ------ ------ ------ ------ ------ ------- Operating expenses Reported 15 (7,808) (3,143) (4,749) (1,545) (4,453) (18,628) ============================ Significant items 737 54 243 805 844 2,683 ============================ - costs-to-achieve 142 37 91 5 743 1,018 ============================ - costs to establish UK ring-fenced bank - - - - 94 94 ============================ - disposal costs of Brazilian operations 8 2 (2) - 3 11 ============================ - impairment of Global Private Banking - Europe goodwill - - - 800 - 800 ============================ - regulatory provisions in GPB - - - - 4 4
============================ - settlements and provisions in connection with legal matters 587 - 136 - - 723 ============================ - UK customer redress programmes - 15 18 - - 33 ============================ ------ ------ ------ ------ ------ ------- Adjusted 15 (7,071) (3,089) (4,506) (740) (3,609) (15,945) ============================ ------ ------ ------ ------ ------ ------- Share of profit in associates and joint ventures Reported 193 771 267 4 3 1,238 ============================ ------ ------ ------ ------ ------ ------- Adjusted 193 771 267 4 3 1,238 ============================ ------ ------ ------ ------ ------ ------- Profit before tax Reported 2,382 4,304 4,006 (557) (421) 9,714 ============================ Significant items 457 (176) 112 803 (115) 1,081 ============================ - revenue (280) (230) (131) (2) (959) (1,602) ============================ - operating expenses 737 54 243 805 844 2,683 ============================ ------ ------ ------ ------ ------ ------- Adjusted 2,839 4,128 4,118 246 (536) 10,795 ============================ ------ ------ ------ ------ ------ -------
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Other information (continued)
Reconciliation of reported results to adjusted performance - global businesses (continued)
Half-year to 30 Jun 2015 ------------------------------------------------------- RBWM CMB GB&M GPB Other Total Footnotes $m $m $m $m $m $m Revenue 12 Reported 15 12,442 7,534 10,261 1,177 4,687 32,943 Currency translation 15 (726) (393) (464) (28) (61) (1,594) Significant items (23) - (143) (24) (1,981) (2,171) - DVA on derivative contracts - - (165) - - (165) - fair value movement on non-qualifying hedges 22 (18) - 22 - 41 45 - gain on sale of several tranches of real estate secured accounts in the US (17) - - - - (17) - gain on the partial sale of shareholding in Industrial Bank - - - - (1,372) (1,372) - own credit spread 23 - - - - (650) (650) - provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act 12 - - (24) - (12) ============================ ------ ------ ------ ------ ------ ------- Adjusted 15 11,693 7,141 9,654 1,125 2,645 29,178 ============================ ------ ------ ------ ------ ------ ------- LICs 13 Reported (934) (511) 11 (5) - (1,439) Currency translation 118 42 - - - 160 ============================ ------ ------ ------ ------ ------ ------- Adjusted (816) (469) 11 (5) - (1,279) ============================ ------ ------ ------ ------ ------ ------- Operating expenses Reported 15 (8,354) (3,321) (5,790) (1,001) (3,879) (19,187) Currency translation 15 556 187 250 27 95 1,037 Significant items 472 52 816 165 40 1,545 - regulatory provisions in GBP - - - 147 - 147 - restructuring and other related costs 32 5 22 18 40 117 - settlements and provisions in connection with legal matters 350 - 794 - - 1,144 - UK customer redress programmes 90 47 - - - 137 ============================ ------ ------ ------ ------ ------ ------- Adjusted 15 (7,326) (3,082) (4,724) (809) (3,744) (16,605) ============================ ------ ------ ------ ------ ------ ------- Share of profit in associates and joint ventures Reported 208 821 272 9 1 1,311 Currency translation (6) (40) (9) - - (55) ============================ ------ ------ ------ ------ ------ ------- Adjusted 202 781 263 9 1 1,256 ============================ ------ ------ ------ ------ ------ ------- Profit before tax Reported 3,362 4,523 4,754 180 809 13,628 Currency translation (58) (204) (223) (1) 34 (452) Significant items 449 52 673 141 (1,941) (626) - revenue (23) - (143) (24) (1,981) (2,171) - operating expenses 472 52 816 165 40 1,545 ============================ ------ ------ ------ ------ ------ ------- Adjusted 3,753 4,371 5,204 320 (1,098) 12,550 ============================ ------ ------ ------ ------ ------ -------
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Half-year to 31 Dec 2015 ----------------------------------------------------- RBWM CMB GB&M GPB Other Total Footnotes $m $m $m $m $m $m Revenue 12 Reported 15 11,074 7,336 7,972 995 2,917 26,857 ============================== Currency translation 15 (328) (213) (207) 1 (18) (763) ============================== Significant items 349 17 (56) (7) (167) 136 ============================== - disposal costs of Brazilian operations - - - - 18 18 - DVA on derivative contracts - - (65) - - (65) ============================== - fair value movements on non-qualifying hedges 22 108 (1) 9 (1) 167 282 ============================== - loss on sale of several tranches of real estate secured accounts in the US 231 - - - - 231 ============================== - own credit spread 23 - - - - (352) (352) - provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act 10 18 - (6) - 22 ============================== ------ ------ ------ ---- ------ ------- Adjusted 15 11,095 7,140 7,709 989 2,732 26,230 ============================== ------ ------ ------ ---- ------ ------- LICs 13 Reported (1,005) (1,259) (11) (7) - (2,282) ============================== Currency translation 16 7 (4) - - 19 ============================== ------ ------ ------ ---- ------ ------- Adjusted (989) (1,252) (15) (7) - (2,263) ============================== ------ ------ ------ ---- ------ ------- Operating expenses Reported 15 (8,666) (3,423) (5,044) (831) (6,054) (20,581) ============================== Currency translation 15 260 92 149 (10) 30 519 ============================== Significant items 1,065 150 219 41 566 2,041 ============================== - costs-to-achieve 198 163 69 16 462 908 - costs to establish UK ring-fenced bank - - - - 89 89 ============================== - disposal costs of Brazilian operations 66 16 14 1 13 110 - regulatory provisions in
GPB - - - 24 1 25 ============================== - settlements and provisions in connection with legal matters 350 - 155 - - 505 - UK customer redress programmes 451 (29) (19) - 1 404 ============================== ------ ------ ------ ---- ------ ------- Adjusted 15 (7,341) (3,181) (4,676) (800) (5,458) (18,021) ============================== ------ ------ ------ ---- ------ ------- Share of profit in associates and joint ventures Reported 202 796 239 7 1 1,245 ============================== Currency translation (5) (21) (4) - - (30) ============================== ------ ------ ------ ---- ------ ------- Adjusted 197 775 235 7 1 1,215 ============================== ------ ------ ------ ---- ------ ------- Profit before tax Reported 1,605 3,450 3,156 164 (3,136) 5,239 ============================== Currency translation (57) (135) (66) (9) 12 (255) ============================== Significant items 1,414 167 163 34 399 2,177 ============================== - revenue 349 17 (56) (7) (167) 136 - operating expenses 1,065 150 219 41 566 2,041 ============================== ------ ------ ------ ---- ------ ------- Adjusted 2,962 3,482 3,253 189 (2,725) 7,161 ============================== ------ ------ ------ ---- ------ -------
For footnotes, see page 59.
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Other information (continued)
Footnotes to pages 2 to 58
1 Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within GB&M's net trading income as an interest expense. In the statutory presentation, internal interest income and expense are eliminated. 2 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). 3 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds. 4 Net interest margin is net interest income expressed as an annualised percentage of AIEA. 5 Our operations in Brazil are classified as held for sale, with balance sheet accounts classified to 'assets held for sale' and 'liabilities of disposal groups held for sale'. There is no separate income statement classification. 6 Adjusted RoRWA is calculated using adjusted pre-tax return and adjusted average RWAs. RoRWAs are calculated using annualised PBT and an average of RWAs at quarter-year ends. A reconciliation between reported and adjusted performance is provided on page 53. 7 'Currency translation adjustment' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous period-end at the rates of exchange applicable at the current period-end. 8 The main items reported under 'Other' are the results of HSBC's holding company and financing operations, which include: net interest earned on free capital held centrally; operating costs incurred by the head office operations in providing stewardship and central management services to HSBC; costs incurred by the Group Service Centres and Shared Service Organisations, and their associated recoveries; the UK bank levy; unallocated investment activities; centrally held investment companies; gains arising from the dilution of interests in associates and joint ventures; and gains from certain property transactions. 'Other' also includes part of the movement in the fair value of long-term debt designated at fair value (the remainder of the Group's movement on own debt is included in GB&M). 9 Assets by geographical region and global businesses include intra-HSBC items. These items are eliminated under the headings 'Intra-HSBC items' or 'Inter-segment elimination', as appropriate. 10 The Principal RBWM business measure excludes the effects of the US run-off portfolio. We believe that looking at the Principal RBWM business allows management to more clearly discuss the cause of material changes from period to period in the ongoing business and to assess the factors and trends in the business that are expected to have a material effect in future years. 11 Other income/expense in this context comprises where applicable net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders. 12 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue. 13 Loan impairment charges and other credit risk provisions. 14 Share of profit in associates and joint ventures. 15 Amounts are non-additive across geographical regions and global businesses due to inter-company transactions within the Group. 16 'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRSs basis, the offset to these tax credits is included within 'Other'. 17 'Client assets' are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet. 18 Inter-segment elimination comprises the costs of shared services and Group Service Centres included within 'Other' which are recovered from global businesses, and the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's 'Net trading income' on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column. 19 Net insurance claims and benefits paid and movement in liabilities to policyholders. 20 'Employee expenses' comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' category are shown in 'Other operating expenses'. 21 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group. 22 Excludes items where there are substantial offsets in the income statement for the same period. 23 'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.
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Risk
Risk ======================================== Areas of special interest 60 Credit risk 61 Liquidity and funding 75 Market risk 78 Operational risk 83 Reputational risk 84 Risk management of insurance operations 84 ========================================
There have been no material changes to the policies and practices regarding risk management and governance described in the Annual Report and Accounts 2015.
A summary of our risk management policies and practices is provided in the Appendix to Risk on page 193 of the Annual Report and Accounts 2015.
Areas of special interest
During 1H16, we considered a number of particular areas because of the significant effect they may have on the Group. While some of these areas may have already been identified in our top and emerging risks (see page 16), further details of the actions taken in 1H16 are provided below.
The Monitor
Under the agreements entered into with the Department of Justice and the Financial Conduct Authority in 2012, including the five-year US deferred prosecution agreement, the Monitor was appointed to produce annual assessments of the effectiveness of the Group's anti-money laundering and sanctions compliance programme. The work of the Monitor is described on page 116 of the Annual Report and Accounts 2015.
We are working to implement the agreed recommendations flowing from the Monitor's reviews. The Monitor's third annual follow-up review is under way.
The 'US deferred prosecution agreement and related agreements and consent orders' is classified as a top and emerging risk, and is discussed on page 17.
Regulatory stress tests
The Group is participating in the Bank of England's 2016 concurrent stress test programme, which involves all major UK banks. The Bank of England will publish the results alongside the Financial Stability Report in the fourth quarter of 2016.
We also participated on a Group-wide basis in the European Banking Authority ('EBA') stress testing exercise. The results were published on 29 July 2016. Under the adverse scenario and methodology prescribed for this exercise, the Group maintained a ratio well above minimum regulatory requirements.
HSBC North America Holdings Inc. ('HNAH') participated in the 2016 Comprehensive Capital Analysis and Review ('CCAR') and Dodd-Frank Act Stress Testing ('DFAST') programmes of the Federal Reserve Board ('FRB'); HSBC Bank USA, N.A. participated in the 2016 DFAST programme of the
Office of the Comptroller of the Currency. Submissions were made on 5 April 2016 and the results of the FRB's DFAST process was disclosed on 23 June 2016. The results showed that HNAH had post-stress capital ratios which exceeded the regulatory minimums under both a supervisory adverse and severely adverse scenario. On 29 June 2016, the results of the CCAR process were announced and HNAH received a non-objection from the FRB to its 2016 capital plan.
Other entities in the Group, including The Hongkong and Shanghai Banking Corporation Limited, continue to participate in regional regulatory stress test activities.
A summary of our approach to stress testing and scenario analysis is provided on page 103 of the Annual Report and Accounts 2015.
The UK's referendum on EU membership
Following the UK electorate's vote to leave the European Union ('EU') in a national referendum, there has been a period of volatility against a backdrop of uncertainty, which is likely to continue for some time. We were aware of the potential for market disruption in the aftermath of a vote to leave the EU and took steps to plan for this outcome.
During 2015 and the first half of 2016, we undertook a number of different analyses including stress tests to consider the potential impact of a vote to leave the EU on capital positions, key portfolios, liquidity and our customers.
As the referendum approached, our priority was to ensure that we had adequate liquidity in each operating currency across all businesses. We also focused on operational and IT infrastructure resilience in anticipation of higher volumes and potential collateral calls immediately following the referendum. In addition, our global functions were engaged throughout and provided guidance on several issues including the standards of conduct to be maintained during a period of heightened volatility.
We are actively monitoring our portfolio to identify areas of stress, supported by stress testing analyses. Over the coming weeks and months, we intend to continue to work with regulators, governments and our customers in an effort to manage risks as they arise, particularly across those sectors most affected by the outcome. We will also continue to focus on serving and supporting our customers, and delivering on our strategy.
Negotiation of the UK's exit agreement, its future relationship with the EU and its trading relationship with the rest of the world will likely take a number of years to resolve. During this time, uncertainty as to the precise terms of these arrangements and the future legal and regulatory landscape may lead to uncertain economic conditions and market volatility. This may lead to reduced economic growth which could affect both HSBC and our clients.
Among other issues, changes to the UK's future relationship are likely to influence the business model for our London-based European cross-border banking operations, which currently rely on unrestricted access to the European financial services market.
Until the terms and timing of the UK's exit from the EU are confirmed, including the terms on which UK financial institutions will conduct cross-border business post-exit, it is not possible to fully determine the impact on HSBC.
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Risk (continued)
Oil and gas prices
Oil and commodity prices have remained low since the middle of 2014 as a result of existing global supply and demand imbalances, with significant price declines in late 2015 and early 2016. Prices rose during 1H16 reducing the level of stress in the portfolio. However the sector remains challenged with low levels of capital expenditure impacting the oil and gas services sector in particular.
The overall portfolio directly exposed to oil and gas had drawn risk exposures amounting to $31bn at 30 June 2016 (31 December 2015: $29bn) with sub-sectoral distributions as follows: integrated producers 48%, service companies 29%, pure producers 16% and infrastructure companies 7%.
The credit quality distribution of the oil and gas portfolio was as follows: 'strong' and 'good' categories made up 50% of the portfolio, 'satisfactory' 32%, 'sub-standard' 14% and 'impaired' 4%. The majority of the exposures were located in North America, Asia and Europe.
Individually assessed loan impairment charges in 1H16 remained contained at approximately $0.4bn.
The sector remains under enhanced monitoring with risk appetite and new lending significantly curtailed.
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, and also from certain other products such as guarantees and credit derivatives, and also from holding assets in the form of debt securities.
There have been no material changes to the policies and practices for the management of credit risk summarised in the Annual Report and Accounts 2015 in its 'Credit risk' section on page 118 and its Appendix to Risk on page 195.
Credit risk in the first half of 2016
An update on our oil and gas portfolio is provided in 'Areas of special interest' on page 61 of this Interim Report 2016.
Reported loans and advances declined by $36bn mainly due to foreign exchange effects reducing balances by $25bn.
Loan impairment charges for the period were $2.3bn. In wholesale lending, loan impairment charges were mainly in North America, Latin America and Europe. In retail lending, they consisted of impairments mainly in Brazil. More details of loan impairment charges are on page 27.
The commentary that follows is on a constant currency basis, while tables are presented on a reported basis. Information on currency movements is provided on page 72.
In wholesale lending, balances declined by $6.9bn. Significant net decreases included $3.5bn in North America, $2.2bn in Asia and $1.7bn in Europe.
In personal lending, balances decreased by $4.0bn, consisting of $5.9bn in North America partly offset by a $1.0bn increase in Europe.
Summary of credit risk
30 Jun 31 Dec 2016 2015 Footnotes $bn $bn At end of period Maximum exposure to credit risk - total assets subject to credit risk 2,444 2,234 ========================================================== - off-balance sheet commitments subject to credit risk 1 713 713 ========================================================== ------ ------ 3,157 2,947 ------ ------ Gross loans and advances - personal lending 360 374 ========================================================== - wholesale lending 629 650 ========================================================== ------ 989 1,024 ------ ------ Impaired loans - personal lending 9 12 ========================================================== - wholesale lending 13 12 ========================================================== ------ ------ 22 24 ------ ------ Impaired loans as a % of gross loans and advances - personal lending 2.5% 3.1% ========================================================== - wholesale lending 2.0% 1.9% ========================================================== - total 2.2% 2.3% ==========================================================
Impairment allowances $bn $bn - personal lending 2.4 2.9 ========================================================== - wholesale lending 6.6 6.7 ========================================================== ------ ------ 9.0 9.6 ------ ------ Loans and advances net of impairment allowances 980 1,015 ========================================================== 30 Jun 30 Jun 31 Dec 2016 2015 2015 $bn $bn $bn For the period ended Loan impairment charges 2.3 1.5 2.1 ============================== - personal lending 1.1 0.9 0.9 ============================== - wholesale lending 1.2 0.6 1.2 ============================== ------ ------ ------ Other credit risk provisions 0.1 (0.1) 0.2 ============================== 2.4 1.4 2.3 ------ ------ ------
For footnote, see page 87.
Loans and advances
The following table analyses loans and advances by industry sector, and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.
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Gross loans and advances by industry sector and by geographical region
North Latin Europe Asia MENA America America Total As a % of total gross Footnotes $m $m $m $m $m $m loans Personal 159,288 134,416 6,596 53,433 5,981 359,714 36.4 ==================== - first lien residential mortgages 115,637 96,304 2,372 45,687 1,976 261,976 26.5 ==================== - other personal 43,651 38,112 4,224 7,746 4,005 97,738 9.9 ==================== ------- ------- ------ ------- ------- --------- ----- Wholesale Corporate and commercial 179,089 203,162 21,988 63,347 11,373 478,959 48.4 ==================== - manufacturing 35,834 32,902 2,356 16,919 2,659 90,670 9.2 ==================== - international trade and services 59,069 68,347 9,616 11,549 2,637 151,218 15.3 ==================== - commercial real estate 23,268 31,505 606 8,077 1,266 64,722 6.5 ==================== - other property-related 7,637 34,987 1,654 9,448 441 54,167 5.5 ==================== - government 2,953 2,105 1,730 350 623 7,761 0.8 ==================== - other commercial 2 50,328 33,316 6,026 17,004 3,747 110,421 11.1 ==================== ------- ------- ------ ------- ------- --------- ----- Financial 47,018 75,969 9,641 13,658 3,749 150,035 15.2 ==================== - non-bank financial institutions 30,522 16,466 2,472 7,615 761 57,836 5.9 ==================== - banks 16,496 59,503 7,169 6,043 2,988 92,199 9.3 ==================== ------- ------- ------ ------- ------- --------- ----- Total wholesale 226,107 279,131 31,629 77,005 15,122 628,994 63.6 ==================== ------- ------- ------ ------- ------- --------- ----- Total gross loans and advances at 30 Jun 2016 385,395 413,547 38,225 130,438 21,103 988,708 100.0 ==================== ------- ------- ------ ------- ------- --------- ----- Percentage of total gross loans and advances 39.0% 41.8% 3.9% 13.2% 2.1% 100.0% ==================== Personal 170,526 132,707 6,705 58,186 5,958 374,082 36.5 ==================== - first lien residential mortgages 125,544 94,606 2,258 50,117 1,986 274,511 26.8 ==================== - other personal 44,982 38,101 4,447 8,069 3,972 99,571 9.7 ==================== ------- ------- ------ ------- ------- --------- ----- Wholesale Corporate and commercial 191,765 211,224 22,268 62,882 11,374 499,513 48.8 ==================== - manufacturing 39,003 34,272 2,504 17,507 2,572 95,858 9.4 ==================== - international trade and services 62,667 72,199 9,552 11,505 3,096 159,019 15.5 ==================== - commercial real estate 26,256 32,371 690 7,032 1,577 67,926 6.7 ==================== - other property-related 7,323 35,206 1,908 8,982 45 53,464 5.2 ==================== - government 3,653 1,132 1,695 203 772 7,455 0.7 ==================== - other commercial 2 52,863 36,044 5,919 17,653 3,312 115,791 11.3 ==================== ------- ------- ------ ------- ------- --------- ----- Financial 51,969 68,321 10,239 16,308 3,996 150,833 14.7 ==================== - non-bank financial institutions 33,621 13,969 2,321 9,822 681 60,414 5.9 ==================== - banks 18,348 54,352 7,918 6,486 3,315 90,419 8.8 ==================== ------- ------- ------ ------- ------- --------- ----- Total wholesale 243,734 279,545 32,507 79,190 15,370 650,346 63.5 ==================== ------- ------- ------ ------- ------- --------- ----- Total gross loans and advances at 31 Dec 2015 414,260 412,252 39,212 137,376 21,328 1,024,428 100.0 ==================== ------- ------- ------ ------- ------- --------- ----- Percentage of total gross loans and advances 40.4% 40.3% 3.8% 13.4% 2.1% 100.0% ====================
For footnote, see page 87.
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Risk (continued)
Assets held for sale
During 1H15, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' on the balance sheet. Although there was a reclassification on the balance sheet, there was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.
Loans and advances to banks and customers measured at amortised cost
Impairment allowances on loans and Total gross loans and advances advances $m $m As reported 988,708 (8,953) ==================================== Reported in 'Assets held for sale' 28,265 (2,220) ==================================== ------------------------------ ------------- At 30 Jun 2016 1,016,973 (11,173) ==================================== ------------------------------ -------------
At 31 December 2015, the gross loans and advances and related impairment allowances of our Brazilian operations were $23bn and $1.4bn, respectively. Gross loans and advances increased by $4.1 bn, mainly as a result of foreign exchange movements.
Credit quality of financial instruments
We assess credit quality on all financial instruments which bear credit risk. The distribution of financial instruments by credit quality is tabulated below.
Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'
Brazil Other Total $m $m $m Gross loans Loans and advances to customers 20,528 1,644 22,172 ===================================== ------ - personal 6,954 1,529 8,483 ===================================== - corporate and commercial 13,574 115 13,689 ===================================== ------ ----- ------ Financial 6,093 - 6,093 ===================================== - non-bank financial institutions 761 - 761 ===================================== - banks 5,332 - 5,332 ===================================== ------ ----- ------ At 30 Jun 2016 26,621 1,644 28,265 ===================================== ------ ----- ------ Impairment allowances Loans and advances to customers (2,085) (135) (2,220) ===================================== - personal (977) (88) (1,065) ===================================== - corporate and commercial (1,108) (47) (1,155) ===================================== ------ ----- ------ Financial - - - ==================================== - non-bank financial institutions - - - ==================================== - banks - - - ==================================== ------ ----- ------ At 30 Jun 2016 (2,085) (135) (2,220) ===================================== ------ ----- ------
The table below analyses the amount of LICs arising from assets held for sale. They primarily relate to our Brazilian operations, which we sold on 1 July 2016.
Loan impairment charges and other credit risk provisions
Total $m LICs arising from: - assets held for sale 748 ============================== - assets not held for sale 1,618 ============================== ------- Half-year to 30 Jun 2016 2,366 ============================== -------
Distribution of total financial instruments exposed to credit risk by credit quality
Neither past due nor impaired ----------------------------------------------- Past due Total but not gross Impairment Strong Good Satis-factory Sub-standard impaired Impaired amount allowances Total $m $m $m $m $m $m $m $m $m At 30 Jun 2016 1,729,146 342,205 312,992 31,302 12,575 27,001 2,455,221 (11,173) 2,444,048 ============ At 31 Dec 2015 1,553,830 331,141 293,178 26,199 13,030 28,058 2,245,436 (11,027) 2,234,409 ============ % % % % % % % At 30 Jun 2016 70.4 13.9 12.7 1.3 0.6 1.1 100.0 ============ At 31 Dec 2015 69.2 14.7 13.1 1.2 0.6 1.2 100.0 ============
The table above shows the credit quality distribution for all assets exposed to credit risk, including the balances relating to our Brazilian operations. The increase in 'strong' assets is mainly related to increases in cash and balances at central banks, trading assets and derivative assets as a result of the market volatility at the period-end.
Within the 'Past due but not impaired' amount at 30 June 2016, 99% was less than 90 days past due. This percentage was broadly unchanged compared with 31 December 2015.
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Distribution of loans and advances held at amortised cost by credit quality
Neither past due nor impaired --------------------------------------------- Past due Total but not gross Impairment Strong Good Satis-factory Sub-standard impaired Impaired amount allowances Total Footnotes $m $m $m $m $m $m $m $m $m At 30 Jun 2016 Loans and advances to customers 3 445,645 204,657 192,404 20,375 11,509 21,919 896,509 (8,953) 887,556 ================ - personal 301,138 26,959 15,338 839 6,274 9,166 359,714 (2,443) 357,271 ================ - corporate and commercial 112,296 162,277 168,020 19,140 4,757 12,469 478,959 (6,262) 472,697 ================ - non-bank financial institutions 32,211 15,421 9,046 396 478 284 57,836 (248) 57,588 ================ ------- ------- ------------- ------------ -------- -------- ------- ---------- ------- Loans and advances to banks 77,229 8,336 6,239 390 5 - 92,199 - 92,199 ================ At 31 Dec 2015 Loans and advances to customers 3 472,691 214,152 194,393 16,836 12,179 23,758 934,009 (9,555) 924,454 ================ - personal 309,720 29,322 15,021 944 7,568 11,507 374,082 (2,879) 371,203 ================ - corporate and commercial 127,673 168,772 171,466 15,379 4,274 11,949 499,513 (6,435) 493,078 ================ - non-bank financial institutions 35,298 16,058 7,906 513 337 302 60,414 (241) 60,173 ================ ------- ------- ------------- ------------ -------- -------- ------- ---------- ------- Loans and advances to banks 73,226 11,929 4,836 407 1 20 90,419 (18) 90,401 ================
For footnote, see page 87.
This table shows loans and advances held at amortised cost by credit quality distribution.
Impaired loans
Impaired gross loans and advances to customers and banks by industry sector
Impaired loans and advances at 30 Impaired loans and advances at 31 Dec Jun 2016 2015 ------------------------------------ -------------------------------------- Individually Collectively Individually Collectively assessed assessed Total assessed assessed Total $m $m $m $m $m $m Customers 15,017 6,618 21,635 14,482 8,974 23,456 ================== - personal 2,687 6,479 9,166 2,670 8,837 11,507 ================== - corporate and commercial 12,330 139 12,469 11,812 137 11,949 ================== ------------ ------------ -------- ------------ ------------ -------- Financial 284 - 284 321 1 322 ================== ------------ ------------ -------- ------------ ------------ -------- - non-bank financial institutions 284 - 284 301 1 302 ================== - banks - - - 20 - 20 ================== ------------ ------------ -------- ------------ ------------ --------
15,301 6,618 21,919 14,803 8,975 23,778 ------------ ------------ -------- ------------ ------------ --------
On a reported basis, during 1H16 impaired gross loans and advances declined by $1.8bn. This was mainly due to a continued run-off of the US CML portfolio of $2.2bn.
Renegotiated loans and forbearance
The most significant portfolio of renegotiated loans remained in personal loans held by HSBC Finance Corporation ('HSBC Finance') in North America. On a reported basis, during 1H16, total renegotiated loans decreased by $5.9bn. The ongoing run-off and sales of the US CML portfolio reduced
renegotiated loans by $5.4bn. In Europe renegotiated loans reduced mainly as a result of foreign exchange effects.
The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.
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Risk (continued)
Renegotiated loans and advances to customers by geographical region
North Latin Europe Asia MENA America America Total Footnotes $m $m $m $m $m $m First lien residential mortgages 1,333 62 34 5,498 31 6,958 - neither past due nor impaired 467 44 9 1,036 21 1,577 - past due but not impaired 160 5 - 627 3 795 - impaired 706 13 25 3,835 7 4,586 ===================== ------ ----- ----- -------- -------- ------ Other personal lending 300 288 19 912 34 1,553 - neither past due nor impaired 110 151 11 342 9 623 - past due but not impaired 49 14 1 152 1 217 - impaired 141 123 7 418 24 713 ===================== ------ ----- ----- -------- -------- ------ Corporate and commercial 4 4,528 739 1,369 980 390 8,006 - neither past due nor impaired 1,466 117 321 87 59 2,050 - past due but not impaired 93 1 60 - 2 156 - impaired 2,969 621 988 893 329 5,800 ===================== ------ ----- ----- -------- -------- ------ Non-bank financial institutions 276 1 271 - - 548 - neither past due nor impaired 88 - 251 - - 339 - past due but not impaired - - 17 - - 17 - impaired 188 1 3 - - 192 ===================== ------ ----- ----- -------- -------- ------ Renegotiated loans at 30 Jun 2016 6,437 1,090 1,693 7,390 455 17,065 - neither past due nor impaired 2,131 312 592 1,465 89 4,589 - past due but not impaired 302 20 78 779 6 1,185 - impaired 4,004 758 1,023 5,146 360 11,291 ===================== ------ ----- ----- -------- -------- ------ Renegotiated loans as % of total gross loans to customers 1.7% 0.3% 5.5% 5.9% 2.5% 1.9% ===================== Impairment allowances on renegotiated loans 1,090 233 527 729 144 2,723 ===================== First lien residential mortgages 1,461 68 36 10,680 37 12,282 - neither past due nor impaired 512 47 11 3,376 27 3,973 - past due but not impaired 174 5 4 1,567 3 1,753 - impaired 775 16 21 5,737 7 6,556 ===================== ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Other personal lending 298 272 33 1,054 35 1,692 - neither past due nor impaired 131 141 24 410 10 716 - past due but not impaired 51 16 2 173 1 243 - impaired 116 115 7 471 24 733 ===================== ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Corporate and commercial 4 5,215 599 1,411 638 506 8,369 - neither past due nor impaired 1,467 119 343 93 130 2,152 - past due but not impaired 109 - 14 - - 123 - impaired 3,639 480 1,054 545 376 6,094 ===================== ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Non-bank financial institutions 340 4 272 - - 616 - neither past due nor impaired 143 - 248 - - 391 - past due but not impaired - - 24 - - 24 - impaired 197 4 - - - 201 ===================== ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Renegotiated loans at 31 Dec 2015 7,314 943 1,752 12,372 578 22,959 - neither past due nor impaired 2,253 307 626 3,879 167 7,232 - past due but not impaired 334 21 44 1,740 4 2,143 - impaired 4,727 615 1,082 6,753 407 13,584 ===================== ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Renegotiated loans as % of total gross loans to customers 1.8% 0.3% 5.6% 9.5% 3.2% 2.5% ===================== Impairment allowances on renegotiated loans 1,402 193 575 1,014 155 3,339 =====================
For footnotes, see page 87.
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Loan impairment in the first half of 2016
Information in respect of loan impairment charges and other credit provisions is provided on page 27.
Loan impairment charge to the income statement by industry sector
North Latin Europe Asia MENA America America Total Footnotes $m $m $m $m $m $m Personal 103 152 59 135 611 1,060 ============================ - first lien residential mortgages (3) 5 9 94 3 108 ============================ - other personal 106 147 50 41 608 952 ============================ ------ ----- ----- -------- -------- ----- Corporate and commercial 284 185 (24) 472 290 1,207 ============================ - manufacturing and international trade and services 15 134 11 41 172 373 ============================
- commercial real estate and other property-related 17 (33) (8) 2 22 - ============================ - other commercial 2 252 84 (27) 429 96 834 ============================ ------ ----- ----- -------- -------- ----- Financial 28 (2) (1) (9) - 16 ============================ ------ ----- ----- -------- -------- ----- Total loan impairment charge for the half-year to 30 Jun 2016 415 335 34 598 901 2,283 ============================ ------ ----- ----- -------- -------- ----- Personal 113 145 24 101 488 871 ============================ - first lien residential mortgages (32) 2 (7) 68 33 64 ============================ - other personal 145 143 31 33 455 807 ============================ ------ ----- ----- -------- -------- ----- Corporate and commercial 214 97 21 50 216 598 ============================ ----- - manufacturing and international trade and services 103 109 (11) 9 175 385 ============================ - commercial real estate and other property-related (10) 13 25 1 17 46 ============================ - other commercial 2 121 (25) 7 40 24 167 ============================ ------ ----- ----- -------- -------- ----- Financial (6) - (12) (3) (1) (22) ============================ ------ ----- ----- -------- -------- ----- Total loan impairment charge for the half-year to 30 Jun 2015 321 242 33 148 703 1,447 ============================ ------ ----- ----- -------- -------- ----- Personal 150 164 98 56 495 963 ============================ - first lien residential mortgages 25 (3) 56 2 8 88 ============================ - other personal 125 167 42 54 487 875 ============================ ------ ----- ----- -------- -------- ----- Corporate and commercial 218 275 174 269 235 1,171 ============================ - manufacturing and international trade and services 55 141 118 17 130 461 ============================ - commercial real estate and other property-related 43 5 24 23 30 125 ============================ - other commercial 2 120 129 32 229 75 585 ============================ ------ ----- ----- -------- -------- ----- Financial 20 - (6) (4) 1 11 ============================ ------ ----- ----- -------- -------- ----- Total loan impairment charge for the half-year to 31 Dec 2015 388 439 266 321 731 2,145 ============================ ------ ----- ----- -------- -------- -----
For footnote, see page 87.
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Risk (continued)
Movement in impairment allowances on loans and advances to customers and banks
Banks Customers --------------------------------------- individually Individually Collectively Footnotes assessed assessed assessed Total $m $m $m $m At 1 Jan 2016 18 5,402 4,153 9,573 ============================ Amounts written off (16) (992) (840) (1,848) ============================ Recoveries of loans and advances previously written off - 44 296 340 ============================ Charge to income statement (2) 1,265 1,020 2,283 ============================ Exchange and other movements 5 - (319) (1,076) (1,395) ============================ ------------ -------------- --------------- ------ At 30 Jun 2016 - 5,400 3,553 8,953 ============================ ------------ -------------- --------------- ------ Impairment allowances: on loans and advances to customers 5,400 3,553 8,953 ============================ - personal 479 1,964 2,443 ============================ - corporate and commercial 4,727 1,535 6,262 ============================ - non-bank financial institutions 194 54 248 ============================ -------------- --------------- ------ as a percentage of gross loans and advances -% 0.6% 0.4% 0.9% ============================ as a percentage of impaired gross loans and advances -% 35.3% 53.7% 40.8% ============================ At 1 Jan 2015 49 6,195 6,142 12,386 ========================================================= Amounts written off - (727) (1,463) (2,190) ========================================================= Recoveries of loans and advances previously written off - 23 327 350 ========================================================= Charge to income statement (8) 488 967 1,447 ========================================================= Exchange and other movements 5 (3) (780) (1,432) (2,215) ========================================================= ------ ------ ------ ------ At 30 Jun 2015 38 5,199 4,541 9,778 ========================================================= ------ ------ ------ ------ Impairment allowances: on loans and advances to customers 5,199 4,541 9,740 ========================================================= - personal 425 2,914 3,339 ========================================================= - corporate and commercial 4,587 1,540 6,127 ========================================================= - non-bank financial institutions 187 87 274 ========================================================= ------ ------ ------ as a percentage of gross loans and advances -% 0.5% 0.5% 0.9% ========================================================= as a percentage of impaired gross loans and advances 86.4% 36.8% 41.3% 38.8% ========================================================= At 1 Jul 2015 38 5,199 4,541 9,778 ========================================================= Amounts written off - (641) (1,363) (2,004) ========================================================= Recoveries of loans and advances previously written off - 63 395 458 ========================================================= Charge to income statement (3) 1,028 1,120 2,145 ========================================================= Exchange and other movements 5 (17) (247) (540) (804) ========================================================= ------ ------ ------ ------ At 31 Dec 2015 18 5,402 4,153 9,573 ========================================================= ------ ------ ------ ------ Impairment allowances: on loans and advances to customers 5,402 4,153 9,555
========================================================= - personal 426 2,453 2,879 ========================================================= - corporate and commercial 4,800 1,635 6,435 ========================================================= - non-bank financial institutions 176 65 241 ========================================================= ------ ------ ------ as a percentage of gross loans and advances -% 0.6% 0.5% 0.9% ========================================================= as a percentage of impaired gross loans and advances 90.0% 36.5% 46.3% 40.2% =========================================================
For footnotes, see page 87.
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Risk (continued)
Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region
Latin Europe Asia MENA North America America(6) Total(6) % % % % % % Half-year to 30 Jun 2016 New allowances net of allowance releases 0.32 0.23 0.34 0.99 5.40 0.59 ======================== Recoveries (0.08) (0.04) (0.09) (0.05) (0.42) (0.08) ======================== ------ ----- ----- ------------- --------------- -------- Total charge for impairment losses 0.24 0.19 0.25 0.94 4.98 0.51 ======================== ------ ----- ----- ------------- --------------- -------- Amount written off net of recoveries 0.32 0.12 0.99 0.48 1.40 0.33 ======================== Half-year to 30 Jun 2015 New allowances net of allowance releases 0.27 0.18 0.32 0.29 3.65 0.39 ======================== Recoveries (0.09) (0.04) (0.11) (0.06) (0.30) (0.08) ======================== ------ ----- ----- ------------- --------------- -------- Total charge for impairment losses 0.18 0.14 0.21 0.23 3.35 0.31 ======================== ------ ----- ----- ------------- --------------- -------- Amount written off net of recoveries 0.22 0.09 1.67 0.57 3.19 0.40 ======================== Half-year to 31 Dec 2015 New allowances net of allowance releases 0.35 0.29 1.81 0.53 5.49 0.57 ======================== Recoveries (0.13) (0.05) (0.10) (0.05) (0.57) (0.10) ======================== ------ ----- ----- ------------- --------------- -------- Total charge for impairment losses 0.22 0.24 1.71 0.48 4.92 0.47 ======================== ------ ----- ----- ------------- --------------- -------- Amount written off net of recoveries 0.29 0.15 0.31 0.32 3.31 0.34 ========================
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Risk (continued)
Wholesale lending
Wholesale lending covers the range of credit facilities
granted to sovereign borrowers, banks, non-bank financial institutions, corporate entities and commercial borrowers.
Total wholesale lending
Latin Europe Asia MENA North America America Total Footnotes $m $m $m $m $m $m Corporate and commercial 179,089 203,162 21,988 63,347 11,373 478,959 ======================= - manufacturing 35,834 32,902 2,356 16,919 2,659 90,670 ======================= - international trade and services 59,069 68,347 9,616 11,549 2,637 151,218 ======================= - commercial real estate 23,268 31,505 606 8,077 1,266 64,722 ======================= - other property-related 7,637 34,987 1,654 9,448 441 54,167 ======================= - government 2,953 2,105 1,730 350 623 7,761 ======================= - other commercial 2 50,328 33,316 6,026 17,004 3,747 110,421 ======================= ------- ------- ------ ------------- -------- ------- Financial 47,018 75,969 9,641 13,658 3,749 150,035 ======================= - non-bank financial institutions 30,522 16,466 2,472 7,615 761 57,836 ======================= - banks 16,496 59,503 7,169 6,043 2,988 92,199 ======================= ------- ------- ------ ------------- -------- ------- Gross loans at 30 Jun 2016 226,107 279,131 31,629 77,005 15,122 628,994 ======================= ------- ------- ------ ------------- -------- ------- Impairment allowances on wholesale lending Corporate and commercial 2,494 1,345 1,034 1,059 330 6,262 ======================= - manufacturing 502 292 97 139 34 1,064 ======================= - international trade and services 578 638 434 101 36 1,787 ======================= - commercial real estate 538 12 145 76 110 881 ======================= - other property-related 184 32 214 47 70 547 ======================= - government 2 - 1 1 2 6 ======================= - other commercial 690 371 143 695 78 1,977 ======================= ------- ------- ------ ------------- -------- ------- Financial 211 9 6 22 - 248 ======================= - non-bank financial institutions 211 9 6 22 - 248 ======================= - banks - - - - - - ====================== ------- ------- ------ ------------- -------- ------- Impairment allowances at 30 Jun 2016 2,705 1,354 1,040 1,081 330 6,510 ======================= ------- ------- ------ ------------- -------- ------- Corporate and commercial 191,765 211,224 22,268 62,882 11,374 499,513 ======================= - manufacturing 39,003 34,272 2,504 17,507 2,572 95,858 ======================= - international trade and services 62,667 72,199 9,552 11,505 3,096 159,019 ======================= - commercial real estate 26,256 32,371 690 7,032 1,577 67,926 ======================= - other property-related 7,323 35,206 1,908 8,982 45 53,464 ======================= - government 3,653 1,132 1,695 203 772 7,455 ======================= - other commercial 2 52,863 36,044 5,919 17,653 3,312 115,791 ======================= ------- ------- ------ ------------- -------- ------- Financial 51,969 68,321 10,239 16,308 3,996 150,833 ======================= - non-bank financial institutions 33,621 13,969 2,321 9,822 681 60,414 ======================= - banks 18,348 54,352 7,918 6,486 3,315 90,419 ======================= ------- ------- ------ ------------- -------- ------- Gross loans at 31 Dec 2015 243,734 279,545 32,507 79,190 15,370 650,346 ======================= ------- ------- ------ ------------- -------- ------- Impairment allowances on wholesale lending Corporate and commercial 2,735 1,256 1,157 777 510 6,435 ======================= - manufacturing 528 254 135 140 49 1,106 ======================= - international trade and services 813 599 439 123 48 2,022 ======================= - commercial real estate 613 35 145 76 343 1,212 ======================= - other property-related 237 72 267 55 1 632 ======================= - government 6 - - - 2 8 ======================= - other commercial 538 296 171 383 67 1,455
======================= ------- ------- ------ ------------- -------- ------- Financial 194 13 22 30 - 259 ======================= - non-bank financial institutions 194 13 4 30 - 241 ======================= - banks - - 18 - - 18 ======================= ------- ------- ------ ------------- -------- ------- Impairment allowances at 31 Dec 2015 2,929 1,269 1,179 807 510 6,694 ======================= ------- ------- ------ ------------- -------- -------
For footnote, see page 87.
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On a reported basis, gross loans decreased by $21bn, mainly due to foreign exchange movements of $14bn.
The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.
Wholesale lending decreased by $6.9bn in 1H16. In North America, it decreased by $3.5bn, primarily driven by a decline in the US in 'financial'.
In Asia, there was a decline of $2.2bn overall. This consisted of decreases across 'international trade and services', 'other commercial' and 'manufacturing' totalling $9.0bn, driven by the continuation of the slowdown in trade and maturity of term loans, partly offset by a $7.2bn increase in 'financial'.
In Europe, overall balances declined by $1.7bn. In 'corporate and commercial' there was an increase in lending of $8bn which was offset by a reduction of $8bn relating to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements between overdrafts and deposits.
Personal lending
We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes loans secured on assets such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.
Total personal lending
Latin Europe Asia MENA North America America Total $m $m $m $m $m $m First lien residential mortgages 115,637 96,304 2,372 45,687 1,976 261,976 =================================== Of which: - interest only (including offset) 37,995 922 - 162 - 39,079 - affordability (including ARMs) 325 3,705 - 15,608 - 19,638 =================================== ------- ------- ----- ------------- -------- ------- Other personal lending 43,651 38,112 4,224 7,746 4,005 97,738 - other 32,788 28,143 2,986 3,375 2,000 69,292 =================================== - credit cards 10,754 9,778 894 974 1,642 24,042 - second lien residential mortgages 105 30 2 3,367 - 3,504 - motor vehicle finance 4 161 342 30 363 900 =================================== ------- ------- ----- ------------- -------- ------- Total gross loans at 30 Jun 2016 159,288 134,416 6,596 53,433 5,981 359,714 =================================== ------- ------- ----- ------------- -------- ------- Impairment allowances on personal lending First lien residential mortgages 250 33 70 594 18 965 Other personal lending 619 253 172 211 223 1,478 - other 359 129 141 30 104 763 =================================== - credit cards 260 123 25 32 116 556 - second lien residential mortgages - - - 149 - 149 - motor vehicle finance - 1 6 - 3 10 =================================== ------- ------- ----- ------------- -------- ------- Total impairment allowances at 30 Jun 2016 869 286 242 805 241 2,443 =================================== ------- ------- ----- ------------- -------- ------- First lien residential mortgages 125,544 94,606 2,258 50,117 1,986 274,511 =========================================== Of which: - interest only (including offset) 40,906 936 - 180 - 42,022 =========================================== - affordability (including ARMs) 356 3,966 - 17,041 - 21,363 =========================================== ------- ------- ----- ------ ----- ------- Other personal lending 44,982 38,101 4,447 8,069 3,972 99,571 =========================================== - other 32,862 27,682 3,147 3,284 1,816 68,791 =========================================== - credit cards 12,115 10,189 929 996 1,780 26,009 =========================================== - second lien residential mortgages - 33 2 3,762 - 3,797 =========================================== - motor vehicle finance 5 197 369 27 376 974 =========================================== ------- ------- ----- ------ ----- ------- Total gross loans at 31 Dec 2015 170,526 132,707 6,705 58,186 5,958 374,082 =========================================== ------- ------- ----- ------ ----- ------- Impairment allowances on personal lending First lien residential mortgages 278 29 24 991 22 1,344 =========================================== Other personal lending 667 227 214 241 186 1,535 =========================================== - other 401 104 180 31 80 796 =========================================== - credit cards 265 122 29 30 102 548 =========================================== - second lien residential mortgages - - - 180 - 180 =========================================== - motor vehicle finance 1 1 5 - 4 11 =========================================== ------- ------- ----- ------ ----- ------- Total impairment allowances 31 Dec 2015 945 256 238 1,232 208 2,879 =========================================== ------- ------- ----- ------ ----- -------
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Risk (continued)
On a reported basis, total personal lending reduced by $14bn, mainly due to adverse foreign exchange movements of $10bn and the ongoing run-off and sales of our US CML portfolio in North America of $6.7bn.
Loan impairment allowances reduced by $0.4bn, largely due to the reduction in our US CML run-off portfolio.
Loan impairment charges were $1.1bn for 1H16, $0.2bn more than 1H15 due largely to the deterioration of economic conditions in Brazil.
While the tables are presented on a reported basis, the commentary that follows is on a constant currency basis and excludes the effect of the ongoing run-off and sales of our US CML portfolio.
Total personal lending grew by $2.6bn compared with 31 December 2015, with mortgage balances increasing by $3.0bn, mainly in the UK which increased by $1.7bn reflecting the growth of the UK mortgage market in 1H16. There were increases in China of $1.0bn and Canada of $0.7bn, both as a result of business growth initiatives. The increase was partly offset by a $0.9bn reduction in Singapore following our decision to constrain the size of our mortgage portfolio in the country. In France there was a reclassification of $0.8bn from residential mortgages to commercial real estate.
The quality of both our Hong Kong and UK mortgage books remained high, with negligible defaults and impairment allowances. The average loan to value ('LTV') ratio on new mortgage lending in Hong Kong was 42% compared with an estimated 32% for the overall mortgage portfolio. The LTV ratio on new lending in the UK was 59% compared with the average of 41% for the total mortgage portfolio.
Other personal lending decreased by $0.4bn mainly due to a decrease in Switzerland of $1.3bn because of the continued repositioning of Global Private Banking. This was largely offset by a $1.9bn increase in France due to the
reclassification of certain portfolios, moving them from commercial real estate to other personal lending.
HSBC Finance
Residential mortgages, including second lien mortgages, decreased by $6.7bn to $12bn at 30 June 2016. In addition to the continued loan sales in the US CML run-off portfolio, we transferred a further $5.9bn to 'Assets held for sale' during 1H16, and these loans were mainly sold in April, May and July 2016. The average gain on sale of foreclosed properties that arose after we took title to the property was 1%.
The decrease in impairment allowances from $1.0bn at 31 December 2015 to $0.6bn at 30 June 2016 reflected reduced levels of delinquency and lower newly impaired loans and loan balances outstanding as a result of continued sale and liquidation of the portfolio.
Across the first and second lien residential mortgages in our US CML run-off portfolio, two-months-and-over delinquent balances reduced by $0.1bn to $1.0bn during 1H16, reflecting the continued portfolio run-off and loan sales.
Renegotiated real estate secured accounts in HSBC Finance reduced by $5.4bn or 50% and represented 82% at 30 June 2016 (31 December 2015: 91%) of our total renegotiated loans in North America, of which $3.2bn were classified as impaired (31 December 2015: $5.1bn). During 1H16, the aggregate number of renegotiated loans in HSBC Finance reduced due to portfolio run-off and further loan sales in the US CML portfolio.
HSBC Bank USA
In HSBC Bank USA, mortgage balances of $18bn at 30 June 2016 were broadly unchanged compared with 31 December 2015 with normal run-off being replaced with new originations. We continued to sell all new originations classed as agency-eligible in the secondary market.
Supplementary information
Gross loans and advances by industry sector
31 Dec Currency 30 Jun 2015 effect Movement 2016 Footnotes $m $m $m $m Personal 374,082 (10,339) (4,029) 359,714 ================================================= - first lien residential mortgages 274,511 (9,206) (3,329) 261,976 ================================================= - other personal 99,571 (1,133) (700) 97,738 ================================================= --------- -------- -------- ------- Corporate and commercial 499,513 (11,023) (9,531) 478,959 ================================================= - manufacturing 95,858 (2,400) (2,788) 90,670 ================================================= - international trade and services 159,019 (3,466) (4,335) 151,218 ================================================= - commercial real estate 67,926 (1,344) (1,860) 64,722 ================================================= - other property-related 53,464 (391) 1,094 54,167 ================================================= - government 7,455 (151) 457 7,761 ================================================= - other commercial 2 115,791 (3,271) (2,099) 110,421 ================================================= --------- -------- -------- ------- Financial 150,833 (3,392) 2,594 150,035 ================================================= --------- -------- -------- ------- - non-bank financial institutions 60,414 (2,685) 107 57,836 ================================================= - banks 90,419 (707) 2,487 92,199 ================================================= --------- -------- -------- ------- Total gross loans and advances 1,024,428 (24,754) (10,966) 988,708 ================================================= --------- -------- -------- ------- Impaired loans and advances to customers 23,758 (560) (1,279) 21,919 ================================================= Impairment allowances on loans and advances to customers 9,555 (193) (409) 8,953 =================================================
For footnote, see page 87.
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The currency effect on personal lending gross loans and advances of $10bn was made up as follows: Europe $12bn, Asia $(1.2)bn and North America $(1.2)bn. The currency effect on wholesale lending gross loans and advances of
$(14)bn was made up as follows: Europe $(16)bn, Asia $1.8bn, North America $1.3bn, Latin America $(1.0)bn and Middle East and North Africa $(0.5)bn.
Impaired loans and allowances by geographical region - reconciliation of reported and constant currency changes
31 Dec 2015 at Movement 31 Dec 30 Jun on a 30 Jun 2015 Currency 2016 constant 2016 Constant as translation exchange currency as Reported currency reported adjustment(7) rates basis reported change(7) change(7) $m $m $m $m $m % % Impaired loans Europe 9,677 (542) 9,135 (61) 9,074 (6.2) (0.7) =============== Asia 2,375 45 2,420 344 2,764 16.4 14.2 =============== Middle East and North Africa 1,766 (25) 1,741 (55) 1,686 (4.5) (3.2) =============== North America 8,930 27 8,957 (1,341) 7,616 (14.7) (15.0) =============== Latin America 1,030 (65) 965 (186) 779 (24.4) (19.3) =============== -------- ------------- -------- -------- -------- 23,778 (560) 23,218 (1,299) 21,919 (7.8) (5.6) -------- ------------- -------- -------- -------- Impairment allowances Europe 3,869 (176) 3,693 (119) 3,574 (7.6) (3.2) =============== Asia 1,525 19 1,544 96 1,640 7.5 6.2 =============== Middle East and North Africa 1,418 (15) 1,403 (121) 1,282 (9.6) (8.6) =============== North America 2,041 26 2,067 (181) 1,886 (7.6) (8.8) =============== Latin America 720 (47) 673 (102) 571 (20.7) (15.2) =============== -------- ------------- -------- -------- -------- 9,573 (193) 9,380 (427) 8,953 (6.5) (4.6) -------- ------------- -------- -------- --------
For footnote, see page 87.
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Risk (continued)
Gross loans and advances to customers by country
First lien Commercial, residential Other Property- international mortgages personal related trade and other Total $m $m $m $m $m Europe 115,637 43,651 30,905 178,706 368,899 =================================== - UK 108,049 18,903 23,649 134,074 284,675 =================================== - France 2,871 14,267 5,417 21,631 44,186 =================================== - Germany 2 197 446 9,468 10,113 =================================== - Switzerland 614 6,903 127 826 8,470 =================================== - other 4,101 3,381 1,266 12,707 21,455 =================================== ------------ --------- --------- ---------------- ------- Asia 96,304 38,112 66,492 153,136 354,044 =================================== - Hong Kong 61,221 24,103 49,082 79,831 214,237 =================================== - Australia 9,905 753 1,869 6,519 19,046 =================================== - India 1,284 390 689 6,579 8,942 =================================== - Indonesia 60 342 71 4,816 5,289 =================================== - Mainland China 6,591 1,358 5,795 21,451 35,195 =================================== - Malaysia 3,039 3,372 1,973 4,251 12,635 =================================== - Singapore 7,252 5,715 3,466 9,939 26,372 =================================== - Taiwan 3,972 678 81 4,267 8,998 =================================== - other 2,980 1,401 3,466 15,483 23,330 =================================== ------------ --------- --------- ---------------- ------- Middle East and North Africa (excluding Saudi Arabia) 2,372 4,224 2,260 22,200 31,056 =================================== - Egypt 1 514 83 2,091 2,689 ===================================
- UAE 1,955 2,074 1,736 13,872 19,637 =================================== - other 416 1,636 441 6,237 8,730 =================================== ------------ --------- --------- ---------------- ------- North America 45,687 7,746 17,525 53,437 124,395 =================================== - US 28,277 4,418 12,492 39,324 84,511 =================================== - Canada 16,121 3,116 4,760 13,408 37,405 =================================== - other 1,289 212 273 705 2,479 =================================== ------------ --------- --------- ---------------- ------- Latin America 1,976 4,005 1,707 10,427 18,115 =================================== - Mexico 1,864 2,930 1,595 7,936 14,325 =================================== - other 112 1,075 112 2,491 3,790 =================================== ------------ --------- --------- ---------------- ------- At 30 Jun 2016 261,976 97,738 118,889 417,906 896,509 =================================== ------------ --------- --------- ---------------- ------- Europe 125,544 44,982 33,579 191,807 395,912 =================================== - UK 117,346 20,797 25,700 149,327 313,170 =================================== - France 3,606 12,130 6,070 20,380 42,186 =================================== - Germany 4 203 347 7,941 8,495 =================================== - Switzerland 511 8,045 224 834 9,614 =================================== - other 4,077 3,807 1,238 13,325 22,447 =================================== ------------ --------- --------- ---------------- ------- Asia 94,606 38,101 67,577 157,616 357,900 =================================== - Hong Kong 60,943 24,389 50,825 80,609 216,766 =================================== - Australia 9,297 726 1,592 6,448 18,063 =================================== - India 1,248 431 637 5,728 8,044 =================================== - Indonesia 56 346 71 4,965 5,438 =================================== - Mainland China 5,716 1,645 6,185 23,703 37,249 =================================== - Malaysia 2,792 3,113 1,993 4,947 12,845 =================================== - Singapore 7,743 5,392 3,334 11,021 27,490 =================================== - Taiwan 3,866 629 126 5,291 9,912 =================================== - other 2,945 1,430 2,814 14,904 22,093 =================================== ------------ --------- --------- ---------------- ------- Middle East and North Africa (excluding Saudi Arabia) 2,258 4,447 2,598 21,991 31,294 =================================== - Egypt 1 549 104 2,097 2,751 =================================== - UAE 1,854 2,286 1,833 14,199 20,172 =================================== - other 403 1,612 661 5,695 8,371 =================================== ------------ --------- --------- ---------------- ------- North America 50,117 8,069 16,014 56,690 130,890 =================================== - US 34,382 4,813 11,435 42,439 93,069 =================================== - Canada 14,418 3,029 4,315 13,490 35,252 =================================== - other 1,317 227 264 761 2,569 =================================== ------------ --------- --------- ---------------- ------- Latin America 1,986 3,972 1,622 10,433 18,013 =================================== - Mexico 1,881 2,828 1,498 7,844 14,051 =================================== - other 105 1,144 124 2,589 3,962 =================================== ------------ --------- --------- ---------------- ------- At 31 Dec 2015 274,511 99,571 121,390 438,537 934,009 =================================== ------------ --------- --------- ---------------- -------
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Securitisation exposures and other structured products
The following table summarises the carrying amount of our asset-backed securities ('ABSs') exposure by categories of collateral. It includes assets held in the GB&M legacy credit portfolio with a carrying value of $13bn (31 December 2015: $15bn).
At 30 June 2016, the available-for-sale reserve in respect of ABSs was a deficit of $713m (31 December 2015: $1,021m). For 2016, the impairment write-back in respect of ABSs was $17m (31 December 2015: $85m).
Carrying amount of HSBC's consolidated holdings of ABSs
Designated at fair Of which value held through through consolidated Available Held to profit or Loans and structured Trading for sale maturity loss receivables Total entities $m $m $m $m $m $m $m Mortgage-related assets 1,414 20,594 13,198 - 424 35,630 3,566 - sub-prime residential 67 1,828 - - 115 2,010 727 - US Alt-A residential - 1,688 6 - 47 1,741 1,576 - US Government agency and sponsored enterprises: MBSs 163 14,831 13,192 - - 28,186 - - other residential 708 578 - - 92 1,378 187 - commercial property 476 1,669 - - 170 2,315 1,076 ================== ------- --------- -------- ---------- ----------- ------ ------------ Leveraged finance-related assets 204 1,814 - - 134 2,152 932 Student loan-related assets 146 2,853 - - 18 3,017 2,576 Other assets 1,173 787 - 36 65 2,061 458 ================== ------- --------- -------- ---------- ----------- ------ ------------ At 30 Jun 2016 2,937 26,048 13,198 36 641 42,860 7,532 ================== ------- --------- -------- ---------- ----------- ------ ------------ Mortgage-related assets 1,641 22,406 14,004 1 496 38,548 4,780 - sub-prime residential 73 2,247 - 1 132 2,453 1,075 - US Alt-A residential - 1,989 7 - 55 2,051 1,796 - US Government agency and sponsored enterprises: MBSs 166 15,082 13,997 - - 29,245 - - other residential 812 780 - - 108 1,700 253 - commercial property 590 2,308 - - 201 3,099 1,656 ================== ------- --------- -------- ---------- ----------- ------ ------------ Leveraged finance-related assets 240 2,294 - - 149 2,683 1,310 Student loan-related assets 236 2,991 - - 25 3,252 2,679 Other assets 1,184 880 - 23 128 2,215 565 ================== ------- --------- -------- ---------- ----------- ------ ------------ At 31 Dec 2015 3,301 28,571 14,004 24 798 46,698 9,334 ================== ------- --------- -------- ---------- ----------- ------ ------------
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Risk (continued)
Liquidity and funding
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. The risk arises from mismatches in the timing of cash flows.
Funding risk is the risk that funding considered to be sustainable, and therefore used to fund assets, is not sustainable over time. The risk arises when the funding needed for illiquid asset positions cannot be obtained at the expected terms and when required.
This section supersedes the information included in the Annual Report and Accounts 2015 from pages 154 to 165.
Our liquidity and funding risk management framework
The objective of the Group's internal liquidity and funding risk framework ('LFRF') is to allow it to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.
The Group does not manage liquidity risk and funding risk centrally on a Group consolidated basis. They are managed by operating entity on a standalone basis with no implicit reliance assumed on any other Group entity unless pre-committed.
All operating entities are required to manage liquidity and funding risks in accordance with the LFRF.
On 1 January 2016, the Group introduced a new LFRF. It uses the liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR') regulatory framework as a foundation, but adds extra metrics, limits and overlays to address the risks that we consider are not adequately reflected by the regulatory framework.
The LFRF is delivered using the following key aspects:
-- stand-alone management of liquidity and funding by operating entity; -- operating entity classification by inherent liquidity risk ('ILR') categorisation; -- minimum LCR requirement depending on ILR categorisation; -- minimum NSFR requirement depending on ILR categorisation; -- legal entity depositor concentration limit; -- three-month and 12-month cumulative rolling term contractual maturity limits covering deposits from banks, deposits from non-bank financial institutions and securities issued; -- annual individual liquidity adequacy assessment ('ILAA') by principal operating entity; -- minimum LCR requirement by currency; -- intra-day liquidity; and -- forward-looking funding assessments.
The new internal LFRF and the risk tolerance limits have been approved by the Board on the basis of recommendations made by the Group Risk Committee, and the metrics below are being disclosed for the first time following the implementation of the new LFRF. There are therefore no comparatives.
Our ILAA process aims to:
-- identify risks that are not reflected in the LFRF and, where required, to assess additional limits to be required locally; and -- validate the risk tolerance at the operating entity level by demonstrating that reverse stress testing scenarios are acceptably remote and that vulnerabilities have been assessed through the use of severe stress scenarios.
Liquidity and funding in the first half of 2016
The liquidity position of the Group remained strong in 1H16. Our liquidity coverage ratio was 137% with unencumbered liquid assets of $474bn.
Management of liquidity and funding risk
Liquidity coverage ratio
The LCR metric is designed to promote the short-term resilience of a bank's liquidity profile, and became a minimum regulatory standard from 1 October 2015, under EC Delegated Regulation 2015/61.
It aims to ensure that a bank has sufficient unencumbered high-quality liquid assets ('HQLA') to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLAs consist of cash or assets that can be converted into cash at little or no loss of value in markets.
The calculation of the LCR metric involves two key assumptions about the definition of operational deposits and the ability to transfer liquidity from non-EU legal entities.
-- We define operational deposits as transactional (current) accounts arising from the provision of custody services by HSBC Security Services and Global Liquidity and Cash Management, where the operational component is assessed to be the lower of the current balance and the separate notional values of debits and credits across the account in the previous calculation period. -- We assume no transferability of liquidity from non-EU entities other than to the extent currently permitted. This results in $108bn of HQLA being excluded from the Group's LCR.
On the basis of these assumptions, we reported to the UK's Prudential Regulation Authority ('PRA') a Group EC LCR at 30 June 2016 of 137%.
The ratio of total consolidated HQLAs to the EC LCR denominator at 30 June 2016 was 169%, reflecting the additional $108bn of HQLAs excluded from the Group LCR.
The liquidity position of the Group can also be represented by the stand-alone ratios of each of our principal operating entities. The Board and the Risk Management Meeting of the Group Management Board declare the initial criterion for categorising an operating entity as a principal entity is based on its material balance sheet size.
The table below displays the individual LCR levels for our principal operating entities on an EC LCR Delegated Regulation basis. The ratios shown for operating entities in non-EU jurisdictions can vary from their local LCR measures due to differences in the way non-EU regulators have implemented the Basel III recommendations.
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Operating entities' LCRs
At 30 Jun Footnotes 2016 % HSBC UK liquidity group 8 126 ================================================================== The Hongkong and Shanghai Banking Corporation - Hong Kong Branch 9 198 ================================================================== The Hongkong and Shanghai Banking Corporation - Singapore Branch 9 206 ================================================================== HSBC Bank USA 113 ================================================================== HSBC France 134 ================================================================== Hang Seng Bank 246 ================================================================== HSBC Bank Canada 143 ================================================================== HSBC Bank China 180 ================================================================== HSBC Middle East - UAE branch 251 ================================================================== HSBC Mexico 166 ================================================================== HSBC Private Bank 188 ==================================================================
For footnotes, see page 87.
At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.
Net stable funding ratio
The NSFR requires institutions to maintain sufficient stable funding relative to required stable funding, and reflects a bank's long-term funding profile (funding with a term of more than a year). It is designed to complement the LCR.
The European calibration of NSFR is pending following the Basel Committee's final recommendation in October 2014. We calculate NSFR in line with the relevant text (Basel Committee on Banking Supervision publication 295), pending its implementation in Europe. This calculation requires various interpretations of the text as it stands, and therefore HSBC's NSFR may not be directly comparable with the ratios of other institutions.
The table below displays the individual NSFR levels for the principal HSBC operating entities on a BCBS295 basis.
Operating entities' NSFRs
At 30 Jun Footnotes 2016 % HSBC UK liquidity group 8 118 ================================================================== The Hongkong and Shanghai Banking Corporation - Hong Kong Branch 9 164 ================================================================== The Hongkong and Shanghai Banking Corporation - Singapore Branch 9 120 ================================================================== HSBC Bank USA 115 ================================================================== HSBC France 117 ================================================================== Hang Seng Bank 161
================================================================== HSBC Bank Canada 137 ================================================================== HSBC Bank China 146 ================================================================== HSBC Middle East - UAE Branch 141 ================================================================== HSBC Mexico 127 ================================================================== HSBC Private Bank 149 ==================================================================
For footnotes, see page 87.
At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.
Depositor Concentration and Term Funding Maturity Concentration
The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within each deposit segment. The validity of these assumptions is challenged if the underlying depositors do not represent a large enough portfolio so that a depositor concentration exists.
Operating entities are exposed to term re-financing concentration risk if the current maturity profile results in future maturities being overly concentrated in any defined period.
At 30 June 2016, all principal operating entities were within the risk tolerance levels set for depositor concentration and term funding maturity concentration. These risk tolerances were established by the Board and are applicable under the LFRF.
Liquid assets of HSBC's principal operating entities
The table below shows the unweighted liquidity value of assets categorised as liquid and used for the purposes of calculating the LCR metric.
The level of liquid assets reported reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets.
Liquid assets are held and managed on a stand-alone operating entity basis. Most of the liquid assets shown are held directly by each operating entity's Balance Sheet Management ('BSM') department, primarily for the purpose of managing liquidity risk, in line with the LFRF.
The liquid asset buffer may also include securities held in held-to-maturity portfolios. In order to qualify as part of the liquid asset buffer, all held-to-maturity portfolios must have a deep and liquid repo market in the underlying security.
Liquid assets also include any unencumbered liquid asset held outside BSM for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.
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Risk (continued)
Liquid assets of HSBC's principal entities
Recognised at 30 Jun 2016 at: --------------------------------- Group and entity level Footnotes entity level only $m $m HSBC UK liquidity group 8 ================================================================== Level 1 164,116 164,116 ================================================================== Level 2a 4,145 4,145 ================================================================== Level 2b 932 932 ================================================================== ---------------- ------------- 169,193 169,193 ---------------- ------------- The Hongkong and Shanghai Banking Corporation - Hong Kong Branch 9 ================================================================== Level 1 67,885 123,349 ================================================================== Level 2a 7,169 7,169 ================================================================== Level 2b 3,283 3,283 ================================================================== 78,337 133,801 ---------------- ------------- Hang Seng Bank ================================================================= Level 1 18,485 35,702 ================================================================== Level 2a 1,862 1,862 ================================================================== Level 2b 207 207 ================================================================== 20,554 37,771 ---------------- ------------- HSBC Bank USA ================================================================= Level 1 57,320 66,455 ================================================================== Level 2a 13,100 13,100 ================================================================== Level 2b 4 4 ================================================================== 70,424 79,559 ---------------- ------------- Total of HSBC's other principal entities 10 ================================================================== Level 1 73,363 87,046 ================================================================== Level 2a 6,741 6,741 ================================================================== Level 2b 214 214 ================================================================== 80,318 94,001 ---------------- -------------
For footnotes, see page 87.
Sources of funding
Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.
The level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed into liquid assets, cash and balances with central banks and financial investments, as required by the LFRF.
Loans and other advances to banks continued to exceed deposits by banks.
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Consolidated funding sources and uses
At ---------------------- 30 Jun 31 Dec 2016 2015 $m $m Sources Customer accounts 1,290,958 1,289,586 ================================================ Deposits by banks 69,900 54,371 ================================================ Repurchase agreements - non-trading 98,342 80,400 ================================================ Debt securities in issue 87,673 88,949 ================================================ Liabilities of disposal groups held for sale 43,705 36,840 ================================================ Subordinated liabilities 21,669 22,702 ================================================ Financial liabilities designated at fair value 78,882 66,408 ================================================ Liabilities under insurance contracts 73,416 69,938
================================================ Trading liabilities 188,698 141,614 ================================================ - repos 957 442 ================================================ - stock lending 8,487 8,859 ================================================ - settlement accounts 36,173 10,530 ================================================ - other trading liabilities 143,081 121,783 ================================================ --------- --------- Total equity 198,297 197,518 ================================================ --------- --------- 2,151,540 2,048,326 --------- --------- At ---------------------- 30 Jun 31 Dec 2016 2015 $m $m Uses Loans and advances to customers 887,556 924,454 ============================================================== Loans and advances to banks 92,199 90,401 ============================================================== Reverse repurchase agreements - non-trading 187,826 146,255 ============================================================== Assets held for sale 50,305 43,900 ============================================================== Trading assets 280,295 224,837 ============================================================== - reverse repos 3,634 438 ============================================================== - stock borrowing 11,278 7,118 ============================================================== - settlement accounts 40,092 12,127 ============================================================== - other trading assets 225,291 205,154 ============================================================== --------- --------- Financial investments 441,399 428,955 ============================================================== Cash and balances with central banks 128,272 98,934 ============================================================== Net deployment in other balance sheet assets and liabilities 83,688 90,590 ============================================================== --------- --------- 2,151,540 2,048,326 --------- ---------
Market risk
Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.
There were no material changes to the policies and practices for the management of market risk described in the Annual Report and Accounts 2015.
A summary of our market risk management framework including current policies is provided on page 221 of the Annual Report and Accounts 2015.
Market risk in the first half of 2016
Global markets were influenced by the change in outlook for future rate rises in the US. Yields in major economies fell, with the stock of government debt trading at negative yields increasing substantially.
In China, concerns about a slowdown in the economy led to concerns about a further depreciation of the renminbi.
Towards the end of the reporting period, volatility increased substantially due to the referendum decision in the UK to leave the European Union.
Trading value at risk ('VaR'), before the effects of portfolio diversification benefits, increased. Overall, it decreased slightly to 30 June after including the effects of portfolio diversification benefits. Non-trading VaR increased slightly during 1H16.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR predominantly resides within Global Markets. The VaR for trading activity at 30 June 2016 was slightly lower than at 31 December 2015 due primarily to declines in equity and credit spread trading VaR components largely offset by increases in interest rate and foreign exchange trading VaR components, and an increase in portfolio diversification benefits.
The Group trading VaR for the half-year is shown in the table on the next page.
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