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| Name | Symbol | Market | Type |
|---|---|---|---|
| Hsbc Uk Bk 27 | LSE:RT90 | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 108.19 | 0 | 00:00:00 |
TIDMRT90
RNS Number : 5957Q
HSBC UK Bank PLC
21 February 2023
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Financial statements
Page
Consolidated income statement 79
----------------------------------------- ----
Consolidated statement of comprehensive
income 80
----------------------------------------- ----
Consolidated balance sheet 81
----------------------------------------- ----
Consolidated statement of cash
flows 82
----------------------------------------- ----
Consolidated statement of changes
in equity 83
----------------------------------------- ----
HSBC UK Bank plc balance sheet 84
HSBC UK Bank plc statement of
cash flows 85
----------------------------------------- ----
HSBC UK Bank plc statement of
changes in equity 86
----------------------------------------- ----
Notes on the financial statements
Page
Basis of preparation and
1 significant accounting policies 87
--- ------------------------------------ ----
2 Net fee income 95
Employee compensation and
3 benefits 95
--- ------------------------------------ ----
4 Auditors' remuneration 100
--- ------------------------------------ ----
5 Tax 100
--- ------------------------------------ ----
6 Dividends 102
--- ------------------------------------ ----
Fair values of financial
instruments carried at fair
7 value 102
--- ------------------------------------ ----
Fair values of financial
instruments not carried at
8 fair value 103
--- ------------------------------------ ----
9 Derivatives 104
--- ------------------------------------ ----
10 Financial investments 106
--- ------------------------------------ ----
Assets pledged, collateral
11 received and assets transferred 107
--- ------------------------------------ ----
12 Interests in joint ventures 108
--- ------------------------------------ ----
13 Investments in subsidiaries 108
--- ------------------------------------ ----
14 Structured entities 108
--- ------------------------------------ ----
15 Goodwill and intangible assets 109
--- ------------------------------------ ----
Prepayments, accrued income
16 and other assets 110
--- ------------------------------------ ----
17 Debt securities in issue 110
--- ------------------------------------ ----
Accruals, deferred income
18 and other liabilities 110
--- ------------------------------------ ----
19 Provisions 111
--- ------------------------------------ ----
20 Subordinated liabilities 112
--- ------------------------------------ ----
Maturity analysis of assets,
liabilities and off-balance
21 sheet commitments 113
--- ------------------------------------ ----
Offsetting of financial assets
22 and financial liabilities 118
--- ------------------------------------ ----
Called up share capital and
23 other equity instruments 119
--- ------------------------------------ ----
Contingent liabilities, contractual
commitments, guarantees and
24 contingent assets 120
--- ------------------------------------ ----
25 Finance lease receivables 121
Legal proceedings and regulatory
26 matters 121
--- ------------------------------------ ----
27 Related party transactions 121
--- ------------------------------------ ----
Events after the balance
28 sheet date 124
--- ------------------------------------ ----
HSBC UK Bank plc's subsidiaries
29 and joint ventures 124
--- ------------------------------------ ----
Consolidated income statement
for the year ended 31 December
2022 2021
Notes GBPm GBPm
------------------------------------------------------- ------ ------- -------
Net interest income 6,203 4,650
--------------------------------------------------------------- ------- -------
- interest income(1,2,3) 7,592 5,072
---------------------------------------------------------------
- interest expense (1,389) (422)
--------------------------------------------------------------- -------
Net fee income 2 1,245 1,080
------------------------------------------------------- ------ ------- -------
- fee income 1,493 1,329
---------------------------------------------------------------
- fee expense (248) (249)
--------------------------------------------------------------- -------
Net income from financial instruments held for trading
or managed on a fair value basis 384 318
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 36 15
--------------------------------------------------------------- ------- -------
Gains less losses from financial investments 37 101
Other operating income 47 86
Net operating income before change in expected credit
losses and other credit impairment charges 7,952 6,250
--------------------------------------------------------------- ------- -------
Change in expected credit losses and other credit
impairment charges (482) 989
Net operating income 7,470 7,239
--------------------------------------------------------------- ------- -------
Employee compensation and benefits(4) 3 (1,079) (1,022)
------------------------------------------------------- ------ ------- -------
General and administrative expenses(4) (2,271) (2,316)
--------------------------------------------------------------- ------- -------
Depreciation and impairment of property, plant and
equipment and right-of-use assets (164) (174)
--------------------------------------------------------------- ------- -------
Amortisation and impairment of intangible assets (318) (247)
Total operating expenses (3,832) (3,759)
--------------------------------------------------------------- ------- -------
Operating profit 3,638 3,480
Profit before tax 3,638 3,480
--------------------------------------------------------------- ------- -------
Tax expense 5 (762) (1,112)
------------------------------------------------------- ------ ------- -------
Profit for the year 2,876 2,368
--------------------------------------------------------------- ------- -------
Attributable to:
------------------------------------------------------- ------ ------- -------
- ordinary shareholders of the parent company 2,871 2,363
- non-controlling interests 5 5
--------------------------------------------------------------- -------
Profit for the year 2,876 2,368
--------------------------------------------------------------- ------- -------
1 Interest income recognised on financial assets measured at amortised cost is GBP7,415m (2021: GBP4,926m).
2 Interest income recognised on financial assets measured at FVOCI is GBP166m (2021: GBP130m).
3 Interest income calculated using the effective interest method comprises interest recognised on financial assets measured at either amortised cost or fair value through other comprehensive income.
4 During 2021, 3,607 full-time equivalent employees that were fully dedicated to HSBC UK Bank plc transferred from HSBC Global Services (UK) Limited to HSBC UK Bank plc. As a result of the employee transfer, associated costs for the three months to 31 March 2021 were reported under 'General and administrative expenses' and subsequently reported under 'Employee compensation and benefits'.
Consolidated statement of comprehensive income
for the year ended 31 December
2022 2021
GBPm GBPm
----------------------------------------------------------- ------- -----
Profit for the year 2,876 2,368
----------------------------------------------------------- ------- -----
Other comprehensive income/(expense)
----------------------------------------------------------- ------- -----
Items that will be reclassified subsequently to profit
or loss when specific conditions are met: Debt instruments at fair value through other comprehensive income (300) (89) ----------------------------------------------------------- ------- ----- - fair value losses (385) (9) ----------------------------------------------------------- - fair value gains transferred to the income statement on disposal (37) (101) ----------------------------------------------------------- - expected credit recoveries recognised in the income statement (1) (4) ----------------------------------------------------------- - income taxes 123 25 ----------------------------------------------------------- ------- Cash flow hedges (1,234) (91) ----------------------------------------------------------- ------- ----- - fair value losses (1,884) (115) ----------------------------------------------------------- - fair value (gains)/losses reclassified to the income statement 180 (20) ----------------------------------------------------------- - income taxes 470 44 Exchange differences (2) (1) - other exchange differences (2) (1) Items that will not be reclassified subsequently to profit or loss: ----------------------------------------------------------- ------- ----- Remeasurement of defined benefit asset/liability (1,023) (510) ----------------------------------------------------------- ------- ----- - before income taxes (1,603) (471) ----------------------------------------------------------- - income taxes(1) 580 (39) Other comprehensive income/(expense) for the year, net of tax (2,559) (691) ----------------------------------------------------------- ------- ----- Total comprehensive income for the year 317 1,677 ----------------------------------------------------------- ------- ----- Attributable to: ----------------------------------------------------------- ------- ----- - ordinary shareholders of the parent company 312 1,672 - non-controlling interests 5 5 ----------------------------------------------------------- ------- Total comprehensive income for the year 317 1,677 ----------------------------------------------------------- ------- -----
1 The income tax credit of GBP580m (2021: charge (GBP39m)) arising on Remeasurement of defined benefit asset/liability, includes an income tax credit of GBP134m in 2022 arising upon the remeasurement of deferred tax following the substantive enactment of legislation to reduce the UK banking surcharge rate from 8% to 3% with effect from 1 April 2023 and includes an income tax charge of GBP179m in 2021 arising upon the remeasurement of deferred tax following the substantive enactment of legislation to increase the main rate of UK corporation tax from 19% to 25% with effect from 1 April 2023.
Consolidated balance sheet
at 31 December
2022 2021
Notes GBPm GBPm
---------------------------------------------------- ----- ------- -------
Assets
---------------------------------------------------- ----- ------- -------
Cash and balances at central banks 94,407 112,478
---------------------------------------------------- ----- ------- -------
Items in the course of collection from other banks 353 299
Financial assets mandatorily measured at fair value
through profit or loss 7 108 79
Derivatives 9 546 64
---------------------------------------------------- ----- ------- -------
Loans and advances to banks 6,357 1,914
---------------------------------------------------- ----- ------- -------
Loans and advances to customers 204,143 195,526
---------------------------------------------------- ----- ------- -------
Reverse repurchase agreements - non-trading 7,406 7,988
---------------------------------------------------- ----- ------- -------
Financial investments 10 16,092 14,377
Prepayments, accrued income and other assets 16 8,762 9,136
Interests in joint ventures 12 9 9
---------------------------------------------------- ----- ------- -------
Goodwill and intangible assets 15 4,258 4,193
Total assets 342,441 346,063
---------------------------------------------------- ----- ------- -------
Liabilities and equity
---------------------------------------------------- ----- ------- -------
Liabilities
Deposits by banks 10,721 11,180
---------------------------------------------------- ----- ------- -------
Customer accounts 281,095 281,870
---------------------------------------------------- ----- ------- -------
Repurchase agreements - non-trading 9,333 10,438
---------------------------------------------------- ----- ------- -------
Items in the course of transmission to other banks 308 151
Derivatives 9 304 292
---------------------------------------------------- ----- ------- -------
Debt securities in issue 17 1,299 900
Accruals, deferred income and other liabilities 18 3,543 1,674
---------------------------------------------------- ----- ------- -------
Current tax liabilities 173 802
Provisions 19 424 495
---------------------------------------------------- ----- ------- -------
Deferred tax liabilities 5 666 1,969
---------------------------------------------------- ----- ------- -------
Subordinated liabilities 20 12,349 12,487
---------------------------------------------------- ----- ------- -------
Total liabilities 320,215 322,258
---------------------------------------------------- ----- ------- -------
Equity
---------------------------------------------------- ----- ------- -------
Called up share capital 23 - -
---------------------------------------------------- ----- ------- -------
Share premium account 23 9,015 9,015
---------------------------------------------------- ----- ------- -------
Other equity instruments 23 2,196 2,196
---------------------------------------------------- ----- ------- -------
Other reserves 6,121 7,657
---------------------------------------------------- ----- ------- -------
Retained earnings 4,834 4,877
---------------------------------------------------- ----- ------- -------
Total shareholders' equity 22,166 23,745
---------------------------------------------------- ----- ------- -------
Non-controlling interests 60 60
---------------------------------------------------- ----- ------- -------
Total equity 22,226 23,805
---------------------------------------------------- ----- ------- -------
Total liabilities and equity 342,441 346,063
---------------------------------------------------- ----- ------- -------
The accompanying notes on pages 87 to 125, and the audited sections in: the 'Financial summary' on pages 10 to 14 and the 'Report of the Directors' on pages 17 to 71 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 20 February 2023 and signed on its behalf by:
John David Stuart
Director
Consolidated statement of cash flows
for the year ended 31 December
2022 2021
GBPm GBPm
------------------------------------------------------------- -------- --------
Profit before tax 3,638 3,480
------------------------------------------------------------- -------- --------
Adjustments for non-cash items:
------------------------------------------------------------- -------- --------
Depreciation, amortisation and impairment 482 421
------------------------------------------------------------- -------- --------
Net gain from investing activities (37) (101)
Change in expected credit losses gross of recoveries
and other credit impairment charges 575 (911)
------------------------------------------------------------- -------- -------- Provisions including pensions (78) 123 ------------------------------------------------------------- -------- -------- Share-based payment expense 17 16 ------------------------------------------------------------- -------- -------- Other non-cash items included in profit before tax (204) (30) ------------------------------------------------------------- -------- -------- Elimination of exchange differences(1) 1,032 (33) ------------------------------------------------------------- -------- -------- Changes in operating assets and liabilities ------------------------------------------------------------- -------- -------- Change in net trading securities and derivatives (2,174) (97) ------------------------------------------------------------- -------- -------- Change in loans and advances to banks and customers (9,182) (3,717) ------------------------------------------------------------- -------- -------- Change in reverse repurchase agreements - non-trading 894 (5,503) ------------------------------------------------------------- -------- -------- Change in financial assets mandatorily measured at fair value (29) (53) ------------------------------------------------------------- -------- -------- Change in other assets (2,219) 728 Change in deposits by banks and customer accounts (1,234) 33,169 ------------------------------------------------------------- -------- -------- Change in repurchase agreements - non-trading (1,104) 4,288 ------------------------------------------------------------- -------- -------- Change in debt securities in issue 399 34 Change in other liabilities 1,052 (1,233) Contributions paid to defined benefit plans (21) (195) ------------------------------------------------------------- -------- -------- Tax paid (1,499) 53 ------------------------------------------------------------- -------- -------- Net cash from operating activities (9,692) 30,439 ------------------------------------------------------------- -------- -------- Purchase of financial investments (10,386) (12,468) ------------------------------------------------------------- -------- -------- Proceeds from the sale and maturity of financial investments 8,571 17,000 ------------------------------------------------------------- -------- -------- Net cash flows from the purchase and sale of property, plant and equipment (41) (53) ------------------------------------------------------------- -------- -------- Net investment in intangible assets (382) (347) Net cash from investing activities (2,238) 4,132 Subordinated loan capital issued(2) - 4,978 ------------------------------------------------------------- -------- -------- Subordinated loan capital repaid(2) - (2,079) Dividends paid to shareholders of the parent company and non-controlling interests (1,934) (752) ------------------------------------------------------------- -------- -------- Net cash from financing activities (1,934) 2,147 ------------------------------------------------------------- -------- -------- Net increase in cash and cash equivalents (13,864) 36,718 ------------------------------------------------------------- -------- -------- Cash and cash equivalents at 1 Jan 114,134 77,422 ------------------------------------------------------------- -------- -------- Exchange differences in respect of cash and cash equivalents 49 (6) ------------------------------------------------------------- -------- -------- Cash and cash equivalents at 31 Dec(3) 100,319 114,134 ------------------------------------------------------------- -------- -------- Cash and cash equivalents comprise: ------------------------------------------------------------- -------- -------- - cash and balances at central banks 94,407 112,478 ------------------------------------------------------------- - items in the course of collection from other banks 353 299 ------------------------------------------------------------- - loans and advances to banks of one month or less 5,285 857 ------------------------------------------------------------- - reverse repurchase agreements with banks of one month or less 312 - ------------------------------------------------------------- - treasury bills, other bills and certificates of deposit less than three months 268 475 ------------------------------------------------------------- - cash collateral and net settlement accounts 2 176 ------------------------------------------------------------- - less: items in the course of transmission to other banks (308) (151) ------------------------------------------------------------- -------- Cash and cash equivalents at 31 Dec(3) 100,319 114,134 ------------------------------------------------------------- -------- --------
Interest received was GBP7,054m (2021: GBP5,135m) and interest paid was GBP1,172m (2021: GBP444m).
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.
2 Subordinated liabilities changes during the year are attributable to cash flows from issuance of securities of GBPnil (2021: GBP4,978m) and repayments of GBPnil (2021: GBP(2,079)m). Non-cash changes during the year included foreign exchange losses of GBP556m (2021: GBP25m).
3 At 31 December 2022 GBP4,700m (2021: GBPnil) was not available for use by the group, GBP4,700m (2021: GBPnil) related to mandatory deposits at central banks.
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
------------------------------------
Called
up
share Financial
capital assets Cash Total
and Other at flow Group share-
share equity Retained FVOCI hedging re-organisa-tion holders' Total
premium instru-ments earnings reserve reserve reserve(2) equity Non-controllinginterests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2022 9,015 2,196 4,877 56 (90) 7,691 23,745 60 23,805
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
Profit for the year - - 2,871 - - - 2,871 5 2,876
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
Other comprehensive
income (net of tax) - - (1,023) (302) (1,234) - (2,559) - (2,559)
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
* debt instruments at fair value through other
comprehensive income - - - (300) - - (300) - (300)
* cash flow hedges - - - - (1,234) - (1,234) - (1,234)
* remeasurement of defined benefit asset/liability - - (1,023) - - - (1,023) - (1,023)
* exchange differences - - - (2) - - (2) - (2)
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------
Total comprehensive
income for the year - - 1,848 (302) (1,234) - 312 5 317
Dividends to shareholders - - (1,929) - - - (1,929) (5) (1,934)
Other movements(1) - - 38 - - - 38 - 38
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
At 31 Dec 2022 9,015 2,196 4,834 (246) (1,324) 7,691 22,166 60 22,226
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
At 1 Jan 2021 9,015 2,196 3,749 146 1 7,691 22,798 60 22,858
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
Profit for the year - - 2,363 - - - 2,363 5 2,368
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
Other comprehensive
income
(net of tax) - - (510) (90) (91) - (691) - (691)
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
* debt instruments at fair value through other
comprehensive income - - - (89) - - (89) - (89)
-------------------------------------------------------
* cash flow hedges - - - - (91) - (91) - (91)
-------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (510) - - - (510) - (510)
-------------------------------------------------------
* exchange differences - - - (1) - - (1) - (1)
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------
Total comprehensive
income for the year - - 1,853 (90) (91) - 1,672 5 1,677
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
Dividends to shareholders - - (747) - - - (747) (5) (752)
Other movements(1) - - 22 - - - 22 - 22
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
At 31 Dec 2021 9,015 2,196 4,877 56 (90) 7,691 23,745 60 23,805
------------------------------------------------------- ------- ------------ -------- --------- ------- ---------------- -------- ------------------------ -------
1 Relates to GBP9m pension assets transfer from HSBC Global Services (UK) Limited and HSBC Bank plc (2021: GBP20m) and share based payments cost of GBP29m in 2022 (2021: GBP2m).
2 The Group reorganisation reserve is an equity reserve which was used to recognise the contribution of equity reserves associated with the ring fenced businesses that were notionally transferred from HSBC Bank plc.
HSBC UK Bank plc balance sheet
at 31 December
2022 2021
Notes GBPm GBPm
---------------------------------------------------- ----- ------- -------
Assets
---------------------------------------------------- ----- ------- -------
Cash and balances at central banks 94,407 112,477
---------------------------------------------------- ----- ------- -------
Items in the course of collection from other banks 154 132
Financial assets mandatorily measured at fair value
through profit or loss 7 108 79
Derivatives 9 546 64
---------------------------------------------------- ----- ------- -------
Loans and advances to banks 9,304 4,405
---------------------------------------------------- ----- ------- -------
Loans and advances to customers 199,666 191,208
---------------------------------------------------- ----- ------- -------
Reverse repurchase agreements - non-trading 7,406 7,988
---------------------------------------------------- ----- ------- -------
Financial investments 10 16,092 14,377
---------------------------------------------------- ----- ------- -------
Investments in subsidiaries 13 1,010 1,014
Prepayments, accrued income and other assets 16 8,527 8,861
Interests in joint ventures 12 5 5
---------------------------------------------------- ----- ------- -------
Goodwill and intangible assets 15 1,185 1,128
Total assets 338,410 341,738
---------------------------------------------------- ----- ------- -------
Liabilities and equity
---------------------------------------------------- ----- ------- -------
Liabilities
Deposits by banks 11,619 12,095
---------------------------------------------------- ----- ------- -------
Customer accounts 279,575 280,023
---------------------------------------------------- ----- ------- -------
Repurchase agreements - non-trading 9,333 10,438
---------------------------------------------------- ----- ------- -------
Items in the course of transmission to other banks 304 148
Derivatives 9 304 292
---------------------------------------------------- ----- ------- -------
Debt securities in issue 17 1,091 675
Accruals, deferred income and other liabilities 18 3,330 1,514
---------------------------------------------------- ----- ------- -------
Current tax liabilities 135 760
Provisions 19 386 442
---------------------------------------------------- ----- ------- -------
Deferred tax liabilities 5 690 2,001
---------------------------------------------------- ----- ------- -------
Subordinated liabilities 20 12,349 12,487
---------------------------------------------------- ----- ------- -------
Total liabilities 319,116 320,875
---------------------------------------------------- ----- ------- -------
Equity
---------------------------------------------------- ----- ------- -------
Called up share capital 23 - -
---------------------------------------------------- ----- ------- -------
Share premium account 23 9,015 9,015
---------------------------------------------------- ----- ------- -------
Other equity instruments 23 2,196 2,196
---------------------------------------------------- ----- ------- -------
Other reserves 3,678 5,214
---------------------------------------------------- ----- ------- -------
Retained earnings 4,405 4,438
Total equity 19,294 20,863
---------------------------------------------------- ----- ------- -------
Total liabilities and equity 338,410 341,738
---------------------------------------------------- ----- ------- -------
Profit after tax for the year was GBP2,882m (2021: GBP2,201m).
The accompanying notes on pages 87 to 125, and the audited sections of the 'Report of the Directors' on pages 17 to 71 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 20 February 2023 and signed on its behalf by:
John David Stuart
Director
HSBC UK Bank plc statement of cash flows
for the year ended 31 December
2022 2021
GBPm GBPm
------------------------------------------------------------- -------- --------
Profit before tax 3,599 3,265
------------------------------------------------------------- -------- --------
Adjustments for non-cash items:
------------------------------------------------------------- -------- --------
Depreciation, amortisation and impairment 473 397
------------------------------------------------------------- -------- --------
Net gain from investing activities (37) (101)
Change in expected credit losses gross of recoveries
and other credit impairment charges 457 (801)
------------------------------------------------------------- -------- --------
Provisions including pensions (93) 114
------------------------------------------------------------- -------- --------
Share-based payment expense 16 15
------------------------------------------------------------- -------- --------
Other non-cash items included in profit before tax (204) (30)
------------------------------------------------------------- -------- --------
Elimination of exchange differences(1) 1,032 (33)
------------------------------------------------------------- -------- --------
Changes in operating assets and liabilities
------------------------------------------------------------- -------- --------
Change in net trading securities and derivatives (2,174) (97)
------------------------------------------------------------- -------- --------
Change in loans and advances to banks and customers (9,130) (4,163)
------------------------------------------------------------- -------- --------
Change in reverse repurchase agreements - non-trading 894 (5,503)
------------------------------------------------------------- -------- --------
Change in financial assets mandatorily measured at fair
value (29) (53)
------------------------------------------------------------- -------- --------
Change in other assets (2,188) 693
Change in deposits by banks and customer accounts (924) 33,604
------------------------------------------------------------- -------- --------
Change in repurchase agreements - non-trading (1,104) 4,288
------------------------------------------------------------- -------- --------
Change in debt securities in issue 416 34
Change in other liabilities 1,013 (1,202)
Contributions paid to defined benefit plans (21) (195)
------------------------------------------------------------- -------- --------
Tax paid (1,460) 58
------------------------------------------------------------- -------- --------
Net cash from operating activities (9,464) 30,290
------------------------------------------------------------- -------- --------
Purchase of financial investments (10,386) (12,468)
------------------------------------------------------------- -------- --------
Proceeds from the sale and maturity of financial investments 8,571 17,000
------------------------------------------------------------- -------- --------
Net cash flows from the purchase and sale of property,
plant and equipment (64) (44)
------------------------------------------------------------- -------- --------
Net investment in intangible assets (375) (343)
Net cash from investing activities (2,254) 4,145
Subordinated loan capital issued(2) - 4,978
------------------------------------------------------------- -------- --------
Subordinated loan capital repaid(2) - (2,000)
Dividends paid to shareholders of the parent company
and non-controlling interests (1,929) (747)
Net cash from financing activities (1,929) 2,231
------------------------------------------------------------- -------- --------
Net increase in cash and cash equivalents (13,647) 36,666
------------------------------------------------------------- -------- --------
Cash and cash equivalents at 1 Jan 114,114 77,454
------------------------------------------------------------- -------- --------
Exchange differences in respect of cash and cash equivalents 49 (6)
------------------------------------------------------------- -------- --------
Cash and cash equivalents at 31 Dec(3) 100,516 114,114
------------------------------------------------------------- -------- --------
Cash and cash equivalents comprise:
------------------------------------------------------------- -------- --------
- cash and balances at central banks 94,407 112,477
------------------------------------------------------------- -------- --------
- items in the course of collection from other banks 154 132
------------------------------------------------------------- -------- --------
- loans and advances to banks of one month or less 5,677 1,002
------------------------------------------------------------- -------- --------
- reverse repurchase agreements with banks of one month
or less 312 -
------------------------------------------------------------- -------- --------
- treasury bills, other bills and certificates of deposit
less than three months 268 475
------------------------------------------------------------- -------- --------
- cash collateral and net settlement accounts 2 176
------------------------------------------------------------- -------- --------
- less: items in the course of transmission to other
banks (304) (148)
------------------------------------------------------------- -------- --------
Cash and cash equivalents at 31 Dec(3) 100,516 114,114
------------------------------------------------------------- -------- --------
Interest received was GBP6,671m (2021: GBP4,827m), interest paid was GBP1,154m (2021: GBP417m) and dividends received were GBP161m (2021: GBP57m).
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on line-by-line basis, as details cannot be determined without unreasonable expense.
2 Subordinated liabilities changes during the year are attributable to cash flows from issuance of securities of GBPnil (2021: GBP4,978m) and repayments of GBPnil (2021: GBP(2,000)m). Non-cash changes during the year included foreign exchange losses of GBP556m (2021: GBP25m).
3 At 31 December 2022, GBP4,700m (2021: GBPnil) was not available for use by the bank, GBP4,700m (2021: GBPnil) related to mandatory deposits at central banks.
HSBC UK Bank plc statement of changes in equity
for the year ended 31 December
Other reserves
--------------------------------------
Called
up
share Financial
capital assets Cash Total
and Other at flow Group share-
share equity Retained FVOCI hedging re-organisation(2) holders'
premium instruments earnings reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2022 9,015 2,196 4,438 56 (90) 5,248 20,863
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
Profit for the year - - 2,882 - - - 2,882
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
Other comprehensive
expense (net of tax) - - (1,023) (302) (1,234) - (2,559)
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
* debt instruments at fair value through other
comprehensive income - - - (300) - - (300)
- cash flow hedges - - - - (1,234) - (1,234)
* remeasurement of defined benefit asset/liability - - (1,023) - - - (1,023)
* exchange differences - - - (2) - - (2)
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------
Total comprehensive
income for the year - - 1,859 (302) (1,234) - 323
Dividends to shareholders - - (1,929) - - - (1,929)
Other movements(1) - - 37 - - - 37
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
At 31 Dec 2022 9,015 2,196 4,405 (246) (1,324) 5,248 19,294
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
At 1 Jan 2021 9,015 2,196 3,473 146 1 5,248 20,079
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
Profit for the year - - 2,201 - - - 2,201
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
Other comprehensive
income (net of tax) - - (510) (90) (91) - (691)
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
* debt instruments at fair value through other
comprehensive income - - - (89) - - (89)
-------------------------------------------------------
* cash flow hedges - - - - (91) - (91)
-------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (510) - - - (510)
-------------------------------------------------------
* exchange differences - - - (1) - - (1)
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------
Total comprehensive
income for the year - - 1,691 (90) (91) - 1,510
Dividends to shareholders - - (747) - - - (747)
Other movements(1) - - 21 - - - 21
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
At 31 Dec 2021 9,015 2,196 4,438 56 (90) 5,248 20,863
------------------------------------------------------- ------- ----------- -------- --------- ------- ------------------ ---------
1 Relates to GBP9m pension assets transfer from HSBC Global Services (UK) Limited and HSBC Bank plc (2021: GBP20m) and share based payments cost of GBP28m in 2022 (2021: GBP1m).
2 The Group reorganisation reserve is an equity reserve which was used to recognise the contribution of equity reserves associated with the ring fenced businesses that were notionally transferred from HSBC Bank plc.
Notes on the financial statements 1 Basis of preparation and significant accounting policies -------------------------------------------------------- 1.1 Basis of preparation (a) Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC UK and the separate financial statements of the bank comply with UK-adopted international accounting standards and with the requirements of the Companies Act 2006. These financial statements are also prepared in accordance with IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRSs as issued by the IASB for the periods presented. There were no unendorsed standards effective for the year ended 31 December 2022 affecting these consolidated and separate financial statements.
Standards adopted during the year ended 31 December 2022
There were no new accounting standards or interpretations that had a significant effect on HSBC UK in 2022. Accounting policies have been consistently applied.
(b) Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments to IFRSs which are effective from 1 January 2022 that are applicable to HSBC UK. However, the IASB has published a number of minor amendments to IFRSs that are effective from 1 January 2023 and 1 January 2024. The group expects they will have an insignificant effect, when adopted, on the consolidated financial statements of the group and the separate financial statements of the bank.
New IFRSs
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' was issued in May 2017, with amendments to the standard issued in June 2020 and December 2021. Following the amendments, IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023 and has been adopted in its entirety for use in the UK. However, it is not expected to have a material impact on the consolidated financial statements of the group and the separate financial statements of the bank.
(c) Foreign currencies
The functional currency of the bank is sterling, which is also the presentational currency of the consolidated financial statements of
the group.
Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the balance sheet date except non-monetary assets and liabilities measured at historical cost, which are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised.
(d) Presentation of information
Certain disclosures required by IFRSs have been included in the audited sections of this Annual Report and Accounts 2022 as follows:
-- disclosures concerning the nature and extent of risks relating to financial instruments are included in the 'Report of the Directors | Risk' on pages 17 to 65; and
-- capital disclosures are included in the 'Report of the Directors | Risk' on pages 59 to 61.
In publishing the parent company financial statements together with the group financial statements, the bank has taken advantage of the exemption in Section 408(3) of the Companies Act 2006 not to present its individual income statement and related notes.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of items highlighted as the critical accounting estimates and judgements in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which management's estimates are based. This could result in materially different estimates and judgements from those reached by management for the purposes of these financial statements. Management's selection of the group's accounting policies that contain critical estimates and judgements reflects the materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty involved.
Management has considered the impact of climate-related risks on HSBC's financial position and performance. While the effects of climate change are a source of uncertainty, as at 31 December 2022 management do not consider there to be a material impact on our critical judgements and estimates from the physical, transition and other climate-related risks in the short to medium term. In particular management has considered the known and observable potential impact of climate-related risks of associated judgements and estimates in our value in use calculations.
(f) Segmental analysis
HSBC UK's chief operating decision-maker is the group Chief Executive, supported by the group Executive Committee, and operating segments are reported in a manner consistent with the internal reporting provided to the group Chief Executive and the group Executive Committee.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the group's accounting policies. Segmental income and expenses include transfers between segments and these transfers are conducted at arm's length. Shared costs are included in segments on the basis of the actual recharges made.
The types of products and services from which each reportable segment derives its revenue are discussed in the 'Strategic report | Our global businesses'.
(g) Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the group and bank have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the uncertainty in structural changes from the Covid-19 pandemic, the Russia-Ukraine war, disrupted supply chains globally, climate change and other top and emerging risks, as well as from the related impacts on profitability, capital and liquidity.
1.2 Summary of significant accounting policies (a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group consolidates when it holds, directly or indirectly, the necessary voting rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors, including having exposure to variability of returns, power to direct relevant activities and whether power is held as agent or principal.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. The election is made for each business combination.
The bank's investments in subsidiaries are stated at cost less impairment losses.
Goodwill
Goodwill is allocated to CGUs for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for internal management purposes. The group's CGUs are based on the business lines described in the Strategic Report. Impairment testing is performed once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill for impairment reflects management's best estimate
of the future cash flows of the CGUs and the rates used to discount
these cash flows, both of which are subject to uncertain factors as
follows:
* The accuracy of forecast cash flows is subject to a * The future cash flows of the CGUs are sensitive to
high degree of uncertainty in volatile market the cash flows projected for the periods for which
conditions. Where such circumstances are determined detailed forecasts are available and to assumptions
to exist, management re-tests goodwill for impairment regarding the long-term pattern of sustainable cash
more frequently than once a year when indicators of flows thereafter. Forecasts are compared with actual
impairment exist. This ensures that the assumptions performance and verifiable economic data, but they
on which the cash flow forecasts are based continue reflect management's view of future business
to reflect current market conditions and management's prospects at the time of the assessment.
best estimate of future business prospects.
* The rates used to discount future expected cash flows
can have a significant effect on their valuation, and
are based on the costs of equity assigned to
individual CGUs. The cost of equity percentage is
generally derived from a capital asset pricing model
and the market implied cost of equity, which
incorporates inputs reflecting a number of financial
and economic variables, including the risk-free
interest rate and a premium for the risk of the
business being evaluated. These variables are subject
to fluctuations in external market rates and economic
conditions beyond management's control.
* Key assumptions used in estimating goodwill
impairment are described in Note 15.
=========================================================== ===========================================================
The group does not consider there to be a significant risk of a material adjustment to the carrying amount of the goodwill balance in the next financial year but does consider this to be an area that is inherently judgemental.
Interests in associates and joint arrangements
Joint arrangements are investments in which the group, together with one or more parties, has joint control. Depending on the group's rights and obligations, the joint arrangement is classified as either a joint operation or a joint venture. The group classifies investments in entities over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.
The group recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates is included in the consolidated financial statements of the group, based on either financial statements made up to 31 December, or pro-rated amounts adjusted for any material transactions or events occurring between the date the financial statements are available and 31 December.
Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the investment may be impaired. Goodwill on acquisition of interests in joint ventures and associates is not tested separately for impairment, but is assessed as part of the carrying amount of the investment.
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments, excluding those classified as held for trading are recognised in 'Interest income' and 'Interest expense' in the income statement using the effective interest method.
Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Non-interest income and expense
The group generates fee income from services provided at a fixed price over time, such as account service and card fees, or when it delivers a specific transaction at a point in time, such as broking services and import/export services. With the exception of certain performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be variable depending on the size of the customer portfolio and the group's performance as fund manager. Variable fees are recognised when all uncertainties are resolved. Fee income is generally earned from short-term contracts with payment terms that do not include a significant financing component.
The group acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades, the group acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.
The group recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement.
Where the group offers a package of services that contains multiple non-distinct performance obligations, such as those included in account service packages, the promised services are treated as a single performance obligation. If a package of services contains distinct performance obligations, such as those including both account and insurance services, the corresponding transaction price is allocated to each performance obligation based on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and usually the date when shareholders approve the dividend for unlisted equity securities.
The group buys and sells currencies to customers, as principal and presents the results of this activity, including the related gains and losses from changes in foreign exchange rates, as trading.
Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or managed on a fair value basis': This comprises net trading income, which includes all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other financial instruments managed on a fair value basis, together with the related interest income, expense and dividends, excluding the effect of changes in the credit risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the fair value of derivatives that are managed in conjunction with financial assets and liabilities measured at fair value through profit or loss.
-- 'Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss': This includes interest on instruments that fail the SPPI test, see (d).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price in an active market or a valuation technique that uses only data from observable markets, the group recognises the difference as a trading gain or loss at inception (a 'day 1 gain or loss'). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction either until the transaction matures or is closed out or the valuation inputs become observable.
The fair value of financial instruments is generally measured on an individual basis. Financial instruments are classified into one of three fair value hierarchy levels, described in Note 7, 'Fair values of financial instruments carried at fair value'.
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans and advances to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost. The group accounts for regular way amortised cost financial instruments using trade date accounting. The carrying value of these financial assets at initial recognition includes any directly attributable transactions costs.
Non-trading reverse repurchase, repurchase and similar agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price ('repos'), they remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell ('reverse repos') are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the agreement.
Finance lease receivables
Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets are classified as finance leases. They are recorded at an amount equal to the net investment in the lease, less any impairment allowance. The net investment in finance leases represents the sum of the minimum payments receivable (gross investment in the lease) discounted at the rate of interest implicit in the lease. Initial direct costs incurred in arranging the lease, less any fee income related to the lease, are included in the initial measurement of the net investment.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at FVOCI. These comprise primarily debt securities. They are recognised on the trade date when the group enters into contractual arrangements to purchase and are normally derecognised when they are either sold or redeemed. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognised in other comprehensive income until the assets are sold. Upon disposal, the cumulative gains or losses in other comprehensive income are recognised in the income statement as 'Gains less losses from financial instruments'. Financial assets measured at FVOCI are included in the impairment calculations set out below and impairment is recognised in profit or loss.
(f) Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices. Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial liabilities, which are bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.
Hedge accounting
When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge accounting relationships where the required criteria for documentation and hedge effectiveness are met. The group uses these derivatives or, where allowed, other non-derivative hedging instruments in fair value hedges or cash flow hedges as appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise be recognised in the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued and the cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate, unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments is recognised in other comprehensive income and the ineffective portion of the change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised immediately in the income statement within 'Net income from financial instruments held for trading or managed on a fair value basis'. The accumulated gains and losses recognised in other comprehensive income are reclassified to the income statement in the same periods in which the hedged item affects profit or loss. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other comprehensive income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.
(g) Impairment of amortised cost and FVOCI financial assets
ECL are recognised for loans and advances to banks and customers, non-trading reverse repurchase agreements, other financial assets held at amortised cost, debt instruments measured at fair value through other comprehensive income ('FVOCI'), and certain loan commitments and financial guarantee contracts. At initial recognition, an allowance (or provision in the case of some loan commitments and financial guarantees) is required for ECL resulting from default events that are possible within the next 12 months, or less, where the remaining life is less than 12 months ('12-month ECL'). In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument ('lifetime ECL'). Financial assets where 12-month ECL is recognised are considered to be 'stage 1'; financial assets which are considered to have experienced a significant increase in credit risk are in 'stage 2'; and financial assets for which there is objective evidence of impairment so are considered to be in default or otherwise credit impaired are in 'stage 3'. POCI are treated differently as set out below.
Credit impaired (stage 3)
The group determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether contractual payments of either principal or interest are past due for more than 90 days, there are other indications that the borrower is unlikely to pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower's financial condition, or the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans that are considered defaulted or otherwise credit impaired.
Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.
Forbearance
Loans are identified as forborne and classified as either performing or non-performing when HSBC UK modifies the contractual terms due to financial difficulty of the borrower. Non-performing forborne loans are stage 3 and classified as non-performing until they meet the cure criteria, as specified by applicable credit risk policy (for example, when the loan is no longer in default and no other indicators of default have been present for at least 12 months). Any amount written off as a result of any modification of contractual terms upon entering forbearance would not be reversed.
In 2022, HSBC UK adopted the EBA Guidelines on the application of definition of default for our retail portfolios, which affects credit risk policies and our reporting in respect of the status of loans as credit impaired principally due to forbearance (or curing thereof). Further details are provided under 'Forborne loans and advances' on page 27.
Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable cure criteria (for example, they continue to not be in default and no other indicators of default are present for a period of at least 24 months). At this point, the loan is either stage 1 or stage 2 as determined by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms) and the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms).
A forborne loan is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the terms of an existing agreement are modified such that the forborne loan is a substantially different financial instrument. Any new loans that arise following derecognition events in these circumstances would generally be classified as POCI and will continue to be disclosed as forborne.
Loan modifications other than forborne loans
Loan modifications that are not identified as forborne are considered to be commercial restructuring. Where a commercial restructuring results in a modification (whether legalised through an amendment to the existing terms or the issuance of a new loan contract) such that HSBC UK rights to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. The rights to cash flows are generally considered to have expired if the commercial restructure is at market rates and no payment-related concession has been provided. Modifications of certain higher credit risk wholesale loans are assessed for derecognition having regard to changes in contractual terms that either individually or in combination are judged to result in a substantially different financial instrument. Mandatory and general offer loan modifications that are not borrower-specific, for example market-wide customer relief programmes generally do not result in derecognition, but their stage allocation is determined considering all available and supportable information under our ECL impairment policy. Changes made to these financial instruments that are economically equivalent and required by interest rate benchmark reform do not result in the derecognition or a change in the carrying amount of the financial instrument, but instead require the effective interest rate to be updated to reflect the change of the interest rate benchmark.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or implicitly compares the risk of default occurring at the reporting date compared with that at initial recognition, taking into account reasonable and supportable information, including information about past events, current conditions and future economic conditions. The assessment is unbiased, probability-weighted, and to the extent relevant, uses forward-looking information consistent with that used in the measurement of ECL. The analysis of credit risk is multifactor. The determination of whether a specific factor is relevant and its weight compared with other factors depends on the type of product, the characteristics of the financial instrument and the borrower. Therefore, it is not possible to provide a single set of criteria that will determine what is considered to be a significant increase in credit risk and these criteria will differ for different types of lending, particularly between retail and wholesale. However, unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when 30 days past due. In addition, wholesale loans that are individually assessed, which are typically corporate and commercial customers, and included on a watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime PD which encompasses a wide range of information including the obligor's CRR, macro-economic condition forecasts and credit transition probabilities. For origination CRRs up to 3.3, significant increase in credit risk is measured by comparing the average PD for the remaining term estimated at origination with the equivalent estimation at the reporting date. The quantitative measure of significance varies depending on the credit quality at origination as follows:
0.1-1.2 15 bps ------- ------ 2.1-3.3 30 bps ------- ------
For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination PD has doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to relative changes in external market rates.
For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of future macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PD must be approximated assuming through-the-cycle PDs and through-the-cycle migration probabilities, consistent with the instrument's underlying modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional CRR deterioration-based thresholds, as set out in the table below:
0.1 5 notches ------- --------- 1.1-4.2 4 notches ------- --------- 4.3-5.1 3 notches ------- --------- 5.2-7.1 2 notches ------- --------- 7.2-8.2 1 notch ------- --------- 8.3 0 notch ------- ---------
Further information about the 23-grade scale used for CRR can be found on page 27 - Risk rating scales.
For Retail portfolios, default risk is assessed using a reporting date 12-month PD derived from credit scores, which incorporate all available information about the customer. This PD is adjusted for the effect of macroeconomic forecasts for periods longer than
12 months and is considered to be a reasonable approximation of a lifetime PD measure. Retail exposures are first segmented into homogenous portfolios, generally by country, product and brand. Within each portfolio, the stage 2 accounts are defined as accounts with an adjusted 12-month PD greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days past due. The expert credit risk judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold therefore identifies loans with a PD higher than would be expected from loans that are performing as originally expected and higher than that which would have been acceptable at origination. It therefore approximates a comparison of origination to reporting date PDs.
As additional data becomes available, the retail transfer criteria approach continues to be refined to utilise a more relative approach for certain portfolios. These enhancements take advantage of the increase in origination related data in the assessment of significant increases in credit risk by comparing remaining lifetime PD to the comparable remaining term lifetime PD at origination based on portfolio-specific origination segments. These enhancements resulted in significant migrations of loans to customers gross carrying amounts from stage 1 to stage 2, but did not have a significant impact on the overall ECL for these portfolios in 2022 due to low loan-to-value ratios.
Unimpaired and without significant increase in credit risk (stage 1)
ECL resulting from default events that are possible within the next 12 months ('12-month ECL') are recognised for financial instruments that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI. This population includes new financial instruments recognised in most cases following the derecognition of forborne loans. The amount of change in lifetime ECL for a POCI loan is recognised in profit or loss until the POCI loan is derecognised, even if the lifetime ECL are less than the amount of ECL included in the estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk since initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly increased since initial recognition based on the assessments described above. In the case of non-performing forborne loans, such financial instruments are transferred out of stage 3 when they no longer exhibit any evidence of credit impairment and meet the curing criteria as described above.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of future events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money and considers other factors such as climate-related risks.
In general, the group calculates ECL using three main components: a PD, a LGD and the EAD.
The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The 12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD given the event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to be realised and the time value of money.
The group makes use of the Basel II IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the following table:
PD Through the cycle (represents Point in time (based on current
long-run average PD throughout conditions, adjusted to take
a full economic cycle). into account estimates of future
The definition of default includes conditions that will impact PD).
a backstop of 90+ days past due, Default backstop of 90+ days
although this has been modified past due for all portfolios.
to 180+ days past due for some
portfolios, particularly UK and
US mortgages.
----- --------------------------------------- ---------------------------------------------
EAD Cannot be lower than current Amortisation captured for term
balance. products.
----- --------------------------------------- ---------------------------------------------
LGD Downturn LGD (consistent losses Expected LGD (based on estimate
expected to be suffered during of loss given default including
a severe but plausible economic the expected impact of future
downturn). economic conditions such as changes
Regulatory floors may apply to in value of collateral).
mitigate risk of underestimating No floors.
downturn LGD due to lack of historical Discounted using the original
data. effective interest rate of the
Discounted using cost of capital. loan.
All collection costs included. Only costs associated with obtaining/selling
collateral included.
----- --------------------------------------- ---------------------------------------------
Discounted back from point of
Other default to balance sheet date.
----- --------------------------------------- ---------------------------------------------
While 12-month PDs are recalibrated from Basel II models where possible, the lifetime PDs are determined by projecting the 12-month PD using a term structure. For the wholesale methodology, the lifetime PD also takes into account credit migration, i.e. a customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual basis using a DCF methodology. The expected future cash flows are based on the credit risk officer's estimates at the reporting date, reflecting reasonable and supportable assumptions and projections of future recoveries and expected future receipts of interest. Collateral is taken into account if it is likely that the recovery of the outstanding amount will include realisation of collateral based on its estimated fair value of collateral at the time of expected realisation, less costs for obtaining and selling the collateral.
The cash flows are discounted at a reasonable approximation of the original effective interest rate. For significant cases, cash flows under four different scenarios are probability-weighted by reference to the economic scenarios applied more generally by the group and the judgement of the credit risk officer in relation to the likelihood of the workout strategy succeeding or receivership being required. For less significant cases, the effect of different economic scenarios and work-out strategies is approximated and applied as an adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it 12-month or lifetime ECL) is the maximum contractual period over which the group is exposed to credit risk. However, where the financial instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and cancel the undrawn commitment does not serve to limit the group's exposure to credit risk to the contractual notice period, the contractual period does not determine the maximum period considered. Instead, ECL is measured over the period the group remains exposed to credit risk that is not mitigated by credit risk management actions. This applies to retail overdrafts and credit cards, where the period is the average time taken for stage 2 exposures to default or close as performing accounts, determined on a portfolio basis and ranging from between two and six years. In addition, for these facilities it is not possible to identify the ECL on the loan commitment component separately from the financial asset component. As a result, the total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision. For wholesale overdraft facilities, credit risk management actions are taken no less frequently than on an annual basis.
Forward-looking economic inputs
The group applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions representative of its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected loss in most economic environments. In certain economic environments, additional analysis may be necessary and may result in additional scenarios or adjustments, to reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed methodology is disclosed in 'Measurement uncertainty and sensitivity analysis of ECL estimates' on page 33.
Critical accounting estimates and judgements
The calculation of the group's ECL under IFRS 9 requires the group
to make a number of judgements, assumptions and estimates. The most
significant are set out below:
=========================================================================================================================
* Defining what is considered to be a significant * The section 'Measurement uncertainty and sensitivity
increase in credit risk. analysis of ECL estimates', marked as audited on
pages 33 to 37, sets out the assumptions used in
determining ECL, and provides an indication of the
* Determining the lifetime and point of initial sensitivity of the result to the application of
recognition of overdrafts and credit cards. different weightings being applied to different
economic assumptions.
* Selecting and calibrating the PD, LGD and EAD models
,
which support the calculations, including making
reasonable and supportable judgements about how
models react to current and future economic
conditions.
* Selecting model inputs and economic forecasts,
including determining whether sufficient and
appropriately weighted economic forecasts are
incorporated to calculate unbiased expected loss.
* Making management judgemental adjustments to account
for late breaking events, model and data limitations
and deficiencies, and expert credit judgements.
========================================================== =============================================================
(h) Employee compensation and benefits
Share-based payments
The group enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for the provision of their services.
The vesting period for these schemes may commence before the legal grant date if the employees have started to render services in respect of the award before the legal grant date, where there is a shared understanding of the terms and conditions of the arrangement. Expenses are recognised when the employee starts to render service to which the award relates.
Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.
Post-employment benefit plans
The group operates a pension plan which provides defined benefit and defined contribution pensions.
Payments to defined contribution schemes are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.
Remeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets (see policy (c)), after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in future contributions to the plan.
The costs of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.
Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the determination
of key assumptions applied in calculating the defined benefit pension
obligation.
* A range of assumptions could be applied, and
different assumptions could significantly alter the
defined benefit obligation and the amounts recognised
in profit or loss or OCI.
* The calculation of the defined benefit pension
obligation includes assumptions with regard to the
discount rate, inflation rate, pension payments and
deferred pensions, pay and mortality. Management
determines these assumptions in consultation with the
plan's actuaries.
* Key assumptions used in calculating the defined
benefit pension obligation and the sensitivity of the
calculation to different assumptions are described in
Note 3.
==============================================================================
(i) Tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous years. The group provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods as the assets will be realised or the liabilities settled.
Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
(j) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive obligation that has arisen as a result of past events and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the group to
make a number of judgements, assumptions and estimates. The most significant
are set out below:
* Determining whether a present obligation exists. * Provisions for legal proceedings and regulatory
Professional advice is taken on the assessment of matters remain very sensitive to the assumptions used
litigation and similar obligations. in the estimate. There could be a wider range of
possible outcomes for any pending legal proceedings,
investigations or inquiries. As a result it is often
* Provisions for legal proceedings and regulatory not practicable to quantify a range of possible
matters typically require a higher degree of outcomes for individual matters. It is also not
judgement than other types of provisions. When practicable to meaningfully quantify ranges of
matters are at an early stage, accounting judgements potential outcomes in aggregate for these types of
can be difficult because of the high degree of provisions because of the diverse nature and
uncertainty associated with determining whether a circumstances of such matters and the wide range of
present obligation exists, and estimating the uncertainties involved.
probability and amount of any outflows that may
arise. As matters progress, management and legal
advisers evaluate on an ongoing basis whether
provisions should be recognised, revising previous
estimates as appropriate. At more advanced stages, it
is typically easier to make estimates around a better
defined set of possible outcomes.
=========================================================== ===========================================================
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable.
(k) Impairment of non-financial assets
Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment, intangible assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is indication of impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level. In addition, impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are considered to be the principal operating legal entities divided by global business.
Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of the fair value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying values of its assets and liabilities, including non-financial assets that are directly attributable to it and non-financial assets that can be allocated to it on a reasonable and consistent basis. Non-financial assets that cannot be allocated to an individual CGU are tested for impairment at an appropriate grouping of CGUs. The recoverable amount of the CGU is the higher of the fair value less costs of disposal of the CGU, which is determined by independent and qualified valuers where relevant, and the value in use, which is calculated based on appropriate inputs (see Note 15).
When the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognised in the income statement to the extent that the impairment can be allocated on a pro-rata basis to the non-financial assets by reducing their carrying amounts to the higher of their respective individual recoverable amount or nil. Impairment is not allocated to the financial assets in a CGU.
Impairment loss recognised in prior periods for non-financial assets is reversed when there has been a change in the estimate used to determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets would not exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior periods.
(l) Cash and cash equivalents
Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are normally those with less than three months' maturity from the date of acquisition.
2 Net fee income
--------------
Year ended
31 Dec 31 Dec
2022 2021
Net fee income by product GBPm GBPm
---------------------------------- ------ ------
Account services 257 276
---------------------------------- ------ ------
Funds under management 114 126
---------------------------------- ------ ------
Cards 580 410
---------------------------------- ------ ------
Credit facilities 130 140
Imports/exports 30 33
Insurance agency commission 25 59
---------------------------------- ------ ------
Receivables finance 96 90
---------------------------------- ------ ------
Other 261 195
---------------------------------- ------ ------
Fee income 1,493 1,329
---------------------------------- ------ ------
Less: fee expense (248) (249)
---------------------------------- ------ ------
Net fee income 1,245 1,080
---------------------------------- ------ ------
Net fee income by global business
---------------------------------- ------ ------
Wealth and Personal Banking 590 514
---------------------------------- ------ ------
Commercial Banking 879 755
---------------------------------- ------ ------
Global Banking and Markets (222) (188)
---------------------------------- ------ ------
Corporate Centre (2) (1)
---------------------------------- ------ ------
Net fee income includes GBP1,129m of fees earned on financial assets that are not at fair value through profit or loss (other than amounts included in determining the effective interest rate) (2021: GBP1,094m), GBP174m of fees payable on financial liabilities that are not at fair value through profit of loss (other than amounts included in determining the effective interest rate) (2021: GBP126m), GBP118m of fees earned on trust and other fiduciary activities (2021: GBP11m).
3 Employee compensation and benefits
----------------------------------
2022 2021(1)
GBPm GBPm
------------------------- ----- -------
Wages and salaries 971 903
------------------------- ----- -------
Social security costs 106 97
------------------------- ----- -------
Post-employment benefits 2 22
------------------------- ----- -------
Year ended 31 Dec 1,079 1,022
------------------------- ----- -------
Average number of persons employed by the group during the year
2022(2) 2021(1,2)
Wealth and Personal Banking 15,923 16,458
----------------------------------------- ---------- -------------
Commercial Banking 4,491 4,932
----------------------------------------- ---------- -------------
Global Banking and Markets 54 51
----------------------------------------- ---------- -------------
Corporate Centre 33 6
----------------------------------------- ---------- -------------
Year ended 31 Dec 20,501 21,447
----------------------------------------- ---------- -------------
1 During 2021, 3,607 full-time equivalent employees that were fully dedicated to HSBC UK Bank plc transferred from HSBC Global Services (UK) Limited to HSBC UK Bank plc. As a result of the employee transfer, associated costs for the three months to 31 March 2021 were reported under 'General and administrative expenses' and subsequently reported under 'Employee compensation and benefits'.
2 Average number of headcount staff in corporate centre are allocated to the respective the global businesses. The allocation is on the basis of amounts charged to the respective global business.
Share-based payments
The share-based payment income statement charge is recognised in wages and salaries as follows:
2022 2021
GBPm GBPm
--------------------------------------------------- ---- ----
Restricted share awards 8 7
--------------------------------------------------- ---- ----
Savings-related and other share award option plans 9 10
--------------------------------------------------- ---- ----
Year ended 31 Dec 17 17
--------------------------------------------------- ---- ----
HSBC Group share awards
Deferred share An assessment of performance over the relevant period
awards (including ending on 31 December is used to determine the amount
annual incentive of the award to be granted.
awards, LTI awards * Deferred awards generally require employees to remain
delivered in in employment over the vesting period and are
shares) and GPSP generally not subject to performance conditions after
the grant date.
* Deferred share awards generally vest over a period of
three, five or seven years.
* Vested shares may be subject to a retention
requirement post-vesting.
* Awards are subject to malus and clawback provisions.
------------------- ------------------------------------------------------------
International The plan was first introduced in Hong Kong in 2013 and
Employee Share now includes employees based in 31 jurisdictions.
Purchase Plan * Shares are purchased in the market each quarter up to
('ShareMatch') a maximum value of GBP750, or the equivalent in local
currency.
* Matching awards are added at a ratio of one free
share for every three purchased.
* Matching awards vest subject to continued employment
and the retention of the purchased shares for a
maximum period of two years and nine months.
------------------- ------------------------------------------------------------
Movement on HSBC Group share awards
2022 2021
Number Number
(000s) (000s)
---------------------------------------------------- ------- -------
Restricted share awards outstanding at 1 Jan 2,457 1,525
Additions during the year 1,976 2,101
---------------------------------------------------- ------- -------
Released in the year (1,404) (1,137)
---------------------------------------------------- ------- -------
Forfeited in the year (48) (32)
---------------------------------------------------- ------- -------
Restricted share awards outstanding at 31 Dec 2,981 2,457
---------------------------------------------------- ------- -------
Weighted average fair value of awards granted (GBP) 4.03 4.11
---------------------------------------------------- ------- -------
HSBC Group share option plans
Savings-related
share option * Eligible employees can save up to GBP500 per month
plans ('Sharesave') with the option to use the savings to acquire shares.
* These are generally exercisable within six months
following either the third or fifth anniversary of
the commencement of a three-year or five-year
contract, respectively.
* The exercise price is set at a 20% (2021: 20%)
discount to the market value immediately preceding
the date of invitation.
-------------------- ------------------------------------------------------------
Calculation of fair values
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant.
Movement on HSBC Group share option plans
Savings-related
share option plans
---------------------
Number WAEP(1)
(000s) GBP
---------------------------------------------------- ---------- ---------
Outstanding at 1 Jan 2022 64,073 2.85
Granted during the year 4,523 4.30
---------------------------------------------------- ---------- ---------
Exercised during the year (1,517) 3.56
---------------------------------------------------- ---------- ---------
Expired during the year (1,360) 4.95
---------------------------------------------------- ---------- ---------
Forfeited during the year (5,369) 2.94
---------------------------------------------------- ---------- ---------
Outstanding at 31 Dec 2022 60,350 2.88
---------------------------------------------------- ---------- ---------
- of which exercisable 1,761 4.35
---------------------------------------------------- ---------- ---------
Weighted average remaining contractual life (years) 2.23
---------------------------------------------------- ---------- ---------
Outstanding at 1 Jan 2021 59,815 2.96
Granted during the year 16,434 5.28
---------------------------------------------------- ------- ----
Exercised during the year (1,693) 3.69
---------------------------------------------------- ------- ----
Expired during the year (488) 4.13
---------------------------------------------------- ------- ----
Forfeited during the year (9,995) 3.60
---------------------------------------------------- ------- ----
Outstanding at 31 Dec 2021 64,073 2.85
---------------------------------------------------- ------- ----
- of which exercisable 2,702 3.98
---------------------------------------------------- ------- ----
Weighted average remaining contractual life (years) 2.97
---------------------------------------------------- ------- ----
1 Weighted average exercise price.
Post-employment benefit plans
We operate a pension plan for our employees called the HBUK section of the HSBC Bank (UK) Pension Scheme ('the plan'), which has both defined benefit and defined contribution sections. The HSBC Bank (UK) Pension Scheme was fully sectionalised in 2018 to meet the requirements of the Banking Reform Act.
The Pension risk section on page 58 contains details about the policies and practices associated with the plan. Climate-related risks on page 21 provides details of how the trustee of our employee pension plan, the HSBC Bank (UK) Pension Scheme, manages climate risk.
The defined benefit section was closed to future benefit accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by the HSBC Group. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are held separately from the assets of the group.
The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also includes some interest rate swaps to reduce interest rate risk, inflation swaps to reduce inflation risk and longevity swaps to reduce the impact of longer life expectancy. For further details of the measures to manage the market volatility experienced during the second half of 2022, see Treasury risk on page 55.
The plan is subject to the statutory funding objective requirements of the UK Pensions Act 2004, which requires that it be funded to at least the level of technical provisions (an actuarial estimate of the assets needed to provide for the benefits already built up under the plan). Where a funding valuation is carried out and identifies a deficit, the employer and trustee are required to agree to a deficit recovery plan.
The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is a Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan's assets was GBP31.1bn and this exceeded the value placed on its liabilities on an ongoing basis by GBP2.5bn, giving a funding level of 109%. These figures include defined contribution assets amounting to GBP2.4bn. The funding valuation is used to judge the amount of cash contributions the group needs to put into the pension scheme. It will always be different to the IAS 19 accounting surplus, which is an accounting rule concerning employee benefits and shown on the balance sheet of our financial statements. The main differences between the assumptions used for assessing the liabilities for this funding valuation and those used for IAS19 are that an element of prudence is contained in the funding assumptions for discount rate, inflation rate and life expectancy. The next funding valuation will be performed in 2023, with an effective date 31 December 2022. The plan is estimated to remain in a comfortable surplus relative to funding liabilities as at end 2022, based on assumptions consistent with those used to determine the funding liabilities for the 2019 valuation.
The actuary also assessed the value of the liabilities if the HBUK section of the plan were to have been stopped and an insurance company asked to secure all future pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would use more prudent assumptions which allow for reserves and include a more prudent allowance for the future administrative expenses of the plan. Under this approach, the amount of assets needed was estimated to be GBP33bn at 31 December 2019.
The Trust Deed gives the ability for HSBC UK to take a refund of surplus assets after the plan has been run down such that no further beneficiaries remain. In assessing whether a surplus is recoverable HSBC UK has considered its right to obtain a future refund together with the rights of third parties such as trustees. On this basis, any net surplus in the HBUK section of the plan is recognised in HSBC UK's financial statements.
Guaranteed Minimum Pension Equalisation
Following a judgment issued by the High Court of Justice of England and Wales in 2018, we estimated the financial effect of equalising benefits in respect of guaranteed minimum pensions ('GMP') equalisation, and any potential conversion of GMPs into non-GMP benefits, to be an approximate 0.9% increase in the plan's liabilities for members of the plan, or GBP187m. This was recognised in the Income Statement in 2018. A further judgment by the High Court on 20 November 2020 ruled that GMPs should be also equalised for those who had previously transferred benefits from the plan to another arrangement, with GBP13m consequently being recognised in 2020. In 2022 the trustee and Company agreed to adopt a simplified approach for all members to implement GMP equalisation. This resulted in an increase to the liabilities of GBP5m and has been recognised as a past service cost through P&L.
Income statement charge
2022 2021
GBPm GBPm
----------------------------------- ---------------------------------- ---------------------------------
Defined benefit pension plans (95) (44)
----------------------------------- ---------------------------------- ---------------------------------
Defined contribution pension plans 97 66
----------------------------------- ---------------------------------- ---------------------------------
Pension plans 2 22
Year ended 31 Dec 2 22
----------------------------------- ---------------------------------- ---------------------------------
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value Present value Net defined
of plan of defined benefit
assets benefit obligations assets/(liabilities)
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------------- ---------------------
At 1 Jan 2022 30,578 (23,833) 6,745
Service cost - (25) (25)
-------------------------------------------- ---------- -------------------- ---------------------
- current service cost - (10) (10)
--------------------------------------------
- past service cost - (15) (15)
Net interest income/(cost) on the net
defined benefit asset/(liability) 571 (443) 128
-------------------------------------------- ---------- -------------------- ---------------------
Remeasurement effects recognised in other
comprehensive income (9,343) 7,740 (1,603)
-------------------------------------------- ---------- -------------------- ---------------------
- return on plan assets (excluding interest
income) (9,343) - (9,343)
--------------------------------------------
- actuarial losses financial assumptions - 8,561 8,561
--------------------------------------------
- actuarial gain demographic assumptions - (100) (100)
--------------------------------------------
- actuarial gain experience adjustments - (721) (721)
-------------------------------------------- ---------- -------------------- ---------------------
Transfers to/from the scheme 36 (27) 9
Benefits paid (992) 992 -
-------------------------------------------- ---------- -------------------- ---------------------
Other movements(1) 3 - 3
At 31 Dec 2022 20,853 (15,596) 5,257
-------------------------------------------- ---------- -------------------- ---------------------
Net asset/(liability) under defined benefit pension plans (continued)
Fair value Present value Net defined
of plan of defined benefit
assets benefit obligations assets/(liabilities)
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------------- ---------------------
At 1 Jan 2021 31,130 (24,173) 6,957
Service cost - (40) (40)
-------------------------------------------- ---------- -------------------- ---------------------
- current service cost - (10) (10)
--------------------------------------------
- past service cost - (30) (30)
Net interest income/(cost) on the net
defined benefit asset/(liability) 446 (344) 102
-------------------------------------------- ---------- -------------------- ---------------------
Remeasurement effects recognised in other
comprehensive income (274) (197) (471)
-------------------------------------------- ---------- -------------------- ---------------------
- return on plan assets (excluding interest
income) (274) - (274)
--------------------------------------------
- actuarial losses financial assumptions - 444 444
--------------------------------------------
- actuarial gain demographic assumptions - (325) (325)
--------------------------------------------
- actuarial gain experience adjustments - (316) (316)
Transfers to/from the scheme 113 (93) 20
Benefits paid (1,014) 1,014 -
-------------------------------------------- ---------- -------------------- ---------------------
Other movements(1) 177 - 177
At 31 Dec 2021 30,578 (23,833) 6,745
-------------------------------------------- ---------- -------------------- ---------------------
1 Other movements of Fair value of plan assets includes contributions by HSBC UK of GBP20m (2021: GBP195m), less administrative costs GBP17m (2021: GBP18m).
HSBC UK expects to make total contributions of GBP11m to the pension scheme during 2023, which reflects the costs of providing defined benefit risk benefits to defined contribution members of the section. Benefits expected to be paid from the plan to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plan
2023 2024 2025 2026 2027 2028-2032
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ----- ----- ----- ----- ----- ---------
The plan(1) 1,024 1,058 1,093 1,128 1,165 6,423
------------ ----- ----- ----- ----- ----- ---------
1 The duration of the defined benefit obligation is 13.2 years under the disclosure assumptions adopted (2021: 17.3 years).
Fair value of plan assets by asset classes
At 31 Dec 2022 At 31 Dec 2021
------------------------------------- -------------------------------------
Quoted market No quoted No quoted
price market Quoted market market price
in active price in price in in active
Value market active market Value active market market
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------ ------------- -------------- ------ -------------- -------------
The plan
---------------- ------ ------------- -------------- ------ -------------- -------------
Fair value
of plan assets 20,853 11,550 9,303 30,578 26,799 3,779
---------------- ------ ------------- -------------- ------ -------------- -------------
- equities(1) 93 - 93 146 4 142
----------------
- bonds fixed
income(2) 4,386 4,002 384 13,399 12,894 505
----------------
- bonds index
linked 7,869 7,869 - 13,418 13,418 -
----------------
- derivatives 998 - 998 1,377 - 1,377
----------------
- property 700 - 700 808 - 808
----------------
- other(3) 6,807 (321) 7,128 1,430 483 947
---------------- ------ ------------- -------------- ------ --------------
1 Includes GBP93m (2021: GBP142m) in relation to private equities.
2 Bonds fixed income, includes GBP(705)m (2021: GBP(360)m) in relation to repurchase agreements.
3 Other includes GBP7,128m (2021: GBP947m) of unquoted pooled investment vehicles, t he majority of the underlying assets are invested in bonds.
Post-employment defined benefit plan actuarial financial assumptions
HSBC UK determines the discount rates to be applied to its obligations in consultation with the plan's local actuaries, on the basis of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the plan
Rate of
Discount Inflation Inflation increase Rate of
rate rate (RPI) rate (CPI) for pensions pay increase
% % % % %
--------------- -------- ----------- ----------- ------------- -------------
UK
--------------- -------- ----------- ----------- ------------- -------------
At 31 Dec 2022 4.93 3.39 2.84 3.27 3.34
--------------- -------- ----------- ----------- ------------- -------------
At 31 Dec 2021 1.90 3.45 3.20 3.30 3.45
--------------- -------- ----------- ----------- ------------- -------------
Mortality tables and average life expectancy at age 60 for the plan
Life expectancy Life expectancy
at age 60 for at age 60 for
Mortality a male member a female member
table currently: currently:
-------------------- --------------------
Aged 60 Aged 40 Aged 60 Aged 40
-------------------- ------------- --------- --------- --------- ---------
UK
-------------------- ------------- --------- --------- --------- ---------
At 31 Dec 2022 SAPS S3(1) 27.1 28.6 28.4 29.9
-------------------- ------------- --------- --------- --------- ---------
At 31 Dec 2021 SAPS S3(1) 27.3 28.8 28.5 30.1
-------------------- ------------- --------- --------- --------- ---------
1 Self-administered pension scheme ('SAPS') S3 table, with different tables and multipliers adopted based on gender, pension amount and member status, reflecting the Scheme's actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation's CMI 2021 core projection model with an initial addition to improvement of 0.25% per annum, a long-term rate of improvement of 1.25% per annum and a 5% weighting to 2020 and 2021 mortality experience reflecting updated long-term view on mortality improvements post-pandemic.
The effect of changes in key assumptions on the plan
Impact on HSBC Bank (UK) Pension
Scheme Obligation(1)
Financial impact Financial impact
of increase of decrease
---------------------- ------------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
--------------------------------------------- ---------- ---------- -------- --------
Discount rate - increase/decrease of
0.25% (483) (988) 509 1,053
--------------------------------------------- ---------- ---------- -------- --------
Inflation rate (RPI/CPI) - increase/decrease
of 0.25% 387 895 (371) (724)
--------------------------------------------- ---------- ---------- -------- --------
Pension payments and deferred pensions
- increase/decrease of 0.25% 457 936 (431) (870)
--------------------------------------------- ---------- ---------- -------- --------
Pay - increase/decrease of 0.25% 8 15 (8) (15)
--------------------------------------------- ---------- ---------- -------- --------
Change in mortality - increase of 1
year
Change in mortality - increase of 1
year 390 1,025 (405) N/A
--------------------------------------------- ---------- ---------- -------- --------
1 Sensitivities allow for HSBC UK's convention of rounding pension assumptions during 2022 to the nearest 0.01% (2021: 0.05%). The degree of rounding has been increased to align with market practice.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this in unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised in the balance sheet.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
Directors' emoluments
The aggregate emoluments of the Directors of the Company, computed in accordance with the Companies Act 2006 as amended by statutory instrument 2008 No.410, were:
2022 2021
GBP000 GBP000
------------------------------------- ------ ------
Fees paid to non-executive Directors 1,406 1,568
------------------------------------- ------ ------
Salaries and other emoluments(1) 2,418 2,735
------------------------------------- ------ ------
Annual incentives(2) 1,160 716
------------------------------------- ------ ------
Long-term incentives(3) 781 477
------------------------------------- ------ ------
Year ended 31 Dec 5,765 5,496
------------------------------------- ------ ------
1 Salaries and other emoluments include Fixed Pay Allowances.
2 Discretionary annual incentives for the Executive Directors are based on a combination of individual and corporate performance and are determined by the Remuneration Committee of the Company's ultimate parent company, HSBC Holdings plc. Incentive awards made to Executive Directors are delivered in the form of cash and HSBC Holdings plc shares. The total amount shown is comprised of GBP580,071 (2021: GBP357,846) in cash and GBP580,071 (2021: GBP357,846) in Restricted Shares, which is the upfront portion of the annual incentive granted in respect of performance year 2022.
3 The amount shown is comprised of GBP364,848 (2021: GBP256,463) in deferred cash and GBP416,541 (2021: GBP220,507) in deferred Restricted Shares. These amounts relate to the portion of the awards that will vest following the substantial completion of the vesting condition attached to these awards in 2022. The total deferral period of deferred cash and share awards is no less than five years up to a maximum of seven years. Grants with a five-year deferral vest in five equal tranches on each anniversary of the grant date on a pro-rate basis. Grants with a seven-year deferral vest in five equal tranches on each anniversary from the third anniversary of the grant date on a pro-rata basis. The deferral periods and pro-rata calculations are in line with the requirements set out in the Remuneration rules applicable to Material Risk Takers. The share awards are subject to a retention period of six months to one year upon vesting. Details of the Plans are contained within the Directors' Remuneration Report of HSBC Holdings plc.
No Directors exercised share options over HSBC Holdings plc ordinary shares during the year (2021: no Directors).
Awards were made to two Directors under HSBC Holdings plc long-term incentive plans in respect of qualifying services rendered in 2022 (2021: 2). During 2022, 2 Directors received shares in respect of awards in HSBC Holdings plc long-term incentive plans that vested during the year (2021: 2).
Retirement benefits accrued to 1 Director during the year in respect of their qualifying services (2021: no Directors). No Directors received cash in lieu of pension contributions during the year in respect of their qualifying services (2021: 3). Cash received in lieu of pension is included in the salary and other emoluments disclosure in the table above.
Of these aggregate figures, the following amounts are attributable to the highest paid Director:
2022 2021
GBP000 GBP000
Salaries and other emoluments 1,771 1,753
------------------------------ ------ ------
Annual incentives(1) 890 596
------------------------------ ------ ------
Long-term incentives(2) 602 407
------------------------------ ------ ------
Year ended 31 Dec 3,263 2,756
------------------------------ ------ ------
1 Awards made to the highest paid Director are delivered in the form of cash and HSBC Holdings plc shares. The amount shown is comprised of GBP445,071 (2021: GBP297,846) in cash and GBP445,071 (2021: GBP297,846) in Restricted Shares.
2 The amount shown is comprised of GBP294,214 (2021: GBP218,698) in deferred cash and GBP307,398 (2021: GBP188,070) in deferred Restricted Shares.
These amounts represent a portion of the total award that will vest following satisfaction of the vesting condition attached to the 2022 awards. The total period of deferral for these cash and share awards is seven years with pro-rata vesting in five equal tranches between the third and seventh anniversary of the date granted. The vested share awards are then subject to a one-year retention period.
The highest paid Director received shares in respect of qualifying services under an HSBC Holdings plc long term incentive plan.
Pension contributions of GBPnil were made by the Company in respect of services by the highest paid Director during the year (2021: GBPnil).
4 Auditors' remuneration
----------------------
2022 2021
GBPm GBPm
-------------------------- ---- ----
Audit fees payable to PwC 5.4 5.4
-------------------------- ---- ----
Other audit fees payable 2.8 2.7
-------------------------- ---- ----
Year ended 31 Dec 8.2 8.1
-------------------------- ---- ----
Fees payable by the group to PwC
2022 2021
GBPm GBPm
----------------------------------------------------- ---- ----
Audit fees for HSBC UK Bank plc's statutory audit(1) 4.3 4.4
Fees for other services provided to the group 3.9 3.7
----------------------------------------------------- ---- ----
- audit of the group's subsidiaries(2) 1.1 1.0
-----------------------------------------------------
- audit-related assurance services(3) 1.9 2.0
-----------------------------------------------------
- other assurance services(4) 0.9 0.7
Year ended 31 Dec 8.2 8.1
----------------------------------------------------- ---- ----
1 Fees payable to PwC for the statutory audit of the consolidated financial statements of the group and the separate financial statements of HSBC UK Bank plc. They exclude amounts payable for the statutory audit of the bank's subsidiaries which have been included in 'Fees for other services provided to the group'.
2 Including fees payable to PwC for the statutory audit of the bank's subsidiaries.
3 Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim and quarter reviews.
4 Including assurance reviews of PRA regulatory reporting returns.
No fees were payable to PwC as principal auditor for the following types of services: internal audit services and services related to litigation, recruitment and remuneration.
In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC UK amounted to GBP0.7m. In these cases, HSBC UK was connected with the contracting party and may therefore have been involved in appointing PwC. These fees arose from services such as reviewing the financial position of corporate concerns that borrow from HSBC UK.
Fees payable for non-audit services for HSBC UK Bank plc are not disclosed separately because such fees are disclosed on a consolidated basis for the group.
5 Tax
---
Tax expense
2022 2021
GBPm GBPm
---------------------------------------------------- ----- -----
Current tax 876 836
---------------------------------------------------- ----- -----
- for this year 880 852
----------------------------------------------------
- adjustments in respect of prior years (4) (16)
---------------------------------------------------- -----
Deferred tax (114) 276
---------------------------------------------------- ----- -----
- origination and reversal of temporary differences 52 54
----------------------------------------------------
- effect of changes in tax rates (172) 203
----------------------------------------------------
- adjustments in respect of prior years 6 19
---------------------------------------------------- -----
Year ended 31 Dec(1) 762 1,112
---------------------------------------------------- ----- -----
1 In addition to amounts recorded in the income statement, a tax credit of GBP1,173m (2021: credit of GBP23m) was recorded directly to equity.
The tax rate applying to HSBC UK Bank plc and its banking subsidiaries was 27%, comprising 19% UK corporation tax rate plus 8% surcharge tax rate on UK banking profits. The tax rate applicable for non-banking entities is 19% (2021: 19%).
Tax reconciliation
The tax charged to the income statement differs from the tax expense that would apply if all profits had been taxed at the UK corporation tax rate as follows:
2022 2021
GBPm % GBPm %
--------------------------------------------------------- ----- ----- ----- -----
Profit before tax 3,638 3,480
--------------------------------------------------------- ----- ----- ----- -----
Tax expense
--------------------------------------------------------- ----- ----- ----- -----
Taxation at UK corporation tax rate of 19.00%
(2021: 19.00%) 691 19.0 661 19.0
--------------------------------------------------------- ----- ----- ----- -----
Items increasing the tax charge in 2022:
--------------------------------------------------------- ----- ----- ----- -----
- UK banking surcharge 278 7.6 266 7.6
--------------------------------------------------------- ----- ----- ----- -----
- UK bank levy 9 0.2 9 0.3
--------------------------------------------------------- ----- ----- ----- -----
* non-deductible costs in respect of regulatory and
legal matters - - 4 0.1
--------------------------------------------------------- ----- ----- ----- -----
- adjustments in respect of prior period
liabilities 2 0.1 3 0.1
- other permanent disallowables 4 0.1 1 0.1
--------------------------------------------------------- ----- ----- ----- -----
Items reducing tax charge in 2022:
--------------------------------------------------------- ----- ----- ----- -----
- change in tax rates (172) (4.7) 203 5.8
--------------------------------------------------------- ----- ----- ----- -----
- deductions for AT1 coupon payments (39) (1.1) (32) (0.9)
- non-deductible UK customer redress (11) (0.3) (3) (0.1)
Year ended 31 Dec 762 20.9 1,112 32.0
--------------------------------------------------------- ----- ----- ----- -----
The effective tax rate for the year was 20.9% (2021: 32%). The effective tax rate is reduced by 4.7% by a credit arising from the remeasurement of the group's deferred tax balances following the substantive enactment of legislation to reduce the UK banking surcharge rate from 8% to 3%, with effect from 1 April 2023. The prior year effective tax rate of 32% was higher than the UK rate of corporation tax for banking entities of 27% following enactment of legislation to increase the main rate of UK corporation tax from 19% to 25% from 1 April 2023. This had increased the prior year effective tax rate by 5.8%.
Movement of deferred tax assets and liabilities
Fixed
Loan Cash Defined and
impairment flow FVOCI benefit intangible
provisions hedges reserves pension assets Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ------- --------- -------- ----------- ----- -------
The group
At 1 Jan 2022 122 45 (26) (2,226) 102 14 (1,969)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Income statement (30) - - 174 (18) (12) 114
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Other comprehensive
income - 470 118 580 - 20 1,188
Foreign exchange and - 1 - - - - 1
other adjustments
--------------------- ----------- ------- --------- -------- ----------- ----- -------
At 31 Dec 2022 92 516 92 (1,472) 84 22 (666)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Assets 92 516 92 - 84 22 806
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Liabilities - - - (1,472) - - (1,472)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
At 1 Jan 2021 123 1 (52) (1,879) 118 12 (1,677)
Income statement 1 - - (272) (16) 11 (276)
--------------------- --- ---- ------- ---- --- -------
Other comprehensive
income - 44 23 (76) (7) (16)
Foreign exchange and
other adjustments (2) - 3 1 - (2) -
--------------------- --- ---- ------- ---- --- -------
At 31 Dec 2021 122 45 (26) (2,226) 102 14 (1,969)
--------------------- --- ---- ------- ---- --- -------
Assets 122 45 - - 102 14 283
--------------------- --- ---- ------- ---- --- -------
Liabilities - - (26) (2,226) - - (2,252)
--------------------- --- ---- ------- ---- --- -------
Fixed
Loan Cash Defined and
impairment flow FVOCI benefit intangible
provisions hedges reserves pension assets Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ------- --------- -------- ----------- ----- -------
The bank
At 1 Jan 2022 115 45 (29) (2,226) 80 14 (2,001)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Income statement (30) - - 174 (12) (9) 123
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Other comprehensive
income - 470 118 580 - 20 1,188
Foreign exchange and - 1 - - - (1) -
other adjustments
--------------------- ----------- ------- --------- -------- ----------- ----- -------
At 31 Dec 2022 85 516 89 (1,472) 68 24 (690)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Assets 85 516 89 - 68 24 782
--------------------- ----------- ------- --------- -------- ----------- ----- -------
Liabilities - - - (1,472) - - (1,472)
--------------------- ----------- ------- --------- -------- ----------- ----- -------
At 1 Jan 2021 114 1 (52) (1,879) 95 11 (1,710)
Income statement 1 - - (272) (15) 10 (276)
--------------------- --- ---- ------- ---- --- -------
Other comprehensive
income - 44 23 (76) - (7) (16)
Foreign exchange and
other adjustments - - - 1 - - 1
--------------------- --- ---- ------- ---- --- -------
At 31 Dec 2021 115 45 (29) (2,226) 80 14 (2,001)
--------------------- --- ---- ------- ---- --- -------
Assets 115 45 - - 80 14 254
--------------------- --- ---- ------- ---- --- -------
Liabilities - - (29) (2,226) - - (2,255)
--------------------- --- ---- ------- ---- --- -------
Management has assessed the likely availability of future taxable profits against which to recover the deferred tax assets of the bank and the group, taking into consideration the reversal of existing taxable temporary differences, past business performance and forecasts of future business performance. Management is satisfied that there is sufficient evidence to support recognition of all deferred tax assets.
6 Dividends ---------
On 14 February 2023, the Directors resolved to pay an interim dividend of GBP539m to the ordinary shareholders of the parent company in respect of the financial year ending 31 December 2022. No liability is recognised in the financial statements in respect of this dividend.
Dividends to the shareholder of the parent company
------- ----
2022 2021
GBP per GBPm GBP per GBPm
share share
-------------------------------------- -------- ----- ------- ----
Dividends paid on ordinary shares
-------------------------------------- -------- ----- ------- ----
Interim dividend in respect of the
previous year 9,820 491 - -
-------------------------------------- -------- ----- ------- ----
Interim dividend in respect of the
current year 25,919 1,296 12,659 633
Total 35,739 1,787 12,659 633
-------------------------------------- -------- ----- ------- ----
Total coupons on capital securities classified as equity
2022 2021
First call GBPm GBPm
date
------------------------------ ----------- ----------------------------------- ------------------------------------
Undated Subordinated
Additional Tier 1 instruments
------------------------------ ----------- ----------------------------------- ------------------------------------
- GBP1,096m Dec 2019 70 57
------------------------------ ----------- ----------------------------------- ------------------------------------
- GBP1,100m Dec 2024 72 57
------------------------------ ----------- ----------------------------------- ------------------------------------
Total 142 114
------------------------------------------- ----------------------------------- ------------------------------------
7 Fair values of financial instruments carried at fair value
----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk taker.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price determination or validation is used.
For fair values determined using valuation models, the control framework includes development or validation by independent support functions of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming operational and are calibrated against external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including portfolio changes, market movements and other fair value adjustments.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active markets that can be accessed at the measurement date.
-- Level 2 - valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
-- Level 3 - valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Financial instruments carried at fair value and bases of valuation
2022 2021
---------------------------- ------------------------------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
The group and bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Recurring fair value
measurements at 31 Dec
------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Assets
Financial assets mandatorily
measured at fair value
through profit or loss 72 - 36 108 65 14 - 79
------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Derivatives 14 532 - 546 1 63 - 64
Financial investments 10,757 175 - 10,932 13,979 398 - 14,377
------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Liabilities
Derivatives - 304 - 304 1 291 - 292
------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency. There were no transfers between Level 1 and Level 2 during 2022 and 2021.
Fair value adjustments
Fair value adjustments are adopted when the group determines there are additional factors considered by market participants that are not incorporated within the valuation model. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement, such as when models are enhanced and therefore fair value adjustments may no longer be required.
Fair value valuation bases
Equities
The fair value of equity investment is estimated on the basis of an analysis of the investee's financial position and results, risk profile, prospects and other factors. If necessary, adjustments are made to the net asset value of funds to obtain the best estimate of fair value.
8 Fair values of financial instruments not carried at fair value
--------------------------------------------------------------
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair value
------------------------------------------------
Quoted Significant
market Observable unobservable
Carrying price Level inputs inputs Level
amount 1 Level 2 3 Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ------------ ---------- ------------- -------
The group
------------------------------ -------- ------------ ---------- ------------- -------
At 31 Dec 2022
------------------------------ -------- ------------ ---------- ------------- -------
Assets
------------------------------ -------- ------------ ---------- ------------- -------
Loans and advances to
banks 6,357 - 6,357 - 6,357
------------------------------ -------- ------------ ---------- ------------- -------
Loans and advances to
customers 204,143 - - 199,957 199,957
------------------------------ -------- ------------ ---------- ------------- -------
Reverse repurchase agreements
- non-trading 7,406 - 7,406 - 7,406
Financial investments
- at amortised cost 5,160 4,772 - - 4,772
------------------------------ -------- ------------ ---------- ------------- -------
Liabilities
------------------------------ -------- ------------ ---------- ------------- -------
Deposits by banks 10,721 - 10,721 - 10,721
------------------------------ -------- ------------ ---------- ------------- -------
Customer accounts 281,095 - 281,095 - 281,095
------------------------------ -------- ------------ ---------- ------------- -------
Repurchase agreements
- non-trading 9,333 - 9,333 - 9,333
------------------------------ -------- ------------ ---------- ------------- -------
Debt securities in issue 1,299 - 1,094 185 1,279
------------------------------ -------- ------------ ---------- ------------- -------
Subordinated liabilities 12,349 - 11,765 - 11,765
At 31 Dec 2021
------------------------------ -------- ------------ ---------- ------------- -------
Assets
------------------------------ -------- ------------ ---------- ------------- -------
Loans and advances to
banks 1,914 - 1,914 - 1,914
------------------------------ -------- ------------ ---------- ------------- -------
Loans and advances to
customers 195,526 - 224 195,922 196,146
------------------------------ -------- ------------ ---------- ------------- -------
Reverse repurchase agreements
- non-trading 7,988 - 7,988 - 7,988
Financial investments - - - - -
- at amortised cost
------------------------------ -------- ------------ ---------- ------------- -------
Liabilities
------------------------------ -------- ------------ ---------- ------------- -------
Deposits by banks 11,180 - 11,180 - 11,180
------------------------------ -------- ------------ ---------- ------------- -------
Customer accounts 281,870 - 281,870 - 281,870
------------------------------ -------- ------------ ---------- ------------- -------
Repurchase agreements
- non-trading 10,438 - 10,438 - 10,438
------------------------------ -------- ------------ ---------- ------------- -------
Debt securities in issue 900 - 675 217 892
------------------------------ -------- ------------ ---------- ------------- -------
Subordinated liabilities 12,487 - 12,686 - 12,686
------------------------------ -------- ------------ ---------- ------------- -------
The bank
------------------------------ ------- ----- ------- ------- -------
At 31 Dec 2022
------------------------------ ------- ----- ------- ------- -------
Assets
------------------------------ ------- ----- ------- ------- -------
Loans and advances to
banks 9,304 - 9,296 - 9,296
------------------------------ ------- ----- ------- ------- -------
Loans and advances to
customers 199,666 - - 195,606 195,606
------------------------------ ------- ----- ------- ------- -------
Reverse repurchase agreements
- non-trading 7,406 - 7,406 - 7,406
Financial investments
held at amortised cost 5,160 4,772 - - 4,772
------------------------------ ------- ----- ------- ------- -------
Liabilities
------------------------------ ------- ----- ------- ------- -------
Deposits by banks 11,619 - 11,619 - 11,619
------------------------------ ------- ----- ------- ------- -------
Customer accounts 279,575 - 279,575 - 279,575
------------------------------ ------- ----- ------- ------- -------
Repurchase agreements
- non-trading 9,333 - 9,333 - 9,333
------------------------------ ------- ----- ------- ------- -------
Debt securities in issue 1,091 - 1,094 - 1,094
------------------------------ ------- ----- ------- ------- -------
Subordinated liabilities 12,349 - 11,765 - 11,765
At 31 Dec 2021
------------------------------ ------- ----- ------- ------- -------
Assets
------------------------------ ------- ----- ------- ------- -------
Loans and advances to
banks 4,405 - 4,406 - 4,406
------------------------------ ------- ----- ------- ------- -------
Loans and advances to
customers 191,208 - 224 191,617 191,841
------------------------------ ------- ----- ------- ------- -------
Reverse repurchase agreements
- non-trading 7,988 - 7,988 - 7,988
Financial investments - - - - -
held at amortised cost
------------------------------ ------- ----- ------- ------- -------
Liabilities
------------------------------ ------- ----- ------- ------- -------
Deposits by banks 12,095 - 12,095 - 12,095
------------------------------ ------- ----- ------- ------- -------
Customer accounts 280,023 - 280,022 - 280,022
------------------------------ ------- ----- ------- ------- -------
Repurchase agreements
- non-trading 10,438 - 10,438 - 10,438
------------------------------ ------- ----- ------- ------- -------
Debt securities in issue 675 - 675 - 675
------------------------------ ------- ----- ------- ------- -------
Subordinated liabilities 12,487 - 12,686 - 12,686
------------------------------ ------- ----- ------- ------- -------
Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks and items in the course of collection from and transmission to other banks, all of which are measured at amortised cost.
Valuation
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It does not reflect the economic benefits and costs that the group expects to flow from an instrument's cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation models incorporating a range of input assumptions. These assumptions may include: forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using assumptions that HSBC UK believes are consistent with those that would be used by market participants in valuing such loans; and new business rates estimates for similar loans.
The fair value of loans reflects expected credit losses at the balance sheet date and the fair value effect of repricing between origination and the balance sheet date. For credit impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Deposits by banks and customer accounts
The fair values of deposits are approximated by their carrying value.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for similar instruments. When quoted market prices are unavailable, these instruments are valued using valuation techniques, the inputs for which are derived from observable market data and, where relevant, assumptions in respect of unobservable inputs.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are generally short dated.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
9 Derivatives
-----------
Notional contract amounts and fair values of derivatives by product
contract type held
Notional contract Fair value - Assets Fair value - Liabilities
amount
------------------- ------------------------- ----------------------------
Trading Hedging Trading Hedging Total Trading Hedging Total
The group and GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
bank
----------------- --------- -------- ------- ------- ------- -------- -------- --------
Foreign exchange 21,892 106 145 - 145 83 8 91
----------------- --------- -------- ------- ------- ------- -------- -------- --------
Interest rate 37,231 46,121 1,265 1,298 2,563 1,326 1,049 2,375
Gross total fair
values 59,123 46,227 1,410 1,298 2,708 1,409 1,057 2,466
----------------- --------- -------- ------- ------- ------- -------- -------- --------
Offset (Note 22) (2,162) (2,162)
----------------- --------- -------- ------- ------- ------- -------- -------- --------
At 31 Dec 2022 59,123 46,227 1,410 1,298 546 1,409 1,057 304
----------------- --------- -------- ------- ------- ------- -------- -------- --------
Foreign exchange 19,845 106 58 - 58 171 10 181
----------------- ------ ------ --- --- ----- --- --- -----
Interest rate 10,998 37,179 478 265 743 479 369 848
Gross total fair
values 30,843 37,285 536 265 801 650 379 1,029
----------------- ------ ------ --- --- ----- --- --- -----
Offset (Note 22) (737) (737)
----------------- ------ ------ --- --- ----- --- --- -----
At 31 Dec 2021 30,843 37,285 536 265 64 650 379 292
----------------- ------ ------ --- --- ----- --- --- -----
The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
Use of derivatives
We undertake derivative activity for two primary purposes: to create risk management solutions for commercial clients and to manage and hedge our own balance sheet risks.
Hedge accounting derivatives
The group applies hedge accounting to manage the following risks: interest rate risk and foreign exchange risks. Further details on how these risks arise and how they are managed by the group can be found in the 'Risk review'.
Hedge risk components
The group designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are regarded as being both separately identifiable and reliably measurable, except for the IBOR Reform transition where the group designates Alternative Benchmark Rates as the hedged risk which may not have been separately identifiable upon initial designation, provided the group reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk component accounts for a significant portion of the overall changes in fair value or cash flows of the hedged items.
Fair value hedges
The group enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value due to movements in market interest rates on certain fixed rate financial instruments which are not measured at fair value through profit or loss.
Hedging instrument by hedged risk
Hedging Instrument
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Carrying amount
------------------------------------------------------------------------------------------------------------------------------------
Notional Assets Liabilities Change in
amount(1) fair value(2)
Hedged GBPm GBPm GBPm Balance sheet GBPm
risk Presentation
Interest
rate(3) 18,520 1,297 837 Derivatives 723
--------- ----------------------------------------- ------------------------------------------ --------------------------------------------- ------------- --------------------------------------------
At 31 Dec 18,520 1,297 837 723
2022
--------- ----------------------------------------- ------------------------------------------ ------------------------------------------------------------ --------------------------------------------
Interest
rate(3) 14,628 256 251 Derivatives (90)
--------- ------------------------------------------ --------------------------------------------- ---------------------------------------------- ------------ ----------------------------------------------
At 31 Dec 14,628 256 251 (90)
2021
--------- ------------------------------------------ --------------------------------------------- ------------------------------------------------------------ ----------------------------------------------
1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
-------------------------------------------------------------------------------------------------------------------------------- -------------------------------------
Accumulated fair value
Carrying hedge adjustments included
amount in carrying amount(2)
------------------------------------------ --------------------------------------------------------------
Assets Liabilities Assets Liabilities Recognised
Change in profit
in fair and
value(1) loss
Hedged GBPm GBPm GBPm GBPm GBPm GBPm Profit and
risk Balance sheet loss
presentation presentation
Net income
from
Financial financial
investments instruments
measured at held for
fair value trading or
through other managed on
Interest comprehensive a fair
rate(4) 9,937 (912) income (1,300) 2 value basis
--------- ------------
Loans and
advances
1,250 (112) to customers (110)
--------- ------------
Subordinated
5,326 (573) Liabilities(3) 689
--------- -------------------- -------------------- ---------------------- ---------------------- -------------- -------------------- ----------------------- ------------
At 31 Dec
2022 11,187 5,326 (1,024) (573) (721) 2
--------- -------------------- -------------------- ---------------------- ---------------------- -------------- -------------------- ----------------------- ------------
Net income
from
Financial financial
investments instruments
measured at held for
fair trading
value through or
other managed on
Interest comprehensive a fair
rate(4) 9,075 14 income (226) 1 value basis
--------- -----------
Loans and
advances
397 - to customers (3)
--------- -----------
Subordinated
- 122 Liabilities(3) 320
--------- ----------------------- ------------------------ ------------------------- ----------------------- -------------- ------------------------ ------------------------ -----------
At 31 Dec
2021 9,472 - 14 122 91 1
--------- ----------------------- ------------------------ ------------------------- ----------------------- -------------- ------------------------ ------------------------ -----------
1 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted for hedging gains and losses were assets/(liabilities) of GBP(12)m (2021: GBP19m) for FVOCI and liabilities of GBP(111)m for Loans and advances to customers (2021: GBPnil).
3 The notional amount of non-dynamic fair value hedges is equal to GBP5,901m (2021: GBP5,444m), of which the weighted-average maturity date is August 2027 and the weighted average swap rate is 1.28% (2021: 1.39%). These hedges are all internal to HSBC Group and hedges internal funding between Group and HSBC UK.
4 The hedged risk 'interest rate' includes inflation risk.
The hedged item is either the benchmark interest rate risk portion within the fixed rate of the hedged item or the full fixed rate and it is hedged for changes in fair value due to changes in the benchmark interest rate risk.
HSBC UK applies macro fair value hedging for interest rate risk exposures on portfolios of fixed rate mortgages. These are considered to be dynamic hedges and both the hedged items and the hedging instruments are adjusted on a monthly basis when the existing hedging relationship is terminated and a new one designated. The hedged items and hedging instruments are adjusted to reflect changes in the size and maturity profile of the hedged portfolio.
Sources of hedge ineffectiveness may arise from basis risk including but not limited to the discount rates used for calculating the fair value of derivatives, hedges using instruments with a non-zero fair value and notional and timing differences between the hedged items and hedging instruments.
The disclosures for the group are the same as the disclosures for the bank.
Cash flow hedges
The group's cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk exposures on portfolios of replenishing current and forecasted issuances of non-trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both principal balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on foreign-denominated financial assets and liabilities arising due to changes in foreign exchange market rates with cross-currency swaps, these are considered dynamic hedges.
Hedging instrument by hedged risk
Hedging Instrument Hedged Ineffectiveness
Item
------------------------------------------------------------------------------------------------------------- --------------------------
Carrying
amount
---------------------- ------------------------------------------- ------------ ------------
Change Change Recognised
Notional in fair in fair in profit
amount(1) Assets Liabilities value(2) value(3) and loss
------------
Hedged GBPm GBPm GBPm Balance GBPm GBPm GBPm Profit and
risk sheet loss
presentation presentation
--------- ---------------------- ------------------- ---------------------- ------------ -------------------------- -------------------------- -------------------------------- ------------
Net income
from
financial
instruments
held
for trading
or
managed
Foreign on a fair
currency 106 - 8 Derivatives (8) (8) - value basis
--------- ---------------------- ------------------- ---------------------- ------------ -------------------------- -------------------------- -------------------------------- ------------
Interest
rate 27,601 1 212 Derivatives (1,876) (1,876) -
--------- ---------------------- ------------------- ---------------------- ------------ -------------------------- -------------------------- -------------------------------- ------------
At 31 Dec
2022 27,707 1 220 (1,884) (1,884) -
--------- ---------------------- ------------------- ---------------------- ------------ -------------------------- -------------------------- -------------------------------- ------------
Net income
from
financial
instruments
held
for trading
or
managed on
Foreign a fair
currency 106 - 10 Derivatives (7) (7) - value basis
--------- ----------------------- -------------------- --------------------- ----------- -------------------------- -------------------------- -------------------------------- -----------
Interest
rate 22,551 9 118 Derivatives (108) (108) -
--------- ----------------------- -------------------- --------------------- ----------- -------------------------- -------------------------- -------------------------------- -----------
At 31 Dec
2021 22,657 9 128 (115) (115) -
--------- ----------------------- -------------------- --------------------- ----------- -------------------------- -------------------------- -------------------------------- -----------
1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.
Sources of hedge ineffectiveness may arise from basis risk, including but not limited to timing differences between the hedged items and hedging instruments and hedges using instruments with a non-zero fair value.
The disclosures for the group are the same as the disclosures for the bank.
Reconciliation of equity and analysis of other comprehensive income
by risk type
Interest Foreign
rate Currency
GBPm GBPm
------------------------------------------------------- -------- ---------
Cash flow hedging reserve at 1 Jan 2022 (89) (1)
------------------------------------------------------- -------- ---------
Fair value gains/(losses) (1,876) (8)
------------------------------------------------------- -------- ---------
Fair value (gains)/losses reclassified from the cash
flow hedge reserve to the income statement in respect
of:
------------------------------------------------------- -------- ---------
- hedged items that have affected profit or loss 170 10
Income taxes 470 -
Cash flow hedging reserve at 31 Dec 2022 (1,325) 1
------------------------------------------------------- -------- ---------
Cash flow hedging reserve at 1 Jan 2021 1 -
------------------------------------------------------- ----- ---
Fair value gains/(losses) (108) (7)
------------------------------------------------------- ----- ---
Fair value (gains)/losses reclassified from the cash
flow hedge reserve to the income statement in respect
of:
------------------------------------------------------- ----- ---
- hedged items that have affected profit or loss (26) 6
Income taxes 44 -
Cash flow hedging reserve at 31 Dec 2021 (89) (1)
------------------------------------------------------- ----- ---
10 Financial investments
---------------------
Carrying amount of financial investments
The group and bank
--------------------
2022 2021
GBPm GBPm
----------------------------------------------------- --------- ---------
Financial investments measured at fair value through
other comprehensive income 10,932 14,377
----------------------------------------------------- --------- ---------
- treasury and other eligible bills 512 1,252
-----------------------------------------------------
- debt securities 10,419 13,125
-----------------------------------------------------
- equity securities 1 -
Debt instruments measured at amortised cost 5,160 -
----------------------------------------------------- --------- ---------
- treasury and other eligible bills 448 -
-----------------------------------------------------
- debt securities 4,712 -
At 31 Dec 16,092 14,377
----------------------------------------------------- --------- ---------
11 Assets pledged, collateral received and assets transferred
----------------------------------------------------------
Assets pledged
Financial assets pledged as collateral
The group and bank
--------------------
2022 2021
GBPm GBPm
Debt securities 8,375 4,804
-------------------------------- --------- ---------
Loans and advances to banks 4,700 -
-------------------------------- --------- ---------
Loans and advances to customers 14,598 13,440
-------------------------------- --------- ---------
Other 294 349
-------------------------------- --------- ---------
Assets pledged at 31 Dec 27,967 18,593
-------------------------------- --------- ---------
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, where assets are placed with a custodian or a settlement agent that has a floating charge over all the assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and borrowing, repurchase agreements and derivative margining. The group places both cash and non-cash collateral in relation to derivative transactions.
Financial assets pledged as collateral that the counterparty has the
right to sell or repledge
The group and bank
-----------------------
2022 2021
GBPm GBPm
Financial investments 7,536 4,478
------------------------------------------------ ----------- ----------
At 31 Dec 7,536 4,478
------------------------------------------------ ----------- ----------
Collateral received
The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements and derivative margining, that the group and the bank is permitted to sell or repledge in the absence of default was GBP10,084m (2021: GBP9,402m). The group and the bank is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining. The fair value of financial assets accepted as collateral by the group and the bank that have been sold or repledged is GBP5,967m (2021: GBP7,953m).
Assets transferred
The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and securities lent under securities lending agreements and mortgages to collateralise the covered bond programme. For secured borrowings, the transferred asset collateral continues to be recognised in full and a related liability, reflecting the group's obligation to repurchase the assets for a fixed price at a future date is also recognised on the balance sheet.
Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The group is unable to use, sell or pledge the transferred assets for the duration of these transactions, and remains exposed to interest rate risk and credit risk on these pledged assets. The counterparty's recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities
2022 2021
------------------------- -------------------------
Carrying amount of: Carrying amount of:
------------------------- -------------------------
Transferred Associated Transferred Associated
assets liabilities assets liabilities
The group GBPm GBPm GBPm GBPm
------------------------------- ----------- ------------ ----------- ------------
Repurchase agreements 5,064 4,367 2,630 2,608
------------------------------- ----------- ------------ ----------- ------------
Securities lending agreements 2,472 - 1,848 -
The bank
------------------------------- ----------- ------------ ----------- ------------
Repurchase agreements 5,064 4,367 2,630 2,608
------------------------------- ----------- ------------ ----------- ------------
Securities lending agreements 2,472 - 1,848 -
------------------------------- ----------- ------------ ----------- ------------
Other sales (recourse for full
amount) 1,245 499 - -
------------------------------- ----------- ------------ ----------- ------------
12 Interests in joint ventures
---------------------------
Vaultex UK Limited is a joint venture of the bank and the group. Vaultex UK Limited is incorporated in England and its principal activity is that of cash management services. At 31 December 2022, the group had a 50% interest in the GBP10m issued equity capital (2021: 50%).
For further detail see Note 29.
13 Investments in subsidiaries
---------------------------
Main subsidiaries of HSBC UK Bank plc
HSBC UK Bank
plc's
interest
in equity
capital
---------------- -------------
Country of %
incorporation Share
or registration class
------------------------------------ ---------------- ---------------------- -------------
HSBC Equipment Finance (UK) Limited England and 100.00 Ordinary GBP1
Wales
------------------------------------ ---------------- ---------------------- -------------
HSBC Invoice Finance (UK) Limited England and 100.00 Ordinary GBP1
Wales
Marks and Spencer Financial Services England and 100.00 Ordinary GBP1
plc Wales
------------------------------------ ---------------- ---------------------- -------------
All the above prepare their financial statements up to 31 December.
Details of all group subsidiaries, as required under Section 409 of the Companies Act 2006, are set out in Note 29. The principal country of operation is the same as the country of incorporation.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC UK Bank plc reviews investments in subsidiaries for indicators of impairment. An impairment is recognised when the carrying amount exceeds the recoverable amount for that investment.
The recoverable amount is the higher of the investment's fair value less costs of disposal and its value in use. The value in use is calculated by discounting management's cash flow projections for the investment.
-- The cash flow projections for each investment are based on the latest approved forecast profitability plans and minimal capital levels required to support the business operations of each entity and a long-term growth rate is used to extrapolate the cash flows in perpetuity.
-- A long-term growth rate is used to extrapolate the free cash flows in perpetuity. -- The growth rate reflects inflation and is based on the long-term average for the UK.
-- The rate used to discount the cash flows is based on the cost of capital assigned to each investment, which is derived using a CAPM and market implied cost of equity. CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market's assessment of the economic variables and management's judgement.
During 2022, an impairment of GBP4m (2021: GBPNil) was recognised on the bank's investment in HSBC Trust Company (UK) Limited, due to a reduction in the net assets of the entity.
No further impairments were recognised as a result of the impairment in subsidiaries test performed in 2022.
14 Structured entities
-------------------
The group is involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets and investment funds, established either by the group or a third party.
Consolidated structured entities
Total assets of the group's consolidated structured entities, split by entity type:
Securitisations Other Total
GBPm GBPm GBPm
---------------- --------------- ----- -----
At 31 Dec 2022 315 502 817
---------------- --------------- ----- -----
At 31 Dec 2021
At 31 Dec 2021 348 - 348
---------------- --------------- ----- -----
Securitisations
The group uses a structured entity to securitise customer loans and advances to diversify its sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by the group to the structured entity synthetically, and the structured entity issues debt securities to investors.
Other
HSBC UK Covered Bonds LLP was established to participate in a covered bond programme (regulated by the RCB regulations) and provides a direct, unsubordinated and unconditional guarantee for the payment of interest and principal due from the bank to covered bondholders under the programme. The entity is consolidated as the Bank has the decision-making power over its activities.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all structured entities not controlled by the group. The group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
The group's interest in unconsolidated structured entities consist of unit holdings in four funds managed by a third party within the wider HSBC Group. The group's unit holdings are held to facilitate customer transactions and are recognised as Other assets with a carrying value and maximum exposure to loss at 31 December 2022 of GBP0.2m (2021: GBP0.2m). The total assets of the funds at 31 December 2022 were GBP1.1bn (2021: GBP1.2bn). The group has no liabilities or commitments in respect of the funds.
15 Goodwill and intangible assets
------------------------------
The group The bank
------------ ------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
--------------------------- ----- ----- ----- -----
Goodwill 3,285 3,285 223 223
Other intangible assets(1) 973 908 962 905
--------------------------- ----- ----- ----- -----
At 31 Dec 4,258 4,193 1,185 1,128
--------------------------- ----- ----- ----- -----
1 Included within the group's other intangible assets is internally generated software with a net carrying value of GBP973m (2021: GBP908m). During the year, capitalisation of internally generated software is GBP382m (2021: GBP347m), impairment was GBP45m (2021: GBP18m) and amortisation is GBP273m (2021: GBP229m). The amortisation and impairment of intangible assets totalled for the group GBP318m (2021: GBP247m).
Impairment testing
The group's annual impairment test in respect of goodwill allocated to each CGU is performed at 1 October each year. A review for indicators of impairment is undertaken at 30 June and 31 December. At 31 December 2022, this review did not identify any indicators of impairment. As a result, no impairment test has been performed at 31 December 2022.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its VIU at each respective testing date. The VIU is calculated by discounting management's cash flow projections for the CGU. At 1 October 2022, all CGUs supporting goodwill had a VIU larger than their respective carrying amounts. The key assumptions used in the VIU calculation for each CGU are discussed below.
Key assumptions in VIU calculation
Growth Growth
rate rate
Goodwill beyond beyond
at initial Goodwill initial
1 Oct Discount cash at Discount cash
2022 rate flow projections 1 Oct 2021 rate flow projections
Cash-generating GBPm % %
unit GBPm % %
---------------- -------- -------- ----------------- ----------- -------- -----------------
WPB 2,046 9.6 2.1 2,046 9.8 2.0
---------------- -------- -------- ----------------- ----------- -------- -----------------
CMB 1,239 8.6 2.1 1,239 7.9 2.0
Total 3,285 3,285
---------------- -------- -------- ----------------- ----------- -------- -----------------
The group's CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than goodwill.
Management's judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on the forecast profitability plans approved by management and minimal capital levels required to support the business operations of a CGU. Management challenges and endorses planning assumptions in light of internal capital allocation decisions necessary to support HSBC UK's strategy, current market conditions and macroeconomic outlook including climate risk. For the 1 October 2022 impairment test, cash flow projections until the end of 2027 were considered, in line with internal planning horizon. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have recognised a provision for restructuring costs.
Discount Rate
The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a CAPM and market implied cost of equity. The impacts of climate-risk are included to the extent that they are observable in discount rates and asset prices.
Long-term growth rate
The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the group of business units making up the CGUs. The long-term growth rate reflects inflation for the UK.
Sensitivities of key assumptions in calculating VIU
At 1 October 2022, there were no CGUs deemed sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable amounts. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input into the VIU calculation, such as the external range of discount rates observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections.
16 Prepayments, accrued income and other assets
--------------------------------------------
The group The bank
------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
--------------------------------------- ----- ----- ----- -----
Prepayments and accrued income 986 660 1,011 661
--------------------------------------- ----- ----- ----- -----
Settlement accounts 9 10 9 10
--------------------------------------- ----- ----- ----- -----
Cash collateral and margin receivables 222 284 222 284
Endorsements and acceptances 49 78 49 78
Employee benefit assets (Note 3) 5,257 6,745 5,257 6,745
--------------------------------------- ----- ----- ----- -----
Right-of-use assets 171 222 158 210
--------------------------------------- ----- ----- ----- -----
Other accounts 1,610 625 1,439 467
--------------------------------------- ----- ----- ----- -----
Owned property, plant and equipment
Owned property, plant and equipment 458 512 382 406
--------------------------------------- ----- ----- ----- -----
At 31 Dec 8,762 9,136 8,527 8,861
--------------------------------------- ----- ----- ----- -----
For the group, prepayments, accrued income and other assets include GBP1,871m (2021: GBP1,405m), and for the bank GBP1,901m (2021: GBP1,405m) of financial assets, of which are measured at amortised cost. Other accounts includes a receivable of GBP71m (2021: GBP71m) arising from our profit and loss sharing arrangement with Marks & Spencer plc, which is tested for impairment in line with our accounting policy on the impairment of non-financial assets.
17 Debt securities in issue
------------------------
The group The bank
-----------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
---------------------------------- ----- ---- ----- ----
Bonds and medium-term notes(1) 358 376 150 151
---------------------------------- ----- ---- ----- ----
Covered bonds 499 - 499 -
---------------------------------- ----- ---- ----- ----
Other debt securities in issue(2) 442 524 442 524
---------------------------------- ----- ---- ----- ----
At 31 Dec 1,299 900 1,091 675
---------------------------------- ----- ---- ----- ----
1 The group's Bonds and medium-term notes includes GBP208m (2021: GBP225m) issued by structured entities.
2 Other debt securities in issue consists of commercial paper and certificates of deposits .
18 Accruals, deferred income and other liabilities
-----------------------------------------------
The group The bank
------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
----------------------------------- ----- ----- ----- -----
Accruals and deferred income 645 418 615 379
----------------------------------- ----- ----- ----- -----
Settlement accounts 81 2 81 2
----------------------------------- ----- ----- ----- -----
Cash collateral and margin payable 234 - 234 -
----------------------------------- ----- ----- ----- -----
Endorsements and acceptances 51 78 51 78
Lease liabilities 198 243 184 231
----------------------------------- ----- ----- ----- -----
Other liabilities 2,334 933 2,165 824
----------------------------------- ----- ----- ----- -----
At 31 Dec 3,543 1,674 3,330 1,514
----------------------------------- ----- ----- ----- -----
For the group, accruals, deferred income and other liabilities include GBP3,362m (2021: GBP1,533m), and for the bank GBP3,269m (2021: GBP1,464m) of financial liabilities, the majority of which are measured at amortised cost.
19 Provisions
----------
Legal
proceedings
and
Restructuring regulatory Customer Other
costs(2) matters remediation(3,4) provisions Total
The group GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------- ------------ ----------------- ----------- -----
Provisions (excluding contractual
commitments)
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 1 Jan 2022 22 39 256 96 413
Additions 65 5 38 33 141
------------------------------------ ------------- ------------ ----------------- ----------- -----
Amounts utilised (20) (10) (75) (6) (111)
------------------------------------ ------------- ------------ ----------------- ----------- -----
Unused amounts reversed (27) (2) (83) (25) (137)
Exchange and other movements 23 - 6 (16) 13
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 31 Dec 2022 63 32 142 82 319
------------------------------------ ------------- ------------ ----------------- ----------- -----
Contractual commitments(1)
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 1 Jan 2022 82
Net change in expected credit
loss provision and other movements 23
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 31 Dec 2022 105
------------------------------------ ------------- ------------ ----------------- ----------- -----
Total provisions
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 31 Dec 2021 495
------------------------------------ ------------- ------------ ----------------- ----------- -----
At 31 Dec 2022 424
------------------------------------ ------------- ------------ ----------------- ----------- -----
Provisions (excluding contractual
commitments)
------------------------------------ ---- ---- ----- --- -----
At 1 Jan 2021 93 64 588 11 756
Additions 49 27 120 40 236
------------------------------------ ---- ---- ----- --- -----
Amounts utilised (82) (48) (375) (2) (507)
------------------------------------ ---- ---- ----- --- -----
Unused amounts reversed (38) (4) (74) (8) (124) Exchange and other movements - - (3) 55 52 ------------------------------------ ---- ---- ----- --- ----- At 31 Dec 2021 22 39 256 96 413 ------------------------------------ ---- ---- ----- --- ----- Contractual commitments(1) ------------------------------------ ---- ---- ----- --- ----- At 1 Jan 2021 223 Net change in expected credit loss provision and other movements (141) ------------------------------------ ---- ---- ----- --- ----- At 31 Dec 2021 82 ------------------------------------ ---- ---- ----- --- ----- Total provisions ------------------------------------ ---- ---- ----- --- ----- At 31 Dec 2020 979 ------------------------------------ ---- ---- ----- --- ----- At 31 Dec 2021 495 ------------------------------------ ---- ---- ----- --- -----
1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 Financial Instruments in respect of financial guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.
2 Restructuring costs include charges received from HSBC Global Services (UK) Limited, which do not form part of the balance sheet provision movement.
3 Additional provisions of GBP38m (2021: GBP120m) were recorded in the consolidated income statement under net interest income GBP20m (2021: GBP27m), net fee income GBP2m (2021: GBP10m) and operating expenses GBP16m (2021: GBP83m).
4 Release of GBP83m (2021: GBP74m) were recorded in the consolidated income statement under net interest income GBP36m (2021: GBP34m), operating expense GBP43m (2021: GBP35m) and net fee income GBP4m (2021: GBP5m).
Legal
proceedings
Restructuring and regulatory Customer Other
costs(2) matters remediation(3,4) provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Provisions (excluding
contractual
commitments)
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 1 Jan 2022 22 39 205 96 362
Additions 65 5 33 33 136
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Amounts utilised (20) (10) (62) (6) (98)
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Unused amounts reversed (27) (2) (76) (25) (130)
Exchange and other
movements 23 - 7 (16) 14
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 31 Dec 2022 63 32 107 82 284
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Contractual
commitments(1)
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 1 Jan 2022 80
Net change in expected
credit
loss provision and
other movements 22
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 31 Dec 2022 102
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Total provisions
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 31 Dec 2021 442
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
At 31 Dec 2022 386
----------------------- -------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Legal proceedings
Restructuring and regulatory Customer Other
costs(2) matters remediation(3,4) provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
Provisions (excluding
contractual
commitments)
----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
At 1 Jan 2021 93 64 486 11 654
Additions 49 27 101 40 217
----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
Amounts utilised (82) (48) (315) (2) (447)
----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
Unused amounts reversed (38) (4) (64) (8) (114)
Exchange and other
movements - - (3) 55 52
----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
At 31 Dec 2021 22 39 205 96 362 ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- Contractual commitments(1) ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- At 1 Jan 2021 216 Net change in expected credit loss provision and other movements (136) ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- At 31 Dec 2021 80 ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- Total provisions ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- At 31 Dec 2020 870 ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- At 31 Dec 2021 442 ----------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 Financial Instruments in respect of financial guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.
2 Restructuring costs include charges received from HSBC Global Services (UK) Limited, which do not form part of the balance sheet provision movement.
3 Additional provisions of GBP33m (2021: GBP101m) were recorded in the HSBC UK income statement under net interest income GBP15m (2021: GBP23m), net fee income GBP2m (2021: GBP10m) and operating expenses GBP16m (2021: GBP68m).
4 Release of GBP76m (2021: GBP64m) under customer remediation was recorded in HSBC UK income statement under net interest income GBP29m (2021: GBP35m), operating expense GBP43m (2021: GBP24m) and net fee income GBP4m (2021: GBP5m).
Customer remediation
Payment protection insurance
At 31 December 2022, GBP74m (31 December 2021: GBP128m) of the customer remediation provision relates to the estimated liability for redress in respect of the possible mis-selling of PPI policies in previous years. Payments totalling GBP27m were made during 2022, and additional provision reductions were made of GBP27m.
Although the deadline for bringing complaints has passed, customers can still commence litigation for PPI mis-selling. Provision has been made for the best estimate of any obligation to pay compensation in respect of future litigation. However, the volume and merits of future litigation, and the amount of any compensation to be paid, remain uncertain and based upon a number of assumptions.
Restructuring costs
The restructuring costs provision is for costs associated with the group's transformation programme.
Legal proceedings and regulatory matters
Further details of 'Legal proceedings and regulatory matters' are set out in Note 26. Legal proceedings include civil court, arbitration or tribunal proceedings brought against the group (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulatory or law enforcement agencies in connection with alleged wrongdoing.
20 Subordinated liabilities
------------------------
Subordinated liabilities
The group The bank
-------------------------------------------------------- --------------------------------------------------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
----------------------------------- -------------------------- ---------------------------- -------------------------- ----------------------------
At amortised cost 12,349 12,487 12,349 12,487
----------------------------------- -------------------------- ---------------------------- -------------------------- ----------------------------
* subordinated liabilities(1) 12,349 12,487 12,349 12,487
At 31 Dec 12,349 12,487 12,349 12,487
----------------------------------- -------------------------- ---------------------------- -------------------------- ----------------------------
1 Includes GBP9.3bn (2021: GBP9.5bn) of eligible debt issued to meet our Minimum requirement for own funds and Eligible Liabilities applicable from
1 January 2020.
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of the group. Capital securities may be called and redeemed by the group subject to prior notification to and consent of the PRA.
The balance sheet amounts disclosed below are presented on an IFRS basis and do not reflect the amount that the instruments contribute to regulatory capital principally due to regulatory amortisation and regulatory eligibility limits.
Subordinated liabilities of the group
Carrying amount
2022 2021
First call Maturity GBPm
date date GBPm
--------- ------------------------------------- ---------- -------- -------- -------
Capital instruments
------------------------------------------------ ---------- -------- -------- -------
Tier 2 instruments
------------------------------------------------ ---------- -------- -------- -------
HSBC UK Bank plc Subordinated
GBP550m Floating Loan 2028(1) Jul 2023 Jul 2028 550 550
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc Subordinated
$840m Floating Loan 2028(2) Jul 2023 Jul 2028 697 620
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 2.8594% Subordinated
GBP100m Loan 2029 Mar 2024 Mar 2029 100 100
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc Subordinated
GBP1,000m Floating Loan 2030(3) Jul 2025 Jul 2030 1,000 1,000
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc Subordinated
GBP650m Floating Loan 2033(4) Sep 2028 Sep 2033 650 650
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 2.1250% Subordinated
GBP79m Loan 2031 Mar 2026 Mar 2031 79 79
--------- ------------------------------------- ---------- -------- -------- -------
Other instruments
------------------------------------------------ ---------- -------- -------- -------
Subordinated loan instruments not
eligible for inclusion in regulatory
capital
------------------------------------------------ ---------- -------- -------- -------
HSBC UK Bank plc 0.9760% MREL
$2000m eligible Subordinated Loan 2025 May 2024 May 2025 1,558 1,455
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 1.8777% MREL
GBP350m eligible Subordinated Loan 2025 Oct 2024 Oct 2025 350 350
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 2.1003% MREL
GBP150m eligible Subordinated Loan 2025 Oct 2024 Oct 2025 150 150
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc MREL eligible
EUR500m Subordinated Floating Loan 2026(5) Sep 2025 Sep 2026 449 427
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 1.1250% MREL
GBP1,000m eligible Subordinated Loan 2026 Nov 2025 Nov 2026 1,000 1,000
HSBC UK Bank plc 1.7500% MREL
GBP1,000m eligible Subordinated Loan 2027 Jul 2026 Jul 2027 998 998
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 3.0000% MREL
GBP1,000m eligible Subordinated Loan 2028 Jul 2027 Jul 2028 880 1,009
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 1.7500% MREL
GBP1,000m eligible Subordinated Loan 2029 Aug 2028 Aug 2029 1,000 1,000
HSBC UK Bank plc 3.9730% MREL
$3000m eligible Subordinated Loan 2030 May 2029 May 2030 2,259 2,346
--------- ------------------------------------- ---------- -------- -------- -------
HSBC UK Bank plc 3.0000% MREL
GBP750m eligible Subordinated Loan 2030 May 2029 May 2030 629 753
--------- ------------------------------------- ---------- -------- -------- -------
At 31
Dec 12,349 12,487
--------- ------------------------------------- ---------- -------- -------- -------
1 The distribution rate is Sonia plus 1.60%.
2 The distribution rate is SOFR plus 1.83%.
3 The distribution rate is Sonia plus 1.89%.
4 The distribution rate is Sonia plus 2.14%.
5 The distribution rate is three month Euribor plus 1.00%
21 Maturity analysis of assets, liabilities and off-balance sheet
commitments
--------------------------------------------------------------
The following table provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:
-- Trading derivatives are included in the 'Due not more than 1 month' time bucket, because trading balances are typically held for short periods of time.
-- Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the 'Due over 5 years' time bucket. Undated or perpetual instruments are classified based on the contractual notice period which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the 'Due over 5 years' time bucket.
-- Non-financial assets and liabilities with no contractual maturity are included in the 'Due over 5 years' time bucket.
-- Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
--
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due Due Due Due Due Due
over over over over over over
1 month 3 months 6 months 9 months 1 year 2 years
Due but but but but but but
not not not not not not not
more more more more more more more Due
than than than than than than than over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
The group
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial assets
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Cash and balances
at central banks 94,407 - - - - - - - 94,407
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of collection from
other banks 353 - - - - - - - 353
Financial assets
mandatorily
measured at fair value 72 - - - - - - 36 108
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Derivatives 84 1 1 1 - 2 117 340 546
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to banks 5,283 - 1,074 - - - - - 6,357
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to customers 16,645 10,575 8,753 6,128 5,462 18,412 34,746 103,422 204,143
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 6,195 2,254 1,843 1,888 1,851 7,059 20,301 96,363 137,754
-------------------------
- corporate and
commercial 10,178 8,033 6,650 4,071 3,469 10,732 13,978 6,809 63,920
-------------------------
- financial 272 288 260 169 142 621 467 250 2,469
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Reverse repurchase
agreements
* non-trading 573 3,012 1,749 1,322 750 - - - 7,406
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial investments 300 1,200 70 137 131 529 3,874 9,851 16,092
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Accrued income and
other financial assets 1,614 179 52 19 3 - - - 1,867
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial assets
at 31 Dec 2022 119,331 14,967 11,699 7,607 6,346 18,943 38,737 113,649 331,279
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial assets - - - - - - - 11,162 11,162
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total assets at 31
Dec 2022 119,331 14,967 11,699 7,607 6,346 18,943 38,737 124,811 342,441
Financial liabilities
Deposits by banks 393 30 - - - - 10,298 - 10,721
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Customer accounts(1) 275,777 2,558 997 381 1,016 360 6 - 281,095
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 177,548 767 391 296 828 348 2 - 180,180
-------------------------
- corporate and
commercial 94,229 1,606 532 77 174 12 4 - 96,634
-------------------------
- financial 4,000 185 74 8 14 - - - 4,281
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Repurchase agreements
- non-trading 9,333 - - - - - - - 9,333
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of transmission to
other banks 308 - - - - - - - 308
Derivatives 83 2 - 6 17 33 74 89 304
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Debt securities in
issue 44 398 - 150 - - 707 - 1,299
Accruals and other
financial liabilities 2,061 351 235 94 13 39 535 36 3,364
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Subordinated liabilities - - - 1,247 - 2,158 4,406 4,538 12,349
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial
liabilities
at 31 Dec 2022 287,999 3,339 1,232 1,878 1,046 2,590 16,026 4,663 318,773
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial liabilities - - - - - - - 1,442 1,442
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total liabilities
at 31 Dec 2022 287,999 3,339 1,232 1,878 1,046 2,590 16,026 6,105 320,215
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Off-balance sheet
commitments given
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loan and other
credit-related
commitments 70,263 39 - 10 - 24 124 23 70,483
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 42,059 - - - - - - - 42,059
-------------------------
- corporate and
commercial 27,094 39 - 10 - 24 124 23 27,314
-------------------------
- financial 1,110 - - - - - - - 1,110
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Maturity analysis of assets, liabilities and off-balance sheet commitments
(continued)
Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
Due not but not but not but not but not but not but not
more more more more more more more Due
than than than than than than than over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
The group
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial assets
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Cash and balances
at central banks 112,478 - - - - - - - 112,478
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of collection from
other banks 299 - - - - - - - 299
Financial assets
mandatorily
measured at fair value 65 - - - - - - 14 79
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Derivatives 58 - - - - - - 6 64
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to banks 857 - 1,057 - - - - - 1,914
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to customers 16,717 9,830 7,932 5,965 5,551 17,836 34,353 97,342 195,526
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 6,880 2,117 1,846 1,868 1,819 7,060 19,208 89,753 130,551
-------------------------
- corporate and
commercial 9,497 7,449 5,885 3,955 3,610 10,508 14,627 7,311 62,842
-------------------------
- financial 340 264 201 142 122 268 518 278 2,133
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Reverse repurchase
agreements
* non-trading 318 555 2,379 3,494 1,242 - - - 7,988
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial investments 854 622 290 475 102 1,233 2,298 8,503 14,377
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Accrued income and
other financial assets 1,276 102 19 3 3 - - - 1,403
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial assets
at 31 Dec 2021 132,922 11,109 11,677 9,937 6,898 19,069 36,651 105,865 334,128
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial assets - - - - - - - 11,935 11,935
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total assets at 31
Dec 2021 132,922 11,109 11,677 9,937 6,898 19,069 36,651 117,800 346,063
Financial liabilities
Deposits by banks 862 18 - - - - 10,300 - 11,180
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Customer accounts(1) 279,674 861 422 286 362 260 5 - 281,870
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 175,815 558 267 209 274 258 4 - 177,385
-------------------------
- corporate and
commercial 99,838 287 102 46 88 2 1 - 100,364
-------------------------
- financial 4,021 16 53 31 - - - - 4,121
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Repurchase agreements
- non-trading 9,938 500 - - - - - - 10,438
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of transmission to
other banks 151 - - - - - - - 151
Derivatives 172 - - - - 19 22 79 292
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Debt securities in
issue 250 275 - 150 - - 225 - 900
Accruals and other
financial liabilities 1,110 176 23 14 13 47 93 49 1,525
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Subordinated liabilities - - - - - 1,170 5,558 5,759 12,487
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial
liabilities
at 31 Dec 2021 292,157 1,830 445 450 375 1,496 16,203 5,887 318,843
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial liabilities - - - - - - - 3,415 3,415
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total liabilities
at 31 Dec 2021 292,157 1,830 445 450 375 1,496 16,203 9,302 322,258
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Off-balance sheet
commitments given
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loan and other
credit-related
commitments 70,205 1 2 50 - 18 164 - 70,440
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 39,889 - - - - - - - 39,889
-------------------------
- corporate and
commercial 29,464 1 2 50 - 18 164 - 29,699
-------------------------
- financial 852 - - - - - - - 852
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
1 'Customer accounts' includes GBP137,319m (2021: GBP137,853m) insured by guarantee schemes.
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due Due Due Due Due Due
over over over over over over
1 month 3 months 6 months 9 months 1 year 2 years
Due but but but but but but
not not not not not not not
more more more more more more more Due
than than than than than than than over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
The bank
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial assets
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Cash and balances
at central banks 94,407 - - - - - - - 94,407
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of collection from
other banks 154 - - - - - - - 154
Financial assets
mandatorily
measured at fair value 72 - - - - - - 36 108
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Derivatives 84 1 1 1 - 2 117 340 546
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to banks 5,675 370 1,588 145 145 486 895 - 9,304
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to customers 20,286 7,041 7,218 6,157 5,391 18,036 32,667 102,870 199,666
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 4,147 1,988 1,740 1,790 1,759 6,741 19,869 96,334 134,368
-------------------------
- corporate and
commercial 9,978 4,589 5,099 3,981 3,297 10,078 11,510 6,173 54,705
-------------------------
- financial 6,161 464 379 386 335 1,217 1,288 363 10,593
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Reverse repurchase
agreements
- non-trading 573 3,012 1,749 1,322 750 - - - 7,406
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial investments 300 1,200 70 137 131 530 3,874 9,850 16,092
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Accrued income and
other financial assets 1,652 164 52 19 3 - 7 - 1,897
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial assets
at 31 Dec 2022 123,203 11,788 10,678 7,781 6,420 19,054 37,560 113,096 329,580
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial assets - - - - - - - 8,830 8,830
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total assets at 31
Dec 2022 123,203 11,788 10,678 7,781 6,420 19,054 37,560 121,926 338,410
Financial liabilities
Deposits by banks 911 50 65 45 55 115 10,378 - 11,619
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Customer accounts(1) 274,258 2,558 997 381 1,015 360 6 - 279,575
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 176,657 767 391 296 828 348 2 - 179,289
-------------------------
- corporate and
commercial 93,220 1,606 532 77 173 12 4 - 95,624
-------------------------
- financial 4,381 185 74 8 14 - - - 4,662
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Repurchase agreements
- non-trading 9,333 - - - - - - - 9,333
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of transmission to
other banks 304 - - - - - - - 304
Derivatives 83 2 - 6 17 33 74 89 304
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Debt securities in
issue 44 398 - 150 - - 499 - 1,091
Accruals and other
financial liabilities 1,993 341 231 94 12 37 529 32 3,269
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Subordinated liabilities - - - 1,247 - 2,158 4,406 4,538 12,349
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial
liabilities
at 31 Dec
2022 286,926 3,349 1,293 1,923 1,099 2,703 15,892 4,659 317,844
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial liabilities - - - - - - - 1,272 1,272
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total liabilities
at 31 Dec 2022 286,926 3,349 1,293 1,923 1,099 2,703 15,892 5,931 319,116
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Off-balance sheet
commitments given
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loan and other
credit-related
commitments 57,179 - - - - - - - 57,179
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 31,527 - - - - - - - 31,527
-------------------------
- corporate and
commercial 24,560 - - - - - - - 24,560
-------------------------
- financial 1,092 - - - - - - - 1,092
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Maturity analysis of assets, liabilities and off-balance sheet commitments
(continued)
Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
Due not but not but not but not but not but not but not
more more more more more more more Due
than than than than than than than over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
The bank
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial assets
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Cash and balances
at central banks 112,477 - - - - - - - 112,477
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of collection from
other banks 132 - - - - - - - 132
Financial assets
mandatorily
measured at fair value 65 - - - - - - 14 79
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Derivatives 58 - - - - - - 6 64
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to banks 1,002 295 1,483 125 135 475 890 - 4,405
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loans and advances
to customers 18,992 6,767 7,170 5,948 5,519 17,491 32,353 96,968 191,208
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 5,028 1,862 1,744 1,772 1,727 6,747 18,797 89,725 127,402
-------------------------
- corporate and
commercial 9,359 4,227 4,885 3,851 3,505 9,818 12,373 6,872 54,890
-------------------------
- financial 4,605 678 541 325 287 926 1,183 371 8,916
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Reverse repurchase
agreements
- non-trading 318 555 2,379 3,494 1,242 - - - 7,988
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Financial investments 854 622 290 475 102 1,232 2,298 8,504 14,377
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Accrued income and
other financial assets 1,287 92 19 3 3 - - - 1,404
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial assets
at 31 Dec 2021 135,185 8,331 11,341 10,045 7,001 19,198 35,541 105,492 332,134
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial assets - - - - - - - 9,604 9,604
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total assets at 31
Dec 2021 135,185 8,331 11,341 10,045 7,001 19,198 35,541 115,096 341,738
Financial liabilities
Deposits by banks 1,468 73 55 25 30 55 10,389 - 12,095
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Customer accounts(1) 277,826 861 422 286 362 260 6 - 280,023
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 174,723 558 267 209 274 258 4 - 176,293
-------------------------
- corporate and
commercial 98,743 287 102 46 87 2 2 - 99,269
-------------------------
- financial 4,360 16 53 31 1 - - - 4,461
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
Repurchase agreements
- non-trading 9,938 500 - - - - - - 10,438
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Items in the course
of transmission to
other banks 148 - - - - - - - 148
Derivatives 172 - - 1 - 18 22 79 292
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Debt securities in
issue 250 275 - 150 - - - - 675
Accruals and other
financial liabilities 1,066 167 20 13 12 44 88 45 1,455
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Subordinated liabilities - - - - - 1,171 5,558 5,758 12,487
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total financial
liabilities
at 31 Dec 2021 290,868 1,876 497 475 404 1,548 16,063 5,882 317,613
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Non-financial liabilities - - - - - - - 3,262 3,262
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Total liabilities
at 31 Dec 2021 290,868 1,876 497 475 404 1,548 16,063 9,144 320,875
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Off-balance sheet
commitments given
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
Loan and other
credit-related
commitments 56,733 - - - - - - - 56,733
------------------------- -------- --------- --------- --------- --------- -------- -------- -------- -------
- personal 29,223 - - - - - - - 29,223
-------------------------
- corporate and
commercial 26,743 - - - - - - - 26,743
-------------------------
- financial 767 - - - - - - - 767
------------------------- -------- --------- --------- --------- --------- -------- -------- --------
1 'Customer accounts' includes GBP136,451m (2021: GBP136,791m) insured by guarantee schemes .
Contractual maturity of financial liabilities
The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated as hedging derivatives). For this reason, balances in the table below do not agree directly with those in our consolidated balance sheet and the bank's balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not treated as hedging derivatives are included in the 'Due not more than 1 month' time bucket and not by contractual maturity.
In addition, loans and other credit-related commitments, financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the basis of the earliest date they can be called.
Cash flows payable under financial liabilities by remaining
contractual maturities
-------
Due over Due over Due over
1 3 1
month months year
Due not but not but not but not
more more more more Due over
than than 3 than 1 than 5 5
1 month months year years years Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- -------- -------- -------- -------- -------
Deposits by banks 406 57 121 10,942 - 11,526
------------------------------ -------- -------- -------- -------- -------- -------
Customer accounts 275,781 2,561 2,401 370 - 281,113
------------------------------ -------- -------- -------- -------- -------- -------
Repurchase agreements -
non-trading 9,346 - - - - 9,346
Derivatives 84 16 286 308 354 1,048
------------------------------ -------- -------- -------- -------- -------- -------
Debt securities in issue 44 405 173 882 - 1,504
------------------------------ -------- -------- -------- -------- -------- -------
Subordinated liabilities 29 56 1,485 7,369 4,683 13,622
------------------------------ -------- -------- -------- -------- -------- -------
Other financial liabilities 2,174 326 335 584 39 3,458
------------------------------ -------- -------- -------- -------- -------- -------
287,864 3,421 4,801 20,455 5,076 321,617
------------------------------ -------- -------- -------- -------- -------- -------
Loan and other credit-related
commitments 70,263 39 10 148 23 70,483
------------------------------ -------- -------- -------- -------- -------- -------
Financial guarantees 1,148 - - - - 1,148
------------------------------ -------- -------- -------- -------- -------- -------
At 31 Dec 2022 359,275 3,460 4,811 20,603 5,099 393,248
------------------------------ -------- -------- -------- -------- -------- -------
Proportion of cash flows
payable in period % 92 1 1 5 1 100
------------------------------ -------- -------- -------- -------- -------- -------
Deposits by banks 862 18 2 10,310 - 11,192
------------------------------ ------- ----- ----- ------ ----- -------
Customer accounts 279,674 861 1,071 265 - 281,871
------------------------------ ------- ----- ----- ------ ----- -------
Repurchase agreements -
non-trading 9,938 500 - - - 10,438
Derivatives 171 19 - 135 354 679
------------------------------ ------- ----- ----- ------ ----- -------
Debt securities in issue 250 282 169 324 - 1,025
------------------------------ ------- ----- ----- ------ ----- -------
Subordinated liabilities 24 48 216 7,588 5,856 13,732
------------------------------ ------- ----- ----- ------ ----- -------
Other financial liabilities 1,262 170 50 154 54 1,690
------------------------------ ------- ----- ----- ------ ----- -------
292,181 1,898 1,508 18,776 6,264 320,627
------------------------------ ------- ----- ----- ------ ----- -------
Loan and other credit-related
commitments 70,205 1 52 182 - 70,440
------------------------------ ------- ----- ----- ------ ----- -------
Financial guarantees 1,102 - - - - 1,102
------------------------------ ------- ----- ----- ------ ----- -------
At 31 Dec 2021 363,488 1,899 1,560 18,958 6,264 392,169
------------------------------ ------- ----- ----- ------ ----- -------
Proportion of cash flows
payable in period % 93 - - 5 2 100
------------------------------ ------- ----- ----- ------ ----- -------
The bank
------------------------------ ---------------------------------------------
Deposits by banks 925 78 289 11,145 - 12,437
------------------------------ ------- ----- ----- ------ ----- -------
Customer accounts 274,261 2,561 2,401 370 - 279,593
------------------------------ ------- ----- ----- ------ ----- -------
Repurchase agreements -
non-trading 9,346 - - - - 9,346
Derivatives 84 16 286 308 354 1,048
------------------------------ ------- ----- ----- ------ ----- -------
Debt securities in issue 44 399 155 591 - 1,189
------------------------------ ------- ----- ----- ------ ----- -------
Subordinated liabilities 29 56 1,485 7,369 4,683 13,622
------------------------------ ------- ----- ----- ------ ----- -------
Other financial liabilities 2,106 319 330 576 35 3,366
------------------------------ ------- ----- ----- ------ ----- -------
286,795 3,429 4,946 20,359 5,072 320,601
------------------------------ ------- ----- ----- ------ ----- -------
Loan and other credit-related
commitments 57,179 - - - - 57,179
------------------------------ ------- ----- ----- ------ ----- -------
Financial guarantees 1,148 - - - - 1,148
------------------------------ ------- ----- ----- ------ ----- -------
At 31 Dec 2022 345,122 3,429 4,946 20,359 5,072 378,928
------------------------------ ------- ----- ----- ------ ----- -------
Proportion of cash flows
payable in period % 91 1 1 5 2 100
------------------------------ ------- ----- ----- ------ ----- -------
Deposits by banks 1,468 73 112 10,455 - 12,108
------------------------------ ------- ----- ----- ------ ----- -------
Customer accounts 277,827 861 1,071 265 - 280,024
------------------------------ ------- ----- ----- ------ ----- -------
Repurchase agreements -
non-trading 9,938 500 - - - 10,438
Derivatives 171 19 - 135 354 679
------------------------------ ------- ----- ----- ------ ----- -------
Debt securities in issue 250 275 151 - - 676
------------------------------ ------- ----- ----- ------ ----- -------
Subordinated liabilities 24 48 216 7,588 5,856 13,732
------------------------------ ------- ----- ----- ------ ----- -------
Other financial liabilities 1,216 164 46 147 50 1,623
------------------------------ ------- ----- ----- ------ ----- -------
290,894 1,940 1,596 18,590 6,260 319,280
------------------------------ ------- ----- ----- ------ ----- -------
Loan and other credit-related
commitments 56,733 - - - - 56,733
------------------------------ ------- ----- ----- ------ ----- -------
Financial guarantees 1,102 - - - - 1,102
------------------------------ ------- ----- ----- ------ ----- -------
At 31 Dec 2021 348,729 1,940 1,596 18,590 6,260 377,115
------------------------------ ------- ----- ----- ------ ----- -------
Proportion of cash flows
payable in period % 92 1 - 5 2 100
------------------------------ ------- ----- ----- ------ ----- -------
22 Offsetting of financial assets and financial liabilities
--------------------------------------------------------
In the offsetting of financial assets and financial liabilities, the net amount is reported in the balance sheet when the offsetting criteria is met. This is achieved when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
In the following table, the 'Amounts not set off in the balance sheet' include transactions where:
-- the counterparty has an offsetting exposure with the group and a master netting or similar arrangement is in place with a right to set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
-- cash and non-cash collateral (debt securities) has been received/pledged for derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements to cover net exposure in the event of a default or other predetermined events.
The effect of over-collateralisation is excluded.
'Amounts not subject to enforceable master netting agreements' include contracts executed in jurisdictions where the rights of set off may not be upheld under the local bankruptcy laws, and transactions where a legal opinion evidencing enforceability of the right of offset may not have been sought, or may have been unable to obtain.
For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure that the legal right of offset remains appropriate.
Amounts subject to enforceable
netting arrangements
-----------------------------------------------------------------
Amounts not
set off in
the balance
sheet
Amounts
Net not
amounts Financial subject
in instruments, to
the including enforceable
Gross Amounts balance non-cash Cash Net netting
amounts offset sheet collateral(5) collateral amount arrangements(4) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
Financial assets
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
Derivatives (Note 9) 2,708 (2,162) 546 (288) (234) 24 - 546
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
Reverse repos, stock
borrowing
and similar agreements
classified as:
- non-trading assets 10,937 (3,531) 7,406 (7,406) - - - 7,406
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
Loans and advances to
customers(2) 5,555 (2,175) 3,380 (2,786) - 594 - 3,380
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
At 31 Dec 2022 19,200 (7,868) 11,332 (10,480) (234) 618 - 11,332
------------------------- -------- ------- -------- -------------- ----------- ------- ---------------- ------
Derivatives (Note 9) 801 (737) 64 (49) - 15 - 64
----------------------------------- ------ ------- ------ -------- --- ------
Reverse repos, stock borrowing
and similar agreements classified
as:
- non-trading assets 8,311 (323) 7,988 (7,988) - - - 7,988
----------------------------------- ------ ------- ------ -------- --- ------
Loans and advances to customers(2) 5,018 (1,977) 3,041 (2,457) -584 - 3,041
----------------------------------- ------ ------- ------ -------- --- ------
At 31 Dec 2021 14,130 (3,037) 11,093 (10,494) -599 -11,093
----------------------------------- ------ ------- ------ -------- --- ------
Financial liabilities
------------------------------- ------ ------- ------ -------- ----- ----- ------
Derivatives(1) (Note 9) 2,466 (2,162) 304 (41) (218) 45 - 304
------------------------------- ------ ------- ------ -------- ----- ----- ------
Repos, stock lending and
similar agreements classified
as:
- non-trading liabilities 12,864 (3,531) 9,333 (9,333) - - - 9,333
------------------------------- ------ ------- ------ -------- ----- ----- ------
Customer accounts(3) 9,057 (2,175) 6,882 (2,786) - 4,096 2 6,884
------------------------------- ------ ------- ------ -------- ----- ----- ------
At 31 Dec 2022 24,387 (7,868) 16,519 (12,160) (218) 4,141 216,521
------------------------------- ------ ------- ------ -------- ----- ----- ------
Derivatives(1) (Note 9) 1,029 (737) 292 (33) (261) (2) - 292
------------------------------- ------ ------- ------ -------- ----- ----- ------
Repos, stock lending and
similar agreements classified
as:
- non-trading liabilities 10,761 (323) 10,438 (10,438) - - -10,438
------------------------------- ------ ------- ------ -------- ----- ----- ------
Customer accounts(3) 7,673 (1,977) 5,696 (2,457) - 3,239 1 5,697
------------------------------- ------ ------- ------ -------- ----- ----- ------
At 31 Dec 2021 19,463 (3,037) 16,426 (12,928) (261) 3,237 116,427
------------------------------- ------ ------- ------ -------- ----- ----- ------
1 At 31 December 2022, the amount of cash margin paid that had been offset against the gross derivatives liabilities was GBP1,123m (2021: GBP219m).
2 At 31 December 2022, the total amount of 'Loans and advances to customers' recognised on the balance sheet was GBP204,143m (2021: GBP195,526m) of which GBP3,380m (2021: GBP3,041m) was subject to offsetting.
3 At 31 December 2022, the total amount of 'Customer accounts' recognised on the balance sheet was GBP281,095m (2021: GBP281,870m) of which GBP6,882m (2021: GBP5,696m) was subject to offsetting.
4 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset.
5 The disclosure has been enhanced in 2022 to support consistency across HSBC Group entities. All financial instruments (whether recognised on our balance sheet or as non-cash collateral received or pledged) are presented within 'financial instruments, including non-cash collateral', as balance sheet classification has no effect on the rights of set-off associated with financial instruments. Comparative data have been re-presented accordingly.
23 Called up share capital and other equity instruments
----------------------------------------------------
Called up share capital and share premium
HSBC UK Bank plc ordinary shares of GBP1.00 each, issued and fully
paid
2022 2021
------------------- ------------------
Number GBPm Number GBPm
At 1 Jan and 31 Dec 50,002 - 50,002 -
---------------------------------- ----------- ------ ---------- ------
HSBC UK Bank plc share premium
2022 2021
GBPm GBPm
At 31 Dec 9,015 9,015
---------------- -------- -------
Total called up share capital and share premium
2022 2021
GBPm GBPm
At 31 Dec 9,015 9,015
------------------------ ------------ ------------
Other equity instruments
HSBC UK Bank plc additional tier 1 instruments
2022 2021
GBPm GBPm
---------- -------------------------------------------------- ----- -----
Undated Subordinated Additional Tier 1 instrument
GBP1,096m issued 2014 (Callable December 2019 onwards) 1,096 1,096
---------- -------------------------------------------------- ----- -----
Undated Subordinated Additional Tier 1 instrument
GBP1,100m issued 2014 (Callable December 2024 onwards) 1,100 1,100
---------- -------------------------------------------------- ----- -----
At
31 Dec 2,196 2,196
-------------------------------------------------------------- ----- -----
The bank has issued capital instruments that are included in the group's capital base as fully CRR II compliant additional tier 1 capital.
Interest on these instruments will be due and payable only at the sole discretion of the bank, and the bank has sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any date. There are limitations on the payment of principal, interest or other amounts if such payments are prohibited under UK banking regulations, or other requirements, if the bank has insufficient distributable items or if the bank fails to satisfy the solvency condition as defined in the instruments terms.
The instruments are undated and are repayable, at the option of the bank, in whole at the initial call date, or on any Interest Payment Date after the initial call date. In addition, the instruments are repayable at the option of the bank in whole for certain regulatory or tax reasons. Any repayments require the prior notification to and consent of the PRA. These instruments rank pari passu with the bank's most senior class or classes of issued preference shares and therefore ahead of ordinary shares. These instruments will be written down in whole, together with any accrued but unpaid interest if either the group's solo or consolidated Common Equity Tier 1 Capital Ratio falls below 7.00%.
24 Contingent liabilities, contractual commitments, guarantees and
contingent assets
---------------------------------------------------------------
The group The bank
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------ ------ ------
Guarantees and other contingent liabilities:
--------------------------------------------- ------ ------ ------ ------
* financial guarantees(1) 1,148 1,102 1,148 1,102
--------------------------------------------- ------ ------ ------ ------
- performance and other guarantees 2,530 2,192 2,530 2,192
At 31 Dec 3,678 3,294 3,678 3,294
--------------------------------------------- ------ ------ ------ ------
Commitments(2) :
--------------------------------------------- ------ ------ ------ ------
- documentary credits and short-term
trade-related transactions 52 134 52 134
--------------------------------------------- ------ ------ ------ ------
- forward asset purchases and forward
deposits placed 327 236 102 -
--------------------------------------------- ------ ------ ------ ------
- standby facilities, credit lines
and other commitments to lend 70,104 70,071 57,025 56,599
--------------------------------------------- ------ ------ ------ ------
At 31 Dec 70,483 70,441 57,179 56,733
--------------------------------------------- ------ ------ ------ ------
1 Financial guarantees contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due, in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts.
2 Includes GBP68bn (2021: GBP67bn) for the group and GBP54bn (2021: GBP54bn) for the bank of commitments to which the impairment requirements in IFRS 9 are applied where the group and bank has become party to an irrevocable commitment.
The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the group, which represents the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 19.
The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to the group's annual credit review process.
Contingent liabilities arising from legal proceedings, regulatory and other matters against group companies are excluded from this note but are disclosed in Note 26.
Financial Services Compensation Scheme
The FSCS provides compensation, up to certain limits, to eligible customers of financial services firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on HSBC UK to the extent the industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate FSCS levy to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of FSCS members at the time. In December 2022, the FCA announced that it expects to review various elements of the scheme to ensure consumers are appropriately and proportionately protected, with costs distributed across industry levy payers in a fair and sustainable way, with a view to deliver the majority of changes by the end of the 2023/24 financial year.
UK branches of HSBC overseas entities
In December 2017, HM Revenue & Customs ('HMRC') challenged the VAT status of certain UK branches of HSBC overseas entities. In Q1 2019, HMRC reaffirmed its assessment that the UK branches are ineligible to be members of the UK VAT group and HSBC filed appeals. In February 2022, the Upper Tribunal issued a judgment addressing several preliminary legal issues, which was partially in favour of HMRC and partially in favour of HSBC. The case will now return to the First-tier Tax Tribunal for full trial and we await confirmation of the trial window. Since January 2018, HSBC's returns have been prepared on the basis that the UK branches are not in the UK VAT group. In the event that HSBC is successful, HSBC will seek a refund of this VAT, of which GBP170m in estimated to be attributable to HSBC UK Bank plc.
25 Finance lease receivables
-------------------------
The group leases a variety of assets to third parties under finance leases, including transport assets, property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.
2022 2021
---------------------------- -------------------------------
Total
future Unearned Total future Unearned
minimum finance Present minimum finance Present
payments income Value payments income Value
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- -------- ------- ------------ -------- -------
Lease receivables(1)
------------------------------- --------- -------- ------- ------------ -------- -------
* No later than one year 1,256 (87) 1,169 1,232 (61) 1,171
* One to two years 878 (62) 816 818 (41) 777
------------------------------- --------- -------- ------- ------------ -------- -------
* Two to three years 680 (40) 640 553 (27) 526
------------------------------- --------- -------- ------- ------------ -------- -------
* Three to four years 387 (24) 363 353 (16) 337
------------------------------- --------- -------- ------- ------------ -------- -------
* Four to five years 176 (14) 162 177 (10) 167
------------------------------- --------- -------- ------- ------------ -------- -------
* Later than 5 years 330 (57) 273 314 (52) 262
------------------------------- --------- -------- ------- ------------ -------- -------
31 Dec(2) 3,707 (284) 3,423 3,447 (207) 3,240
------------------------------- --------- -------- ------- ------------ -------- -------
1 Finance leases receivables are disclosed within 'Loans and advances to customers' in the balance sheet.
2 ECL of GBP23m (2021: GBP52m) is held in respect of loans and advances under Finance lease receivables.
26 Legal proceedings and regulatory matters
----------------------------------------
The group is party to legal proceedings and regulatory matters arising out of its normal business operations. Apart from the matters described below, the group considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters at 31 December 2022. Where an individual provision is material, the fact that a provision has been made is stated and quantified. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
Film finance litigation
In June 2020, two separate investor groups issued claims against HSBC UK (as successor to HSBC Private Bank (UK) Limited ('PBGB')) in the High Court of England and Wales in connection with PBGB's role in the development of Eclipse film finance schemes. These actions are ongoing.
In April 2021, HSBC UK (as successor to PBGB) was served with a claim issued in the High Court of England and Wales in connection with PBGB's role in the development of the Zeus film finance schemes. In October 2022, this claim was discontinued.
Based on the facts currently known, it is not practicable to predict the resolution of the pending matters, including the timing or any possible impact on HSBC UK, which could be significant.
PPI
Although the FCA deadline for bringing PPI complaints has passed, customers can still commence litigation for PPI mis-selling. Further details are contained in Note19.
Other regulatory investigations, reviews and litigation
HSBC UK and/or certain of its affiliates are also subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including:
-- an investigation by the PRA in connection with depositor protection arrangements in the UK; and
-- an investigation by the FCA in connection with collections and recoveries operations in the UK.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
27 Related party transactions
--------------------------
The immediate and ultimate parent company of the group is HSBC Holdings plc, which is incorporated in England.
Copies of the Group financial statements may be obtained from the following address:
HSBC Holdings plc
8 Canada Square
London E14 5HQ
The group's related parties include the parent, fellow subsidiaries, joint ventures, post-employment benefit plans for HSBC UK employees, KMP of the Company and its ultimate parent company, HSBC Holdings plc, close family members of KMP and entities which are controlled, jointly controlled or significantly influenced by KMP or their close family members.
Particulars of transactions between the group and its related parties are tabulated below in accordance with IAS 24 'Related party disclosures'. The disclosure of the year-end balance and the highest amounts outstanding during the year are considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year.
Key Management Personnel
The KMP of the Company are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company and the group, and include the Directors of the Company, certain senior executives of the Company, directors of HSBC Holdings plc and certain senior executives of HSBC Holdings plc. The emoluments of those KMP who are not directors or senior executives of the Company are paid by other Group companies who make no recharge to the Company. It is therefore not possible to make a reasonable apportionment of their emoluments in respect of services they have provided to the Company during the year. Accordingly, no emoluments in respect of these KMP are included in the following disclosure.
The table below represents the compensation for KMP (Directors and certain senior executives) of the Company in exchange for services rendered to the Company for the period they served during the year.
Compensation of Key Management Personnel
2022 2021
GBP000 GBP000
---------------------------------- ------ ------
Short-term employee benefits 9,306 8,009
---------------------------------- ------ ------
Post-employment benefits 12 10
---------------------------------- ------ ------
Other long-term employee benefits 1,179 520
---------------------------------- ------ ------
Share-based payments 2,046 1,231
---------------------------------- ------ ------
Year ended 31 Dec 12,543 9,770
---------------------------------- ------ ------
Advances and credits, guarantees and deposit balances during the year
with Key Management Personnel(1)
2022 2021
----------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------
Highest amounts Highest
outstanding amounts
Balance at during Balance at outstanding
31 Dec year 31 Dec during year
GBPm GBPm GBPm GBPm
--------- ------------------------------------------------
Advances
and
credits 10 11 12 13
Deposits 8 27 8 27
------------------------------------------------ ---------------------------------------
1 Includes close family members and entities which are controlled or jointly controlled by KMP or their close family members.
The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
In addition to the requirements of IAS 24, particulars of advances (loans and quasi-loans), credits and guarantees entered into by the bank and its subsidiaries with Directors of the Company are required to be disclosed pursuant to section 413 of the Companies Act 2006. Under the Companies Act, there is no requirement to disclose transactions with other KMP.
Transactions with Directors: advances, credits and guarantees (Companies
Act 2006)
2022 2021
-----------------------------
Balance at Balance at
31 Dec 31 Dec
GBP000 GBP000
Loans 6,677 6,785
----------------------------- ----------------------------
Other related parties
Transactions and balances during the year with KMP of the bank's ultimate
parent company(1,2)
2022 2021
---------------------------
Highest amounts Highest amounts
outstanding outstanding
Balance at during Balance at during
31 Dec the year 31 Dec the year
GBPm GBPm GBPm GBPm
----------- ---------------- ---------- ---------------
Advances and credits 2 6 6 8
Deposits 12 30 13 18
----------- ---------------- ---------- ---------------
1 Excludes those who are also KMP of the Company.
2 Includes close family members and entities which are controlled or jointly controlled by the KMP or their close family members.
The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
Transactions and balances during the year with the joint venture
2022 2021
Highest balance Highest balance
Balance at during the Balance at during the
31 Dec year 31 Dec year
GBPm GBPm GBPm GBPm
Unsubordinated amounts due
from the joint venture 74 115 70 114
Amounts due to joint venture 42 43 33 75
Guarantees and commitments 219 244 107 294
The group provides certain banking and financial services to its joint venture, including loans, overdrafts, interest and non-interest- bearing deposits and current accounts. Details of the interest in the joint venture are given in Note 12.
The group's transactions and balances during the year with HSBC Holdings
plc and subsidiaries of HSBC Holdings plc
2022 2021
Due to/from
Due to/from subsidiaries
Due to/from subsidiaries Due to/from of
HSBC Holdings of HSBC Holdings HSBC Holdings HSBC Holdings
plc plc plc plc
Highest Highest Highest Highest
31 Dec balance 31 Dec balance 31 Dec balance 31 Dec balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Assets
Derivatives - - 49 161 - - 31 87
Loans and
advances
to banks - - 528 872 - - 827 932
Reverse repos - - - 3,085 - - - 213
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Prepayments
and
accrued
income - - 9 17 - - 2 27
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Other assets 1 1 935 935 - 2 180 284
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Total related
party assets
at
31 Dec 1 1 1,521 5,070 - 2 1,040 1,543
Liabilities
Deposits by
banks - - 378 1,238 - - 795 1,250
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Customer
accounts - - 2,104 2,104 - - 1 4
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Repos - - 511 1,610 - - 126 126
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Other
liabilities 40 40 278 432 32 95 138 190
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Accruals &
Deferred
Income 89 140 5 40 71 98 4 97
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Derivatives - - 42 84 - - 66 145
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Subordinated
liabilities 12,349 12,648 - - 12,487 12,590 - 10,015
-------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ----------------------- ---------------------
Total related
party
liabilities
at 31 Dec 12,478 12,828 3,318 5,508 12,590 12,783 1,130 11,827
Due to/from HSBC Holdings Due to/from subsidiaries
plc of HSBC Holdings plc
--------------------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
------------- ------------
Income statement
------------- ------------ ------------ ------------
Interest income - - 5 (3)
------------- ------------ ------------ ------------
Interest expense 325 181 4 83
------------- ------------ ------------ ------------
Fee income - - 80 66
Fee expense - - 48 45
Other operating income - - 11 11
------------- ------------ ------------ ------------
General and administrative
expenses 48 40 1,823 1,783
------------- ------------ ------------ ------------
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
The bank's transactions and balances during the year with HSBC UK Bank
plc subsidiaries, HSBC Holdings plc and subsidiaries of
HSBC Holdings plc
2022 2021
----------------------------------------------------------------------------------------
Due to/from Due to/from Due to/from Due to/from
subsidiaries subsidiaries subsidiaries subsidiaries
of HSBC Due to/from of HSBC of HSBC Due to/from of HSBC
UK Bank HSBC Holdings Holdings UK Bank HSBC Holdings Holdings
plc subsidiaries plc plc plc subsidiaries plc plc
31 Highest 31 Highest 31 Highest 31 Highest 31 Highest 31 Highest
Dec balance Dec balance Dec balance Dec balance Dec balance Dec balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Derivatives - - - - 49 161 - - - - 31 87
Loans and
advances
to banks 2,953 2,966 - - 527 871 2,495 2,500 - - 827 932
Loans and
advances
to customers 8,232 8,313 - - - - 6,822 6,822 - - - -
Reverse repos - - - - - 3,085 - - - - - 213
Prepayments
and accrued
income 37 37 - - 9 17 12 15 - - 2 27
Other assets 1,040 1,068 1 1 935 935 1,029 1,042 - 2 179 284
Total related
party
assets at 31
Dec 12,262 12,384 1 1 1,520 5,069 10,358 10,379 - 2 1,039 1,543
Liabilities
Deposits by
banks 898 1,053 - - 378 1,238 915 1,927 - - 795 1,250
Customer
accounts 381 381 - - 2,104 2,104 339 379 - - 1 1
Repos - - - - 511 1,610 - - - - 126 126
Derivatives - - - - 42 84 - - - - 66 145
Other
liabilities 11 23 40 40 274 428 17 39 32 95 134 182
Accruals &
Deferred
Income 5 10 89 140 5 40 3 7 71 98 4 97
Subordinated
liabilities - - 12,349 12,648 - - - - 12,487 12,590 - 9,936
Total related
party
liabilities
at 31
Dec 1,295 1,467 12,478 12,828 3,314 5,504 1,274 2,352 12,590 12,783 1,126 11,737
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
The HSBC Bank (UK) Pension Scheme has placed deposits of GBP59m (2021: GBP58m) with HSBC UK, earning interest of GBP0.1m (2021: GBPnil).
The above outstanding balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
28 Events after the balance sheet date
-----------------------------------
These accounts were approved by the Board of Directors on 20 February 2023 and authorised for issue.
On 14 February 2023, the Directors resolved to pay an interim dividend to ordinary shareholders of GBP539m in respect of the financial year ending 31 December 2022. No liability is recognised in the financial statements in respect of this dividend.
In its assessment of events after the balance sheet date, HSBC UK has considered and concluded that no material events have occurred resulting in adjustments to the financial statements.
29 HSBC UK Bank plc's subsidiaries and joint ventures
--------------------------------------------------
In accordance with section 409 of the Companies Act 2006 a list of HSBC UK Bank plc subsidiaries and joint ventures, the registered office address and the effective percentage of equity owned at 31 December 2022 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares which are held by HSBC UK Bank plc subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC UK Bank plc unless otherwise indicated.
HSBC UK Bank plc's registered office address is:
HSBC UK Bank plc
1 Centenary Square
Birmingham B1 1HQ
United Kingdom
Subsidiaries
The undertakings below are consolidated by HSBC UK Bank plc. Unless otherwise stated the place of incorporation is England and Wales.
% of share
class held
by immediate
parent company
(or by HSBC
UK Bank
plc where
Subsidiaries this varies) Footnotes
Assetfinance December 100.00 3
(F) Limited
---------
Assetfinance June (D) 100.00 3
Limited
---------
Assetfinance March 100.00 3
(D) Limited
---------
Assetfinance September 100.00 3
(G) Limited
---------
B&Q Financial Services 1,
Limited 100.00 4
---------
Canada Square Nominees 1,
(UK) Limited 100.00 4
---------
HSBC Bank Pension Trust 1,
(UK) Limited 100.00 4
---------
HSBC Branch Nominee 1,
(UK) Limited 100.00 3
---------
HSBC UK Covered Bonds 0,
LLP N/A 3
---------
HSBC Equipment Finance 1,
(UK) Limited 100.00 3
---------
HSBC Executor & Trustee
Company (UK) Limited 100.00 3
1,
HSBC Finance Limited 100.00 4
---------
HSBC Invoice Finance 1,
(UK) Limited 100.00 3
---------
HSBC Private Bank (UK) 1,
Limited 100.00 4
---------
HSBC Trust Company 1,
(UK) Limited 100.00 4
---------
HSBC UK Client Nominee 1,
Limited 100.00 3
---------
HSBC Wealth Client 1,
Nominee Limited 100.00 3
---------
John Lewis Financial 1,
Services Limited 100.00 4
---------
Marks and Spencer Financial 1,
Services plc 100.00 6
---------
Marks and Spencer Unit 1,
Trust Management Limited 100.00 6
Midland Bank (Branch 1,
Nominees) Limited 100.00 3
---------
Midland Nominees Limited 100.00 3
---------
St Cross Trustees Limited 100.00 3
---------
Turnsonic (Nominees) 100.00 3
Limited
---------
Joint venture
The undertaking below is a Joint Venture and equity accounted.
% of share
class held
by immediate
parent company
(or by HSBC
UK Bank plc
where this
Joint venture varies) Footnotes
2,
Vaultex UK Limited 50.00 7
---------
Footnotes
0 Where an entity is governed
by voting rights, HSBC consolidates
when it holds - directly or
indirectly - the necessary voting
rights
to pass resolutions by the governing
body. In all other cases, the
assessment of control is more
complex and requires judgement
of other factors, including
having exposure to variability
of
returns, power to direct relevant
activities, and whether power
is
held as an agent or principal.
HSBC's consolidation policy is
described in Note 1.2(a)
1 Directly held by HSBC UK Bank
plc
2 Financial year ended 30 September
2022
Registered Offices
3 1 Centenary Square, Birmingham,
United Kingdom, B1 1HQ
4 8 Canada Square, London, United
Kingdom, E14 5HQ
5 21 Farncombe Road, Worthing,
United Kingdom, BN11 2BW
6 Kings Meadow Chester Business
Park, Chester, United Kingdom,
CH99 9FB
7 All Saints Triangle, Caledonian
Road, London, United Kingdom,
N1 9UT
Reconciliation of alternative performance measures
Return on equity and return on tangible equity
RoTE is computed by adjusting the reported equity for goodwill and intangibles. The adjustment to reported results and reported equity excludes amounts attributable to non-controlling interests. We provide RoTE in addition to RoE as a way of assessing our performance, which is closely aligned to our capital position. The measures are calculated in US Dollars in line with the standard HSBC Group wide calculation methodology.
The following table details the adjustments made to the reported results and equity:
Return on Equity and Return on Tangible Equity
Year ended
31 Dec 31 Dec
2022 2021
$m $m
-------
Profit
Profit attributable to the ordinary shareholders
of the parent company 3,385 3,090
Significant items (net of tax) 341 280
Adjusted profit attributable to the ordinary shareholders
of the parent company 3,726 3,370
------- -------
Equity
Average shareholders' equity 28,757 31,541
------- -------
Additional Tier 1 (2,722) (2,999)
------- -------
Average ordinary shareholders' equity 26,035 28,542
------- -------
Effect of goodwill and other intangibles (net of
deferred tax) (5,249) (5,680)
Average tangible ordinary shareholders' equity 20,786 22,862
Ratio % %
-------
Return on equity 13.0 10.8
------- -------
Return on average tangible equity 16.3 13.5
------- -------
Adjusted return on average tangible equity(1) 17.9 14.7
------- -------
1 Under IAS 19 HSBC UK holds a pension fund surplus, and records pension income in the Income Statement. The IAS 19 pension fund surplus increases Tangible Equity but not CET1. In the event that the IAS 19 pension fund surplus was zero, Tangible equity and profit would reduce, and Adjusted RoTE would be 19.7% (2021: 17.4%); we refer to this as Pension Adjusted RoTE.
Abbreviations
Currencies
GBP British pound sterling
EUR Euro
$ United States dollar
Abbreviations
A
AGM Annual General Meeting
AIEA Average interest-earning
assets
ALCO Asset and Liability Management
Committee
AML Anti-money laundering
AT1 Additional tier 1
B
Basel Basel Committee on Banking
Supervision
Basel III Basel Committee's reforms
to strengthen global capital
and liquidity rules
BB Business Banking
BoE Bank of England
Bps Basis points. One basis
point is equal to one hundredth
of a percentage point
C
CAPM Capital asset pricing model
CBDC Central Bank Digital Currencies
CBES Climate Biennial Exploratory
Scenario
CEO Chief Executive Officer
CET1 Common equity tier 1
CFO Chief Financial Officer
CGU Cash-generating Unit
CMB Commercial Banking
CODM Chief Operating Decision
Maker
CRR Customer risk rating
CRR II Revised Capital Requirements
Regulation and Directive,
as implemented
CPI Consumer Price Index
D
DBS Digital Business Services
DCF Discounted cash flows
DPD Days past due
DRA Dynamic Risk Assessment
E
EAD Exposure at default
EBA European Banking Authority
EC European Commission
ECL Expected credit losses.
In the income statement,
ECL is recorded as a change
in expected credit losses
and other credit impairment
charges. In the balance
sheet, ECL is recorded as
an allowance for financial
instruments to which only
the impairment requirements
in IFRS 9 are applied.
EIR Effective interest rate
Eonia Euro Overnight Index Average
ESG Environmental, social and
governance
EU European Union
Euribor Euro interbank offered rate
EVE Economic value of equity
EPC Energy Performance Certificate
F
FCA Financial Conduct Authority
(UK)
FSCS Financial Services Compensation
Scheme
FTE Full-time equivalent staff
FVOCI Fair value through other
comprehensive income
FX Foreign exchange
FY Full Year
G
GAAP Generally accepted accounting
principles
GBM Global Banking and Markets
GDP Gross domestic product
GMP Guaranteed Minimum Pension
GPSP Group Performance Share
Plans
group HSBC UK Bank plc together
with its subsidiary undertakings
Group HSBC Holdings plc together
with its subsidiary undertakings
GTRF Global Trade and Receivables
Finance
H
HQLA High-quality liquid assets
HSBC Group HSBC Holdings plc together
with its subsidiary undertakings
HSBC Holdings HSBC Holdings plc, the parent
plc company of HSBC UK
HSBC UK HSBC UK Bank plc together
with its subsidiary undertakings
HIF HSBC Invoice Finance (UK)
Limited
HEF HSBC Equipment Finance (UK)
Limited
HR Human Resources
I
IAS International Accounting
Standards
IASB International Accounting
Standards Board
Ibor Interbank offered rate
ICAAP Internal capital adequacy
assessment process
IFRSs International Financial
Reporting Standards
ILAAP Internal liquidity adequacy
assessment process
IRRBB Interest rate risk in the
banking book
IRB Internal ratings-based
IT Information technology
K
KMP Key management personnel
KPI Key performance indicator
L
LC Large Corporates
LCR Liquidity coverage ratio
LFRF Liquidity and Funding Risk
management Framework
LGD Loss given default
Libor London interbank offered
rate
LTI Long-term incentive
LTV Loan to value
M
MME Mid-Market Enterprises
MREL EU minimum requirements
for own funds and eligible
liabilities
M&S Marks and Spencer Financial
Services plc
N
NII Net interest income
NPS Net Promoter Score
NSFR Net stable funding ratio
Neon Neon Portfolio Distribution
DAC
O
OCI Other comprehensive income
P
PD Probability of default
PLCA Purpose Led Conduct Approach
POCI Purchased or originated
credit impaired
PPA Power Purchase Agreement
PPI Payment protection insurance
PRA Prudential Regulation Authority
PwC PricewaterhouseCoopers LLP
and its network of firms
R
RAS Risk Appetite Statement
Revenue Net operating income before
change in expected credit
losses and other credit
impairment charges/Loan
impairment charges and other
credit provisions, also
referred to as revenue
RFR Risk-free rate
RMM Risk Management Meeting
RoE Return on average ordinary
shareholders' equity
RoTE Return on average tangible
equity
RPI Retail Price Index
RWA Risk-weighted asset
S
SBB Small Business Banking
SICR Significant increase in
credit risk
SME Small and medium-sized enterprise
SOFR Secured Overnight Financing
Rate
Sonia Sterling Overnight Index
Average
SPPI Solely payments of principal
and interest
STD Standardised Approach
U
UK United Kingdom
US United States of America
V
VaR Value at risk
VAT Value-added tax
VIU Value in use
W
WPB Wealth and Personal Banking
Y
YoY Year-on-year
HSBC UK Bank plc
1 Centenary Square
Birmingham B1 1HQ
United Kingdom
Telephone: 03456 040 626
www.hsbc.co.uk
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