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HSBC Holdings plc
Annual Report and Accounts 2021
Contents
Strategic report
2 Highlights
4 Who we are
6 Group Chairman’s statement
8 Group Chief Executive’s review
12 Our strategy
15 How we do business
21 Board decision making and engagement with stakeholders
25 Remuneration
26 Financial overview
30 Global businesses
37 Risk overview
41 Long-term viability and going concern statement
Environmental, social and
governance (‘ESG’) review
43 Our approach to ESG
45 Environmental
66 Social
79 Governance
Financial review
90 Financial summary
98 Global businesses and geographical regions
117 Reconciliation of alternative performance measures
Risk review
121 Our approach to risk
124 Top and emerging risks
131 Areas of special interest
135 Our material banking risks
Corporate governance report
218 Group Chairman’s governance statement
220 Biographies of Directors and senior management
237 Board committees
254 Directors’ remuneration report
Financial statements
298 Independent auditors’ report
308 Financial statements
318 Notes on the financial statements
Additional information
397 Shareholder information
405 Abbreviations
We have changed how we provide the disclosures against the Task Force on Climate-related Disclosures (‘TCFD’) framework by embedding the
content previously provided in our stand-alone TCFD Update within this Annual Report and Accounts 2021. The summary TCFD disclosure can be
found on page 19.
This Strategic Report was approved by the Board on 22 February 2022.
Mark E Tucker
Group Chairman
A reminder
The currency we report in is US dollars.
Adjusted measures
We supplement our IFRSs figures with non-IFRSs measures used by management internally that constitute alternative performance measures under
European Securities and Markets Authority guidance and non-GAAP financial measures defined in and presented in accordance with US Securities
and Exchange Commission rules and regulations. These measures are highlighted with the following symbol: <>
Further explanation may be found on page 28.
None of the websites referred to in this Annual Report and Accounts 2021 for the year ended 31 December 2021 (including where a link is provided),
and none of the information contained on such websites, are incorporated by reference in this report.
Cover image: Opening up a world of opportunity
We connect people, ideas and capital across the world, opening up opportunities for our customers and the communities we serve.
Opening up a world of opportunity
Our ambition is to be the preferred international financial partner for our clients.
Our purpose, ambition and values reflect our strategy and support our focus on execution.
Read more on our values, strategy and purpose on pages 4, 12 and 15.
Key themes of 2021
The Group continued to make progress on our strategic aims, although challenges remain:
Financial performance
Performance reflected an improvement in global economic conditions, which resulted in releases of expected credit loss allowances, the impact of
lower interest rates, and continued cost discipline. All of our regions were profitable, and our Asia operations continued to perform strongly. The
outlook for net interest income is now significantly more positive.
Read more on pages 2 and 26.
Strategic transformation
We have made progress in areas of strength and expanded our digital capabilities across key products. During the year, we announced a number of
strategic transactions including the planned sale of our retail banking business in France and our exit of mass market retail in the US. We also
announced acquisitions in Singapore and India to develop our wealth capabilities across Asia.
Read more on page 12.
Climate ambition
We are helping to mobilise the transition to a net zero global economy. Since 2020, we have supported our customers’ transition to net zero and a
sustainable future by providing and facilitating sustainable finance and investment. We have published our thermal coal phase-out policy and have set
targets to reduce our on-balance sheet financed emissions of two priority sectors: oil and gas, and power and utilities by 2030.
Read more on page 18.
Delivery against our financial targets
Return on average tangible equity <>
8.3%
Target: ≥10% over the medium term.
(2020: 3.1%)
Adjusted operating expenses <>
$32.1bn
Updated target: 2022 adjusted operating expenses in line with 2021.
Previous target: ≤$31bn in 2022 (at December 2020 foreign exchange rates).
(2020: $32.4bn)
Gross RWA reduction
$104bn
Since the start of the programme. Updated target: >$110bn by end of 2022.
Common equity tier 1 capital ratio
15.8%
Target: >14%, managing in the range of 14% to 14.5% in the medium term; and manage the range down further long term.
(2020: 15.9%)
Dividend per share
$0.25
2021 payout ratio: 40.3%
Target: sustainable cash dividends with a payout ratio of 40% to 55% from 2022 onwards.
For our financial targets, we define medium term as three to four years and long term as five to six years, commencing 1 January 2020.
Further explanation of performance against Group financial targets may be found on page 26.
ESG performance indicators and targets
Gender diversity
31.7%
Women in senior leadership roles.
(2020: 30.3%)
Sustainable finance and investment
$126.7 bn
Cumulative total provided and facilitated since January 2020.
(2020: $44.1 bn)
Net zero in our own operations
50.3%
Cumulative reduction in absolute greenhouse gas emissions from 2019 baseline.
Financed emissions targets by 2030
34%
Mt CO2e reduction in oil and gas absolute on-balance sheet financed emissions
0.14
Mt CO2e/TWh power and utilities on-balance sheet financed emissions intensity, representing 75% reduction from 2019
Customer satisfaction
6 out of 10
Wealth and Personal Banking markets that sustained top-three rank and/or improved in customer satisfaction.
4 out of 13
Commercial Banking markets that sustained top-three rank and/or improved in customer satisfaction.
Read more on how we set and define our environmental, social and governance metrics on page 17.
Read more on our financed emissions scope, methodology and terminology on page 47 and our definition of sustainable finance and investment on page 53.
HSBC Holdings plc
1
Highlights
Financial performance reflected improved global economic conditions, and we continued to make
progress against our four strategic pillars.
Financial performance (vs 2020)
•Reported profit after tax up $8.6bn to $14.7bn and reported profit before tax up $10.1bn to $18.9bn. The increase was
driven by a net release of expected credit losses and other credit impairment charges (‘ECL’) and a higher share of profit from
our associates. Adjusted profit before tax up 79% to $21.9bn.
•All regions were profitable in 2021, notably HSBC UK Bank plc, where reported profit before tax increased by $4.5bn to
$4.8bn. Our Asia operations contributed $12.2bn to reported profit before tax and all other regions reported a material recovery
in profitability, reflecting favourable ECL movements.
•Reported revenue down 2% to $49.6bn, primarily reflecting the impact of lower global interest rates and a decrease in
revenue in Markets and Securities Services (‘MSS’) compared with a strong comparative period. Notwithstanding these factors,
we saw revenue growth in areas of strategic focus, including Wealth, in part due to favourable market impacts in life insurance
manufacturing, and Global Trade and Receivables Finance (‘GTRF’). Adjusted revenue down 3% to $50.1bn.
•Net interest margin (‘NIM’) of 1.20%, down 12 basis points (‘bps’) from 2020, with stabilisation in the second half of 2021.
•Reported ECL were a net release of $0.9bn, compared with an $8.8bn charge in 2020, reflecting an improvement in
economic conditions relative to 2020, and better than expected levels of credit performance. In the fourth quarter of 2021, we
recognised a net ECL charge of $450m, which included an increase in allowances to reflect recent developments in China’s
commercial real estate sector.
•Reported operating expenses broadly unchanged at $34.6bn. Adjusted operating expenses down 1% to $32.1bn,
despite inflationary pressures, as the impact of our cost-saving initiatives and a reduction in the UK bank levy charge absorbed
higher performance-related pay and continued growth in technology investment.
•Customer lending balances in 2021 up $8bn on a reported basis and $23bn on a constant currency basis, primarily driven
by growth in mortgage balances, mainly in the UK and Hong Kong.
•Common equity tier 1 (‘CET1’) capital ratio of 15.8%, down 0.1 percentage points. Capital generation was more than offset
by dividends, the up to $2bn share buy-back announced in October, foreign exchange movements and other deductions. Risk-
weighted assets (‘RWAs’) reduced despite new Pillar 1 requirements for structural foreign exchange, reflecting actions under
our transformation programme.
•The Board has approved a second interim dividend of $0.18 per share, making a total for 2021 of $0.25 per share. We
also intend to initiate a further share buy-back of up to $1bn, to commence after the existing up to $2bn buy-back has
concluded.
Strategic progress
•In our wealth business in Asia, we attracted net new invested assets of $36bn in 2021. We also announced acquisitions in
Singapore and India to develop our wealth capabilities across the region.
•Our cost-reduction programme continues to progress with $2.2bn of cost savings recognised in 2021. Since the start of the
programme in 2020, we have delivered savings of $3.3bn, with costs to achieve of $3.6bn.
•In line with our climate change resolution, we published our thermal coal phase-out policy and have set on-balance sheet
financed emission targets for our oil and gas, and power and utilities sectors.
•In 2021, we continued to support our customers in the transition to net zero and a sustainable future. Since 1 January 2020,
we have provided and facilitated $126.7bn towards our ambition of $750bn to $1tn by 2030.
•We continued the transformation of our US business and HSBC Bank plc, our UK non-ring-fenced bank and Europe, reducing
costs and RWAs. Furthermore, we announced the exit of mass market retail in the US, and the planned sale of our retail
operations in France. During 2022, we expect to recognise a pre-tax loss, excluding transaction costs, of around $2.7bn upon
the classification of our France retail operations as ‘held for sale’.
Outlook
W e carry good business momentum into 2022 in most areas and expect mid-single-digit lending growth over the year. However, we
expect a weaker Wealth performance in Asia in the first quarter of 2022.
We expect ECL charges to normalise towards 30bps of average loans in 2022, based on current consensus economic forecasts and
default experience, noting we retain $0.6bn of Covid-19-related allowances as at the end of 2021. Uncertainty remains given recent
developments in China’s commercial real estate sector, while inflationary pressures persist in many of our markets.
We continue to target 2022 adjusted operating expenses in line with 2021, despite inflationary pressures, with cost to achieve
spend of $3.4bn expected to generate over $2bn of cost savings in 2022. In 2023, we intend to manage growth in adjusted
operating expenses to within a range of 0% to 2%, compared with 2022 (on an IFRS 4 basis), with cost savings of at least $0.5bn
from actions taken in 2022 helping to offset inflation.
We expect mid-single-digit RWA growth in 2022 through a combination of business growth, acquisitions and regulatory changes,
partly offset by additional RWA savings. This growth, together with capital returns are expected to normalise our CET1 position to be
within our 14% to 14.5% target operating range during 2022.
Our net interest income outlook is now significantly more positive. If policy rates were to follow the current implied market
consensus, we would expect to deliver a RoTE of at least 10% for 2023, one year ahead of our previous expectations.
We continue to target dividends within our 40% to 55% dividend payout ratio range.
2
HSBC Holdings plc
Key financial metrics
For the year ended
Reported results
2021
2020
2019
Reported revenue ($m)
49,552
50,429
56,098
Reported profit before tax ($m)
18,906
8,777
13,347
Reported profit after tax ($m)
14,693
6,099
8,708
Profit attributable to the ordinary shareholders of the parent company ($m)
12,607
3,898
5,969
Cost efficiency ratio (%)
69.9
68.3
75.5
Net interest margin (%)
1.20
1.32
1.58
Basic earnings per share ($)
0.62
0.19
0.30
Diluted earnings per share ($)
0.62
0.19
0.30
Dividend per ordinary share (in respect of the period) ($)
0.25
0.15
0.30
Dividend payout ratio (%)1
40.3
78.9
100.0
Alternative performance measures <>
Adjusted revenue ($m)
50,090
51,770
56,435
Adjusted profit before tax ($m)
21,916
12,271
22,681
Adjusted cost efficiency ratio (%)
64.2
62.6
59.5
Expected credit losses and other credit impairment charges (‘ECL’) as % of
average gross loans and advances to customers (%)
(0.09)
0.87
0.26
Return on average ordinary shareholders’ equity (%)
7.1
2.3
3.6
Return on average tangible equity (%)2
8.3
3.1
8.4
At 31 December
Balance sheet
2021
2020
2019
Total assets ($m)
2,957,939
2,984,164
2,715,152
Net loans and advances to customers ($m)
1,045,814
1,037,987
1,036,743
Customer accounts ($m)
1,710,574
1,642,780
1,439,115
Average interest-earning assets ($m)
2,209,513
2,092,900
1,922,822
Loans and advances to customers as % of customer accounts (%)
61.1
63.2
72.0
Total shareholders’ equity ($m)
198,250
196,443
183,955
Tangible ordinary shareholders’ equity ($m)
158,193
156,423
144,144
Net asset value per ordinary share at period end ($)
8.76
8.62
8.00
Tangible net asset value per ordinary share at period end ($)
7.88
7.75
7.13
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)3
15.8
15.9
14.7
Risk-weighted assets ($m)3
838,263
857,520
843,395
Total capital ratio (%)3
21.2
21.5
20.4
Leverage ratio (%)3
5.2
5.5
5.3
High-quality liquid assets (liquidity value) ($bn)
717
678
601
Liquidity coverage ratio (%)
138
139
150
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)
20,073
20,184
20,206
Period end basic number of $0.50 ordinary shares outstanding and dilutive
potential ordinary shares (millions)
20,189
20,272
20,280
Average basic number of $0.50 ordinary shares outstanding (millions)
20,197
20,169
20,158
For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 98. Definitions and calculations of other
alternative performance measures are included in our ‘Reconciliation of alternative performance measures’ on page 117.
1 Dividend per ordinary share, in respect of the period, expressed as a percentage of basic earning per share.
2 Profit attributable to ordinary shareholders, excluding impairment of goodwill and other intangible assets and changes in present value of in-force insurance contracts
(‘PVIF’) (net of tax), divided by average ordinary shareholders’ equity excluding goodwill, PVIF and other intangible assets (net of deferred tax).
3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the
time. These include the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’, which are explained further on page 195. Leverage ratios are calculated
using the end point definition of capital and the IFRS 9 regulatory transitional arrangements. References to EU regulations and directives (including technical standards)
should, as applicable, be read as references to the UK’s version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act
2018, and as may be subsequently amended under UK law.
HSBC Holdings plc
3
Who we are
About HSBC
With assets of $3.0 tn and operations in 64 countries and territories at 31 December 2021, HSBC is one of the largest banking and financial services
organisations in the world. Approximately 40 million customers bank with us and we employ around 220,000 full-time equivalent staff. We have
around 187,000 shareholders in 128 countries and territories.
Our values
Our values help define who we are as an organisation, and are key to our long-term success.
We value difference
Seeking out different perspectives
We succeed together
Collaborating across boundaries
We take responsibility
Holding ourselves accountable and taking the long view
We get it done
Moving at pace and making things happen
> For further details on our strategy and purpose, see pages 12 and 15.
Our global businesses
We serve our customers through three global businesses. On pages 30 to 36 we provide an overview of our performance in 2021 for each of our
global businesses, as well as our Corporate Centre. In each of our global businesses, we focus on delivering growth in areas where we have
distinctive capabilities and have significant opportunities.
Each of the chief executive officers of our global businesses reports to our Group Chief Executive, who in turn reports to the Board of HSBC
Holdings plc.
> For further information on how we are governed, see our corporate governance report on page 217.
Wealth and Personal Banking (’WPB’)
We help millions of our customers look after their day-to-day finances and manage, protect and grow their wealth.
Commercial Banking (‘CMB’)
Our global reach and expertise help domestic and international businesses around the world unlock their potential.
Global Banking and Markets (’GBM’)
We provide a comprehensive range of financial services and products to corporates, governments and institutions.
1 Calculation is based on adjusted revenue of our global businesses excluding Corporate Centre, which is also excluded from the total adjusted revenue number.
Corporate Centre had negative adjusted revenue of $437m in 2021.
Our global functions
Our business is supported by a number of corporate functions and our Digital Business Services teams. The global functions include Corporate
Governance and Secretariat, Communications and Brand, Finance, Human Resources, Internal Audit, Legal, Risk and Compliance, Sustainability and
Strategy. Digital Business Services provides real estate, procurement, technology and operational services to the business.
4
HSBC Holdings plc
Our global reach
We aim to create long-term value for our shareholders and capture opportunity. One of our goals is to lead in wealth, with a particular focus on Asia
and the Middle East. Taking advantage of our international network, we aspire to lead in cross-border banking flows, and to serve mid-market
corporates globally. We continue to maintain a strong capital, funding and liquidity position with a diversified business model.
Value of customer accounts by geography
North America 10%
Latin America 2%
Rest of Europe 8%
UK 31%
Middle East and North Africa 2%
Rest of Asia 11%
Hong Kong 33%
Mainland China 3%
See page 97 for further information on our customers and approach to geographical information.
Engaging with our stakeholders
Customers
Employees
Investors
Communities
Regulators and governments
Suppliers
Building strong relationships with our stakeholders helps enable us to deliver our strategy in line with our long-term values, and operate the business
in a sustainable way. Our stakeholders are the people who work for us, bank with us, own us, regulate us, and live in the societies we serve and the
planet we all inhabit. These human connections are complex and overlap. Many of our employees are customers and shareholders, while our
business customers are often suppliers. We aim to serve, creating value for our customers and shareholders. Our size and global reach mean our
actions can have a significant impact. We are committed to doing business responsibly, and thinking for the long term. This is key to delivering our
strategy.
> Our section 172 statement, detailing our Directors’ responsibility to stakeholders, can be found on page 21.
Multi-award winning
We have won industry awards around the world for a variety of reasons – ranging from the quality of the service we provide to customers, to our
efforts to support diversity and inclusion in the workplace.
Euromoney Awards for Excellence 2021
Best Bank for Sustainable Finance in Asia
Best Bank for Sustainable Finance in the Middle East
Best Bank for Transaction Services in Asia
Best Bank for Transaction Services in the Middle East
Western Europe’s Best Bank for SMEs
Euromoney Trade Finance Survey 2021
Number 1 Trade Finance Bank in the UK
The Banker, Transaction Banking Awards 2021
Transaction Bank of the Year for Asia-Pacific
Transaction Bank of the Year for Middle East
Asiamoney Global RMB Poll 2021
Best overall bank for global, onshore and offshore RMB products and services
Asian Private Banker Awards for Distinction 2021
Best Private Bank – Asia Pacific
Best Private Bank – Wealth Continuum
Payments Awards 2021
B2B Payments Innovation of the Year
HSBC Holdings plc
5
Group Chairman’s statement
The progress we made in 2021 means that HSBC is well placed to open up a world of opportunity
for our customers as economic recovery continues.
2021 was another challenging year. While Covid-19 vaccines were rolled out globally, some countries dealt with very significant outbreaks
and many more operated under various restrictions at different points. As in 2020, this took a huge toll on our customers, our people, the
communities we serve and our shareholders.
My colleagues once again demonstrated their resilience, their professionalism and, above all, their exceptional commitment to serving our
customers. Our purpose as an organisation is to open up a world of opportunity. Our people have brought this to life in the way they have supported
our customers and each other. On behalf of the Board, I would like to thank them warmly for everything they have done, and continue to do.
ESG was another major theme of 2021. The pandemic has exposed the fragility of the planet and society as a whole. It has also created a catalyst for
change and highlighted the associated commercial opportunities. Businesses, governments, regulators and investors all continued along their ESG
journeys in 2021, as public awareness grew and activism around climate change in particular increased. HSBC has long understood that good ESG
performance goes hand-in-hand with good financial performance, and it is now abundantly clear that the action businesses take on sustainability is an
important lens through which they are being viewed and assessed by their stakeholders.
Progress
HSBC delivered a good financial performance in 2021. Reported profit before tax was $18.9bn, an increase of $10.1bn as compared with 2020, while
adjusted profit before tax was $21.9bn, up 79%. All of our regions were profitable in 2021, supported by the global economic recovery,
demonstrating the value of our global network. There was also good growth in focus areas such as Asia wealth and trade. In line with the dividend
policy announced in February 2021, the Board approved a second interim dividend for 2021 of $0.18, meaning the full year dividends for 2021 are
$0.25.
Good progress has been made in executing our strategic plan. A number of key milestones were reached in 2021 – including resolving the future of
our retail businesses in France and the US, the organic build-out of HSBC Personal Wealth Planning in mainland China, and acquisitions in Singapore
and India to accelerate the development of our wealth capabilities across Asia. At the same time, our work to digitise HSBC and to play a leading role
in the net zero transition has continued at pace. There is more to do – and it will be important to see successive consecutive quarters of growth – but
good momentum exists across our businesses.
Board of Directors
Due to ongoing travel restrictions and safety concerns, the Board has not been able to meet in person for two years. We look forward to
reconnecting with each other and welcoming those Board members we are yet to meet in person. At the same time, we have come to appreciate
the benefits of this new way of working – which include more regular dialogue, less travel and reduced costs – and we will therefore use a hybrid
model going forward.
6
HSBC Holdings plc
“HSBC has long understood that good
ESG performance goes hand-in-hand with
good financial performance.”
We were pleased to hold our first hybrid AGM in May 2021, which the majority of shareholders attended virtually. It is a matter of deep regret to me,
and to the Board as a whole, that we have been unable to meet our loyal Hong Kong shareholders face-to-face. We look forward to doing so again as
soon as it is practicable and safe. In the meantime, a hybrid meeting does at least allow for constructive engagement and discussions with
shareholders, which we continue to value highly.
At the 2021 AGM, Laura Cha, Henri de Castries and Heidi Miller all retired from the Board. We also recently announced that Irene Lee and Pauline
van der Meer Mohr will step down from the Board at the conclusion of our 2022 AGM in April. I am enormously grateful to them all for their
important and valuable contributions to the Board, the committees and the subsidiary entities on which they have served. We welcomed Dame
Carolyn Fairbairn and Rachel Duan to the Board on 1 September. Both Carolyn and Rachel bring a wealth of skills and expertise that will be of great
value to the Board’s discussions.
External environment
The roll-out of vaccines around the world and a robust global economic recovery mean we entered 2022 in a better state than we might have
expected a year ago. There are clearly still significant challenges ahead, foremost among which is the uncertainty caused by the spread of the
Omicron variant, and potentially other variants in the future. Supply chain bottlenecks, high energy and food prices, surging consumer demand and
higher wages have combined to drive up inflation. Central banks have already begun to respond by tightening monetary policy and this is likely to
continue in 2022.
Global economic growth forecasts are fairly resilient – our own forecast is 4.1% global GDP growth in 2022. However, there remains a great deal of
uncertainty given the wide range of responses from governments to the different challenges they face.
After China’s strong recovery, growth slowed in the second half of 2021. As a result, we expect China’s government to take action to ease monetary
and fiscal policies, with the aim of shoring up growth. Meanwhile, India’s economy is set to grow rapidly, but growth is expected to be slower in the
UK and the US.
Global trade performed well in 2021, with volumes rising above pre-pandemic levels despite ongoing supply chain disruptions. Looking forward, trade
growth could be further boosted by the lifting of restrictions on movement that remain in place in some countries. There are also signs that supply
chain bottlenecks will ease as the year goes on, although when and how remains uncertain. The Regional Comprehensive Economic Partnership is
expected to reinforce Asia’s central role in global trade. Along with the bilateral trade deals being struck by some countries, it also shows that trade
liberalisation continues to advance in some parts of the world.
Although there is currently no long-term agreement between the UK and the EU on access to financial services, we have worked for a number of
years to ensure we will be able to maintain a full service for our clients under all potential scenarios. Ideally, the temporary arrangements on access
to financial services will be retained so as to minimise disruption and enable the UK financial services industry to continue to offer the many benefits
it brings to the UK and EU economies. However, we are well prepared for a broad range of outcomes.
As a global bank operating in more than 60 countries and territories, with a history stretching back more than 156 years, we always have experienced
– and always will experience – geopolitical tensions. However, we remain alive to the potential impact that geopolitics can have on our business, as
well as on our clients. The relationship between the US and China remains a prominent feature of the external environment, but we do not currently
expect it to change significantly in the near future. We also expect the mutual economic benefits brought by the UK-China relationship to outweigh
any short-term pressures. We continue to engage with all governments and remain focused on serving the needs of our customers in both East and
West, and the many points in between.
Stakeholder engagement
Our purpose of opening up a world of opportunity is equally applicable to our different stakeholders. For our people, it can mean helping them to
develop new skills and advance in their careers, as well as being diverse and inclusive. For our shareholders, it can mean creating sustainable returns
and value. For our suppliers, it can mean supporting them to grow their businesses and strengthen their own supply chains. And for the communities
we serve, it can mean being a responsible citizen and leading the net zero transition.
Stakeholder engagement has been a priority for the Board in 2021. For example, the Board oversaw HSBC’s continuing work in support of our
ambition to align our financed emissions to net zero by 2050 or sooner. This included engaging shareholders and leading NGOs ahead of the 2021
AGM, when our special resolution on the next steps in relation to our climate ambition was overwhelmingly approved. We also reviewed and
approved a new thermal coal phase-out policy, which we announced in December 2021 and is designed to allow HSBC to help facilitate the transition
to net zero in both developed and developing markets.
Thank you
Finally, I would like to reiterate how grateful I am to all my colleagues for the great dedication and care they have shown to our customers and to
each other over the past year. Their tremendous efforts have, above everything else, made us what we are today – and will shape what we become
tomorrow.
Mark E Tucker
Group Chairman
22 February 2022
HSBC Holdings plc
7
Group Chief Executive’s review
We are making good progress transforming and growing HSBC, which is helping us to open up a
world of opportunity for our customers, our colleagues and our shareholders.
A year ago, we refreshed our core purpose as an organisation. ‘Opening up a world of opportunity’ was the outcome of extensive
consultation with colleagues and customers around the globe. I have been delighted by the way it has been embraced across HSBC – and
in the many conversations I have had with colleagues, I have been greatly encouraged by how they see their roles contributing towards it.
Opening up a world of opportunity draws heavily on HSBC’s past, but it also encapsulates what we need to focus on to succeed now and in the
future. Opportunities have always come in many shapes and forms, some of which have required us to change and evolve to make the most of
them. We need to keep challenging ourselves to find and capture these opportunities. This is how we will help our customers to grow and succeed
over the long term.
As we do so, we will be guided by the values underpinning our purpose – we value difference, we succeed together, we take responsibility and we
get it done. These are the behaviours that will help us to identify and unlock new opportunities – and together they represent the kind of organisation
we want HSBC to be.
With our purpose and values firmly in mind, we made good progress in 2021 against all four of our strategic pillars: focus on our strengths, digitise at
scale, energise for growth and transition to net zero. Delivering against them contributed to a strong financial performance, which was supported by
the global economic recovery. All of our regions were profitable and we have built a strong platform for future growth.
For some of our customers, the first priority has remained navigating the ongoing impact of Covid-19, particularly in markets that suffered severe
outbreaks or faced restrictions during the course of 2021. To this end, I must again offer my deep thanks to my colleagues, who have exemplified
our values in supporting our customers and each other, all the while continuing to deal with the pandemic themselves.
As economies recovered and opened up, we have helped more and more of our customers to look beyond the immediate horizon and towards the
opportunities we can open up for them. In 2021, we helped almost 269,000 personal customers to buy their first homes. We lent $47bn to help our
business banking customers to run, grow and digitise their businesses. We launched new products and services that make it easier for our
customers to bank with us, and allow us to focus our efforts on serving them. We facilitated $799bn of trade, which has helped businesses and
economies around the world to recover and grow again.
As our people also began to look to the future, we created opportunities for them too. We helped more than 30,000 colleagues move into new roles
in 2021, and over 115,000 colleagues to develop future-ready skills through our learning programmes. An increasing number of these programmes
focused on building skills and capabilities in areas like data and sustainability, which are essential to our future.
8
HSBC Holdings plc
“The opportunities of the future will be
defined by the single greatest challenge
of our time – the need for everyone to
make the low-carbon transition.“
More than anything else, the opportunities of the future will be defined by the single greatest challenge of our time – the need for everyone to make
the low-carbon transition. To seize them, we must change, adapt, invest and innovate. Since 2019, we have reduced greenhouse gas emissions
across our operations by more than half. We also provided and facilitated $82.6bn of sustainable finance and investment – bringing the cumulative
total since 1 January 2020 to $126.7bn, towards our ambition of $750bn to $1tn by 2030. Furthermore, we have collaborated with other banks and
financial institutions to help accelerate the transition through initiatives including the Net-Zero Banking Alliance, the Glasgow Financial Alliance for Net
Zero and the Sustainable Markets Initiative’s Financial Services Taskforce.
Financial performance
The global economic recovery supported our 2021 financial performance, as the release of expected credit losses resulted in an improvement in the
profitability of the Group and all global businesses. Our interest-rate sensitive business lines continued to be adversely impacted by low interest
rates, but our net interest margin remained broadly stable during 2021 and the outlook is now significantly more positive. After absorbing the impact
of low interest rates for some time, we believe we have turned the corner on revenue. We have also seen good fee income growth, good growth in
mortgage balances and our lending pipelines across both retail and wholesale remain strong. Our insurance business also continues to perform well,
notably in Asia where we have seen strong growth in value of new business, despite the border between Hong Kong and mainland China remaining
closed.
As a consequence, the Group delivered $18.9bn of reported profit before tax, up $10.1bn on the prior year, and $21.9bn of adjusted profits, up 79%.
We were profitable in every region, with Asia leading the way and material increases in profits in the UK, continental Europe, the US and the Middle
East.
Adjusted revenue was down 3%, due mainly to the impact of interest rate cuts. However, trade balances grew by 23% overall, while loans and
advances increased by $23bn for the year.
Our cost reduction programmes were able to absorb increased technology investment and higher performance-related pay, with adjusted operating
expenses down by 1%. Return on tangible equity was 8.3%. If rates follow the path currently implied by the market, we would expect to reach a
return on tangible equity of at least 10% for 2023, one year ahead of our previous expectations.
In the fourth quarter of 2021, we took a charge on expected credit losses, due to changing market conditions in the mainland China commercial real
estate sector. Since the year end, there has been some positive sentiment as a consequence of new policy actions. They will take time to impact the
market and we will continue to support our clients, with whom we have good and long-standing relationships.
Our funding, liquidity and capital all remain strong. We grew deposits by $90bn on a constant currency basis, with growth in all three global
businesses. Our common equity tier 1 ratio was 15.8%. As a consequence, we are able to announce a second interim dividend of $0.18, bringing the
full-year dividends for 2021 to $0.25 per ordinary share. This is within our target payout ratio, and our aim is for a sustainable dividend in 2022.
HSBC Holdings plc
9
Strategic progress
In 2021, we made good progress against our strategic pillars.
We brought in
$36.2bn
of net new invested assets in Asia Wealth.
We provided and facilitated
$82.6bn
of sustainable finance and investment.
Our strong capital position and confidence in the business enabled us to announce a share buy-back of up to $2bn in October 2021. We also intend
to initiate a further share buy-back of up to $1bn, to commence after the existing buy-back of up to $2bn has concluded.
We are also helping to create sustainable returns for shareholders by driving underlying growth across the business. We have much more to do, but I
am encouraged by what we have achieved so far.
Focus on our strengths
We have made good progress restructuring our portfolio of businesses, with the aim of investing in those areas in which we are strongest and
withdrawing from those areas in which we lack the necessary scale to compete.
Over the last two years, we reduced gross risk-weighted assets by a cumulative $104bn, against our original three-year target of $110bn. Given this
progress, we now expect to exceed this target by the end of 2022. In Global Banking and Markets, adjusted risk-weighted assets were 10% lower in
2021, as we moved capital and resources mainly into Asia and the Middle East. The extensive work undertaken to transform this business since
2019 was also designed to mitigate the impact of Basel III reforms.
We reached two key milestones for our transformation as we took steps to resolve the future of our businesses in the US and continental Europe. In
the US, we entered into an agreement to sell our mass market retail business, which has now been completed on schedule. We also entered into an
agreement to sell our retail banking activities in France, which we expect to complete in 2023. Both deals will help our US and continental Europe
businesses to become more focused, better aligned to the Group and the international needs of our wholesale and wealth management customers.
In Asia, we continued to enhance our wealth proposition, including through the launch of HSBC Greater Bay Area Connect and more than 30 new
asset management products across the region. In December, we received regulatory approval to acquire the remaining 50% stake in HSBC Life
China, our joint venture insurance company in mainland China. All of this is enabling us to significantly expand our capabilities to serve the growing
wealth and insurance needs of our customers in China, particularly in the Greater Bay Area.
We accelerated the development of our wealth capabilities across the rest of Asia by several years through two acquisitions. We entered into an
agreement to buy AXA Singapore, which was completed earlier this month and will expand our insurance and wealth franchise in our ASEAN regional
hub. We also agreed to buy L&T Investment Management to strengthen our asset management business in India. Both deals represent significant
steps towards our ambition of being a leading wealth manager in Asia.
The overall investment we have made in Asia wealth was evidenced by strong customer acquisition, and significantly increased assets and balances,
year-on-year. Net new invested assets in Asia wealth were $36.2bn, which was more than double the previous year.
In Commercial Banking, we grew our lending by $11bn and our international account opening increased by 13% in 2021, while trade balances grew
by 30% and are now above pre-pandemic levels.
Digitise at scale
We invested $6bn in technology in 2021, as we continued to drive change in the way we approach technology across the organisation and ultimately
improve the customer experience.
Around 97% of transactions are now fully automated. For example, automated credit and lending systems processed around $15bn of personal loans
in 2021. Our use of the Cloud increased to cover 27% of technology services, giving us more processing power and speed, while we also increased
our use of Agile across technology roles.
Almost half of our retail customers are now active on mobile, and we have developed new products and improved existing ones so we can better
meet their needs. Our revamped mobile app is now available across 24 markets and Global Money was extended to more markets, allowing more of
our international retail customers to hold, manage and send funds in various currencies. Corporate customers carried out over 9 million payments
through the HSBCnet app – an increase of 58% year-on-year. HSBC Kinetic – our award-winning mobile banking app for business customers in the
UK – has acquired more than 24,000 customers since it was launched.
Energise for growth
We have taken further steps to create a dynamic and inclusive culture, which helps us to attract and retain the best people.
After listening to our people, we introduced a hybrid working model, wherever appropriate, which allows us to strike the right balance between
office-based work and home-based work. We have also taken the opportunity during Covid-19 to reconfigure much of our head office workspace to
better facilitate team-based Agile working methods. We are still learning about what works, but we believe that trusting our colleagues to find the
right balance is integral to building the culture we aspire to at HSBC. As a consequence of hybrid working, we will need less office space. In 2021,
we reduced our global office footprint by more than 3.4 million square feet – equivalent to 18%.
We were pleased to exceed our target for 30% women in leadership roles globally in 2020, and we set a new target of 35% by 2025. HSBC was
named in the Bloomberg Gender-Equality Index last month, with our overall score increasing by 21 percentage points in 2021 and outperforming the
financial services average by 15 percentage points. We also continued to work to improve ethnicity representation, especially for Black colleagues.
However, we still have a way to go to get to where we want, and need, to be on both measures.
10
HSBC Holdings plc
”We were profitable in every region, with
Asia leading the way and material
increases in profits in the UK, continental
Europe, the US and the Middle East.”
In our most recent colleague survey, our employee engagement index was 72%, which is unchanged on 2020 and 4 percentage points above the
average for the financial services sector.
Transition to net zero
The industrial landscape of the world is being transformed by the transition to net zero. I am determined that HSBC will play a leading role in driving
this change.
At the 2021 AGM, 99.7% of shareholders backed our special resolution on climate change, providing a strong endorsement of our climate plan and
our commitment to support our customers on their transitions to a low-carbon future. However, we do not take this support for granted, and we
have taken a number of further steps to maintain our leadership role.
In September, we partnered with Temasek, subject to regulatory approval, to launch a new debt financing fund for sustainable infrastructure in south-
east Asia, with $150m of seed capital and the ambition to deploy $1bn of financing over five years. At the COP26 meeting in Glasgow, HSBC was
one of over 100 public and private organisations behind the launch of FAST-Infra, a labelling system that aims to increase investor confidence in the
sustainability credentials of projects in emerging markets. We are also supporting the Energy Transition Mechanism, a public-private partnership led
by the Asian Development Bank that aims for the materially earlier retirement of coal assets without hindering growth. HSBC was presented with the
Terra Carta seal by HRH the Prince of Wales in recognition of the work that we are doing to create truly sustainable markets.
After also joining the Powering Past Coal Alliance, we published a new thermal coal policy to phase out the financing of coal-fired power and thermal
coal mining in EU and OECD markets by 2030, and globally by 2040. This fulfilled the commitment approved by our shareholders and followed a
period of extensive engagement with our stakeholders. It has two clear objectives: to drive thermal coal phase-out within the timeframe required to
reach net zero by 2050; and to help enable the energy transition in developing economies.
We are committed to working with our clients to develop valid, science-based transition plans to understand – sector-by-sector and client-by-client –
how we will move to net zero by 2050. These transition plans and the targets within them must be predicated on the science relevant to the
individual sectors. We will use them as a basis for further engagement and decision making, including how we drive change within our portfolios. As
part of this process, we have disclosed interim targets for on-balance sheet financed emissions in the oil and gas, and power and utilities sectors. In
the year ahead, we plan to set interim targets for financed emissions across a range of other sectors. We will also work on our climate transition
plan, which will be published in 2023 and will bring together in one place how we will embed our net zero targets into our strategy, processes,
policies and governance.
2022
We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy. We also remain cognisant of
the potential impact that further Covid-19-related uncertainty and continued inflation might have on us and our clients.
Throughout HSBC’s history, our people have always demonstrated great professionalism and commitment to those we serve, and that is as evident
today as it has ever been. Despite the personal and professional challenges they continue to face after two years of living with the pandemic, I am
proud of my colleagues, and the sense of duty and care they continue to show towards our customers and each other. Our success – now and in the
future – is testament to them and all they continue to do for our bank.
Noel Quinn
Group Chief Executive
22 February 2022
HSBC Holdings plc
11
Our strategy
We are implementing our strategy across the four strategic pillars aligned to our purpose, values
and ambition announced in February 2021.
Progress on our commitments in 2021
In 2021, we made good progress on our strategy across all of our global businesses.
In Wealth and Personal Banking, we had strong wealth revenue momentum and augmented our fee generating portfolios with acquisitions in asset
management and insurance to build further scale. In Commercial Banking, we saw strong growth in fee income, and momentum in trade volumes. In
Global Banking and Markets, we had strong countercyclical revenue even as we exceeded our expectations on RWA rundowns and client exits. To
support our global businesses, we also continued to invest in technology, develop our talent and culture, and play a role in the transition to a global
net zero economy.
Our efforts to date are paving the way for us to accelerate execution of the growth opportunities across our businesses and international network
and, in turn, to help meet our targets and ambitions.
Shifting capital to areas with the highest returns and growth
In line with our strategy, we set out aspirations in February 2021 to accelerate the shift of capital and resources to areas that have demonstrated the
highest returns and where we are strongest, principally in Asia, with a pivot to fee income generating businesses such as wealth. We saw strong
progress across all parameters in 2021. While the proportion of fee and insurance income increased relative to 2020, reflecting fee and insurance
revenue growth, this metric was also favourably impacted by lower net interest income due to 2020 interest rate reductions, as well as favourable
market impacts in life insurance manufacturing.
Capital allocation and revenue concentration
Asia
(as a % of Group tangible equity)1
Wealth and Personal Banking
(as a % of Group tangible equity)2
Adjusted fees and insurance revenue
(as a % of total adjusted revenue)
1 Based on tangible equity of the Group’s major legal entities excluding associates, holding companies, and consolidation adjustments.
2 WPB tangible equity as a share of tangible equity allocated to the global businesses (excluding Corporate Centre). Excludes holding companies, and consolidation
adjustments.
Progress against Group targets
Adjusted operating expenses in 2021<>
$32.1bn
Updated target: 2022 adjusted operating expenses in line with 2021. Previous target: ≤$31bn in 2022 (at December 2020 foreign exchange rates).
Gross RWA reduction 1
$104 bn
Since the start of the programme. Updated target: >$110bn by end of 2022.
CET1 ratio in 2021
15.8%
Target: >14%, managing in the range of 14% to 14.5% in the medium term; and manage range down further long term.
Dividend payout ratio 2
40.3%
Target: sustainable cash dividends with a payout ratio of 40% to 55% from 2022 onwards.
RoTE 3 in 2021 <>
8.3%
Target: ≥10% over the medium term.
For our financial targets, we define medium term as three to four years and long term as five to six years, commencing 1 January 2020. Further explanation of
performance against Group financial targets may be found on page 26.
1 Given progress to date, we now expect to exceed our $110bn reduction target by the end of 2022.
2 In line with our dividend policy, we retain the flexibility to adjust earnings per ordinary share (‘EPS’) for non-cash significant items. In 2022, we intend to adjust EPS to
exclude the forecast loss on the sale of our retail banking operations in France.
3 If policy rates were to follow the current implied market consensus, we would expect to deliver a return on average tangible equity (‘RoTE’) of at least 10% for 2023.
12
HSBC Holdings plc
Our strategy
Our strategy centres around four key areas: focus on our areas of strengths, digitise at scale to adapt our operating model for the future, energise our
organisation for growth, and support the transition to a net zero global economy.
Focus on our strengths
In our global businesses
In each of our global businesses, we continue to focus on areas where we are strongest and have opportunities to grow.
Wealth and Personal Banking
In Wealth and Personal Banking, we have continued to make progress in the execution of our wealth, asset management and insurance strategy,
notably in Asia. We grew our net new invested assets from $53bn in 2020 to $64bn, with $36bn coming from Asia, where we saw an increase of
138%. This contributed to a 5% increase in Wealth and Personal Banking wealth balances to $1.67tn, including 5% growth in Asset Management’s
funds under management to $630bn. In Asia, Wealth and Personal Banking wealth revenue – which comprises wealth, insurance, private banking,
and asset management – grew by 10% to $5.8bn. This included a 40% growth in value of new business in insurance to $917m. We continued to
enhance our wealth product offerings in the region, including launching Greater Bay Area Wealth Management Connect, and over 30 new asset
management products. Globally, Wealth and Personal Banking customer lending balances were $489bn, an increase of 6% compared with 2020,
notably reflecting mortgage balance growth across all regions, but particularly in the UK and Hong Kong.
$64bn
Net new invested assets in 2021.
Commercial Banking
Our Commercial Banking business continued to grow our lending pipeline and maintain leadership in supporting cross-border trade. Customer lending
volume increased 3% to $349bn in 2021, mainly from continued growth in trade and term lending. The recovery in global trade volumes was also
reflected in higher fee income in Global Trade and Receivables Finance, where we saw a 9% revenue growth compared with 2020. Over the same
period, fee income in the overall Commercial Banking business also grew 9%, reaching approximately $3.6bn and surpassing pre-pandemic levels in
2019. We also committed to investing in global platforms and improving SME propositions in our key markets. Since the launch of our digital
business banking account Kinetic in the UK in August 2020, we have reached approximately 24,000 customers at the end of 2021.
$3.6bn
Fee income in 2021.
Global Banking and Markets
We repositioned our capital and resources in Global Banking and Markets to create capacity for growth opportunities, mainly into Asia and the Middle
East, and to serve international clients that are aligned to our strategy. As part of our transformation programme, we reduced adjusted RWAs by
approximately 10% to $236bn at 31 December 2021, driven by saves in our Western franchise, comprising our Europe and Americas businesses.
Despite the focus on repositioning, the business performed well in 2021, with overall revenue reaching approximately $15 bn, driven by strong
performances in Equities, Capital Markets and Advisory and Securities Services. Collaboration with other businesses through cross-selling products
remains important for us. In 2021, the business facilitated $2.5bn into Commercial Banking, an increase of 12% compared with 2020, and $1.4bn
into Wealth and Personal Banking, an increase of 2%.
18%
Adjusted RWA reduction in the West in 2021.
Repositioning for higher growth
We are repositioning our portfolio to support our areas of growth.
Restructuring the US and Europe
We aim to create capacity for growth by refocusing our US business and HSBC Bank plc, our non-ring-fenced bank in Europe and the UK. In May and
June respectively, we announced the exit of mass market retail in the US, and the planned sale of our retail operations in France. Our plan to exit our
US mass market retail banking business was completed in February 2022, which includes approximately $8.8bn of deposits held for sale and exiting
and winding down approximately 125 branches, leaving us with approximately 25 international wealth centres. The planned sale of our France retail
business includes a network (using values at 31 December 2021) of 244 retail branches, approximately 800,000 customers, $24.9bn in customer
loans and $22.6bn in deposits balances.
We also made strong progress in 2021 on reducing the capital and cost base in the two franchises. During the year, adjusted RWAs decreased $7bn
in the US to $78bn at 31 December 2021, while in HSBC Bank plc, they decreased by $22bn to $141bn. The respective balances at 31 December
2021 included approximately $1.3bn relating to the announced US mass market retail disposal and approximately $7bn relating to the planned
disposal of our France retail business. We also lowered the adjusted cost base in these franchises by 5% compared with 2020 to $10.4bn, in spite of
strong inflationary pressures in these markets.
Repositioning Asia for growth
We announced three key acquisitions in 2021 to further strengthen our wealth franchise in Asia. In August, we entered an agreement to acquire AXA
Singapore for $529m, with the intention to merge the business with the operations of our existing HSBC Life Singapore franchise. The acquisition
was recently completed on 11 February 2022. The combined business would be the seventh largest life insurer in Singapore, based on annualised
new premiums, and the fourth largest retail health insurer, based on gross premiums, with over 600,000 policies in-force, data as of end of 2020. In
December, we announced the agreement to fully acquire L&T Investment Management, the 12th largest mutual fund management company in India
with assets under management of $10.8bn and over 2.4 million portfolios as of September 2021. We also received regulatory approval to acquire the
remaining 50% stake in HSBC Life China, bringing our shareholder ownership to 100% upon completion.
HSBC Holdings plc
13
Digitise at scale
We continue to invest in our technology and operational capabilities to drive operating productivity across businesses and geographies and to offer
better client experience. In 2021, approximately $6.0bn, or 19%, of our overall adjusted operating expenses were dedicated to technology (net of
saves from our transformation programme), up from approximately $5.7bn in 2020. We aspire to progressively increase the share to greater than
21% by 2025.
We have made progress on automating our organisation at scale. Our Cloud adoption rate, which is the percentage of our technology services on the
private or public Cloud, increased from approximately 20% in 2020 to 27% in 2021. We are also promoting an agile workforce to help equip our
colleagues for the future of work. At the end of 2021, 15% of our total technology workforce in the global businesses and functions were aligned to
at least one agile team per agile blueprint. This marks a significant improvement from 5% in 2020.
Our digital engagement with customers also improved. At the end of 2021, 43% of our customers active on our mobile services had logged onto a
HSBC mobile app at least once in the last 30 days, compared with 38% in 2020. Our wholesale clients executed over 9 million payments on
HSBCnet’s mobile banking app, a 58% increase compared with 2020. During the same period, the percentage of Commercial Banking transactions
enabled digitally for HSBCnet grew from 83% to 94% in the 18 Asian markets where HSBCnet is available for wholesale clients. Across all our trade
digital channels, 84% of transactions in 2021 were initiated digitally by our customers, compared with 69% of transactions in 2020. Seeing these
improvements, we endeavour to continue investing in technology that helps enhance our customers’ digital experiences.
Technology spend as % of total adjusted operating expenses
Energise for growth
In February 2021, we set out the case for a more effective, agile and empowered organisation that could execute on our ambitious journey.
In 2021, our employee engagement score, a gauge of an employee’s propensity to recommend HSBC as a great place to work, was in line with 2020
at 72%, but notably up from 67% in 2019. This represents a strong endorsement of various initiatives around our purpose and values in our
organisation.
Recruiting the right talent and diversifying our workforce remain important to us. We had 31.7% of senior leadership roles held by women, which are
roles classified as those at band 3 and above in our global career band structure. We are on track to meet our ambition of having more than 35%
representation of women in these roles by 2025.
We continue to energise our colleagues through initiatives that help develop their future skills and learning opportunities, especially in areas including
data, digital and sustainability. In 2021, the average hours of training per full-time equivalent staff (‘FTE’) increased to 26.7 hours from 23.0 hours in
2020.
We outline how we put our purpose and values into practice in the following 'How we do business' section. For further details on how we plan to energise for growth,
see the Social section in the ESG review on page 66.
Transition to net zero
In November, we participated in COP26 to play our part in bringing together the public and private sector to mobilise this transition. We also made
good progress on our ambitions, including setting targets for our on-balance sheet financed emissions and launching innovative climate solutions and
products to support our customers in their transition to a net zero future.
Becoming a net zero bank
We have set a climate ambition to become net zero in our operations and supply chain by 2030, and align our financed emissions to the Paris
Agreement goal of net zero by 2050. In 2021, we reduced our organisation’s absolute greenhouse gas emissions in our operations to 341,000
tonnes, a decrease of 50.3% from the 2019 baseline (the data for 2019 and 2020 has been revised as we have updated our air travel reporting
methodology to include the cabin class travel and the impact of radiative forces, and therefore, the percentage change from 2019 baseline is based
on the revised methodology). In December, we published a policy to phase out thermal coal financing in EU and OECD markets by 2030, and globally
by 2040. We have also set targets for our on-balance sheet financed emissions for the oil and gas, and power and utilities sectors. On the journey to
net zero, we recognise that individual markets have their own unique circumstances that we intend to factor in when laying out our net zero
approach.
Supporting customers through transition
Our ambition is to support our customers in their transition to net zero and a sustainable future. In 2021, we provided and facilitated $82.6 bn of
sustainable finance and investment, taking the cumulative amount to $126.7 bn since 1 January 2020, as part of our $750bn to $1tn by 2030
ambition. This comprised support including facilitation of capital flow and access to capital markets for sustainability-linked outcomes, as well as
financing and investments in environmental and social goals such as decarbonisation of energy systems.
Unlocking new climate solutions
Scaled innovation in critical areas such as next generation climate technologies, nature-based solutions and sustainable infrastructure will be critical
to tackling climate change. In September, we launched a new debt financing fund for sustainable infrastructure in south-east Asia in partnership
(subject to regulatory approval) with Temasek, with $150m of seed capital and the ambition to deploy $1bn of financing over five years. We are
leading the FAST-Infra initiative, which we co-founded to establish a consistent, globally applicable labelling system to identify and evaluate
sustainable infrastructure assets. We are also supporting the Energy Transition Mechanism, a public-private partnership led by the Asian
Development Bank, which endeavours to accelerate the retirement of coal-fired power stations and increase demand and investments in renewable
energy.
For further details on our climate ambition, see the Environmental section in the ESG review on page 45.
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HSBC Holdings plc
How we do business
We conduct our business intent on supporting the sustained success of our customers, people and
other stakeholders.
Our approach
We recognise that it is important to be clear about who we are and what we stand for to create long-term value for our stakeholders. This will help us
deliver our strategy and operate our business in a way that is sustainable. Following an extensive consultation with our people and customers, we
refined our purpose and values. Our new purpose is ‘Opening up a world of opportunity’ and our ambition is to be the preferred international financial
partner for our clients.
To achieve this in a way that is sustainable, we are guided by our values: we value difference; we succeed together; we take responsibility; and we
get it done.
Our Covid-19 actions
Having a clear purpose and strong values has never been more important, with the Covid-19 pandemic testing us all in ways we could never have
anticipated. Since the world changed in 2020, we adapted to new ways of working and endeavoured to provide support to our customers during this
challenging period. On the following page, we have set out further ways that we continued to support our stakeholders.
Fair outcomes
Our conduct approach guides us to do the right thing and to focus on the impact we have for our customers and the financial markets in which we
operate. It complements our purpose and values and – together with more formal policies and the tools we have to do our jobs – provides a clear
path to achieving our purpose and delivering our strategy. For further information on conduct, see page 83. For further details on our purpose-led
conduct approach framework, see www.hsbc.com/who-we-are.
Our colleagues
Understanding the experience of colleagues is central to our efforts to open up a world of opportunity. Through our employee survey, Snapshot, we
capture their views on issues from our strategy to their well-being to the future of work. These views will guide our approach as we embrace hybrid
working.
We value difference among our colleagues, which is why we continue to build an inclusive workforce. Having surpassed our 2020 target to reach
30% women in senior leadership roles – classified as those at band 3 and above in our global career band structure – we have made strong progress
towards our goal to achieve 35% by 2025, with 31.7% achieved in 2021.
We expanded the ability for our colleagues to share their diversity characteristics, with over 70% now able to self-identify their ethnic heritage,
gender identity, disability and sexual orientation. This will help us to set locally appropriate goals, reflective of our markets. In July 2020, we set out
our early global race commitments, which included the goal of doubling the number of Black employees in senior roles over the following five years.
In 2021, we put in place important foundations to achieve this goal.
Developing the skills of colleagues is critical to energising our organisation. We foster a culture of learning through a range of resources, providing
colleagues with a breadth of educational materials and opportunities.
As we continue to reshape the organisation, we are committed to managing change well, and redeploying impacted colleagues. In 2021, 23% of
colleagues impacted through restructuring programmes found new jobs within HSBC.
Our climate ambition
We have set a climate ambition to become net zero in our operations and our supply chain by 2030, and align our financed emissions to the Paris
Agreement goal of net zero by 2050. We have set on-balance sheet financed emissions targets for the oil and gas, and power and utilities sectors,
aligned to the International Energy Agency’s (‘IEA’) net zero scenario, underpinned by a clear science-based strategy. To support our goal of net zero
financed emissions, it will be crucial to unlock transition finance for our portfolio of clients.
> For further details of our ESG disclosures, see our ESG review on page 42.
Update on our purpose and values
We relaunched our purpose in March 2021. We have been pleased to see how quickly our colleagues have embraced 'Opening up a world of
opportunity’ as our purpose, and how they are delivering against it. You can find some examples from 2021 below. We have enabled the recognition
of colleagues who have lived up to our values, and there have been over 600,000 recognitions made in 2021.
•We helped 268,771 people buy their first home, lending $92.9bn in mortgages.
•We provided $47bn in loans to our business banking customers to help support, grow, internationalise and digitise their businesses.
•We facilitated $799bn of trade globally to help economies grow and prosper.
•We supported over 270,000 students move internationally to study by providing key financial products including account openings, fund
transfer and day-to-day finance management in their new countries.
•Over 115,000 colleagues made use of our new learning platform, Degreed, during 2021.
•We enabled over 30,000 colleagues to progress their careers at the Group by helping them move into new roles.
HSBC Holdings plc
15
Engaging with our stakeholders and our material ESG topics
Engaging with our stakeholders is core to being a responsible business. To determine material topics that our stakeholders are interested in, we
conduct a number of activities throughout the year, including engagements outlined in the table below. Disclosure standards such as the TCFD,
World Economic Forum (‘WEF’) Stakeholder Capitalism Metrics and Sustainability Accounting Standards Board (‘SASB’), as well as the ESG Guide
under the Hong Kong Stock Exchange Listing Rules and other applicable rules and regulations, are considered as part of the identification of material
issues and disclosures.
Our
stakeholders
How we engage
Material topics highlighted by the
engagement 1
Customers
Our customers’ voices are heard through our interactions with them, surveys
and by listening to their complaints
–Customer advocacy
–Cybersecurity
Communities
We welcome dialogue with external stakeholders, including non-governmental
organisations (‘NGOs’) and other civil societies groups. We engage directly on
specific issues and by taking part in external forums and working groups
–Financial inclusion and community
investment
Employees
Our colleagues’ voices are heard through our employee Snapshot survey,
Exchange meetings and our ‘speak-up’ channels, including our global
whistleblowing platform, HSBC Confidential
–Diversity and inclusion, in particular
gender and ethnicity profile and
pay gap
–Employee training
Investors
We engage with our shareholders through our AGMs, virtual and in-person
meetings, conferences and our annual investor survey
–Coal financing policies
–Becoming a net zero bank in our
own operations and financed
emissions
Regulators and
governments
We proactively engage with regulators and governments to facilitate strong
relationships via virtual and in-person meetings, responses to consultations
individually and jointly via the industry bodies
–Anti-bribery and corruption
Suppliers
Our ethical and environmental code of conduct for suppliers of goods and
services sets out how we engage with our suppliers on ethical and
environmental performance
–Supply chain management
1 Material topics highlighted through the engagement form part of our ESG disclosures suite together with other requirements and are not exhaustive or exclusive to one
stakeholder group. For further details on our disclosures, see our ESG review and ESG Data Pack, as well as our ESG reporting centre at www.hsbc.com/esg.
Supporting our stakeholders through Covid-19
The Covid-19 pandemic continues to create a great deal of uncertainty and disruption for the people, businesses and communities we serve around
the world. It is affecting everyone in different ways, with markets at different stages of the crisis.
The pandemic continued to pose significant challenges for our customers. Our immediate priority has been to do what we can to provide them with
support and flexibility. We continued to take steps to keep many of our branches open while protecting customers and our colleagues. However,
with customers doing more of their banking online, we have also deployed new technology to help enable them to engage with us in new ways.
Employee well-being remains a top priority as we transition to new ways of working and continue to navigate through the pandemic. The support we
provide is driven by the feedback from our people surveys. In 2021, we launched new tools and training to support mental, physical and financial
health. We are also enabling more colleagues to work flexibly and continue to follow social distancing and protection measures in line with local
guidance. We firmly believe that helping our people to be healthy and happy is a key enabler of our strategy, and benefits the people and
communities we serve.
We continued to engage with our investors virtually and restarted face-to-face meetings where local guidance allowed.
We also donated a further $11.5m towards Covid-19 relief efforts to support the communities in which we operate, primarily in India.
Our COP26 actions
COP26, the UN climate change conference held in Glasgow, Scotland, in November, was a critical moment for the financial sector, including HSBC,
to demonstrate how we are helping to accelerate the transition to net zero. The Glasgow Financial Alliance for Net Zero, which we are part of,
announced potentially transformative measures for the sector, including setting short-term science-based targets, annual reporting of progress,
embedding climate risk management into businesses, and mobilising transition finance for emerging and developing countries.
Our delegation, including our Group Chief Sustainability Officer, Celine Herweijer (pictured here at COP26) was involved in a series of major
announcements around finance, energy transition, sustainable infrastructure and nature. This included joining the Powering Past Coal Alliance, a
global coalition of countries, cities, regions and businesses focused on tackling the challenge of ending the world’s reliance on coal. We also
announced that we are supporting the Asian Development Bank in the pioneering Energy Transition Mechanism initiative, which is working with
developing countries on early retirement of coal power assets and unlocking new investment in clean energy, while supporting reskilling of workers
in directly affected communities.
16
HSBC Holdings plc
Our ESG ambitions, metrics and targets
We have established ambitions and targets that guide how we do business, including how we operate and how we serve our customers. These
include targets designed to help us make our business – and those of our customers – more environmentally and socially sustainable. They also help
us to improve employee advocacy and diversity at senior levels, as well as strengthen our market conduct.
The 2021 annual incentive scorecards of the Group Chief Executive, Group Chief Financial Officer and Group Executives contain customer and
employee measures linked to the outcomes that underpin the ESG metrics below. These carry a 30% weighting in the scorecards of the Group Chief
Executive and Group Chief Financial Officer. In addition, a 25% weighting is given to environment and sustainable finance measures in the 2020 and
2021 long-term incentive (‘LTI’) scorecards, which have three-year performance periods ending on 31 December 2023 and 31 December 2024,
respectively. The targets for these measures are linked to our climate ambition of achieving net zero in our operations and supply chain by 2030 and
supporting our clients in their transition to net zero and a sustainable future. For a summary of how all financial and non-financial metrics link to
executive remuneration outcomes, see pages 261 to 273 in the Directors’ remuneration report.
The table below sets out how we have made progress against the following ESG-related ambitions and targets.
Ambition/target
Progress to date
Environmental
Becoming a net zero bank
Ambition to align our financed emissions to
achieve net zero by 2050 or sooner
Disclosed interim targets for the oil and gas,
and power and utilities sectors (for further
details, see page 47)
Published thermal coal phase-out policy (for
further details, see page 62)
Ambition to be net zero in our own operations
and supply chain by 2030 or sooner
50.3% cumulative reduction in absolute
operational greenhouse gas emissions from
2019 baseline 1
Supporting our customers
Ambition to support our customers in their
transition to net zero and a sustainable future
with $750bn to $1tn of sustainable finance and
investment by 2030
Cumulative progress of $126.7 bn since 2020 2
Social
Customer satisfaction
Target to be ranked top three and/or improve
customer satisfaction rank
6 out of 10 WPB markets sustained top-three
rank and/or improved rank in customer
satisfaction 3
4 out of 13 CMB markets sustained top-three
rank and/or improved rank in customer
satisfaction 3
Employee engagement
Target to maintain employee engagement
score at 72%
Employee engagement score of 72%4
Employee gender diversity
Target to reach 35% women in senior
leadership roles by the end of 2025
Women in senior leadership roles of 31.7%5
Employee ethnicity diversity
Target to at least double the number of Black
senior leaders by 2025
Increased number of Black senior leaders by
17.5% from 2020 baseline 5
Governance
Global conduct
Target to achieve at least 98% of employees
complete conduct and financial crime training
each year
99% of staff completed training 6
1 This absolute greenhouse gas emission figure covers scope 1, scope 2 and scope 3 (business travel) emissions. The data for 2019 and 2020 has been revised as we
have updated our air travel reporting methodology to include the cabin class travel and the impact of radiative forces. For further details, see the ESG review on page 52.
For further details on how this target links with the scorecards, see page 261.
2 In October 2020, we announced our ambition to provide and facilitate between $750bn to $1tn of sustainable finance and investment by 2030. For further details and
breakdown, see the ESG review on page 43. For details on how this target links with the scorecards, see page 261.
3 Rank position reported for markets where net promoter score (‘NPS’) is live. In WPB, markets comprised: the UK, Hong Kong, Malaysia, Singapore, mainland China,
Australia, UAE, Canada, Mexico and the US. In CMB, markets comprised: the UK, Hong Kong, Malaysia, Singapore, Pearl River Delta, mainland China, India, Indonesia,
Australia, UAE, Canada, Mexico and the US. For further details on customer satisfaction, see the ESG review on page 67. For further details on how this target links with
the scorecards, see page 269.
4 For further details, see the ESG review on page 75. For details on how this target links with the scorecards, see page 269.
5 Senior leadership is classified as those at band 3 and above in our global career band structure. Ethnicity target progress tracked from 31 December 2020 baseline. For
further details, see the ESG review on page 72. For details on how this target links with the scorecards, see page 269.
6 The completion rate shown relates to the 2021 ‘Fighting financial crime’ training module. The latest global regulatory conduct training has been launched in January 2022
and will run through the first quarter of 2022.
HSBC Holdings plc
17
How we measure our net zero progress
One of our strategic pillars is to support the transition to a net zero global economy. We believe our most significant contribution will be to align our
financed emissions to the Paris Agreement goal to achieve net zero by 2050 or sooner. The Paris Agreement aims to limit the rise in global
temperatures to well below 2°C, preferably to 1.5°C, above pre-industrial levels. To limit the rise in global temperatures to 1.5°C, the global economy
would need to reach net zero greenhouse gas emissions by 2050.
In May 2021, a climate change resolution proposed by the Board was backed by more than 99% of our shareholders at our AGM. The resolution
included a commitment to set out the next steps in our transition to net zero, including setting sector-based targets, publishing a thermal coal phase-
out policy and reporting annually on our progress. We also indicated that we would provide further details on our approach to assessing financed
emissions by the end of 2021.
We have set on-balance sheet financed emissions 2030 targets for the oil and gas, and power and utilities sectors, focusing on the companies within
these sectors which we believe account for the majority of emissions in the sector. For further details including scope, methodology, assumptions
and limitations, see page 47.
We continue to track our progress against our ambition to provide and facilitate $750bn to $1tn of sustainable finance and investment by 2030,
aligned to our published data dictionary, and our transformation to a net zero bank by reducing our operations and our supply chain emissions to net
zero by 2030.
In the year ahead we plan to set interim targets for financed emissions across a wide range of sectors, alongside a broad transformation programme
to embed the climate transition into our core business and risk processes. We will also begin work on our climate transition plan, which will bring
together – in one place – how we plan to embed our net zero targets into the Group’s strategy, processes, policies and governance. We plan to
publish this in 2023, and update on progress annually thereafter.
We know this is a journey and recognise that certain metrics and targets may need to be revised as a result of changes or developments in
methodology, climate science and improvements in data quality. In the following table, we set out our metrics and indicators and assess our
progress against them.
Ambition
Metrics and indicators
Progress to date
Becoming a net zero bank 1
Align our financed emissions to
achieve net zero by 2050 or
sooner
Absolute emissions for oil and gas
sector (Mt CO2e)
–Set a Mt CO2e target of 34% reduction in oil and gas
absolute on-balance sheet financed emissions by 2030
from 2019 baseline (see page 47)
Physical emissions intensity for power
and utilities sector (Mt CO2e/TWh)
–Set a target for power and utilities on-balance sheet
financed emissions intensity of 0.14 Mt CO2e/ TWh,
representing 75% reduction by 2030 from 2019 baseline
(see page 47)
Percentage of wholesale loans and
advances in high transition risk sectors
–≤ 20.0% of wholesale loans and advances to high
transition risk sectors at 31 December 2021
–Expanded the transition risk questionnaire to cover more
sectors (see page 133)
Thermal coal financing exposure ($)
–Published a thermal coal phase-out policy incorporating a
target to reduce exposure to thermal coal financing by at
least 25% by 2025, and by 50% by 2030, using 2020 data
as the baseline (see page 62)
Illustrative impacts of climate scenarios
–Ran our first climate stress test, covering our wholesale
corporate lending, commercial real estate, retail
mortgages and our own properties (see page 57)
Be net zero in our operations and
supply chain by 2030 or sooner
Absolute operational greenhouse gas
emissions (tonnes CO2e)
–50.3% cumulative reduction in absolute greenhouse gas
emissions from 2019 baseline
Percentage of renewable electricity
sourced (GWh)
–Remained stable from 37.4% in 2020 to 37.5%
Energy consumption (GWh)
–20.6% cumulative reduction in energy consumption from
2019 baseline
Supporting our customers
Support our customers in their
transition to net zero and a
sustainable future
Sustainable finance and investment
provided and facilitated
($bn)
–$126.7 bn cumulative progress since 2020 (for further
breakdown see page 53)
Unlocking new climate
solutions
Help transform sustainable
infrastructure into a global asset
class, and create a pipeline of
bankable projects
Natural capital investment
–Climate Asset Management is one of the three founding
partners of Natural Capital Investment Alliance, which
aims to mobilise $10bn towards natural capital themes
(see page 55)
Climate technology investment
–Lending commitments of $65m and raised our target to
$250m (see page 55)
Philanthropic investment to climate
innovation ventures, renewable energy,
and nature-based solutions
–Provided $28.4 m to our NGO partners since 2020, as part
of the Climate Solutions Partnership (see page 77)
1 Our reported scope 3 greenhouse gas emissions of our own operations in 2021 is related to business travel. The data for 2019 and 2020 has been revised as we have
updated our air travel reporting methodology to include the cabin class travel and the impact of radiative forces.For further details on scope 1, 2 and 3, and our progress on
greenhouse gas emissions and renewable energy targets, see page 51 and our ESG Data Pack at www.hsbc.com/esg.
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HSBC Holdings plc
Task Force on Climate-related Financial Disclosures (‘TCFD’)
The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (‘TCFD’) recommendations set an important framework for
understanding and analysing climate-related risks, and we are committed to regular, transparent reporting to help communicate and track our
progress. We will advocate the same from our customers, suppliers and the industry. We recognise that further work lies ahead as we develop our
management and metrics capabilities.
The information set out on page 63 in this Annual Report and Accounts 2021 aims to provide key climate-related information and cross-references to
where additional information can be found. In this context, we have considered our ‘comply or explain’ obligation under the UK’s Financial Conduct
Authority’s Listing Rules, and confirm that we have made disclosures consistent with the TCFD Recommendations and Recommended Disclosures
in this Annual Report and Accounts 2021 save for certain items, which we summarise below and describe in more detail in the information set out on
page 63 and in the additional information section on page 402.
There are certain areas where we have not included climate-related disclosures, a summary of these are set out below:
–Given that climate scenarios are mainly focused on medium- to long-term horizons, rather than short-term, we have set interim 2030
targets for on-balance sheet financed emissions for the oil and gas and power and utilities sectors. HSBC intends to review the financed
emissions baseline and targets annually, where relevant, to help ensure that they are aligned with market practice and current climate
science.
–We do not fully disclose impacts on financial planning and performance (including proportions of revenue, costs and balance sheet related
to climate-related opportunities), quantitative scenario analysis, detailed climate risk exposures for all sectors and geographies or physical
risk metrics. This is due to transitional challenges in relation to data limitations. We expect these data limitations to be addressed in the
medium term as more reliable data becomes available and technology solutions are implemented.
–We currently disclose partial scope 3 greenhouse gas emissions. In relation to on-balance sheet financed emissions, we are disclosing our
scope 3 greenhouse gas emissions for oil and gas, and the power and utilities sectors. Future disclosure on scope 3 financed emissions
(customers) and supply chain emissions (suppliers), as well as related risks is reliant on both our customers and suppliers publicly
disclosing their carbon emissions and related risks. We aim to disclose financed emissions for additional sectors by 2023, as set out in our
Financed Emissions – Approach and Methodology Update published in December 2021, which can be found at www.hsbc.com/who-we-
are/esg-and-responsible-business/esg-reporting-centre.
Leading on an inaugural green bond
We were joint lead manager and bookrunner as Arab Petroleum Investments Corporation (‘APICORP’) in September 2021 raised $750m with its
inaugural green bond. The multilateral development bank, founded in 1975 by the 10 Arab oil-exporting countries, has a strategic focus to promote
the energy sector within the region to a more sustainable future. As set out in its green bond framework, APICORP will use the proceeds to finance
or invest in projects focused on renewable energy, pollution prevention and control, and green buildings.
Supporting renewable projects through our operations
We are expanding our efforts to bring additional renewable electricity in the markets where we operate, as part of our ambition to source 100%
renewable power across our operations by 2030. In September 2021, we signed a power purchase agreement that supported the development of
the Sorbie Wind Farm project in Ayrshire, south-west of Glasgow. This agreement will create a new renewable electricity source that will benefit us,
as well as our customers and the wider communities we serve.
This power purchase agreement will be our fourth project in the UK, supporting wind or solar projects, and will result in approximately 90% of our UK
electricity being sourced from such renewable projects.
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Responsible business culture
We have the responsibility to protect our customers, our communities and the integrity of the financial system. In this section, we outline our
requirements under the Non-Financial Reporting Directive.
Employee matters
We are opening up a world of opportunity for our colleagues through building an inclusive organisation that values difference, takes responsibility,
and seeks different perspectives for the overall benefit of our customers.
We want to encourage a dynamic culture where our colleagues can expect to be treated with dignity and respect. We are an organisation that takes
action where we find behaviours that fall short of this aspiration. We monitor our progress through metrics that we value and have benchmarked
against peers.
Listening to our colleagues is critical to the business we conduct, and is reflected in our purpose and values, which were established through the
largest employee engagement programme in our history.
We continue to seek innovative ways that encourage and provide opportunities for our people to speak up. We recognise that at times people may
not feel comfortable speaking up through the usual channels. HSBC Confidential is our global whistleblowing channel, allowing our colleagues past
and present to raise concerns confidentially and, if preferred, anonymously (subject to local laws).
Having surpassed our 2020 target to reach 30% women in senior leadership roles (classified as those at band 3 and above in our global career band
structure), we aim to reach 35% by 2025, with 31.7% achieved in 2021.
In July 2020, we set out our early global race commitments, which included the goal of doubling the number of Black employees in senior roles over
the next five years. To support our ambition, we have placed a strong focus on enhancing the quality and transparency of our ethnicity data through
the expansion of our self-identification capability. We will use this data to develop market-specific goals that are connected to the communities we
serve. While we know we need to do more, we have put in place important foundations in 2021 through leadership development, inclusive hiring
practices and investing in the next generation of high-performing, diverse talent.
The table below outlines high-level diversity metrics.
All employees
Senior leadership 1
Directors
Male
48%
68%
62%
Female
52%
32%
38%
1 Senior leadership is classified as those at band 3 and above in our global career band structure.
For further details on how we look after our people, including our diversity targets, transformation employee metrics and how we encourage our employees to speak up,
see the Employees section of the ESG review on page 70.
Social matters
We have a responsibility to invest in the long-term prosperity of the communities where we operate. We recognise that technology is developing at a
rapid pace and that a range of new and different skills are now needed to succeed in the workplace. For this reason, much of our focus is on
programmes that develop employability and financial capability. We also back climate solutions and innovation, and contribute to disaster relief based
on need. For further details of our programmes see ‘Communities’ on page 77.
Human rights
Our commitment to respecting human rights, principally as they apply to our employees, our suppliers and through our financial services lending, is
set out in our Statement on Human Rights. This statement, along with our statements under the UK’s Modern Slavery Act, is available on
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
.
Anti-corruption and anti-bribery
We require compliance with all applicable anti-bribery and corruption laws in all markets and jurisdictions in which we operate. These include the UK
Bribery Act, the US Foreign Corrupt Practices Act, the Hong Kong Prevention of Bribery Ordinance and France’s 'Sapin II’ law. We have a global anti-
bribery and corruption policy, which gives practical effect to these laws and regulations, but also requires compliance with the spirit of laws and
regulations to demonstrate our commitment to ethical behaviours and conduct as part of our environmental, social and corporate governance.
Environmental matters
For details of our climate ambition and carbon emission metrics, see the ESG review on page 45.
Non-financial information statement
This section primarily covers our non-financial information as required by the regulations. Other related information can be found as
follows:
For further details on our key performance indicators, see page 1.
For further details on our business model, see page 4.
For further details on our principal risks and how they are managed, see pages 37 to 40.
Engaging colleagues in future skills
Our colleagues have explored digital, data, sustainability and personal skills as part of our ‘Future Skills’ campaign. Colleagues engaged with various
tools, assessments and industry experts over 44,000 times throughout the campaign, and learned how these skills are critical for the future of our
organisation. Colleagues identified specific skills they wanted to develop and assessed them through our skills platform to shape their development
plan.
We helped a number of colleagues to share their own skills with others through our partnership with Ashoka. In 2021 we launched the global Green
Skills Innovation Challenge to support innovations that connect people with the skills to support a green transition. Out of 340 submissions, 12
winners were selected, each receiving a prize of up to $20,000 alongside support and mentoring from HSBC colleagues.
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Board decision making and
engagement with stakeholders
The Board is committed to effective engagement with all our stakeholders and seeks to
understand the interests of and impacts on them when making decisions.
Section 172 (1) statement
This section, from pages 21 to 24 forms our section 172 statement. It describes how the Directors have performed their duty to promote the
success of the company, including how they have considered and engaged with stakeholders and, in particular, how they have taken account of the
matters set out in section 172(1)(a) to (f) of the Companies Act 2006.
Stakeholder engagement and key considerations for the Board
The Group continued to focus on its engagement with our key stakeholders, acknowledging that this engagement is core to being a responsible
business. Our key stakeholders remain the same as last year, namely our customers, employees, investors, communities, regulators and
governments, and suppliers. How the Group has engaged with our stakeholders more generally is explained on page 16. The Board recognises the
importance of building strong relationships with our stakeholders to help broaden understanding of their needs and concerns and ultimately to help
us deliver our strategy. In discharging its responsibilities, the Directors sought to understand, and have regard to, the interests and priorities of these
stakeholders, including in relation to material decisions that were taken by the Board during the course of the year.
Virtual and physical meetings
During 2021, despite the ongoing logistical challenges of meeting physically as a result of the Covid-19 pandemic, the Board was determined to
maintain an active engagement programme with as many stakeholders as possible. The move to virtual meetings presented new and effective
opportunities to engage. The Board met virtually with one of our major suppliers of technology services on the US west coast, which provided
insights into technological advances and the growing importance of data management and security. During this meeting, the participants shared their
respective views on the net zero transition journey, and the Board was able to gain a clear understanding of the supplier’s plans.
Several Board members were also able to connect with our global graduate community on occasion, thanks to virtual facilities. Meeting in this way
meant a far broader set of views was able to be shared than if the meeting had been in person. The exchanges with the graduates gave the
Directors a real appreciation of the challenges they had faced in joining and working for HSBC during lockdown conditions.
As part of the engagement programme during the year, the Board continued to meet directly with many of its other stakeholders, in particular our
colleagues, regulators and investors. It was also kept informed of relevant stakeholder matters through management dialogue and reports. Where
circumstances permitted, Board members gathered for stakeholder meetings in person, including at our offices in the UK and Hong Kong, with
examples of these engagements detailed below.
In May 2021, HSBC was pleased to be able to host its first hybrid AGM and engage with its investors despite the challenges at the time. Following
focused discussions, the Board committed to creating an opportunity to enable as much shareholder participation as possible. This event allowed
shareholders to either physically attend the meeting under strict and safe conditions in line with the advice from the UK Government, or to attend
virtually, together with all Board members who attended either physically or virtually. The virtual participation option offered through the hybrid
solution allowed shareholders to ask questions of the Board in person, by telephone and online, as well as vote live by electronic means during the
meeting. While restrictions meant, regrettably, it was not possible to hold the annual Informal Shareholders’ Meeting in Hong Kong, the hybrid AGM
helped facilitate the connection of our Hong Kong-based shareholders directly to the Board. Given the success of the hybrid approach, we intend to
host hybrid AGM meetings in the future.
Engaging during the Covid-19 pandemic
The Covid-19 pandemic continued to underpin the need to ensure careful consideration of the interests of the Group’s stakeholders. Throughout the
year, the Board maintained close interaction with management on its plans for a gradual return to office working under safe conditions, and careful
consideration was given to our support for colleagues’ mental and physical well-being. Care was taken to include the views and opinions of our
colleagues in developing new ways of working, including hybrid working solutions where appropriate. By engaging with colleagues, including
graduates, the Board was able to discuss and reflect, both in and outside of the boardroom, on the learnings gained from such sessions, including on
how to improve induction and ongoing employee support programmes. It was also able to give its support to management to continue these
initiatives.
Doing business responsibly
Given the nature of our business, maintaining a transparent and trusting relationship with our regulators is key to helping to ensure that we do
business responsibly and that we can respond to all challenges appropriately. The Group Chairman and the Group Chief Executive met with our
regulators in the UK and Hong Kong on a regular basis. As part of such meetings, our regulators were kept updated on our strategic plans and
progress. On certain occasions, the Group Chairman and the Group Chief Executive also met with government officials globally to foster good
relations. Several Board members were – and continue to be – actively involved in climate initiatives and attend global events such as at the COP26
Summit in Glasgow. The Board also remained informed of management interaction with national governments, on matters such as forbearance
schemes and climate matters.
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21
The Board and its committees reviewed and considered regular reporting on emerging risks, performance, execution and actions being taken in
response. This regular reporting and an annual programme of learning served to inform the Board about stakeholder matters and supported its
decision making. For further details on the Board’s activities during the year, including training, see pages 229 to 234. The impact of the Covid-19
pandemic on the Group and our stakeholders remained of material concern. The impact of the decision taken in 2020 to cancel the fourth interim
dividend for 2019 and suspend dividends for 2020 was a key consideration when the Board was deliberating on its approach to distributions for 2021.
The Board sought to balance emerging risks, performance and its duties to shareholders, while remaining conscious of its responsibilities to support
communities and help customers manage financial challenges and changing demands. The ‘Principal decisions’ disclosure below includes details on
how the Board took the decision to introduce dividend payments in 2021. Further details are also provided in ‘Financial decisions’ on page 232 and
‘Dividends’ on page 287.
To educate the Board on the broader impacts of the Covid-19 pandemic, the Board invited a leading immunologist to its meeting in December.
Through this engagement, the Board gained valuable independent insight into what assistance may be required globally in support of the recovery to
our communities, customers, suppliers and employees.
Adapting our engagement programme
As restrictions are lifted, and when safe to do so, the Board intends to meet regularly in person both as a Board, and with our stakeholders globally.
In the meantime, the Board continues to remain agile in adapting its ongoing engagement programme so that it continues to be informed by a broad
range of activities with stakeholders. This helps the Board fulfil its duties and support decision making as it oversees the execution of the Group
strategy in line with our purpose and values and strategic plans. Examples of how the Board has engaged with stakeholders are set out below, as
well as in ‘Board engagement with shareholders’ on page 228 and ‘Workforce engagement’ on page 233.
Customers
Our business is centred around our customers and clients. The greater the understanding we
have of their needs and the challenges they face, the better we can help support them to
achieve their financial aims and succeed in our purpose and strategy. Examples of Board
engagement with customers in 2021 included:
–The Group Chairman met on a very regular basis with customers globally for a variety
of reasons, including to hear customer feedback, build relationships, and strengthen
connectivity between our customers, businesses and functions.,
–The Group Chairman met with and listened to a number of key clients in person in the
US, UK and Hong Kong.
–The Group Chief Executive provided reports to the Board, which contained updates on
key customer meetings, sentiment, and net promoter scores for each global business.
The net promoter score is a key measurement of customer sentiment, satisfaction and
areas of concern and improvement.
–Following an enhancement to digital chat services for customers in Bermuda, the
Board requested feedback from customers gained through a satisfaction survey and
real-time customer prompts to help shape improvements in automation across the
Group.
Employees
We want our organisation to continue to be a positive place to work and build careers. The
success of the Group’s strategy is dependent upon having motivated people with the expertise
and skills required to help deliver it. Examples of the Board’s engagement with our employees in
2021 included:
–Our Directors partnered with each of our employee resource groups, supporting and
attending employee resource group events. These included sessions covering
diversity, inclusion, disability, ethnicity and gender, the pandemic, climate, purpose and
values, and culture. Following these events, the Board, in its formal meetings,
discussed its learnings and where further support could be offered.
–Twice a year, the Board discussed the results of Snapshot surveys, which provide
employee feedback, and which in 2021 focused on home working, culture, behaviours
and pay.
–The Group Chairman visited Hong Kong in July and August, where he met with local
leadership and took time to hear from a group of over 500 employees.
–The Group Chief Executive reported to the Board on his engagement with colleagues,
including discussions about the return to the office, culture, new joiners, purpose and
values, female leadership and graduate induction. His engagements also included
virtual exchange sessions and town halls with employees globally, and in person in
Singapore and the US.
–The Group Chief Risk and Compliance Officer provided a weekly Board note on risk
matters relating to our response to the Covid-19 pandemic and employee support
initiatives.
Investors
We seek to understand investor needs through ongoing dialogue. Examples of the Board
engaging with investors in 2021 included:
•The Board discussed external market sentiment and invited our corporate brokers to
share their thoughts and perceptions.
•Directors held virtual and in-person meetings with investors, ratings agencies and
peers to understand evolving views, trends and sentiment.
•The Group Chairman visited Hong Kong during July and August where he spent time
with several of our shareholders in person.
•The Chair of the Group Remuneration Committee held meetings with key investors,
including to discuss the new remuneration policy.
•Investor Relations provided weekly updates to the Board, including on market activity,
investor engagement and sentiment.
•Numerous investor and corporate governance roadshows, forums and meetings with
key investors took place and were hosted by a combination of the Group Chairman, Group Chief
Executive, Group Chief Financial Officer and the Senior Independent non-executive Director, and
often with management in attendance.
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HSBC Holdings plc
Communities
We seek to play an important role in supporting the communities in which we operate through
our corporate social responsibility and broader engagement activities. Examples of the Board’s
engagement with communities in 2021 included:
–The Board received ESG and climate-related updates and policies, which detailed
community engagement activity and stakeholder sentiment.
–The Group Chairman and Group Chief Executive both participated at COP26, and the
Group Chairman presented at Chapter Zero events.
–The Group Chief Executive supported the World Economic Forum’s disclosures on
climate.
–The Board supported employee resource group community initiatives, such as
introducing ‘safe places’ in selected HSBC branches for the whole community as
needed, and education in schools and universities on topics such as technology and
climate.
–A leading immunologist provided an update to the Board on the impact of the Covid-19
pandemic, providing insight into what assistance may be required from HSBC to our
communities, customers and employees.
Regulators and governments
Maintaining constructive dialogue and relations with the relevant authorities in the markets in
which we operate helps support the effective functioning of economies globally and the
achievement of our strategic aims. Examples of the Board’s engagement with regulators and
governments in 2021 included:
–Executive and non-executive Directors attended ‘continuous assessment’ meetings
with the UK’s Prudential Regulation Authority ('PRA’) and other individual regulatory
meetings.
–The PRA attended a Board meeting for its annual presentation to discuss the outcome
and progress of its periodic summary meeting letter, and in a separate meeting, the
UK’s Financial Conduct Authority (‘FCA’) attended to present its annual firm evaluation
letter.
–The Group Chairman led a meeting with the supervisory college of regulators.
–Directors held regular dialogue and meetings with governments and regulators
globally, with some representing HSBC at government-led forums.
–The Group Chairman and Group Chief Executive both participated at the G7 Climate
conference and COP26.
Suppliers
Our suppliers provide the Group with vital resources, expertise and services to help us operate
our business effectively and execute our strategy. We work with our suppliers to help ensure
mutually beneficial relationships on a global and local level. In some cases, our suppliers are also
our customers. Plans have been made to meet with more third-party providers of services once
travel can safely resume. Examples of the Board’s engagement with suppliers in 2021 included:
–The Group Chief Operating Officer provided reports to the Board, with updates on
third-party suppliers and operational resilience.
–Directors held a virtual meeting with one of our key technology suppliers to discuss
technology developments and improvements and to better understand the supplier’s
net zero ambition and transition plans.
–The Group Audit Committee Chair met with the four major accountancy firms and
challenger audit firms in preparation for a future audit tender.
Principal decisions
The Board operates having regard to the duties of the Directors, including the relevant matters set out in section 172(1)(a)-(f) of the Companies Act
2006. Specific examples of key areas of focus and considerations affecting the Board’s decision-making process during 2021 are set out below.
Acquisitions and disposals activity
Regulators, Customers, Employees, Investors
During 2021, the Board took several key decisions to acquire and divest certain businesses in support of the Group’s strategic aims.
In furtherance of the Group’s strategy and ambition, the Board considered several material and strategic acquisition and disposal opportunities
throughout 2021. Two of these opportunities considered by the Board are highlighted below. In each case, in discussing these proposals and taking
its decisions, members of the Board exercised their statutory duties including the duty to act in the way that they considered, in good faith, would be
most likely to promote the success of the company for the benefit of its members as a whole.
The first strategic acquisition opportunity the Board considered in 2021 concerned the purchase of AXA’s insurance business in Singapore. In its
meeting, the Board discussed that this was a rare opportunity for inorganic growth and a key step in helping to achieve the Group’s ambition of
becoming a leading wealth manager in Asia, by expanding its insurance and wealth franchise in Singapore, a strategically important scale market and
a major hub for the Group’s wealth business in the ASEAN region. The Board considered a number of benefits in making this investment, including
synergies with the Group’s asset management and private wealth solutions business, and the ability to materially scale up the Group’s presence in
the regional insurance market, providing an excellent platform for future growth and further opportunities for customers. The proposed acquisition
was subject to a combination of discussions with and approvals from various stakeholders, including UK, Singapore and Hong Kong regulators as
well as pre-notifications to local union authorities. In order to support successful integration and transformation plans, management recommended to
the Board that key employee talent should be identified and secured. As part of this key talent selection process, certain important skills and qualities
were taken into account, including diversity and inclusion, as well as culture, to form the right leadership team for the acquired business to succeed.
In making its final decision to approve the acquisition, the Board took these relevant stakeholder considerations and other factors into account,
including an assessment of the financial merits and risks of the transaction, and paid particular attention to the section 172 factors of the likely
consequences of any decision in the long term and the interests of the Group’s employees.
The Board subsequently considered a separate proposal for the disposal of the Group’s non-core retail banking business in France. The Board’s
decision to approve the disposal was aligned to the Group’s strategic aim of being a leading wholesale bank in continental Europe, and took into
account the impact on our shareholders and other stakeholders.
In this case, the Board considered there to be a number of benefits to the disposal, including simplifying the Group structure, helping to mitigate
transformation risk of the business in Europe, and allowing management to focus on the completion of the European wholesale transformation
programme. Several key stakeholders were consulted ahead of the decision. Consultation with relevant French works’ councils was undertaken
alongside Director and management engagement with French and UK regulators to elicit their views on the proposed disposal. The Board noted that
completion of the disposal would involve engagement with additional key stakeholders, including relevant regulators and bondholders. In taking its
decision, the Board considered all relevant factors including the Group’s strategic goals and the benefits of the transaction, while also taking into
account the loss associated with the disposal, the interests of stakeholders and alternative proposals in respect of the retail business. As a result, the
Board agreed to proceed with the disposal on the basis that it considered it to be in the best interests of the company’s members as a whole and
would promote the long-term success of the company.
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23
Climate agenda
Investors, Regulators, Customers, Communities, Employees
In 2021 the Board was actively and directly engaged with the Group’s response to the climate change agenda, proposing a resolution and
agreeing relevant policies aligned to our ambition to support the transition to a net zero global economy.
Following the announcement of the Group’s climate ambition in October 2020 and ahead of the 2021 AGM, the Board received a shareholder
requisitioned resolution from ShareAction, together with a number of other shareholders, in relation to the Group’s climate agenda. Selected Board
members and senior management engaged extensively with ShareAction, certain co-filers and other shareholders, to understand their perspectives
and rationale in submitting the shareholder resolution. As a result of such engagements, the Board carried out further discussions in its meetings to
consider our approach in terms of sectorial priorities and associated timelines, in order to help support the delivery of our climate ambition most
effectively, while recognising our responsibilities to our customers and communities across the diverse range of markets in which we operate.
Ultimately, following further engagement and discussion, the Board welcomed and agreed the decision by ShareAction, on behalf of the co-filers, to
withdraw the requisitioned resolution and in its place, support HSBC’s own climate change resolution at the 2021 AGM. The HSBC resolution
outlined the next phase of the Group’s net zero strategy, with a particular emphasis on how it would support its customers on their own transition
journeys. As well as the engagement with stakeholders, in formulating the Group’s climate approach including its climate change resolution, the
Board took into consideration the role we seek to play in setting and leading a standard for the financial services sector, as it collectively works to
tackle climate change. The Board was also mindful of the crucial importance of working with customers on their own transition and how the Group
could help support this outcome. The Board’s decision to propose the HSBC climate change resolution and recommendation that shareholders vote
in favour of it took account of these reasons, and gave due regard to section 172 factors, in particular the impact of the decision on the environment
and communities the company serves, our valuable relationships with customers and investors, and the long-term success of the company.
The climate change resolution was passed at the 2021 AGM, with 99.7% of our shareholders supporting our resolution, providing a strong
endorsement of our climate plan and our commitment to support our customers on their transitions to a low-carbon future. The resolution committed
us to: setting out the next steps in our transition, including through short- and medium-term sector-based targets; publishing a policy to phase out the
financing of coal power and thermal coal mining by 2030 in EU and OECD countries, and by 2040 globally; and reporting annually on our progress.
We also indicated that we would provide further details by the end of 2021 on our approach to assessing financed emissions and setting targets.
In December 2021 the Board approved the publication of the thermal coal phase-out policy, and further details on our approach to assessing financed
emissions and setting targets. In doing so the Board took into consideration the requirements of the climate resolution and the extensive
engagement with stakeholders, both before and after the 2021 AGM. In Board meeting discussions, Directors considered long-term objectives
including the responsibility of helping to ensure continued and expanding access to affordable electricity in the markets we serve, many of which are
presently highly reliant on thermal coal. The Board also considered the need to phase out the financing of coal-fired power and thermal coal mining in
recognition of the rapid decline in coal emissions required for any viable pathway to 1.5˚C and the important role for HSBC to play in helping to
finance our clients’ transition to net zero. The Board noted that the policy was a key part of executing the Group’s ambition to align its financed
emissions to net zero by 2050 or sooner and would be reviewed annually based on evolving science and internationally recognised guidance, given
the fast changing landscape. For further details on our policy and approach, see page 62.
Since publication of the thermal coal phase-out policy, stakeholder engagement has continued, including with key institutional investors to discuss
with them the policy, its impacts and alignment with our ambition to help finance our clients’ transition to net zero. Extensive engagement also
continues to take place among employees and with clients as we implement the policy.
In their respective roles as chair of Chapter Zero and chair of the Financial Services Taskforce, both the Group Chairman and the Group Chief
Executive are at the forefront of climate matters, demonstrating their leadership and commitment to understanding and collaborating on these critical
matters, mirroring the Board’s and the Group’s commitment to the transition to net zero as a key part of delivering our strategy.
Dividend payments and share buy-backs
Employees/Customers/ Investors/Communities/ Regulators/Governments
Following the decision in 2020 to cancel dividend payments, the Board took action in 2021 to consider dividend payments, the Group’s
dividend policy and share buy-backs.
Following the PRA’s announcement in December 2020 that it was supportive of UK banks resuming dividend payments under certain conditions, at
its first meeting in January 2021 the Board turned its attention to whether it would be appropriate to restart dividend payments. In considering this,
the Board reflected on the impact on the decision it took in 2020 to suspend dividend payments and the views of stakeholders in respect of the
suspension. The reactions and interests of our investors based on feedback from our external brokers and meetings with investors by individual
Board members and management were key considerations for the Board in considering whether to restart dividend payments, especially given the
impact of this decision on our shareholders, including those based in Hong Kong, who rely heavily on the income derived from our dividends. The
Board also had regard to regulatory considerations, including the PRA’s requirements for banks resuming dividends and other relevant factors such
as our financial performance for 2020 and our earnings forecasts for 2021 and 2022. Having considered these factors and also taking into account its
section 172 duty to consider the likely consequences of any decision in the long term, in its February meeting, the Board was pleased to approve an
interim dividend for the full-year ending 2020. In that same meeting, the Board considered and approved a revised dividend policy designed to
provide sustainable dividends. In considering the revised dividend policy, the Board discussed and acknowledged the need to offer good income to
our investors while giving management the flexibility to reinvest capital to grow the firm. These factors are important to the long-term success of the
company. During the year, engagement continued with the PRA for dividends in respect of the 2021 financial year. In August 2021, the Board also
agreed to approve an interim dividend for the first six months of 2021 in line with the dividend policy, taking into account the Group’s performance,
market expectations and the shareholders’ interests.
In addition, having indicated in the Annual Report and Accounts 2020 that the Group would consider share buy-backs over time, in October 2021 the
Board approved the announcement of a share buy-back of up to $2bn. In reaching this decision, the Board considered our actual and potential
financial performance during the year to date and our capital position (including in light of regulatory requirements). The Board also considered
expected reactions and interests of our investors (including based on feedback from our external brokers) and peer analysis. Regulatory approvals
were sought in the UK and Hong Kong, as well as views and inputs with regards to customer, employee, investor and community stakeholder
considerations. Together, these inputs enabled the Board to conclude that the share buy-back would likely be viewed positively by the market and be
considered to represent an appropriate balance between shareholder return and investment. The Board’s assessment of our capital position took
account of the company’s ability to conduct its business and to support the communities in which it serves. Taking these stakeholder views and
other relevant matters into account as prescribed by section 172, including our strong capital position and notwithstanding the growth opportunities
available to us at the time of the decision, the Board considered that a return of capital by way of share buy-back would be in the best interests of
investors as a whole having regard to the long-term success of the company and thereby approved the share buy-back.
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HSBC Holdings plc
Remuneration
Our remuneration policy supports the achievement of our strategic objectives by aligning reward
with our long-term sustainable performance.
Our remuneration principles
Our performance and pay strategy aims to reward competitively the achievement of long-term sustainable performance by
attracting, motivating and retaining the very best people, regardless of gender, ethnicity, age, disability or any other factor unrelated
to performance or experience.
For further details of our principles and what we did during 2021 to help ensure remuneration outcomes were consistent with those
principles, see page 278.
Variable pay
The 2021 Group variable pay pool has been determined taking into account the improvement in financial performance, with adjusted
profit before tax up 79%, the reinstatement of dividends and the capital return to shareholders through share buy-backs, as well as
performance against the strategic plan. It also took into account the challenges the Group faces with regard to a very competitive
market for talent.
For details of how the Group Remuneration Committee sets the pool, see page 254.
Remuneration for our executive Directors
Our current remuneration policy for executive Directors was
approved at our AGM in 2019 and is intended to apply for
three performance years until the AGM in 2022. We are
proposing to roll forward our current remuneration policy for
shareholders’ approval at the 2022 AGM. We have made no
changes to the remuneration structure or to the maximum
opportunity payable for each element of remuneration.
Details of the proposed policy can be found on page 257.
Variable pay for our executive Directors is driven by scorecard
achievement, with measures and targets set to align pay
outcomes with the delivery of our strategy and plan for the
year.
Executive Directors’ annual incentive scorecard outcome
(% of maximum opportunity)
Group Chief Executive
57.30%
Group Chief Financial Officer
60.43%
The table below shows the amount our executive Directors earned in
2021. For details of Directors’ pay and performance for 2021, see the
Directors’ remuneration report on page 254.
Single figure of remuneration
Noel Quinn
Ewen Stevenson
(£000)
2021
2020
2021
2020
Base salary1
1,288
1,266
751
738
Fixed pay allowance ('FPA')1
1,700
1,700
1,062
950
Cash in lieu of pension
129
127
75
74
Taxable benefits2
95
186
3
12
Non-taxable benefits2
71
59
42
32
Total fixed
3,283
3,338
1,933
1,806
Annual incentive3
1,590
799
978
450
Notional returns4
22
17
—
—
Replacement award5
—
—
754
1,431
Total variable
1,612
816
1,732
1,881
Total fixed and variable
4,895
4,154
3,665
3,687
1 Executive Directors made the personal decision to donate 100% of their base salary increases for 2021 to charity given the ongoing challenging
external environment. Ewen Stevenson also donated his FPA increase for 2021 to charity. Figures shown in the table above are the gross figures
before charitable donations.
2 Taxable benefits include the provision of medical insurance, car and tax return assistance (including any associated tax due, where applicable).
Non-taxable benefits include the provision of life assurance and other insurance cover.
3 Noel Quinn and Ewen Stevenson both voluntarily waived the cash portion of their 2020 annual incentive. Without this voluntary waiver, the 2020
annual incentive of Noel Quinn and Ewen Stevenson would have been £1,598,000 and £900,000, respectively.
4 The deferred cash awards granted in prior years includes a right to receive notional returns for the period between the grant and vesting date. This
is determined by reference to a rate of return specified at the time of grant and paid annually, with the amount disclosed on a paid basis.
5 In 2019 Ewen Stevenson was granted replacement awards to replace unvested awards, which were forfeited as a result of him joining HSBC.
The awards, in general, match the performance, vesting and retention periods attached to the awards forfeited. The values included in the table
for 2020 relate to his 2017 LTI award granted by the Royal Bank of Scotland Group plc ('RBS'), now renamed as NatWest Group plc ('NatWest'),
for performance year 2016, which was determined by applying the performance assessment outcome of 56.25% as disclosed in NatWest's
Annual Report and Accounts 2019 (page 91) to the maximum number of shares subject to performance conditions. This resulted in a payout
equivalent to 78.09% of NatWest award shares that were forfeited and replaced with HSBC shares. A total of 313,608 shares were granted in
respect of his 2017 LTI replacement award at a share price of £6.643. The HSBC share price was £5.845 when the awards ceased to be subject
to performance conditions, with no value attributable to share price appreciation. The value included in the table for 2021 relates to Ewen
Stevenson's 2018 LTI replacement award granted by NatWest for performance year 2017 and was subject to a pre-vest performance test
assessed and disclosed by NatWest in its Annual Report and Accounts 2020 (page 135). As no adjustment was proposed for Ewen Stevenson by
NatWest, a total of 177,883 shares granted in respect of his 2018 LTI replacement award ceased to be subject to performance conditions. These
awards were granted at a share price of £6.643 and the HSBC share price was £4.240 when the awards ceased to be subject to performance
conditions, with no value attributable to share price appreciation.
HSBC Holdings plc
25
Financial overview
In assessing the Group’s financial performance, management uses a range of financial measures
that focus on the delivery of sustainable returns for our shareholders and maintaining our financial
strength.
Executive summary
Financial performance in 2021 was supported by the improved economic outlook and resultant release in ECL allowances, which materially improved
our profitability. While lower policy rates adversely impacted revenue compared with 2020, the interest rate outlook is now significantly more
positive.
Reported profit before tax of $18.9bn increased by 115%, while our return on average tangible equity (‘RoTE’) improved by 5.2 percentage points to
8.3%. The growth in reported profit was due to a net release of ECL, compared with a significant charge in 2020, as well as an increase in share of
profit from associates and joint ventures, while reported operating expenses remained broadly unchanged. These factors were partly offset by lower
reported revenue.
In 2021, all of our regions were profitable. Notwithstanding lower policy rates, our Asia business continued to perform strongly, delivering 65% of
Group reported profits, while there was a material recovery in profitability in all of our other regions.
The Group maintained its strong capital position with a CET1 ratio of 15.8% at 31 December 2021, and increased both customer deposit and lending
balances.
Group financial targets
Return on average tangible equity <>
8.3%
2020: 3.1%
The Group is targeting a reported RoTE greater than or equal to 10% in the medium term. In 2021, RoTE was 8.3%, an increase of 5.2 percentage
points from 2020, primarily reflecting net releases of ECL. Our net interest income outlook is now significantly more positive. If policy rates were to
follow the current implied market consensus, we would expect to deliver a RoTE of at least 10% for 2023.
Adjusted operating expenses <>
$32.1bn
2020: $32.4bn
In February 2020, we announced a multi-year plan to substantially reduce the cost base and accelerate the pace of change, with the aim of becoming
leaner, simpler and more competitive.
During 2021, we continued to demonstrate strong cost control, with adjusted operating expenses of $32.1bn, a reduction of 1% compared with
2020.
Adjusted operating expenses for 2022 are expected to be in line with 2021, with inflationary impacts, continued investment and the impact of
acquisitions and disposals broadly offset by further savings from our cost-reduction programme. This compares with our original target of $31bn or
less (based on average December 2020 rates of foreign exchange).
Our cost reduction programme remains on track to deliver cost saves of between $5bn and $5.5bn in the period from 2020 to 2022, while spending
around $7bn in costs to achieve.
Cumulatively, since the start of our cost programme in 2020, we have generated savings of $3.3bn, with costs to achieve of $3.6bn, which included
actions to restructure our businesses in Europe and the US.
Gross RWA reductions
$104bn
Since the start of the programme.
To improve the return profile of the Group, we are targeting a gross RWA reduction, mainly in low-returning parts of the Group.
During 2021, we updated the list of clients we are remediating and also implemented other methodology changes to improve how we align the
tracking and reporting of reductions to how the programme is being managed. In line with these changes, we also increased our gross RWA
reduction target from $100bn to $110bn by the end of 2022, updating executive scorecards accordingly.
At 31 December 2021, the Group had achieved cumulative RWA reductions of $104 bn since the start of the programme, including accelerated saves
of $9.6bn made in 2019. Given progress to date, we now expect to exceed our $110bn reduction target by the end of 2022.
Capital and dividend policy
CET1 ratio
15.8%
Dividend payout ratio
40.3%
At 31 December 2021, our CET1 ratio was 15.8%. We expect mid-single-digit RWA growth in 2022 through a combination of business growth,
acquisitions and regulatory changes, partly offset by additional RWA savings. This growth, together with capital returns are expected to normalise our
CET1 position to be within our 14% to 14.5% target operating range during 2022. Once we are within the target operating range, we intend to
actively manage our CET1 position to stay within this range. However, due to normal capital volatility, we may be above or below this range in any
given quarter. Our ambition remains to manage this operating range down in the longer term.
The Board has approved a second interim dividend for 2021 of $0.18 per ordinary share. The total dividend per share in 2021 of $0.25 results in a
dividend payout ratio of 40.3% of reported earnings per share (‘EPS’), relative to our target range of between 40% and 55% from 2022 onwards. We
also intend to initiate a further share buy-back of up to $1bn, to commence after the existing up to $2bn buy-back has concluded.
In line with our dividend policy, we retain the flexibility to adjust EPS for non-cash significant items. In 2022, we intend to adjust EPS to exclude the
forecast loss on the planned sale of our retail banking operations in France.
26
HSBC Holdings plc
Reported results
Reported profit
Reported profit after tax of $14.7bn was $8.6bn higher than in 2020.
Reported profit before tax of $18.9bn was $10.1bn higher than in 2020. The increase was primarily due to a net release in reported ECL, reflecting an
improvement in the forward economic outlook, notably in the UK, compared with the significant build-up of stage 1 and stage 2 allowances in 2020.
We also reported an increase in the share of profit from associates, while reported operating expenses remained broadly unchanged.
Lower reported revenue primarily reflected the impact of 2020 global interest rate reductions, as well as a decline in revenue in GBM’s Markets and
Securities Services (‘MSS’) business compared with a strong performance in 2020. Reported revenue also included the net favourable impact of
certain volatile items:
•In WPB, favourable market impacts in life insurance manufacturing of $504m compared with favourable movements in 2020 of $90m.
•In GBM, MSS included favourable movements in credit and funding valuation adjustments, as favourable adjustments of $30m compared with
adverse adjustments of $252m in 2020.
•In Corporate Centre, there were adverse fair value movements on our long-term debt and associated swaps of $99m (2020: $150m favourable).
In 2021, all of our regions were profitable. Despite the impact of lower global interest rates, our Asia business continued to perform strongly. In
addition, there was a material recovery in profitability in all other regions, primarily reflecting a net release in ECL as the economic outlook improved.
IFRS 17 ‘Insurance Contracts’ sets the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance
contracts it holds. IFRS 17 is effective from 1 January 2023 and could have a significant adverse impact on the profitability of our insurance business.
For further details on the impact of IFRS 17 on the results of our insurance operations, see page 318.
Reported revenue
Reported revenue of $49.6bn was $0.9bn or 2% lower than in 2020. The reduction primarily reflected a fall in net interest income as a result of the
impact of lower global interest rates, notably affecting our deposit franchises in WPB and in Global Liquidity and Cash Management (‘GLCM’) in CMB
and GBM. In GBM’s MSS business, revenue decreased in Global Foreign Exchange and Global Debt Markets, compared with a strong 2020,
although revenue increased in Equities from higher volatility and there were favourable movements in credit and funding valuation adjustments. In
addition, revenue was lower in Corporate Centre.
These reductions were in part mitigated by revenue growth in Wealth in WPB of $1.2bn, notably from a net favourable movement in market impacts
in life insurance manufacturing, and growth in investment distribution, asset management and new business in insurance. GBM revenue also
benefited from favourable valuation gains in Principal Investments. In CMB, revenue increased in Credit and Lending as margins improved, and a
recovery in trade volumes resulted in higher fee income in Global Trade and Receivables Finance (‘GTRF’).
The reduction in reported revenue included adverse fair value movements on financial instruments of $0.5bn, although these were more than offset
by the favourable impact of foreign currency translation differences of $1.4bn.
Reported ECL
Reported ECL were a net release of $0.9bn, compared with a charge of $8.8bn in 2020. The net release in 2021 reflected an improvement in the
economic outlook, notably in the UK, partly offset by an increase in allowances in the fourth quarter, reflecting recent developments in China’s
commercial real estate sector. This compared with the significant build-up of stage 1 and stage 2 allowances in 2020 due to the worsening economic
outlook at the onset of the Covid-19 pandemic. The reduction in ECL also reflected historically low levels of stage 3 charges, although with some
normalisation during the fourth quarter, as well as the non-recurrence of a significant charge in 2020 related to a corporate exposure in Singapore.
For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the
impact of the economic scenarios and management judgemental adjustments, see pages 144 to 152.
Reported operating expenses
Reported operating expenses of $34.6bn were broadly unchanged compared with 2020. This included the impact of our cost saving initiatives, as
well as lower impairments of goodwill and other intangible assets, as 2021 included a $0.6bn impairment of goodwill related to our WPB business in
Latin America to reflect the macroeconomic outlook, as well as the impact of foreign exchange rate deterioration and inflationary pressures, notably
on our Argentina business. However, 2020 included a $1.3bn impairment of intangible assets, mainly in Europe. There was also a $0.6bn reduction in
the UK bank levy due to a change in the basis of calculation to only include the UK balance sheet rather than the global balance sheet, as well as a
credit of $0.1bn relating to the 2020 charge.
These decreases were broadly offset by an increase in performance-related pay of $0.7bn as Group performance improved, and by an increase in
investment in technology of $0.9bn (gross of cost savings of $0.5bn). The remaining increase primarily reflected inflationary impacts, non-technology
investment in regulatory programmes, and business growth notably Asia wealth investment. In addition, there was an adverse impact of foreign
currency translation differences of $1.1bn.
In February 2020, we announced a plan to substantially reduce the cost base by 2022 and accelerate the pace of change. We continue to target $5bn
to $5.5bn of cost saves for 2020 to 2022, while spending around $7bn in costs to achieve, which are included in restructuring and other related
costs. Cumulative spend since the start of the programme in 2020 was $3.6bn, with cumulative saves of $3.3bn. In 2021, the total spend was
$1.8bn with saves during the year of $2.2bn.
Reported results
2021
$m
2020
$m
2019
$m
Net operating income before change in expected credit losses and other credit impairment
charges (‘revenue’)
49,552
50,429
56,098
Change in expected credit losses and other credit impairment charges
928
(8,817)
(2,756)
Net operating income
50,480
41,612
53,342
Total operating expenses
(34,620)
(34,432)
(42,349)
Operating profit
15,860
7,180
10,993
Share of profit in associates and joint ventures
3,046
1,597
2,354
Profit before tax
18,906
8,777
13,347
Tax expense
(4,213)
(2,678)
(4,639)
Profit after tax
14,693
6,099
8,708
HSBC Holdings plc
27
Reported share of profit from associates and joint ventures
Reported share of profit in associates and joint ventures of $3.0bn was $1.4bn higher, primarily reflecting a higher share of profit from Bank of
Communications Co., Limited (‘BoCom’), British Growth Fund (‘BGF’) and The Saudi British Bank (‘SABB’). For BGF in the UK, this was due to a
recovery in asset valuations relative to 2020, and for SABB, this was primarily due to the non-recurrence of our share of its goodwill impairment
charge in 2020.
Tax expense
The effective tax rate for 2021 of 22.3% was lower than the 30.5% for 2020. The effective tax rate for 2021 was increased by the impact of
substantively enacted legislation to increase the UK statutory tax rate from 1 April 2023. The 2020 effective tax rate was high, due mainly to the non-
recognition of deferred tax on losses in the UK and France.
Adjusted performance
Our reported results are prepared in accordance with IFRSs, as detailed in the financial statements on page 318.
We also present alternative performance measures (non-GAAP financial measures). These include adjusted performance, which we use to align
internal and external reporting, identify and quantify items management believes to be significant, and provide insight into how management
assesses period-on-period performance. Alternative performance measures are highlighted with the following symbol:<>
To derive adjusted performance, we adjust for:
•the year-on-year effects of foreign currency translation differences; and
•the effect of significant items that distort year-on-year comparisons, which are excluded to improve understanding of the underlying trends in the
business.
The results of our global businesses are presented on an adjusted basis, which is consistent with how we manage and assess global business
performance.
For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 98. Definitions and calculations of other
alternative performance measures are included in our ‘Reconciliation of alternative performance measures’ on page 90 and ‘Reconciliation of
alternative performance measures’ on page 117.
Adjusted results<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Net operating income before change in expected
credit losses and other credit impairment charges
(‘revenue’)
50,090
51,770
56,435
(1,680)
(3)
Change in expected credit losses and other credit
impairment charges
928
(9,282)
(2,687)
10,210
110
Total operating expenses
(32,148)
(32,409)
(33,563)
261
1
Operating profit
18,870
10,079
20,185
8,791
87
Share of profit in associates and joint ventures
3,046
2,192
2,496
854
39
Profit before tax
21,916
12,271
22,681
9,645
79
Adjusted profit before tax<>
Adjusted profit before tax of $21.9bn was $9.6bn or 79% higher than in 2020, primarily due to a net release of adjusted ECL due to an improvement
in the economic outlook, notably in the UK, compared with the significant build-up of stage 1 and stage 2 allowances in 2020. Adjusted share of profit
from associates and joint ventures increased and adjusted operating expenses fell, reflecting strong cost discipline.
These factors were in part offset by lower adjusted revenue, primarily reflecting a fall in net interest income as a result of the impact of lower global
interest rates and a reduction in MSS revenue in GBM, compared with a strong performance in 2020.
Reconciliation of reported to adjusted profit before tax
2021
$m
2020
$m
2019
$m
Reported profit before tax
18,906
8,777
13,347
Currency translation
—
(11)
240
Significant items:
3,010
3,505
9,094
– costs of structural reform
—
—
158
– customer redress programmes
38
(33)
1,444
– disposals, acquisitions and investment in new businesses
—
10
(768)
– fair value movements on financial instruments
242
(264)
(84)
– impairment of goodwill and other intangibles
587
1,090
7,349
– past service costs of guaranteed minimum pension benefits
equalisation
—
17
—
– restructuring and other related costs
2,143
2,078
827
– settlements and provisions in connection with legal and
regulatory matters
—
12
(61)
– goodwill impairment (share of profit in associates and joint
ventures)
—
462
—
– currency translation on significant items
—
133
229
Adjusted profit before tax
21,916
12,271
22,681
28
HSBC Holdings plc
Adjusted revenue<>
Adjusted revenue of $50.1bn was $1.7bn or 3% lower than in 2020. The reduction was primarily in net interest income due to the impact of lower
global interest rates, mainly affecting our deposit franchises within WPB and in GLCM in CMB and GBM. In GBM’s MSS business, revenue
decreased in Global Foreign Exchange and Global Debt Markets, compared with a strong 2020, although revenue increased in Equities from higher
volatility and there were favourable movements in credit and funding valuation adjustments of $301m. In addition, revenue was lower in Corporate
Centre from a net adverse fair value movement relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with
associated swaps.
These reductions were in part mitigated by revenue growth of $1.1bn in Wealth in WPB, notably from a net favourable movement in market impacts
in life insurance manufacturing of $434m, and growth in investment distribution, asset management and new business in insurance. In GBM, there
were higher favourable revaluations in Principal Investments compared with 2020, and increased revenue in Capital Markets and Advisory. In CMB,
revenue grew in Credit and Lending as margins improved, and a recovery in trade volumes resulted in higher fee income in GTRF.
Adjusted ECL<>
Adjusted ECL, which removes the period-on-period effects of foreign currency translation differences, were a net release of $0.9bn compared with a
charge of $9.3bn in 2020. These reflected releases as a result of an improvement in the economic outlook, notably in the UK, partly offset by an
increase in allowances in the fourth quarter, reflecting recent developments in China’s commercial real estate sector. This compared with the
significant build-up of stage 1 and stage 2 allowances in 2020 due to the worsening economic outlook at the onset of the Covid-19 pandemic. The
reduction in ECL also reflected historically low levels of stage 3 charges in 2021, although with some normalisation during the fourth quarter, as well
as the non-recurrence of a significant stage 3 charge in 2020 related to a corporate exposure in Singapore.
Adjusted operating expenses<>
Adjusted operating expenses of $32.1bn were $0.3bn or 1% lower than in 2020. This reflected a favourable impact of $2.2bn from our cost-saving
initiatives. It also included a reduction of $0.6bn in the UK bank levy, reflecting a change in the basis of calculation to only include the UK balance
sheet rather than the global balance sheet, as well as a credit of $0.1bn relating to the 2020 charge. These reductions were partly offset by a higher
performance-related pay of $0.7bn as Group performance improved, and an increase of $0.9bn in investment in technology (gross of cost savings of
$0.5bn), which included enhancements to our digital capabilities. The remaining increase included inflation, non-technology investment in regulatory
programmes and business growth, including Asia wealth investment.
The number of employees expressed in full-time equivalent staff (‘FTE’) at 31 December 2021 was 219,697, a decrease of 6,362 compared with 31
December 2020. The number of contractors at 31 December 2021 was 6,192, an increase of 500, primarily as a result of our growth and
transformation initiatives.
Adjusted share of profit from associates and JVs<>
Adjusted share of profit from associates and joint ventures of $3.0bn was $0.9bn or 39% higher than in 2020, including increases in share of profits
from BoCom and SABB. Our share of profit also rose from BGF in the UK due to a recovery in asset valuations relative to 2020.
Balance sheet and capital
Balance sheet strength
At 31 December 2021, our total assets of $3.0tn were $26bn or 1% lower than at 31 December 2020 on a reported basis and included adverse
effects of foreign currency translation differences of $46bn.
The decrease in total assets reflected lower derivative assets and a fall in financial investments, reflecting a redeployment of our commercial surplus
into cash, which rose by $99bn, in part due to higher customer deposits. Loans and advances to customers increased by $8bn on a reported basis
and $23bn on a constant currency basis, mainly from growth in mortgage balances.
Reported loans and advances to customers of $1.0tn were 61.1% as a percentage of customer accounts, compared with 63.2% at 31 December
2020, primarily reflecting growth in customer account balances.
Distributable reserves
The distributable reserves of HSBC Holdings at 31 December 2021 were $32.2bn, compared with $31.3bn at 31 December 2020. The increase was
primarily driven by profits generated of $10.8bn, offset by ordinary dividend payments and additional tier 1 coupon distributions of $5.8bn, other
reserves movements of $2.1bn and $2bn related to our share buy-back programme.
Capital position
We actively manage the Group’s capital position to support our business strategy and meet our regulatory requirements at all times, including under
stress, while optimising our capital efficiency. To do this, we monitor our capital position using a number of measures. These include: our capital
ratios, the impact on our capital ratios as a result of stress, and the degree of double leverage being run by HSBC Holdings. Double leverage is one of
the constraints on managing our capital position, given the complexity of the Group’s subsidiary structure and the multiple regulatory regimes under
which we operate. For further details, see page 189.
Our CET1 ratio at 31 December 2021 was 15.8%, down 0.1 percentage points from 2020. Capital generation was more than offset by dividends, the
up to $2bn share buy-back announced in October, foreign exchange movements and other deductions. RWAs reduced despite new Pillar 1
requirements for structural foreign exchange, reflecting actions under our transformation programme.
Liquidity position
We actively manage the Group’s liquidity and funding to support our business strategy and meet regulatory requirements at all times, including under
stress. To do this, we monitor our position using a number of risk appetite measures, including the liquidity coverage ratio and the net stable funding
ratio. At 31 December 2021, we held high-quality liquid assets of $717 bn. This excludes high-quality liquid assets in legal entities which are not
transferable due to local restrictions. For further details, see page 193.
$2,958bn
15.8%
HSBC Holdings plc
29
Wealth and Personal Banking
Contribution to Group adjusted profit before tax<>
% contribution to Group
32%
We serve more than 38 million customers from retail customers to ultra high net worth individuals and their families.
We offer locally-tailored products and services across multiple channels for our customers’ everyday banking needs, as well as insurance,
investment management, advisory and wealth solutions for those with more sophisticated requirements. Our global presence provides for
customers with international needs.
WPB grew customer deposits, lending and wealth sales, as markets emerged from the pandemic in 2021. Performance was favourably impacted by
a net release of adjusted ECL provisions and strong wealth sales in Asia, although adjusted revenue was affected by the impact of lower interest
rates, despite strong balance sheet growth. Aligned with our strategy, we continued to invest in our digital capabilities and people to expand our
wealth franchise in Asia, and address our customers’ international needs.
Adjusted results<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Net operating income
22,110
22,571
26,140
(461)
(2)
Change in expected credit losses and other credit
impairment charges
288
(3,005)
(1,376)
3,293
110
Operating expenses
(15,384)
(15,443)
(15,823)
59
—
Share of profit in associates and JVs
34
7
54
27
>200
Profit before tax
7,048
4,130
8,995
2,918
71
RoTE excluding significant items (%)1
15.2
9.1
19.7
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.
Opening up the gateway to international banking
We are making it easier than ever for our customers to manage their money around the world.
Global Money Account, our multi-currency account for personal customers, allows customers to hold, manage and send cash in various currencies
without paying any fees. Having launched Global Money in the US in 2020, we expanded these capabilities into the UAE, Singapore and the Channel
Islands and Isle of Man in 2021, and we aim to double the number of markets in 2022.
Our international account opening is getting simpler. It is now possible to open accounts in mainland China and either Singapore or the UK, in the
same visit to a branch, and 80% faster than in 2020. Hong Kong identity card holders in Australia, Canada, Singapore, the US and the UK can now
open an account online in 10 minutes, down from four weeks, with immediate access to mobile banking.
30
HSBC Holdings plc
Financial performance
Adjusted profit before tax of $7.0bn was $2.9bn or 71% higher than in 2020. This reflected a net release of adjusted ECL as the economic outlook
improved, compared with the significant build-up of allowances in 2020. Adjusted revenue fell as the impact of lower global interest rates resulted in
a decrease in net interest income. This was partly offset by an increase in Wealth revenue of $1.1bn due to a net favourable movement of $434m in
market impacts in insurance, higher new business in insurance (up $0.3bn), as well as growth in investment distribution (up $0.2bn) and asset
management (up $0.1bn).
Adjusted revenue of $22.1bn was $0.5bn or 2% lower.
In Personal Banking, revenue of $12.3bn was down $1.1bn or 8%.
•Net interest income was $1.2bn lower due to narrower margins following the fall in global interest rates in 2020 due to the Covid-19
pandemic. This reduction was partly mitigated by deposit balance growth of $29bn or 4% and higher retail mortgage lending of $22bn or
7% across all regions, particularly in the UK and Hong Kong.
•Non-interest income increased by $0.1bn or 11%, driven by growth of mortgage fees in the UK and higher transaction volumes and
spending on cards.
In Wealth, revenue of $9.1bn was up $1.1bn or 14%.
•Life insurance manufacturing revenue was $0.7bn higher, driven by a net favourable movement in market impacts of $434m. A favourable
movement of $504m compared with a favourable movement of $70m in 2020, as equity markets performed strongly in 2021 compared
with volatile conditions in 2020. The value of new business written was $0.3bn or 41% higher, reflecting market share growth, notably in
Hong Kong, where we continued to scale up our health platforms and significantly broadened engagement with domestic customers.
•Investment distribution revenue was $0.2bn or 7% higher, driven by higher mutual fund sales in Hong Kong and mainland China.
•Asset management revenue was $0.1bn or 14% higher, driven by an increase in management fees, reflecting growth of $28bn in invested
assets, and higher performance fees.
•Global Private Banking revenue was $37m or 2% higher due to growth in non-interest income of $78m or 7% driven by a rise in
investment revenue, reflecting higher fees from advisory and discretionary mandates. This was partly offset by a reduction in net interest
income of $41m or 6% as a result of the impact of lower global interest rates.
In Other, revenue fell by $0.5bn, reflecting a reduction in revenue allocated from Markets Treasury, lower interest income earned on capital held in
the business and adverse valuations on properties.
Adjusted ECL were a net release of $0.3bn, reflecting an improvement in the economic outlook. This compared with a charge of $3.0bn in 2020 due
to the significant build-up of allowances as a result of the Covid-19 pandemic.
Adjusted operating expenses of $15.4bn were $0.1bn lower, as the benefits of our cost-saving initiatives funded our continued investment in wealth
in Asia and offset higher performance-related pay.
Management view of adjusted revenue<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Wealth
9,123
8,004
8,923
1,119
14
– investment distribution 1
3,488
3,252
3,322
236
7
– Global Private Banking
1,826
1,789
1,917
37
2
net interest income
647
688
911
(41)
(6)
non-interest income
1,179
1,101
1,006
78
7
– life insurance manufacturing 2
2,590
1,890
2,632
700
37
– asset management
1,219
1,073
1,052
146
14
Personal Banking
12,254
13,330
16,068
(1,076)
(8)
– net interest income 1
10,858
12,070
14,381
(1,212)
(10)
– non-interest income
1,396
1,260
1,687
136
11
Other 2, 3
733
1,237
1,149
(504)
(41)
Net operating income 4
22,110
22,571
26,140
(461)
(2)
1 In the fourth quarter of 2021, revenue of $62m for the full-year related to wealth lending was moved from Personal Banking to investment distribution. Comparative data
have not been re-presented.
2 In the fourth quarter of 2021, revenue of $53m for the full-year, primarily related to interest on capital held in our insurance business, was moved from ‘Other’ to life
insurance manufacturing (2020: $79m, 2019: $144m). Comparative data have been re-presented.
3 ‘Other’ includes the distribution (where applicable) of retail and credit protection insurance, disposal gains and other non-product specific income. It also includes
allocated revenue from Markets Treasury, HSBC Holdings interest expense and Argentina hyperinflation.
4 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Divisional highlights
$1.7 tn
WPB wealth balances at 31 December 2021, up 5% from 31 December 2020 with net new invested assets of $64bn.
$23bn
Growth in WPB mortgage book, notably in the UK (up 7%) and Hong Kong (up 7%) since 31 December 2020. <>
$7.0bn
$22.1bn
HSBC Holdings plc
31
Commercial Banking
Contribution to Group adjusted profit before tax<>
% contribution to Group
31%
We support businesses in 53 countries and territories, ranging from small enterprises to large companies operating globally.
We help businesses grow by supporting their financial needs, facilitating cross-border trade and payment services, and providing access to
products and services. We help them access international markets, provide expert financial advice and offer a full suite of products and
services from across the Group’s other businesses.
CMB supported our customers’ liquidity and working capital needs, growing lending and deposit balances in 2021. We enabled our clients to
participate in the recovery in global trade volumes while dealing with supply chain constraints, increasing our fee income and trade-related lending.
We also more than doubled our sustainable finance and investment compared with 2020. Performance was favourably impacted by the net release
of adjusted ECL provisions, partly offset by the impact of lower interest rates globally on adjusted revenue.
Adjusted results<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Net operating income
13,415
13,718
15,594
(303)
(2)
Change in expected credit losses and other credit
impairment charges
300
(4,989)
(1,194)
5,289
106
Operating expenses
(6,973)
(6,897)
(7,028)
(76)
(1)
Share of profit in associates and JVs
1
(1)
1
2
200
Profit before tax
6,743
1,831
7,373
4,912
>200
RoTE excluding significant items (%)1
10.8
1.3
13.0
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.
Supporting SMEs on the move
HSBC Kinetic provides cutting edge technology solutions to our customers and opens up a world of opportunity for small businesses. Launched on
Apple’s App store in 2020, Kinetic is an app-based business account that allows sole traders and other small and medium-sized enterprises to apply
for an account in minutes and manage their finances on the go. Onboarding is fast, with 87% of accounts approved within 48 hours during the
second half of 2021. A range of new features and services have been added to the app throughout the year, which include credit cards, digital
cheque deposits, a cashflow toolkit and predictive smart alerts informing customers about critical cash shortfalls in advance.
Designed using insights from over 3,000 small and medium-sized enterprises, we brought Kinetic to 21,000 additional customers during 2021,
reaching 24,000 users at the end of 2021, achieving an Apple rating of 4.8.
32
HSBC Holdings plc
Financial performance
Adjusted profit before tax of $6.7bn was $4.9bn higher than in 2020. This reflected a net release of adjusted ECL of $0.3bn in 2021 as the economic
outlook improved, compared with a charge of $5.0bn in 2020 due to a significant build-up of allowances and a notable charge related to a corporate
exposure in Singapore. This was partly offset by a decline in adjusted revenue, mainly due to the impact of lower global interest rates.
Adjusted revenue of $13.4bn was $0.3bn or 2% lower.
•In GLCM, revenue decreased by $0.7bn or 16%, reflecting the impact of lower global interest rates, mainly in Hong Kong and the UK. This was
partly offset by a 14% increase in year-on-year average deposit balances, with growth particularly in Hong Kong, the UK and the US, as well as
from an 11% increase in fee income, with growth across all regions.
•In Markets products, Insurance and Investments and Other, revenue reduced by $11m or 1%, reflecting the impact of lower global interest rates
on income earned on capital held in the business and lower Markets Treasury revenue. This reduction was partly offset by a 12% increase in
revenue from the sale of GBM products to CMB customers, notably Global Markets and Capital Markets and Advisory, as well as higher insurance
and investment revenue.
•In Credit and Lending, revenue increased by $0.2bn or 4%, reflecting wider margins and a 9% increase in fee income, notably in the UK and North
America. During 2021, we grew balances in Asia, although year-on-year average balances decreased, as customers' funding requirements fell due
to Covid-19 restrictions, notably in Europe and North America.
•In GTRF, revenue rose by $0.2bn or 9%, driven by an 8% growth in fee income across all regions, partly reflecting a recovery in global trade
volumes, as well as a 9% increase in average balances, notably in Asia, and higher margins in the UK.
Adjusted ECL were a net release of $0.3bn, compared with a charge of $5.0bn in 2020. ECL in 2021 reflected a release of stage 1 and stage 2
allowances as the economic outlook improved, notably in the UK, although ECL were a net charge of $0.2bn in the fourth quarter, including an
increase in allowances relating to recent developments in China’s commercial real estate sector. This compared with the significant build-up of
allowances in 2020 as a result of the adverse economic outlook due to the Covid-19 pandemic. The reduction in ECL also included lower stage 3
charges in 2021, and as 2020 included a significant charge related to a corporate exposure in Singapore.
Adjusted operating expenses of $7.0bn were $0.1bn or 1% higher, primarily reflecting an increase in performance-related pay. We continued to
invest in our digital and transactional banking capabilities, as well as simplifying customer journeys for both onboarding and lending, and enhancing
self-service capabilities. These investments helped us drive operational and hiring efficiencies, resulting in cost reductions, in addition to the impact
of our cost-saving initiatives. From 2021, the UK bank levy was partially allocated to global businesses, which was previously retained in Corporate
Centre, resulting in an additional $47m of operating expenses in 2021.
During 2021, we delivered $13bn of gross RWA reductions, taking our cumulative total to $26bn since January 2020, as part of our transformation
programme.
Management view of adjusted revenue<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Global Trade and Receivables Finance
1,945
1,784
1,876
161
9
Credit and Lending
6,052
5,828
5,617
224
4
Global Liquidity and Cash Management
3,575
4,252
6,066
(677)
(16)
Markets products, Insurance and Investments and
Other 1
1,843
1,854
2,035
(11)
(1)
– of which: share of revenue for Markets and Securities
Services and Banking products
1,065
950
965
115
12
Net operating income 2
13,415
13,718
15,594
(303)
(2)
1 Includes CMB’s share of revenue from the sale of Markets and Securities Services and Banking products to CMB customers. GBM’s share of revenue from the sale of
these products to CMB customers is included within the corresponding lines of the GBM management view of adjusted revenue. Also includes allocated revenue from
Markets Treasury, HSBC Holdings interest expense and Argentina hyperinflation.
2 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Divisional highlights
9%
Growth in adjusted net fee income from $3.3bn in 2020 to $3.6bn in 2021, rising above pre-pandemic levels. <>
30%
Growth in GTRF lending from $44.4bn in 2020 to $57.6bn in 2021, growing to above pre-pandemic levels.<>
$6.7bn
$13.4bn
HSBC Holdings plc
33
Global Banking and Markets
Contribution to Group adjusted profit before tax<>
% contribution to Group
24%
We repositioned our capital and resources in Global Banking and Markets to create capacity for growth opportunities, mainly into Asia
and the Middle East, and to serve international clients that are aligned to our strategy. Our product specialists deliver a comprehensive
range of transaction banking, financing, capital markets and advisory, as well as risk management services. Our products, combined
with our expertise across industries, enable us to help clients achieve their sustainability goals.
GBM adjusted profit before tax increased, reflecting a net release in adjusted ECL in 2021. While adjusted revenue fell, there
was continued momentum in Equities, Capital Markets and Advisory, as well as our Securities Services business, where during
2021 assets under custody surpassed $10tn for the first time. We also continued to invest in technology to support our clients
and to improve our operational resilience.
Adjusted results<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Net operating income
15,002
15,768
15,282
(766)
(5)
Change in expected credit losses and other credit
impairment charges
337
(1,289)
(155)
1,626
126
Operating expenses
(10,006)
(9,640)
(9,891)
(366)
(4)
Share of profit in associates and JVs
—
—
1
—
—
Profit before tax
5,333
4,839
5,237
494
10
RoTE excluding significant items (%)1
8.6
6.7
9.8
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.
Supporting customers to net zero
Etihad Airways has pledged to reduce CO2 emissions to 50% of 2019 levels by 2035 on the way to reaching net zero by 2050.
As part of this transition, we helped the UAE’s national airline raise $1.2bn with the first sustainability-linked loan in the global aviation industry to
embed publicly disclosed environment, social and governance targets. We held joint ESG structuring and coordinator roles, as well as being joint
bookrunner and mandated lead arranger. The targets included the amount of carbon emissions Etihad cuts from its passenger fleet, with
financial penalties and incentives of up to $5.5m.
The loan builds on a $600m sustainability-linked Islamic bond, or sukuk, we helped arrange in October 2020.
34
HSBC Holdings plc
Financial performance
Adjusted profit before tax of $5.3bn was $0.5bn or 10% higher than in 2020. This reflected a net release of adjusted ECL, compared with a
significant build-up of allowances in 2020, although adjusted revenue fell and adjusted operating expenses rose.
Adjusted revenue of $15.0bn decreased by $0.8bn compared with 2020.
In MSS, revenue fell by $0.7bn or 8%, compared with a strong comparative period, primarily in Global Foreign Exchange and Global Debt
Markets, from a reduction in client activity.
•In Equities, our diversified product mix and geographical coverage enabled us to benefit from volatility in Asian markets, particularly in wealth
products, resulting in revenue growth of $0.4bn or 45%.
•In Securities Services, we continued to grow fees from client inflows and market-related growth, and increased average assets under
custody by 18% to over $10tn. Net interest income decreased by 16% as lower global interest rates were in part mitigated by growth in
average cash balances.
In Banking, revenue fell by $0.1bn or 2%.
•In GLCM, revenue fell by $0.2bn or 10%, as lower global interest rates compressed margins. This was partly offset by growth in average
balances of 4% and increased fee income, reflecting higher transaction volumes.
•Revenue in Credit and Lending and GTRF was adversely affected by strategic actions taken to reduce RWAs.
•Capital Markets and Advisory benefited from a strong performance in leveraged and acquisition finance, particularly in the US, although debt
underwriting volumes fell.
Adjusted ECL were a net release of $0.3bn, reflecting an improved economic outlook. This compared with a net charge of $1.3bn in 2020. ECL
in 2021 also included an increase in allowances in the fourth quarter, reflecting recent developments in China’s commercial real estate sector.
Adjusted operating expenses of $10.0bn were $0.4bn or 4% higher from an increase in performance-related pay of approximately $0.2bn and
higher technology investment. From 2021, the UK bank levy was partially allocated to global businesses, which was previously retained in
Corporate Centre, resulting in an additional $0.2bn of operating expenses in 2021. These increases were partly offset by the impact of our cost-
saving initiatives.
At 31 December 2021, we had delivered $77bn of cumulative gross RWA reductions as part of our transformation programme, reflecting the
completion of structural elements of our transformation programme and approximately 90% of our target.
Management view of adjusted revenue<>1
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Markets and Securities Services
8,288
8,997
7,984
(709)
(8)
– Securities Services
1,923
1,832
2,075
91
5
– Global Debt Markets
878
1,464
1,043
(586)
(40)
– Global Foreign Exchange
3,355
4,140
3,179
(785)
(19)
– Equities
1,224
844
598
380
45
– Securities Financing
878
988
1,056
(110)
(11)
– Credit and funding valuation adjustments
30
(271)
33
301
>100%
Banking
6,610
6,748
7,571
(138)
(2)
– Global Trade and Receivables Finance
714
706
703
8
1
– Global Liquidity and Cash Management
1,838
2,034
2,751
(196)
(10)
– Credit and Lending
2,596
2,687
2,785
(91)
(3)
– Capital Markets and Advisory
1,256
1,073
872
183
17
– Other 2
206
248
460
(42)
(17)
GBM Other
104
23
(273)
81
>100%
– Principal Investments
377
115
267
262
>100%
– Other 3
(273)
(92)
(540)
(181)
>(100)%
Net operating income 4
15,002
15,768
15,282
(766)
(5)
1 From 1 June 2020, revenue from Issuer Services, previously reported in Securities Services, was reported in Banking. This resulted in $80m revenue being
recorded in Securities Services in 2020. Comparative data have not been re-presented.
2 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.
3 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and Argentina hyperinflation.
4 ‘Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Divisional highlights
48%
Adjusted revenue generated in Asia in 2021. <>
$28.9bn
Reduction in reported RWAs compared with 31 December 2020.
$5.3bn
$15.0bn
HSBC Holdings plc
35
Corporate Centre
The results of Corporate Centre primarily comprise the share of profit from our interests in our associates and joint ventures. It also
includes Central Treasury, stewardship costs and consolidation adjustments.
Corporate Centre performance improved from 2020, mainly due to a higher adjusted share of profit from associates and joint ventures and a lower
UK bank levy charge.
Adjusted results<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Net operating income
(437)
(287)
(581)
(150)
(52)
Change in expected credit losses and other credit
impairment charges
3
1
38
2
200
Operating expenses
215
(429)
(821)
644
150
Share of profit in associates and JVs
3,011
2,186
2,440
825
38
Profit before tax
2,792
1,471
1,076
1,321
90
RoTE excluding significant items (%)1
5.6
3.1
0.8
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.
Financial performance
Adjusted profit before tax of $2.8bn was $1.3bn higher than in 2020 due to an increased adjusted share of profit from associates and joint ventures
and a net favourable movement in adjusted operating expenses, partly offset by adverse movements in adjusted revenue.
Adjusted revenue decreased by $0.2bn, mainly in Central Treasury, from a net adverse fair value movement of $0.3bn relating to the economic
hedging of interest rate and exchange rate risk on our long-term debt with associated swaps. This was partly offset by the non-recurrence of
revaluation losses on investment properties in 2020.
Adjusted operating expenses were a net credit of $0.2bn, which was $0.6bn favourable compared with 2020. This was driven by a reduction of
$0.6bn in the UK bank levy, reflecting a change in the basis of calculation to only include the UK balance sheet rather than the global balance sheet,
and by a credit of $0.1bn relating to the 2020 charge. In addition, in 2021 the UK bank levy was partially allocated to our global businesses, notably to
GBM, resulting in a further reduction of $0.2bn. The effect of these changes resulted in a net credit of $0.1bn in Corporate Centre, compared with a
charge of $0.8bn in 2020. This decrease was partly offset by lower recoveries from our global businesses.
Adjusted share of profit in associates and joint ventures of $3.0bn increased by $0.8bn. The increases were from BoCom and SABB, as well as from
BGF in the UK, reflecting a recovery in asset valuations relative to 2020.
Management view of adjusted revenue<>
2021
$m
2020
$m
2019
$m
2021 vs 2020
$m
%
Central Treasury 1
(99)
157
179
(256)
>(100)
Legacy portfolios
(33)
(20)
(115)
(13)
(65)
Other 2
(305)
(424)
(645)
119
28
Net operating income 3
(437)
(287)
(581)
(150)
(52)
1 Central Treasury includes adverse valuation differences on issued long-term debt and associated swaps of $99m (2020: gains of $151m; 2019: gains of $146m).
2 Revenue from Markets Treasury, HSBC Holdings net interest expense and Argentina hyperinflation were allocated to the global businesses, to align them better with
their revenue and expense. The total Markets Treasury revenue component of this allocation for 2021 was $2,339m (2020: $2,849m; 2019: $2,075m).
3 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
36
HSBC Holdings plc
Risk overview
Active risk management helps us to achieve our strategy, serve our customers and communities
and grow our business safely.
Managing risk
The Covid-19 pandemic and its effect on the global economy have continued to impact our customers and our organisation. Despite the successful
roll-out of vaccines around the world, a varying degree of uncertainty remained throughout 2021. This was caused by new variants of Covid-19,
varying vaccine effectiveness rates and the need for the reimposition of government-imposed restrictions. While the global economic recovery in
2021 eased financial difficulties for some of our customers, the future effects remain uncertain.
Throughout the pandemic, we have continued to support our customers and adapted our operational processes. We maintained high levels of
service as our people, processes and systems responded to the required changes.
The financial performance of our operations varied in different geographies, but our balance sheet and liquidity remained strong. This helped us to
support our customers both during periods of government-imposed restrictions and when these restrictions were eased.
Tensions between China and the US, the UK, the EU, India and other countries were heightened during 2021. In addition, the potential for an
escalation of hostilities between Russia and Ukraine further complicates the geopolitical landscape. The macroeconomic, trade and regulatory
environments have become increasingly fragmented through disruptions to supply chains, increasing inflationary pressures, and market concerns
regarding potential impacts following instability in China’s commercial real estate sector. We continue to monitor the situation closely.
We continued to focus on improving the quality and timeliness of the data used to inform management decisions, through measures such as early
warning indicators, prudent active risk management of our risk appetite, and ensuring regular communication with our Board and key stakeholders.
Our risk appetite
Our risk appetite defines our desired forward-looking risk profile, and informs the strategic and financial planning process. It provides an objective
baseline to guide strategic decision making, helping to ensure that planned business activities provide an appropriate balance of return for the risk
assumed, while remaining within acceptable risk levels. Additionally, it supports senior management in allocating capital, funding and liquidity
optimally to finance growth, while monitoring exposure to non-financial risks.
Capital and liquidity are at the core of our risk appetite framework, with forward-looking statements informed by stress testing. We continue to
evolve our climate risk appetite to reflect the risks from climate change, setting out the measures we intend to take to support our climate ambition
and our commitments to regulators, investors and stakeholders.
During 2021, metrics monitoring the change in expected credit losses and other credit impairment charges returned to within their defined risk
appetite thresholds. This was achieved by the release in allowances for expected credit losses, reflecting: an improvement of the economic outlook;
the adaption of our strategy following the Covid-19 pandemic; enhancements to how we monitor risks; reviews of our portfolios that are highly
vulnerable to the economic environment; and the implementation of additional review measures for new credit requests.
Key risk appetite metrics
Component
Measure
Risk appetite
2021
Capital
CET1 ratio – end point basis
≥13.0%
15.8%
Change in
expected credit
losses and other
credit impairment
charges
Change in expected credit losses and other credit impairment charges
as a % of advances: (WPB)
≤0.50%
(0.06)%
Change in expected credit losses and other credit impairment charges
as a % of advances: wholesale (GBM, CMB)
≤0.45%
(0.10)%
Stress tests
We regularly conduct stress tests to assess the resilience of our balance sheet and our capital adequacy, as well as to provide actionable insights
into how key elements of our portfolios may behave during crises. We use the outcomes to calibrate our risk appetite and to review the robustness
of our strategic and financial plans, helping to improve the quality of management’s decision making. Stress testing analysis assists management in
understanding the nature and extent of vulnerabilities to which the Group is exposed. The results from the stress tests also drive recovery and
resolution planning to help enhance the Group’s financial stability under various macroeconomic scenarios. The selection of stress scenarios is based
upon the identification and assessment of our top and emerging risks identified and our risk appetite.
In 2021, the Bank of England (‘BoE’) required all major UK banks to conduct a solvency stress test to assess whether the capital buffers that banks
had built during the Covid-19 pandemic were sufficient to deal with a prevailing stress period. This exercise differed from previous BoE stress tests,
which were used to determine the capital requirements for participating banks. The 2021 solvency stress test incorporated a ‘double dip’ scenario,
whereby an economy faces a recession and then a partial or full recovery for a short period of time before entering a second recessionary period.
Additionally, it represented an intensification of the macroeconomic shocks seen in 2020, with economic weaknesses persisting around the world,
leading to ongoing weaknesses in global GDP.
We also conducted our own internal stress test, which explored the potential impacts of key vulnerabilities to which we are exposed, including
geopolitical issues and the Covid-19 pandemic. The internal stress test considered the impacts of various risk scenarios across all risk types and on
capital resources. The results of the internal stress test were shared with senior management, and showed that after taking appropriate actions, the
Group would remain adequately capitalised.
In 2021, the Prudential Regulation Authority (‘PRA’) requested all major UK banks to run a climate-related stress test to explore the impacts of a set
of scenarios: an early policy action, a late policy action and no additional policy action. To support the requirements for assessing the impacts of
climate change, we have developed a set of capabilities to execute climate stress testing and scenario analysis. These are used to improve our
understanding of our risk exposures for risk management and business decision making. In addition to the PRA requirements, we also delivered
regulatory climate change stress testing exercises to a number of other regulators including the Hong Kong Monetary Authority and the Monetary
Authority of Singapore. These have provided us with insights to identify appropriate areas of further development and actions to mitigate against the
impact of climate change.
HSBC Holdings plc
37
Our operations
We remain committed to investing in the reliability and resilience of our IT systems and critical services that support all parts of our business. We do
so to help protect our customers, affiliates and counterparties, and to help ensure that we minimise any disruption to services that could result in
reputational and regulatory consequences. We continue to operate in a challenging environment in which cyber threats are prevalent. We continue to
invest in business and technical controls to help defend against these threats.
We are making progress with the implementation of our business transformation plans, while seeking to ensure that we are able to manage safely
the risks of the restructuring, which include execution, operational, governance, reputational, conduct and financial risks.
For further details on our risk management framework and risks associated with our banking and insurance manufacturing operations, see pages 135 and 136
respectively.
Risks related to Covid-19
A global vaccination roll-out in 2021 helped reduce the social and economic impact of the Covid-19 pandemic, although there has been significant
divergence in the speed at which vaccines have been deployed around the world. By the end of 2021, high vaccination rates had ensured that many
Covid-19-related restrictions on activity in developed markets had been lifted and travel constraints were easing. However, the emergence of the
Omicron variant in late 2021 demonstrated the continued risk new variants pose. There remains a divergence in approach taken by countries to the
level of restrictions on activity and travel in response to the pandemic. Such diverging approaches to future pandemic waves could prolong or worsen
supply chain and international travel disruptions. A full return to pre-pandemic levels of social interaction across all our key markets is unlikely in the
short to medium term.
Our ECL models continue to be impacted by the pandemic, as a result of the continued economic uncertainty caused by new Covid-19 variants. We
continued to carry out enhanced monitoring of model outputs and use of model overlays, including management judgemental adjustments based on
the expert judgement of senior credit risk managers. In addition, we recalibrated certain key loss models to take into account the impacts of Covid-19
on critical model inputs. We also responded to complex conduct considerations and heightened risk of fraud related to the varying government
support measures and restrictions. The continued economic uncertainty resulting from the pandemic could adversely impact our revenue
assumptions, notably volume growth.
Our operations have been resilient throughout the pandemic. However, the operational support functions on which the Group relies are based in a
number of countries worldwide, some of which have been particularly affected by the Covid-19 pandemic during 2021. As a result, business
continuity responses have been implemented and the majority of service level agreements have been maintained in locations where the Group
operates. We continue to monitor the situation closely, in particular in those countries and regions where Covid-19 infections are most prevalent and/
or where travel restrictions are in place.
For further details on our approach to the risks related to Covid-19, see ‘Areas of special interest’ on page 131.
Geopolitical and macroeconomic risks
The macroeconomic, trade and regulatory environment has become increasingly fragmented, with the spread of new variants of Covid-19, alongside
other factors, continuing to disrupt supply chains in several industries globally. It remains to be seen how supply chains will be impacted by the
Omicron or other future variants. The mismatch between supply and demand has pushed up commodity and other prices, particularly in the energy
sector, creating further challenges for monetary authorities and our customers. Against the backdrop of both a vaccine-led economic recovery and
increasing inflationary pressures, interest rates generally rose during 2021. Central banks in developed markets have either begun, or are expected to
soon begin, to raise benchmark rates in order to help ease inflationary pressures, although rates are expected to remain low by historical standards,
as uncertainties over the economic outlook continue.
Market concerns remain about repercussions for the Chinese domestic economy from recent instability in its commercial real estate sector. Such
repercussions may occur directly through financial exposures to the Chinese commercial real estate sector, or indirectly through the effect of a
slowdown in economic activity in China and in the supply chain to the real estate sector. According to the Chinese government’s ‘three red lines’
framework used to govern the real estate sector, at 31 December 2021 we had no direct credit exposure to developers in the 'red' category, noting
that deteriorating operating performance and challenging liquidity conditions were seen more broadly across the sector. We continue to monitor the
situation closely, including potential indirect impacts, and seek to take mitigating actions as required.
In December 2021, the OECD published model rules that provided a template for countries to implement a new global minimum tax rate of 15%
from 2023. In January 2022, the UK government opened a consultation on how the UK plans to implement the rules. The impact on HSBC will
depend on exactly how the UK implements the model rules, as well as the profitability and local tax liabilities of HSBC’s operations in each tax
jurisdiction from 2023. Separately, potential changes to tax legislation and tax rates in the countries in which we operate could increase our effective
tax rate in future as governments seek revenue to pay for Covid-19 support packages.
Heightened tensions across the geopolitical landscape could also have implications for the Group and its customers. The relationship between the
UK and the EU may come under further strain in 2022 with a number of potential areas of tension, notably the Northern Ireland Protocol, with
possible repercussions for the operation of the EU-UK Trade and Cooperation Agreement. Diplomatic tensions between China and the US, and
extending to the UK, the EU, India and other countries, and developments in Hong Kong and Taiwan, may affect the Group, creating regulatory,
reputational and market risks. The US, the UK, the EU, Canada and other countries have imposed various sanctions and trade restrictions on Chinese
individuals and companies. In response, China has announced sanctions, trade restrictions and laws that could impact the Group and its customers.
38
HSBC Holdings plc
The financial impact on the Group of geopolitical risks in Asia is heightened owing to the strategic importance of the region in terms of profitability
and prospects for growth. Business sentiment in some sectors in Hong Kong remains subdued, although the financial services sector has remained
strong and has benefited from stable liquidity conditions.
Additionally, the US, the UK and the EU have threatened to expand sanctions significantly against Russia in response to an increasing risk of
hostilities in Ukraine, which, together with any military conflict, could impact global markets as well as the Group and its customers. We continue to
monitor developments and seek to manage the associated impacts on our customers and business.
For further details on our approach to geopolitical and macroeconomic risks, see ‘Top and emerging risks’ on page 124.
Climate risk
In 2021, the pace and volume of policy and regulatory changes and expectations increased, amid a global focus on formalising climate risk
management, stress testing and scenario analysis and disclosures. We aim to manage climate risk across all our businesses in line with our Group-
wide risk management framework. Our most material risks in terms of managing climate risk relate to corporate and retail client financing within our
banking portfolio, but there are also significant responsibilities in relation to asset ownership by our insurance business and employee pension plans,
as well as from the activities of our asset management business.
Climate change can have an impact across our risk taxonomy through both transition and physical channels. These have the potential to cause both
idiosyncratic and systemic risks, resulting in potential financial and non-financial impacts for HSBC.
We continue to monitor the impacts of climate risk and accelerate the development of our climate risk management capabilities, through our
dedicated climate risk programme. While financed emissions and other climate risk reporting has improved over time, data remains of limited quality
and consistency. Developments in data and methodologies are expected to continue to help improve and enhance our measurement and reporting of
climate risk and financed emissions.
For further details of our approach to climate risk management, see ‘Areas of special interest’ on page 131.
Ibor transition
During 2021, our interbank offered rate (‘Ibor’) transition programme – which is tasked with the development of new near risk-free rate (‘RFR’)
products and the transition of legacy Ibor products – continued to facilitate engagement with our clients, and finalise IT and operational changes
necessary to enable an orderly transition from Ibors to RFRs, or alternative benchmarks, such as policy interest rates. Following the announcement
by ICE Benchmark Administration Limited in March 2021 that the publication of the US dollar London interbank offer rate (‘Libor’) would be extended
to 30 June 2023, the Group’s transition programme focused mainly on client engagement for sterling, Swiss franc, euro and Japanese yen Libor
interest rates, as well as Euro Overnight Index Average (‘Eonia’). These interest rate benchmarks were all demised from the end of 2021 although six
sterling and Japanese yen settings are currently being published under an amended methodology, commonly known as ‘synthetic’ Libor. Over 90%
of legacy contracts referencing rates that were demised from the end of 2021 were transitioned prior to 31 December 2021. The programme
continues to support customers with transitioning remaining contracts linked to these rates, as well as customers whose contracts are utilising
‘synthetic’ sterling or Japanese yen Libor rates. In 2022, the programme will focus on the transition of these remaining contracts in addition to the
wider portfolio of US dollar Libor legacy contracts.
At 31 December 2021, our exposure to contracts referencing rates that were demised from the end of 2021 included: contracts that have been
transitioned but are yet to reach the next subsequent relevant interest payment date; contracts where the Ibor rate exposure only arises at a future
date; legacy Ibor contracts that included robust industry fallback provisions that were invoked after 31 December 2021; and a small proportion of so-
called ‘tough legacy’ contracts which will either use a ‘synthetic’ Libor or a contractual fallback rate.
For any ‘tough legacy’ contracts we continue to work with our clients and investors with the aim of transitioning them to appropriate products and
interest rates at the earliest opportunity. In the meantime, these contracts will be valued using the appropriate interest rate methodology.
The key risks associated with Ibor transition beyond 2021 are unchanged and include regulatory compliance risk, resilience risk, financial reporting
risk, legal risk and market risk. For ‘tough legacy’ contracts, we closely monitor legal, resilience and regulatory compliance risks. For the US dollar
legacy portfolio these risks continue to be actively managed and mitigated with a focus on ensuring that fair outcomes for our clients are achieved.
For further details on our approach to Ibor transition, see ‘Top and emerging risks’ on page 124.
Top and emerging risks
Our top and emerging risks identify forward-looking risks so that they can be considered in determining whether any incremental action is needed to
either prevent them from materialising or to limit their effect.
Top risks are those that have the potential to have a material adverse impact on the financial results, reputation or business model of the Group. We
actively manage and take actions to mitigate our top risks, Emerging risks are those that while they could have a material impact on our risk profile
were they to occur, are not considered immediate and are under regular review.
Our suite of top and emerging risks is subject to regular review by senior governance forums. In December 2021, we amended our top and emerging
risks. ‘Environmental, social and governance’ replaced ‘Climate-related risks’ to cover the wider scope of climate, nature and human rights risks.
‘Digitalisation and technological advances’ was added as a new risk to capture the emerging strategic and operational risks associated with the
advancement of technology.
HSBC Holdings plc
39
Risk
Trend
Mitigants
Externally driven
Geopolitical and
macroeconomic risks
>
We monitor macroeconomic risks and risks posed by heightened tensions across the geopolitical
landscape. We adopt procedures and controls based on an assessment of the potential impacts on
our portfolios. We maintain heightened monitoring activities to identify sectors and customers
experiencing financial difficulties from the Covid-19 pandemic. In light of geopolitical tensions, we
assess those sectors likely to be particularly impacted by laws and regulatory actions resulting from
such tensions.
Cyber threat and unauthorised
access to systems
>
We help protect our customers and organisation by investing in our cybersecurity capabilities, helping
us to execute our business priorities and grow safely. We focus on controls to prevent, detect and
mitigate the impacts of persistent and increasingly advanced cyber threats. We closely monitor the
continued dependency on widespread remote working and online facilities.
Regulatory compliance risk
environment, including
conduct
>
We monitor regulatory and wider industry developments closely and engage with regulators, as
appropriate, to help ensure new regulatory requirements are implemented effectively and in a timely
way, adjusting our policies, procedures and relevant controls as required. We keep abreast of the
emerging regulatory compliance and conduct agenda. Current areas of focus include developments in
areas such as ESG, operational resilience, digital and technology changes (including payments), how
we are ensuring good customer outcomes (including addressing customer vulnerabilities), regulatory
reporting and employee compliance.
Financial crime risk
environment
>
We continued to support our customers as our financial crime landscape evolved due to the Covid-19
pandemic, and as geopolitical, socioeconomic and technological shifts occurred across our markets.
We continued to make improvements to our financial crime controls as emerging risks were
identified, and to invest in advanced analytics and artificial intelligence as key elements of our next
generation of tools to fight financial crime.
Ibor transition
>
We remain focused on completing the system and product updates to support additional geographies
in the transition of demising Libor benchmarks, in particular US dollar Libor. We continue to support
the transition of all legacy contracts referencing demised and demising Ibor benchmarks, including
from any sterling or Japanese yen contracts using ‘synthetic’ Libor. Throughout 2022, there will be an
increasing focus on customer engagement for US dollar Libor-related transition activities.
Environmental, social and
governance
^
ESG risk has increased owing to the pace and volume of regulatory developments globally, with the
focus on formalising climate risk management, enhanced disclosures, and integration of other ESG
risks such as nature-related risks and human rights. Some stakeholders are also placing more
emphasis on financial institutions’ actions and investment decisions in respect of ESG matters. We
continue to develop our approach and engage with our stakeholders on ESG risk.
Digitalisation and
technological advances
^
We monitor advances in technology to understand how changes may impact our customers and
business. We closely monitor and assess the potential for consequent financial crime and the
resulting impact on payment transparency and architecture.
Internally driven
IT systems infrastructure and
resilience
>
We monitor and improve IT systems and network resilience to minimise service disruption and
improve customer experience. To support the business strategy, we continue to strengthen our end-
to-end service management, build and deployment controls and system monitoring capabilities.
Risks associated with
workforce capability, capacity
and environmental factors
with potential impact on
growth
>
We monitor workforce capacity and capability requirements in line with our published growth
strategy. We have measures to support our people to work safely during the Covid-19 pandemic, and
to integrate them back into the workplace as government restrictions ease. We monitor people risks
that may arise due to business transformation to help manage redundancies sensitively and support
impacted employees.
Risks arising from the receipt
of services from third parties
>
We continually enhance our third-party risk management framework as our supply chain evolves, and
to stay aligned to the latest regulatory expectations. We closely monitor for Covid-19-related impacts
on the delivery of services to the Group, with businesses and functions taking appropriate action
where needed.
Model risk management
>
We continue to strengthen our oversight of models and model risk controls. We are redeveloping our
capital models to reflect the evolving regulatory requirements, and in some cases the potential effects
from the Covid-19 pandemic. Ibor models impacted by the switch to new alternative risk-free rates
are also being redeveloped. We enhanced the oversight of models used in financial reporting
processes in light of the potential impacts from the uncertain external environment.
Data management
>
We protect our customers and organisation by making focused investments in capabilities that
manage data risk. We focus on controls that manage data governance, usage, integrity, privacy and
retention. During 2021, we refreshed our data strategy and continued to improve our approach to data
risk management and reporting.
Change execution risk
>
We continue to monitor and manage our change execution risk, including our capacity and resources
to meet the increased levels of change associated with the delivery of our strategic priorities and
regulatory requirements. We are working to deliver sustainable change efficiently and safely, through
the embedding of a change framework launched in May 2021.
^Risk heightened during 2021
>Risk remained at the same level as 2020
40
HSBC Holdings plc
Long-term viability and going
concern statement
Under the UK Corporate Governance Code, the Directors are required to provide a viability statement that must state whether the Group will be able
to continue in operation and meet its liabilities, taking into account its current position and the principal risks it faces. They must also specify the
period covered by, and the appropriateness of, this statement.
The Directors have specified a period of three years to 31 December 2024. They are satisfied that a forward-looking assessment of the Group for this
period is sufficient to enable a reasonable statement of viability. In addition, this period is covered by the Group’s stress testing programmes, and its
internal projections for profitability, key capital ratios and leverage ratios. Notwithstanding this, our stress testing programmes also cover scenarios
out to five years and our assessment of risks are beyond three years where appropriate:
–This period is representative of the time horizon to consider the impact of ongoing regulatory changes in the financial services industry.
–Our updated business plan covers 2022–2026.
The Board, having made appropriate enquiries, is satisfied that the Group as a whole has adequate resources to continue operations for a period of at
least 12 months from the date of this report, and it therefore continues to adopt the going concern basis in preparing the financial statements.
Based upon their assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet liabilities as
they fall due over the next three years.
In making their going concern and viability assessments, the Directors have considered a wide range of detailed information relating to present and
potential conditions, including projections for profitability, cash flows, capital requirements and capital resources.
The Directors carried out a robust assessment of the emerging and principal risks facing the Group to determine its long-term viability, including
those that would threaten its solvency and liquidity. They determined that the principal risks are the Group’s top and emerging risks as set out on
page 40. These include risks related to geopolitical and macroeconomic risks (including in relation to Covid-19), which have remained at the same
level as 2020. Environmental, social and governance risk has replaced the former Climate-related risks theme to cover the wider scope of climate,
nature and human rights, and digitalisation and technological advances has been added as a new theme to capture the emerging strategic and
operational risks associated with the advancement of technology. Both of these risks were at a heightened level during 2021.
The Directors assessed that all of the top and emerging risks identified are considered to be material and, therefore, appropriate to be classified as
the principal risks to be considered in the assessment of viability. They also appraised the impact that these principal risks could have on the Group’s
risk profile, taking account of mitigating actions planned or taken for each, and compared this with the Group’s risk appetite as approved by the
Board.
In carrying out their assessment of the principal risks, the Directors considered a wide range of information including:
–details of the Group’s business and operating models, and strategy;
–details of the Group’s approach to managing risk and allocating capital;
–a summary of the Group’s financial position considering performance, its ability to maintain minimum levels of regulatory capital, liquidity
funding and the minimum requirements for own funds and eligible liabilities over the period of the assessment. Notable are the risks which
the Directors believe could cause the Group’s future results or operations to adversely impact any of the above;
–enterprise risk reports, including the Group’s risk appetite profile (see page 121) and top and emerging risks (see page 124);
–the impact on the Group due to the Covid-19 pandemic including the emergence of the Delta and Omicron variants; recent instability in
China’s commercial real estate sector; and strained economic and diplomatic tensions between China and the US, the UK, the EU and
other countries;
–reports and updates regarding regulatory and internal stress testing. During 2021, the Bank of England (‘BoE’) mandated an industry-wide
solvency stress test exercise, which incorporated a ‘double dip’ scenario and represented an intensification of the macroeconomic shocks
seen in 2020. The outcomes of the stress test showed that taking account of strategic management actions, the Group would remain
adequately capitalised;
–the results of our 2021 climate stress testing and scenario analysis exercise. No issues were identified around the going concern status of
the Group. Further details of the insights from the 2021 climate stress test are explained from page 57;
–reports and updates from management on risk-related issues selected for in-depth consideration;
–reports and updates on regulatory developments;
–legal proceedings and regulatory matters set out in Note 34 on the financial statements; and
–reports and updates from management on the operational resilience of the Group.
Aileen Taylor
Group Company Secretary and Chief Governance Officer
22 February 2022
HSBC Holdings plc
41
Environmental, social and
governance review
Our ESG review sets out our approach to our environment, customers, employees and governance. It also explains how we aim to achieve our
purpose and deliver our strategy in a way that is sustainable and how we build strong relationships with all of our stakeholders.
43 Our approach to ESG
45 Environmental
66 Social
79 Governance
42
HSBC Holdings plc
Our approach to ESG
We are on a journey to incorporate environmental, social and governance principles throughout
the organisation, as we have taken material steps to embed sustainability into our purpose and
corporate strategy.
About the ESG review
Our purpose is: ‘Opening up a world of opportunity’.
To achieve our purpose and deliver our strategy in a way that is sustainable, we are guided by our values: we value difference; we succeed
together; we take responsibility; and we get it done.
We also need to build strong relationships with all of our stakeholders, who are the people who work for us, bank with us, own us, regulate us,
and live in the societies we serve and the planet we all inhabit.
We continue to make progress on our climate ambition to support our customers in their transition to net zero and a sustainable future,
including through providing and facilitating sustainable finance and investment, as we set out on the following pages.
In May 2021, a climate change resolution proposed by the Board was backed by more than 99% of our shareholders at our Annual General
Meeting (‘AGM’), including a commitment to set, disclose and implement a strategy with short- and medium-term targets to align our provision
of finance with the goals and timelines of the Paris Agreement. It also included a commitment to publish a policy to phase out the financing of
coal-fired power and thermal coal mining, by 2030 in the EU/OECD, and 2040 in all other markets.
We have disclosed our baseline financed emissions for two priority sectors – oil and gas, and power and utilities – and set targets to reduce on-
balance sheet financed emissions in these sectors. In assessing financed emissions, we are focusing our analysis on those parts of the sectors
that we believe are most material in terms of greenhouse gas emissions.
We are also working with peers and industry bodies to mobilise the financial system to take action on climate change, biodiversity and nature.
Through a series of surveys, we aim to listen to our customers to put them at the centre of our decision making. If things do go wrong, we aim
to take action in a timely manner.
Our colleagues have needed to adapt at pace due to the impact of the Covid-19 pandemic. This has offered us the opportunity to rethink how
our colleagues work, considering what worked well during the pandemic, and what challenges they face. Our future of work strategy will
provide a framework through which we will implement hybrid working principles and adopt new technologies and working practices to enhance
productivity, engagement and well-being.
We run a Snapshot survey every six months and report insights to our Group Executive Committee and the Board. We received 272,718
responses to our two Snapshot surveys in 2021, with record response rates. We will look to continue to focus on those aspects of the
employee experience that we know to have the greatest impact on employee sentiment: fostering a healthy work-life balance, trust towards
leadership, career progression opportunities and confidence in the company’s future.
We are on a journey to embed ESG principles across the organisation, including incorporating climate change-related risks within the risk
framework, training our workforce, incorporating climate-related targets within executive scorecards, and engaging with customers and
suppliers.
Environmental
•Since 2020, we have provided and facilitated $126.7 bn of sustainable finance and investment towards our ambition of $750bn to $1tn
by 2030.
•In line with the climate change resolution, we published our thermal coal phase-out policy. For the oil and gas sector, we target a 34%
Mt CO2e reduction in oil and gas absolute on-balance sheet financed emissions by 2030, from a 2019 baseline. For the power and
utilities sector, we target a 0.14 Mt CO2e/TWh power and utilities on-balance sheet financed emissions intensity, representing a 75%
reduction from 2019.
Read more in the Environmental section on page 45.
Social
•We aim to be a top-three bank for customer satisfaction. Even though our performance, using the net promoter score, improved in
many markets in which we operate, we still have work to do to improve our rank position against competitors, as some have
accelerated their performance faster than us.
Read more in the Customers section on page 67.
•In 2021, 31.7% of women occupied senior leadership roles, with a target to achieve 35% by 2025. We have put in place important
foundations to support our goal of doubling the number of Black employees in senior leadership roles by 2025.
•Employee engagement, which is our headline measure, remained unchanged in 2021 at 72% following a five-point increase from
2019 and was four points above benchmark.
Read more in the Employees section on page 70.
Governance
•Governance activities are managed through a combination of specialist governance infrastructure, and regular meetings and
committees, where appropriate. We expect that our ESG governance approach will continue to develop, in line with our evolving
approach to ESG matters and stakeholder expectations.
•In seeking to safeguard the financial system, we monitor on average over 1.1 billion transactions each month for signs of financial
crime.
Read more in the Governance section on page 79.
43
HSBC Holdings plc
How we decide what to measure
We listen to our stakeholders in a number of different ways, which we set out in more detail within the ESG review. We use the information
they provide us with to identify the issues that are most important to them and consequently also matter to our own business.
Our ESG Committee (previously the ESG Steering Committee) and other relevant governance bodies regularly discuss the new and existing
themes and issues that matter to our stakeholders. Our management team then uses this insight, alongside the framework of the ESG Guide
(which refers to our obligations under the Environmental, Social and Governance Reporting Guide contained in Appendix 27 to The Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited), and other applicable laws and regulations to choose what we
measure and publicly report in this ESG review.
Under the ESG Guide, ’materiality’ is considered to be the threshold at which ESG issues become sufficiently important to our investors and
other stakeholders that they should be publicly reported. We are also informed by stock exchange listing and disclosure rules globally. We know
that what is important to our stakeholders evolves over time and we plan to continue to assess our approach to ensure we remain relevant in
what we measure and publicly report.
Recognising the need for a consistent and global set of ESG metrics, we started to report against the core World Economic Forum (‘WEF’)
‘Stakeholder Capitalism Metrics’ within the Annual Report and Accounts 2021 for the first time.
Consistent with the scope of financial information presented in our Annual Report and Accounts, the ESG review covers the operations of HSBC
Holdings plc and its subsidiaries. Given the relative immaturity of the ESG data in general, we are on a continuous journey to ensure
completeness and robustness.
For further information on our approach to reporting, see the ‘Additional information’ section on page 401.
Our reporting around ESG
We report on ESG matters within this ESG review and throughout our Annual Report and Accounts, including the 'How we do business' section
of the Strategic Report (pages 15 to 20), this ESG review (pages 43 to 88), and the ‘Climate-related risks’ section of our Risk review (pages 131
to 135). In addition, we have other supplementary materials, including our ESG Data Pac k, which provides a more granular breakdown of ESG
information.
Detailed data
Additional reports
Indices
ESG Data Pack
UK Pay Gap Report 2021
Modern Slavery and Human Trafficking
Statement 2021
SASB Index 2021
WEF Index 2021
For further details of our supplementary materials, see our ESG reporting centre at www.hsbc.com/esg.
We have changed how we are presenting our TCFD disclosures
Our overall approach to TCFD can be found on page 19 and additional information is included on page 63. Further details, which last year were
presented in a separate supplement, have been embedded in this section and the Risk review section on pages 131 to 135.
Assurance relating to ESG data
We recognise the importance of ESG disclosures and the quality of data underpinning it. Certain aspects of our ESG disclosures
are subject to independent assurance and we will continue to enhance our approach in line with external expectations.
For 2021, PwC provided stand-alone limited assurance reports in accordance with International Standard on Assurance
Engagements 3000 (Revised) ‘Assurance Engagements other than Audits or Reviews of Historical Financial Information’ and, in
respect of the greenhouse gas emissions, in accordance with International Standard on Assurance Engagements 3410
‘Assurance engagements on greenhouse gas statements’, issued by the International Auditing and Assurance Standards Board,
on the following specific ESG-related metrics:
•our Green Bond Report 2021 (published in December 2021);
•our 2019 baseline for financed emissions related to our climate change resolution (see page 48);
•our own operations’ scope 1, 2 and 3 (business travel) greenhouse gas emissions data (see page 52); and
•our progress towards our ambition to provide and facilitate $750bn to $1tn of sustainable finance and investment (see
page 53).
Our data dictionaries and methodologies for preparing the above ESG-related metrics and PwC’s assurance reports can be
found on: www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
44
HSBC Holdings plc
Environmental
We are accelerating new solutions to the climate crisis and supporting the transition of
industries and markets to a net zero future, moving to net zero ourselves as we help our
customers do so too.
At a glance
Our climate ambition
Our net zero ambition represents one of our four strategic pillars. At the core of it is an ambition to support our customers on their transition to
net zero, so that the greenhouse gas emissions from our portfolio of clients reaches net zero by 2050. We also aim to be net zero in our
operations and supply chain by 2030.
We aim to provide and facilitate $750bn to $1tn of sustainable finance and investment to support our customers in their transition to net zero
and a sustainable future by 2030. To support our ambition of net zero financed emissions, unlocking transition finance for our portfolio of clients
will be crucial.
As we describe in the following pages, we have set on-balance sheet financed emissions targets for the oil and gas, and power and utilities
sectors, aligned to the IEA’s net zero scenario, underpinned by a clear science-based strategy.
Our approach to climate risk
We recognise that to achieve our climate ambition we need to further enhance our approach to managing climate risk. We have established a
dedicated programme to develop a strong climate risk management capability.
We manage climate risks in line with our risk management framework and three lines of defence model. We also use stress testing and
scenario analysis to assess how these risks will impact our customers, business and infrastructure. This approach gives the Board and senior
management visibility and oversight of the climate risks that could have the greatest impact on HSBC, and helps us identify opportunities to
deliver sustainable growth in support of our climate ambition. For further details on our approach to climate risk management, see
Environmental, social and governance risk on page 125 and Climate-related risks on page 131.
Impact on financial statements
We have assessed the impact of climate risk on our balance sheet and have concluded that there is no material impact on the financial
statements for the year ended 31 December 2021. We considered the impact on expected credit losses, classification and measurement of
financial instruments, our owned properties, as well as our long-term viability and going concern.
During the year we also conducted a stress test to understand the impact of climate risk. While the focus of the exercise was solely on banking
book impairments and RWAs, no issues were identified regarding the going concern status of the Group. For further details on how climate risk
can impact HSBC in the medium to long term, including credit risk, see page 131.
In this section
Our climate
ambition
Becoming a net zero bank
We aim to achieve net zero in our financed emissions by 2050, and in
our own operations and supply chain by 2030.
Page
46
Measuring our financed
emissions
In delivering our financed emissions ambition, we have initially
focused on the oil and gas, and power and utilities sectors.
Page
47
Our approach to our own
operations
We aim to reduce energy consumption by 50% by 2030, against a
2019 baseline.
Page
51
Supporting customers
through transition
Our ability to finance the transformation of businesses and
infrastructure is key to building a sustainable future for our customers
and society.
Page
53
Unlocking climate solutions
and innovations
We are working closely with a range of partners to accelerate
investment in natural resources, technology and sustainable
infrastructure.
Page
55
Biodiversity and natural
capital strategy
By addressing nature-related risks and investing in nature, we have an
opportunity to accelerate the transition to net zero.
Page
55
Our approach to
climate risk
Managing risk for our
stakeholders
We manage climate risk across all our businesses in line with our
Group-wide risk management framework.
Page
56
Insights from scenario
analysis
Enhancing our climate change stress testing and scenario analysis
capability is crucial in identifying and understanding climate-related
risks and opportunities.
Page
57
Our approach to
sustainability policies
Our sustainability risk policies seek to ensure that the financial
services that we provide to customers do not contribute to
unacceptable impacts on people or the environment.
Page
62
Our approach to
climate reporting
Task Force on Climate-related
Financial Disclosures (‘TCFD’)
Our TCFD index provides our responses to each of the 11
recommendations and summarises where additional information can
be found.
Page
63
45
HSBC Holdings plc
Our climate ambition
Becoming a net zero bank
We are committed to a net zero future. We recognise that our planet urgently needs drastic and lasting action to protect our communities,
businesses and the natural environment from the damaging effects of climate change.
The Paris Agreement aims to limit the rise in global temperatures to well below 2°C, preferably to 1.5°C, compared with pre-industrial levels. To
limit the rise in global temperatures to 1.5°C, the global economy would need to reach net zero greenhouse gas emissions by 2050. Our ability
to steer finance for the transformation of businesses and infrastructure will be key in helping to enable the transition to a net zero global
economy.
We believe we can make the most significant impact by working with our customers to support their transition to a net zero future. We aim to
align our financed emissions to net zero by 2050 or sooner.
We intend to set targets on a sector by sector basis that are consistent with net zero outcomes by 2050. In assessing financed emissions, we
focus on those parts of the sector that are most material in terms of greenhouse gas emissions, and where we believe engagement and climate
action have the greatest potential to effect change, taking into account industry and scientific guidance.
As an asset manager, we will work towards the target of net zero emissions across all assets under management by 2050 or sooner.
Our ambition is to become net zero in our operations and supply chain. This covers our direct and indirect greenhouse gas emissions, known as
scope 1, 2 and 3 emissions. As well as transforming our own operations and supply chain to net zero across our own organisation by 2030, we
are asking our suppliers to do the same.
The next two sections provide further details on how we are measuring our progress on our financed emissions ambition and the progress
made to date on our own operations and supply chain.
The diagram below shows how these ambitions map to our scope 1, 2 and 3 emissions.
Explaining scope 1, 2 and 3 emissions
To measure and manage our carbon emissions, we follow the Greenhouse Gas Protocol global framework, which identifies three scopes of
emissions. Scope 1 represents the direct emissions we create. Scope 2 represents the indirect emissions resulting from the use of electricity
and energy to run a business. Scope 3 represents indirect emissions attributed to upstream and downstream activities taking place to provide
services to customers. Our upstream activities include business travel and emissions from our supply chain including transport, distribution and
waste. Our downstream activities include those related to investments and financed emissions.
For further details, see our ESG Data Pack at www.hsbc.com/esg.
Our own operations and supply chain
Our financed
emissions
Scope 2
Indirect
Scope 3
Indirect
Scope 1
Direct
Scope 3
Indirect
Electricity,
steam heating
and cooling
Employee commuting 1
Company
facilities
Investments and
financed emissions
Business travel
Company
vehicles
Supply chain
Upstream activities
HSBC Holdings
Downstream activities
1 HSBC - sponsored shuttles only
Supporting an energy provider through the transition
In March 2021, Air Liquide S.A., a French multinational specialised in gases, technologies and services, presented its plan to achieve carbon
neutrality by 2050. The company has placed the use of a competitive low-carbon hydrogen offering at the cornerstone of its energy transition
ambition, while aiming to decarbonise its production assets. We aim to support our clients through the transition. In May, we acted as a joint
bookrunner for Air Liquide Finance’s inaugural green bond and helped them to raise €500m, which will be dedicated to eligible sustainable
projects including hydrogen, biogas, carbon capture, air gases, energy efficiency and green buildings in accordance with its sustainable finance
framework.
46
HSBC Holdings plc
Measuring our financed emissions
We announced our ambition to become a net zero bank in October 2020, including an aim to align our financed emissions to net zero by 2050 or
sooner. In May 2021, shareholders approved a climate change resolution at our AGM that commits us to set, disclose and implement a strategy
with short- and medium-term targets to align our provision of finance with the goals and timelines of the Paris Agreement.
Our analysis of financed emissions considers on-balance sheet financing, including project finance and direct lending, as well as financing we
help clients access through capital markets activities. Given the different nature of these two forms of financing, we distinguish between ‘on-
balance sheet financed’ and ‘facilitated’ emissions where necessary in our reporting. Our analysis covers financing from both Global Banking
and Markets, and Commercial Banking.
Financed emissions link the financing we provide to our customers and their activities in the real economy, and helps provide an indication of
the greenhouse gas emissions associated with those activities. They form part of our scope 3 emissions, which include emissions associated
with the use of a company’s products and services.
Our initial disclosures
We started with measuring our financed emissions for two emissions-intensive sectors: the oil and gas, and power and utilities sectors. On the
following pages, we report on the results of our analysis for these two sectors. We plan to measure and report on an annual basis, and intend to
extend our analysis in our Annual Report and Accounts 2022 and related disclosures.
Our analysis relies on data disclosed by our customers and other sources that may result in a time lag of one year or longer. We chose to use
2019 data as the basis for our initial disclosures, having taken into consideration potential distortions to economic activity caused by the
Covid-19 pandemic during 2020.
The following pages also set out our initial 2030 targets to align our on-balance sheet financed emissions for the oil and gas, and power and
utilities sectors to the International Energy Agency’s (‘IEA’) net zero emissions by 2050 scenario. The scenario provides a science-based
decarbonisation pathway for the global economy that is consistent with a 1.5°C global warming target.
In developing our approach, we engaged with industry initiatives to help formulate our methodology for assessing and measuring financed
emissions. In 2021, we were one of 43 founding members of the Net-Zero Banking Alliance (‘NZBA’), which seeks to reinforce, accelerate, and
support the implementation of decarbonisation strategies for the banking sector. We also joined the Partnership for Carbon Accounting
Financials (‘PCAF’), which seeks to define and develop greenhouse gas accounting standards for financial institutions.
What is included in our analysis
In 2021, we assessed our financed emissions related to the oil and gas, and power and utilities sectors using 2019 data. We believe these
sectors are most material in terms of emissions, and are where we believe engagement and climate action have the greatest potential to effect
change.
For the oil and gas sector, we focused on upstream companies, and integrated or diversified energy companies. Our assessment of this
portfolio included scope 1, 2 and 3 greenhouse gas emissions of financed counterparties. By focusing on upstream and diversified energy
producers, and including scope 3 greenhouse gas emissions, we believe we are accounting for the majority of emissions across the sector.
These include emissions associated with the ultimate use of oil and gas products as a fuel source. We have excluded midstream and
downstream companies within the sector to limit double-counting and to concentrate engagement with customers whose products contribute
most to greenhouse gas emissions in the global economy.
For the power and utilities sector, our analysis focused on upstream power generation companies, including scope 1 and 2 greenhouse gas
emissions of financed counterparties. We believe power generation is where the majority of sector emissions occur through the use of fossil
fuel as a source of energy. In analysing the power and utilities sector, we did not take account of scope 3 greenhouse gas emissions because
we believe them to be immaterial. We believe upstream power producers have the most potential to reduce greenhouse gas emissions by
shifting to renewables and other sources of low-emissions power generation.
Regarding the different types of greenhouse gas measured, we include CO2 and methane (measured in CO2e) for the oil and gas sectors, and
CO2 only for the power and utilities sector due to data availability and emissions materiality.
To calculate on-balance sheet financed emissions, we used drawn balances at 31 December 2019 related to wholesale credit and lending,
which included business loans, trade and receivables finance, and project finance as the value of finance provided to customers in our analysis.
We only included facilities with an original duration of 12 months or longer having considered industry guidance. We plan to continue to review
the scope of facilities included in our analysis and update our approach following industry guidance.
For facilitated emissions, we used the apportioned value of underwriting for debt and equity issuances and syndicated loans as the proportion of
funds provided to companies. We refer to these collectively as capital markets activities. Although we applied a similar methodology to assess
facilitated and on-balance sheet financed emissions, using PCAF guidance as our foundation, we expect to continue to report them separately
for transparency.
Sector
Value chain in scope
Oil and gas
Upstream (e.g.
extraction)
Midstream (e.g.
transport)
Downstream (e.g.
fuel use)
Integrated/
diversified
Included in analysis
Power and
utilities
Upstream (e.g.
generation)
Midstream (e.g. transmission and
distribution)
Downstream (e.g.
retail)
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HSBC Holdings plc
Measuring our financed emissions continued
Our analysis of oil and gas, and power and utilities portfolios
The table below summarises the results of our assessment of financed emissions using 2019 data. It indicates the emissions associated with
our financing activities in terms of both absolute emissions and emissions per unit of output relevant to each sector. The table also includes the
PCAF data quality scores for the various components of our analysis, as explained further in the box on this page.
From our analysis, total absolute on-balance sheet financed emissions associated with our oil and gas portfolio were more than three times
greater than those from power and utilities. Similarly, the emissions associated with each dollar invested, or economic intensity, for our oil and
gas portfolio is more than triple that of our power and utilities portfolio. More than 80% of on-balance sheet financed emissions for our oil and
gas portfolio were attributed to our customers’ scope 3 emissions.
We found that data quality scores varied across the different components of our analysis, although not significantly. For the oil and gas portfolio,
data quality scores for scope 3 emissions were found to be slightly higher due to lower availability of reported data. Differences between the
data quality scores for on-balance sheet financed and facilitated emissions reflect the different composition of the customers and weighting of
finance provided in each portfolio.
Notes on data and methodology
PCAF provides guidance on how to assess and disclose greenhouse gas emissions associated with loans and investments. It also provides a
common approach for addressing variability in the data available to assess emissions.
We applied PCAF’s data quality score to the sources of data we used to determine counterparty emissions. The PCAF scores can be seen in the
table below.
The majority of our clients do not yet report the full scope of greenhouse gas emissions included in our analysis, in particular scope 3 emissions.
In the absence of client-reported emissions, we estimated emissions using proxies based on company production and revenue figures. We
validated data inputs used in our analysis with the global relationship managers for the top clients ranked by financed emissions and covering a
significant majority of total financed emissions for each sector portfolio. Although we sought to minimise the use of non-company specific data,
we applied industry averages in our analysis where company-specific data was unavailable.
The methodology and data used to assess financed emissions and set targets is new and evolving, and we expect industry guidance, market
practice, and regulations to continue to change. We plan to refine our analysis using the data sources and methodologies available for the
sectors we analyse, including, among others, the Science Based Targets initiative (‘SBTi’) and the Paris Agreement Capital Transition
Assessment (‘PACTA’) methodology. We expect our data quality scores to improve over time as companies continue to expand their
disclosures to meet growing regulatory and stakeholder expectations.
Our initial set of baselines and targets may require updating as data availability changes over time and methodology and climate science evolve.
We plan to report financed emissions and progress against our targets annually and seek to be transparent in our disclosures about the
methodologies applied. However, financed emissions figures may not be reconcilable or comparable year-on-year and targets may require re-
evaluation.
For further details of our approach and methodology, see our Financed Emissions – Approach and Methodology Update at www.hsbc.com/who-
we-are/esg-and-responsible-business/esg-reporting-centre.
Financed emissions using 2019 data
Absolute emissions 1
Emissions intensity 2
PCAF data quality
scores 3
Scope 1–2
Scope 3
Physical intensity (per unit
of output)
Scope 1–2
Scope 3
On-balance sheet financed emissions — wholesale credit lending and
project finance (2019)4,5
Oil and gas
6.0 †
29.8 †
68.4
2.9 †
3.4 †
Power and
utilities
10.1 †
N/A
0.55
3.0 †
N/A
Facilitated emissions — capital markets (2019)6
Oil and gas
3.9 †
25.6 †
70.7
2.4 †
2.9 †
Power and
utilities
4.4 †
N/A
0.36
3.5 †
N/A
1 Absolute emissions are measured by million tonnes of carbon dioxide equivalent (‘Mt CO2e’).
2 For the oil and gas portfolio, physical emissions intensity is measured in million tonnes of carbon dioxide equivalent per exajoule (‘Mt CO2e/EJ’); for the power and
utilities sector, it is measured in million tonnes of carbon dioxide equivalent per terawatt hour (‘Mt CO2e/TWh’).
3 PCAF scores where 1 is high and 5 is low. This is a weighted average score based on loans/advances for on-balance sheet financed emissions, and apportioned
value for facilitated emissions.
4 Total loans and advances analysed in 2019 were $23.5bn, comprising $12.3bn for the oil and gas sector, and $11.2bn for the power and utilities sector,
representing 1.8% and 1.6% respectively of wholesale credit and lending and project finance at 31 December 2019. This compares with a total wholesale loan
exposure of 7% for these two sectors overall, as reported in our TCFD disclosures for 2019, which covered the full value chain and all financing activities. On-
balance sheet economic intensity for the oil and gas sector was 2.9 Mt CO2e/$bn, and for power and utilities it was 0.9 Mt CO2e/$bn.
5 For the oil and gas sector, the value chain analysed covers upstream and integrated/diversified operations. For the power and utilities sector, the value chain
analysed covers upstream operations.
6 Total capital markets activities analysed in 2019 was $21.1bn, comprising $15.4bn for oil and gas, and $5.7bn for power and utilities.
† Data is subject to limited assurance by PwC in accordance with International Standard on Assurance Engagements 3410. ‘Assurance engagements on greenhouse
gas statements’. For further details, see our Financed Emissions Methodology and PwC Assurance Report, which are available at www.hsbc.com/who-we-are/esg-
and-responsible-business/esg-reporting-centre.
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HSBC Holdings plc
Measuring our financed emissions continued
Our oil and gas, and power and utilities targets
We have defined targets to 2030 for the on-balance sheet financed emissions of our oil and gas, and power and utilities portfolios, as set out
below. These are aligned with global sector decarbonisation pathways set out by the IEA in its net zero emissions by 2050 scenario. For
facilitated emissions, we are supporting efforts to establish an industry standard. When this becomes available, we intend to refresh our
analysis and set interim targets. The methodology for targets is set out in our Financed Emissions Methodology, which is available at
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
For the oil and gas sector, we target a reduction of 34% in absolute on-balance sheet financed emissions by 2030, using 2019 as our baseline.
Our target is equal to the percentage reduction that the IEA indicates in its scenario for global sector emissions to 2030 from a 2019 baseline.
We chose to use an absolute emissions metric in order to reflect a direct link to reducing greenhouse gas emission in the real economy. Our on-
balance sheet financed emissions for 2019 was 35.8 million tonnes of carbon dioxide equivalent (‘Mt CO2e’).
For the power and utilities sector, we target an on-balance sheet financed emissions intensity of 0.14 million tonnes of carbon dioxide
equivalent per terawatt hour (‘Mt CO2e/TWh’) by 2030. Our emissions intensity target is equal to the global sector average emissions intensity
for 2030 set out by the IEA, and represents a 75% reduction compared with our baseline of 0.55 Mt CO2e/TWh for 2019. We chose to use an
emissions intensity metric, rather than absolute emissions, as the basis for our 2030 target for the power and utilities portfolio to reflect the
need to reduce global greenhouse gas emissions from power generation while also meeting the anticipated increase in electricity demand.
Electrification is central to the transition pathways for transport, heating, and other economic activities. This will require scaling up investment
and financing for renewable and other low-emission sources of electricity to meet demand.
Our approach to target setting is in line with industry guidance on assessing portfolio alignment, including from – among others – the NZBA and
the Financial Services Taskforce (‘FSTF’). Our approach does not rely on purchasing offsets to achieve any financed emissions targets we set.
In selecting a reference scenario to assess alignment to net zero, we reviewed the IEA’s net zero emissions by 2050 scenario against other
available science-based 1.5°C scenarios. We believe it provides the greatest level of detail for assessing alignment across relevant sectors at a
global level. Choosing this scenario allows us to make comparisons of our portfolio targets with other banks and peers who use this same
scenario.
We have used the global decarbonisation pathway set out by the IEA’s net zero emissions by 2050 scenario by sector as the reference for
setting targets for our oil and gas, and power and utilities portfolios. The IEA’s net zero emissions by 2050 scenario does not currently provide
decarbonisation pathways at a regional level. We completed analysis to help ensure a global pathway is relevant for our financing portfolio and
we will continue to assess this as further information becomes available over time. For further details on the IEA net zero by 2050 scenario, see
www.iea.org/reports/net-zero-by-2050.
Target 34% reduction by
2030 from 2019
Target 0.14 Mt CO2e/TWh
by 2030, representing 75%
reduction from 2019
Helping to power a European first
We used our global reach and local expertise to attract a diverse base of international and domestic investors in March 2021 when Greece’s
largest power producer issued a €650m high-yield sustainability-linked bond – a first for Europe. We acted as joint global coordinator and left-
lead bookrunner on the bond, which committed Public Power Corporation to reducing its carbon emissions by 40% by the end of 2022, or face
higher financing costs. We were also ratings adviser and ESG structuring adviser supporting the company in achieving an improved
sustainability performance target, measured using a Sustainalytics rating. Public Power Corporation has committed to end its reliance on lignite
– low-grade brown coal – plants over the next few years and significantly boost its solar and wind power capacity.
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HSBC Holdings plc
Measuring our financed emissions continued
Embedding financed emissions analysis into our business
Our net zero ambition is underpinned by our relationships with customers and collective engagement, so that we are able to support our
customers to take action to address climate change in their own activities.
To achieve this, we aim to embed how we manage and assess financed emissions within our financing portfolios to provide a basis for
informing client engagement and business management decisions from a climate perspective.
There are three key components we are undertaking to achieve these objectives.
•We are placing climate and sustainability at the centre of our engagement with customers, and in particular those customers with the
greatest potential to effect change.
•We are seeking to support our customers in their transition to net zero and a sustainable future. We aim to provide and facilitate
$750bn to $1tn of sustainable finance and investment by 2030 (see page 53).
•We are working to embed financed emissions considerations into our business activities and culture. Our global businesses have had
active roles alongside our Corporate Sustainability, Global Risk and Compliance, and Global Finance functions in developing our
financed emissions approach in 2021. Collaboration across the organisation will continue to be essential. This includes plans to
strengthen our climate data and analytics capability to inform decision making and portfolio management, as well as expanding the
resources to support business engagement.
As part of our annual disclosures for the year ending 31 December 2022, we plan to report baseline financed emissions and targets for the
following sectors: coal mining; aluminium; cement; iron and steel; and transport (including automotive, aviation and shipping). We expect to also
report on the agriculture, and commercial and residential real estate sectors in our annual disclosures for the year ending 31 December 2023 at
the latest, following baseline analysis for these sectors.
In 2022 we will begin work on our climate transition plan, which will bring together – in one place – how we plan to embed our 2050 and 2030
net zero targets into the Group’s strategy, processes, policies and governance. We plan to publish this in 2023, and update on progress annually
thereafter as part of our annual disclosures.
The transition to a net zero global economy has implications for our customers across industries and geographies. It introduces new risks that
need to be managed, as well as opportunities. Given our global presence and relationships with clients across industries and customer groups,
we recognise the role we can play in helping catalyse this change.
Financed emissions targets to 2030
Target metric
Our 2019 baseline
Our 2030 targets 1
Oil and gas
Absolute emissions (Mt
CO2e)2
35.8
34%
Mt CO2e reduction in oil and gas absolute on-
balance sheet financed emissions
Power and utilities
Physical emissions
intensity (Mt CO2e/
TWh)3
0.55
0.14
Mt CO2e/TWh power and utilities on-balance
sheet financed emissions intensity, representing
75% reduction from 2019
1 Our 2030 targets are based on IEA net zero emissions by 2050 scenario references. The methodology for targets is set out in our Financed Emissions
Methodology, which is available at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
2 For oil and gas, the IEA indicates in its scenario a reduction of 34% in global sector scope 1,2 and 3 emissions (Mt CO2e) to 2030 from a 2019 baseline.
3 For power and utilities, the IEA indicates a global sector scope 1 and 2 emissions intensity at 2030 of 0.14 Mt CO2e/TWh electricity produced.
Steering the automobile transition
We have been working with Ford Motor Co. towards its sustainability goals with two sustainability-linked transactions in 2021. In September,
we supported Ford as it extended its revolving credit facilities worth a combined $15.5bn. Ford amended the credit facilities to include
sustainability-linked targets, which included lower emissions from global manufacturing facilities and reduced exhaust emissions from
passenger vehicles sold in Europe.
In November, we also acted as a joint lead manager on Ford’s $2.5bn inaugural 10-year green bond under its new sustainable finance
framework. This framework targets investments in clean transportation, clean manufacturing, advancing economic opportunity and equity for
underrepresented and/or disadvantaged populations and community revitalisation.
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HSBC Holdings plc
Our approach to our own operations
Part of our ambition to be a net zero bank is to achieve net zero carbon emissions in our operations and supply chain by 2030 or sooner.
Reduce, replace and remove
We have three elements to our strategy: reduce, replace and remove. We plan to first focus on reducing carbon emissions from consumption,
and then replacing remaining emissions with low-carbon alternatives in line with the Paris Agreement. We plan to remove the remaining
emissions that cannot be reduced or replaced by procuring, in accordance with prevailing regulatory requirements, high-quality offsets at a later
stage.
Our energy consumption
In October 2020, we announced our ambition to reduce our energy consumption by 50% by 2030, against a 2019 baseline. To do this, we plan
to reduce our energy consumption by optimising the use of our real estate portfolio.
In 2017, we announced our ambition to achieve 100% renewable power across our operations by 2030, joining other global companies in the
RE100 initiative. In 2021, 37.5% of our electricity was renewable, mainly due to our power purchase agreements of wind and solar energy in
the UK, Mexico and India. As part of this energy replacement strategy, in September 2021, we signed our fourth power purchase agreement for
the UK. This agreement, which will support the development of the Sorbie Wind Farm project in Ayrshire, south-west of Glasgow, will result in
approximately 90% of our UK electricity being sourced from such renewable projects (for further details, see page 19). We continue to look for
opportunities to procure green energy in each of our markets. A key challenge is the limited opportunity to pursue power purchase agreements
or green tariffs in key markets due to regulations.
We are considering the impact on our emissions from our colleagues working from home during the Covid-19 pandemic, and in the future, as
they embrace more flexible ways of working. Using the EcoAct methodology, we calculated the emissions of our colleagues working from
home was 4% of total electricity emissions in 2021. This only includes energy consumption from the IT equipment and lighting. We do not
report employee home working emissions in our scope 1 and 2 performance data.
Business travel and employee commuting
Our travel emissions continued to reduce in 2021 as a result of ongoing international travel restrictions caused by the pandemic. As international
travel gradually resumes, we will update our internal policies with the aim to halve travel emissions by 2030, compared with pre-pandemic
levels. We will continue to encourage the use of technological solutions where possible to provide connectivity with colleagues and customers.
To ensure we are following best practices, we updated our air travel reporting methodology in 2021 to include cabin class and indirect climate
change effects in our travel emission calculations.
We continue to pursue the reduction of vehicles we use in our global markets, and accelerate the use of electric vehicles.
Focus on natural resources
Alongside our net zero operations ambition, our aim is to be a responsible consumer of natural resources. Building on the success of our
previous operational environmental strategy, we are identifying the key opportunities where we can lessen our wider environmental impact over
the coming decade. We plan to set interim and 2030 global targets to maintain short-term momentum while also changing behaviour through
ambitious long-term goals.
Our environmental and sustainability management policies
Our buildings policy recognises that regulatory and environmental requirements vary across geographies and may include environmental
certification. The policy is supported by Corporate Services procedures on environmental and sustainability management, ensuring HSBC's
properties continually reduce their overall direct impact on the environment. Detailed design considerations documented in our Global
Engineering Standards aim to reduce or avoid depletion of critical resources like energy, water, land, and raw materials. Suppliers are required to
adhere to strict environmental management principles and reduce their impact on the environment in which they operate.
Our presence in environmentally sensitive areas
As a global organisation, our branches, offices and data centres may be located in – or near – areas of water stress and/or protected areas of
biodiversity, as we support our customers and communities in these locations.
Approximately 28% of our global offices, branches and data centres are located in areas identified as being subject to high and very high water
stress, accounting for 37% of our annual water consumption. These are predominantly urban or city centre locations with large, concentrated
populations. Our industry is a low user of potable water, and we have implemented measures to further reduce water consumption through the
installation of flow restrictors, auto-taps and low or zero flush sanitary fittings.
In addition, 1.7% of our global office, branch and data centre portfolio lies in protected areas and areas of biodiversity. We strive through our
design, construction and operational standards to ensure that, where possible, our premises do not adversely affect the environment or natural
resources in these areas.
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HSBC Holdings plc
Our approach to our own operations continued
Engaging with our supply chain
As the majority of our emissions are within our supply chain, we know we cannot achieve our net zero goal without our suppliers joining us on
our journey.
In 2020, we began the three-year process of encouraging our largest suppliers to make their own carbon commitments, and to disclose their
emissions via the CDP supply chain programme. The target for 2021 was for suppliers representing 45% of total supplier spend to have
completed the CDP questionnaire. In total, suppliers representing 51.2% of total supplier spend completed the CDP questionnaire.
We will continue to engage with our supply chain with the aim of increasing the response rate, and have expanded the scope of our
engagement with the CDP programme for 2022.
This engagement has allowed us to work on a new supply chain emissions methodology using actual supplier data. While substantial progress
has been made, this methodology requires further refinement before it is ready to be disclosed.
Our aim is to use real supplier data where we have it through our engagement with the CDP programme. Where we do not have CDP data for
suppliers, we will use industry averages and spend data to define the contribution to our supply chain emissions.
In 2021, we also updated our supplier selection process to include carbon emissions questions in new commercial engagements. This signals to
our suppliers the importance we place in the transition to net zero, from the start of the engagement.
Working with our Cloud partners
Using Cloud technologies is one of the ways we are reducing our IT carbon footprint. Our Cloud providers run more efficiently than our own
data centres due to the lower impact of shared resources. In 2021, we engaged with our Cloud partners to improve our understanding of our
carbon footprint on Cloud, and collaborate towards more efficient applications. Our partners also continue to assist in the education of our
internal IT colleagues by delivering sustainability learning sessions, and sharing research and experience.
Our greenhouse gas emissions in 2021
We report our emissions following the Greenhouse Gas Protocol, which incorporates the scope 2 market-based emissions methodology. We
report greenhouse gas emissions resulting from the energy used in our buildings and employees’ business travel. Due to the nature of our
primary business, carbon dioxide is the main type of greenhouse gas applicable to our operations. While the amount is immaterial, our current
reporting also incorporates methane and nitrous oxide for completeness. We do not report employee home working emissions in our scope 1
and 2 performance data. Our environmental data for our own operations is based on a 12-month period to 30 September.
In 2021, we continued to decrease our emissions, achieving a 50.3% reduction compared with our 2019 baseline. This was mainly attributed to
travel restrictions and the reduction of usage of our buildings due to the Covid-19 pandemic. We also implemented over 700 energy
conservation measures that amounted to an estimated energy avoidance in excess of 14.9 million kWh.
In 2021, we collected data on energy use and business travel for our operations in 28 countries and territories, which accounted for
approximately 92% of our FTEs. To estimate the emissions of our operations in countries and territories where we have operational control and
a small presence, we scale up the emissions data from 92% to 100%. We then apply emission uplift rates to reflect uncertainty concerning the
quality and coverage of emission measurement and estimation. This is consistent both with the Intergovernmental Panel on Climate Change’s
Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories and our internal analysis of data coverage and
quality. For further details on our methodology, our third-party assurance report and relevant environment key facts, see our ESG Data Pack at
www.hsbc.com/esg.
Greenhouse gas emissions in
tonnes CO2e
2021
2020 2
Total
↓
341,000
444,000
Scope 1 – direct 1
↑
22,000
20,000
Scope 2 – indirect 1
↓
307,000
343,000
Scope 3 – indirect (Upstream activities
– business travel only)1
↓
12,000
81,000
Included energy UK
↑
10,000
8,000
Greenhouse gas emissions in tonnes CO2e per
FTE
2021
2020 2
Total
↓
1.52
1.93
Energy consumption in kWh in ‘000s
2021
2020
Total Group
↓
833
928
UK only
↓
227
247
Greenhouse gas emissions (total and FTE)2
1 Data in 2021 is subject to limited assurance by PwC in accordance with International Standard on Assurance Engagements 3410 ‘Assurance engagements on
greenhouse gas statements’. For further details, see GHG Reporting Guideline 2021 and PwC Assurance Report at www.hsbc.com/our-approach/esg-information/
esg-reporting-and-policies.
2 Data for 2019 and 2020 has been revised as we have updated our air travel reporting methodology to include the cabin class travel and the impact of radiative
forces. The emissions of HSBC's vehicle fleet were reported under scope 3 for these two years. For 2019 and 2020, see CO2 Emissions Reporting Guideline, ESG
Data Pack, and PwC Assurance Report, which are available at www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies.
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HSBC Holdings plc
Supporting customers through transition
Our ability to finance the transformation of businesses and infrastructure is key to building a sustainable future for our customers and society.
The most significant contribution we can make is by supporting our portfolio of customers to decarbonise within the transition to a net zero
global economy.
A leader in sustainable finance
We are a recognised leader in sustainable finance, helping to pioneer the market for green, social and sustainable bonds and attaching ambitious
environmental targets to business loans.
In 2021, we acted on more green, social, sustainability and sustainability-linked bonds for clients than in 2020. We were mandated to act as
structuring adviser on nine ESG-related government bonds, including for the UK, Saudi Arabia, Canada and Indonesia. We were recognised by
Euromoney as the Best Bank for Sustainable Finance in Asia and the Middle East for 2021.
In 2021, we continued to expand the horizons of sustainable finance:
•We acted as global coordinator and bookrunner for POSCO, the South Korean steelmaker, when it raised a €1.06bn five-year green
convertible bond, which was South Korea’s first green convertible bond and its largest equity-linked deal, to help establish and expand
its rechargeable battery and hydrogen business.
•We launched a £500m Green SME Fund in the UK to help remove the barriers small businesses face in the transition to a lower-
carbon economy.
•We partnered with Walmart and CDP to create the industry’s first sustainable supply chain finance programme to use science-based
targets to encourage suppliers to reduce emissions in alignment with the Paris Agreement. The initiative also included additional
criteria for suppliers to meet certain scores on their environmental disclosures with the CDP.
•We launched green mortgages for customers in the UAE and Singapore to finance their purchase of homes that have been
respectively accredited by the LEED and BCA Green Mark schemes as energy efficient.
•We supported the transition within the aviation sector, acting as the sole coordinator for a £1bn sustainability-linked loan – backed by
the UK’s export credit agency, UK Export Finance – to British Airways plc, with the loan margin linked to aircraft fuel efficiency.
Transition solutions
We aim to help our customers transition to net zero and a sustainable future through providing and facilitating between $750bn and $1tn of
sustainable finance and investment by 2030. Our sustainable finance ambition has enabled sustainable infrastructure and energy systems,
promoted decarbonisation efforts across the real economy, and enhanced investor capital through sustainable investment.
Since 1 January 2020, we have provided and facilitated $109.8 bn of sustainable finance, $11.7 bn of sustainable investment and $5.2 bn of
sustainable infrastructure spanning more than 1,193 transactions, as defined in our data dictionary. This comprised 29% of green, social and
sustainability-linked lending to companies, 9% of investments managed and distributed on behalf of investors, and 62% that facilitated the flow
of capital and provided access to capital markets. Our data dictionary defining our sustainable finance and investment continues to evolve,
which takes into account the revised marketing standards and guidelines. Our progress will be published each year, and we will seek to
continue to be independently assured.
The breakdown of our sustainable finance and investment progress is included in our ESG Data Pack. The detailed definitions of the contributing activities for
sustainable finance are available in our revised Sustainable Finance Data Dictionary 2021. For our ESG Data Pack, Sustainable Finance Data Dictionary and PwC
Assurance Report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
Sustainable finance summary 1
2021
2020
Cumulative progress since
2020
($bn)
($bn)
($bn)
Balance sheet-related transactions provided
26.2
10.4
36.6
Capital markets/advisory (facilitated)
48.7
30.0
78.7
Investments (assets under management – flows)
7.7
3.7
11.4
Total contribution 2
82.6
44.1
126.7
1 This table has been prepared in accordance with our Sustainable Finance Data Dictionary 2021, which includes green, social and sustainability activities. The
amounts provided and facilitated include: the limits agreed for balance sheet-related transactions provided, the proportional share of facilitated capital markets/
advisory activities and the net new flows of sustainable investments within assets under management. For our sustainable finance ambition and progress figure, see
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
2 Data is subject to limited assurance by PwC in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other
than Audits or Reviews of Historical Financial Information’. For our Sustainable Finance Data Dictionary 2021 and PwC Assurance Report, see www.hsbc.com/who-
we-are/esg-and-responsible-business/esg-reporting-centre.
$126.7 bn
Cumulative progress since 2020 on our ambition to provide and facilitate sustainable finance and investment.
(Target: $750bn to $1tn by 2030)
Sustainable infrastructure
Good infrastructure is the backbone of any successful society and economy. However, addressing climate change requires the world –
particularly emerging markets – to develop a new generation of sustainable infrastructure quickly. There remains a significant investment gap
and lack of adequate, bankable projects. Stronger standards are also needed to bring investors to the table.
Sustainable finance and investment
We define sustainable finance and investment as:
•any form of financial service that integrates ESG criteria into business or investment decisions; and
•financing, investing and advisory activities that support the achievement of UN Sustainable Development Goals (‘SDGs’), including but
not limited to the aims of the Paris Agreement on climate change. The SDGs, also known as the Global Goals, were adopted by all UN
member states in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and
prosperity by 2030.
We have reviewed and updated these definitions to reflect our updated climate ambition, which is available at www.hsbc.com/who-we-are/esg-
and-responsible-business/esg-reporting-centre.
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HSBC Holdings plc
To help solve this, we are leading the Finance to Accelerate the Sustainable Transition-Infrastructure (‘FAST-Infra’) initiative, which in November
2021 launched the Sustainable Infrastructure (SI) label (see box to the right).
In September 2021, we partnered with Temasek to establish (subject to regulatory approval) a debt financing platform dedicated to sustainable
infrastructure projects with an initial focus on south-east Asia. The platform aims to deploy blended finance at scale over time to unlock more
marginally bankable projects and create a tradeable asset class. We also co-chair the Coalition for Climate Resilient Investment, which was
launched at the UN Climate Action Summit to help investors and policymakers understand infrastructure investments and incorporate physical
climate risk in decision making.
Responsible and sustainable investment
We offer a broad suite of ESG capabilities across asset management, global markets, research, wealth, private banking and securities services,
enabling institutional and individual investors to manage risk and pursue ESG-related opportunities.
We expanded our investment offering for private banking and wealth clients, launching several cross-border ESG funds including a Sustainable
Healthcare fund, to help investors generate long-term returns while contributing to the UN SDGs on good health and well-being. We launched a
green certificate of deposit for the first time in renminbi to clients in Hong Kong and Singapore, as well as the first Hong Kong dollar-
denominated sustainability-linked bonds to clients in Hong Kong. We also expanded our ESG offering to emerging markets, including a Global
Equity Climate Change fund in India that helps clients to capture emerging opportunities during the low-carbon transition journey.
HSBC Asset Management strengthened its proposition with the formation of a new Sustainability Office, which is responsible for the delivery of
our sustainability strategy and business-wide transition to sustainable investment. Our endeavour is to influence the markets through active
engagement on ESG issues. HSBC Asset Management’s stewardship activities, through its portfolio managers and other investment analysts,
led to ESG issues being raised in engagements with over 1,800 corporate and non-corporate issuers in 73 markets in 2021. We also voted on
over 84,000 resolutions at over 8,400 company meetings in 72 markets by year end.
At HSBC Life, our insurance business, we continued to build our sustainable investment portfolios to support the UN SDGs and the Paris
Agreement. During 2021, we made an effort to increase our sustainable investment across our different manufacturing entities in Asia, Europe
and Latin America. The intent is to continue to build on the work and grow the assets under management. While previously, HSBC Life invested
in only green bonds within the spectrum of traditional bond instruments, in 2021 it also invested in social, sustainability and sustainability-linked
bonds.
Embedding ESG into our engagement
Our vision is to support our customers’ aspirations to make a positive change in the world through wealth value creation. We are embedding
ESG in our client engagement and investment solutions across our business functions.
We provide our customers with ESG insights and foster industry development. HSBC Global Research published over 200 climate and ESG-
related reports in 2021, accompanied by approximately 525 client meetings and close to 30 client webcasts and events. Our ESG team works in
close collaboration with analysts from other asset classes and across markets, embedding sustainability into research and offering a deeper
integration approach to a global investor client base. The team released five episodes of the ESG Brief podcast. ESG Insights from HSBC Global
Research are also repackaged for retail investors as a series known as #WhyESGMatters. Through our sustainable finance think tank, HSBC
Centre of Sustainable Finance, we launched 42 reports and collaborated with 15 partners to provide thought leadership on decarbonisation
strategies and strengthen the financial system response to climate change. The centre and our reports are publicly available at
www.sustainablefinance.hsbc.com.
For further details of our net zero ambition, see www.hsbc.com/who-we-are/our-climate-strategy/ becoming-a-net-zero-bank.
The Sustainable Infrastructure (SI) label
In 2021, FAST-Infra launched the Sustainable Infrastructure (SI) Label – a consistent, globally applicable labelling system designed to identify and
evaluate sustainable infrastructure assets. The use of the label will help to address the estimated $6.9tn of annual investment that the OECD
says is required until 2030 to meet the sustainable infrastructure objectives of the Paris Agreement. We helped conceive the FAST-Infra
initiative, working with the IFC, OECD, the World Bank’s Global Infrastructure Facility and the Climate Policy Initiative, under the auspices of the
One Planet Lab.
Developing a beacon of green luxury
The former US embassy at Grosvenor Square, London, is being converted into a luxury hotel and could become a model of sustainability for
future hospitality developments. Qatari Diar – the property arm of Qatar’s sovereign wealth fund – is converting the former embassy into the
Chancery Rosewood, which will feature green roofs, energy efficiency measures and a system to reduce water consumption. The Chancery
Rosewood is aspiring to achieve a BREEAM ‘Outstanding’ rating for sustainable development, which would make it the first five-star hotel and
first UK hotel to achieve this rating under the 2014 assessment scheme. As mandated lead arranger, facility and security agent, hedge
coordinator, and green loan coordinator, in April 2021 we helped Qatari Diar secure a £450m green loan for the landmark development.
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HSBC Holdings plc
Unlocking climate solutions and innovations
We understand the need to find new solutions to increase the pace of change if the world is to achieve the Paris Agreement’s goal of being net
zero by 2050.
We are working closely with a range of partners to accelerate investment in natural resources, technology and sustainable infrastructure to
reduce emissions and address climate change.
Natural capital as an emerging asset class
As part of our goal to unlock new climate solutions, we announced the launch of Climate Asset Management, a joint venture with Pollination, in
2020. Climate Asset Management’s ambition is to become the world’s largest dedicated natural capital asset management company. Its
investment strategies are grounded in nature-based investments, including sustainable forestry, regenerative agriculture, nature-based carbon
projects, and exploration of new forms of natural capital. Climate Asset Management established a partnership with the Global EverGreening
Alliance in November 2021, supporting the alliance’s aim to deliver a $150m nature-based carbon programme in Africa.
Climate Asset Management is one of the three founding partners of the Natural Capital Investment Alliance, which aims to mobilise $10bn
towards natural capital themes by the end of 2022.
Backing new technology and innovation
Addressing climate change requires innovative ideas. By connecting financing with fresh thinking, we can help climate solutions to scale to
support sustainable growth.
Our Climate Solutions Partnership aims to scale up climate innovation ventures and nature-based solutions, as well as help the energy sector
transition towards renewable sources in Asia. For further details, see page 77.
We have expanded our venture debt platform to support climate technology hardware and software companies that are growing rapidly. In
2020, we committed to fund $100m to climate technology (climate tech) companies through this platform. We closed our first two deals in
2021 and expect to achieve the $100m goal by the end of the first quarter of 2022. Consequently, we have raised our commitment to $250m.
HSBC Asset Management has also developed a new venture capital capability that provides institutional and private banking customers with
opportunities to invest in technology start-ups addressing global climate change challenges. We launched the first fund in November 2021 and
provided it with a cornerstone investment.
Our climate technology venture debt and venture capital platforms invest in companies that are developing innovative technological solutions
that help companies and governments understand, track and reduce their greenhouse gas emissions.
Biodiversity and natural capital strategy
We recognise that achieving net zero goes hand in hand with halting and reversing nature loss. Nature loss, which refers to the decline of
natural capital, ecosystem services and biodiversity, is one of the greatest systemic risks to the global economy and the health of people and
the planet.
Investing in nature
By addressing nature-related risks and investing in nature, we have an opportunity to accelerate the transition to net zero, help tackle climate
change and open up a more resilient and inclusive global economy.
We recognise that more needs to be done to assess and manage our exposure to nature-related risks and that collective initiatives are needed
to progress at pace. In 2021, we joined several working groups dedicated to helping us progress on this journey, such as the Taskforce on
Nature-related Financial Disclosures (‘TNFD’). For further details on the nature-related initiatives we have joined, see ‘Key external
memberships’ in the box on the right.
Catalyst for change
We are committed to playing a key role as a catalyst for change, using our scale, influence and financing to help preserve natural capital and
protect biodiversity as a component of our net zero ambition. In 2021, we facilitated green and blue bonds, as well as provided lending to
corporate and sovereign clients for sustainable projects. Highlights included:
•We co-led the provision of $90m of green loan facilities to support Instar Asset Management’s acquisition of PRT Growing Services,
North America’s largest producer of container-grown forest seedlings.
•We launched the world’s first broad-based biodiversity screened equity indices, developed jointly with Euronext and Iceberg Data Lab,
to explore ways to apply a biodiversity benchmark to trading and investment activities.
•Our asset management business published its biodiversity policy to publicly explain how our analysts address nature-related issues. In
2021, it also engaged with companies in the food industry on how to manage their suppliers’ impact on biodiversity. For further
details on the biodiversity policy, see: www.assetmanagement.hsbc.com/about-us/responsible-investing/policies.
Key external memberships
Our nature-related external memberships and endorsements include:
•Taskforce on Nature-related Financial Disclosures
•Cambridge Institute on Sustainability Leadership’s nature-related financial risks working group
•Accountability Alignment on Deforestation Working Group
•Business for Nature’s Call to Action
•Get Nature Positive
•Signatory by the asset management business to the Finance for Biodiversity pledge
For further details of our sustainability-related memberships, see www.hsbc.com/who-we-are/our-climate-strategy/sustainability-memberships.
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HSBC Holdings plc
Our approach to climate risk
Managing risk for our stakeholders
We see managing climate risk as an opportunity to create value for our customers, investors, people and communities in which we operate. We
manage climate risk across all our businesses in line with our Group-wide risk management framework. Our most material risks in terms of
managing climate risk relate to corporate and retail client financing within our banking portfolio, but there are also significant responsibilities in
relation to asset ownership by our insurance business and employee pension plans, as well as from the activities of our asset management
business.
We tailor our underlying policies and controls to manage the different risks and exposures to reflect these respective roles to meet the needs of
our key stakeholders. In the table below, we set out our duties to our stakeholders in our four more material roles.
For further details of our approach to climate risk, see Environmental, social and governance risk on page 125 and Climate-related risks on page 131.
Banking
We seek to manage the climate risk in our banking portfolios
through our developing risk appetite and policies for our financial and
non-financial risks. This helps enable us to identify opportunities to
support our customers, while continuing to meet the expectations of
our shareholders and regulators.
(Stakeholders: Customers, Investors, Regulators)
Employee pensions
Our employee pension plans each manage climate risk in line with
their fiduciary duties and local regulatory requirements, with global
corporate policy encouraging consideration of ESG risks when
selecting investments. We are developing internal climate risk
exposure reporting for our largest plans, pending more widespread
adoption of consistent reporting standards.
(Stakeholders: Employees, Regulators)
Climate risk
Asset management
As part of our asset management business’s fiduciary duty to
clients, our solutions integrate key climate and sustainability
considerations. Climate risk management is a key feature of our
investment decision making and portfolio management. We also
engage directly with companies on priority topics related to climate
risk to drive positive change.
(Stakeholders: Customers, Investors, Regulators)
Insurance
Our insurance business offers long-term life and health products.
We manage climate risks, including wholesale credit risk, in assets
to meet customer investment returns. We also take into
consideration mortality and morbidity risks for customers as a result
of climate risk. We have established an evolving ESG programme to
meet changing external expectations and customer demands.
(Stakeholders: Customers, Investors, Regulators)
Banking
Our banking business is well positioned to support our 40 million personal, wealth and corporate customers manage their own climate risk
through financing. For our wholesale customers, we use our corporate questionnaire as part of our transition risk framework to understand their
climate strategies and risk. We also use our climate change stress testing and scenario analysis capabilities to provide insights on the long-term
effects of transition and physical risks across our retail and wholesale banking portfolios (for further details, see page 57). In December, we
announced our thermal coal phase-out policy (see page 62) and we will use our deep relationships to partner with customers in this sector to
help them transition to cleaner, safer and cheaper energy alternatives.
Asset management
HSBC Asset Management managed over $630bn assets – including assets managed for parts of HSBC Insurance and employee pensions – at
the end of 2021. With the majority of assets managed in ESG-integrated strategies, it treats climate change risk as a key feature of the
investment decision-making process. Investment teams examine and determine the level of importance of potential ESG risks that could impact
current and/or future value of issuers. These risks are reflected in proprietary issuer ESG scoring methodology and are embedded into
investment processes. Portfolio management tools also enable investment teams to assess their portfolios for climate-related risks, as part of
ongoing portfolio management activities. We continue to lead on the analysis of climate-related issues, in particular transition risks, and their
impact on financial markets. Our analysts carry out proprietary research and collaborate with outside experts and industry initiatives.
Employee pensions
The Trustee of the HSBC Bank (UK) Pension Scheme, our largest plan with $51bn assets under management, announced an ambition in 2021 to
achieve net zero greenhouse gas emissions across its defined benefit and defined contribution assets by 2050. To help achieve this, it is
targeting a real economy emissions reduction interim target of 50% by 2030 for its equity and corporate bond mandates.
The weight given to climate-related factors in the asset allocation of this plan’s defined contribution fund was strengthened during 2021 to
target additional green revenue and lower carbon emissions and reserves, and now excludes companies whose revenues are substantially
derived from coal extraction or coal power generation.
For further details of the HSBC Bank (UK) Pension Scheme’s annual TCFD statements, see https://futurefocus.staff.hsbc.co.uk/-/media/project/futurefocus/
information-centre/pensioner/other-information/2020-tcfd-statement.pdf.
Insurance
In 2021, our Insurance business, which has life insurance manufacturing subsidiaries in eight markets, a life insurance manufacturing associate
in India and assets under management of approximately $123bn, developed a methodology for climate stress testing. It ran stress tests across
the major portfolios considering adverse stresses as a result of transition risks on wholesale credit risks within the insurance investment
portfolio.
The insurance business began a review of its sustainability policy to align with the Group’s new thermal coal phase-out policy published in
December 2021. Risk appetite has been articulated relating to key ESG aspects. ESG standards have been implemented into insurance product
development processes and operational capabilities.
In response to regulatory developments, HSBC’s insurance entities in the EU and UK have implemented key disclosure-related regulatory
requirements, which mainly impacts insurance-based investment products manufactured and/or sold by HSBC.
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HSBC Holdings plc
Insights from scenario analysis
Our 2021 climate stress testing and scenario analysis exercise
A crucial component of our climate ambitions is having the ability to identify and understand climate-related risks and opportunities, and having
insights on how our customers and business could be impacted under a range of climate change scenarios.
In 2021, we ran our first Group-wide climate change scenario analysis exercise, following on from a pilot exercise carried out in 2020. The 2021
exercise focused on the portfolios most exposed to climate risk: our wholesale corporate lending, commercial real estate and retail mortgage
portfolios. We performed our assessment over a 30-year time horizon, reflecting the long-term nature and effects of transition and physical
risks. For all portfolios, our assessments considered:
•transition risk arising from the process of moving to a net zero economy, including changes in policy, technology, and consumer
behaviour and stakeholder perception, which will each impact borrowers’ operating income, financing requirements and asset values;
and
•physical risk arising from the increased frequency and severity of weather events, such as hurricanes and floods, or chronic shifts in
weather patterns, which will each impact property values, repair costs and lead to business interruptions.
Our progress in 2021
Climate change scenario analysis requires bespoke data, modelling techniques and analysis. In order to integrate climate considerations in our
analysis, we used the people, processes, controls, and governance structures from traditional stress tests. Building on that, t hroughout 2021,
we continued to develop our climate change scenario analysis capabilities, including:
•We identified new data requirements and sourced data for a vast number of inputs representing climate, macroeconomic and financial
variables.
•We built and refined climate change models for wholesale corporate lending, commercial real estate and retail mortgage portfolios.
Our models incorporated sector-specific adjustments for the higher risk industrial sectors. These portfolios represent a material part of
our lending activities. The models projected the impact of climate change and produced outputs such as credit ratings, which helped
us assess the financial impact on our portfolios.
•We held training sessions covering all levels of seniority from our colleagues to Board Directors, to allow our people to effectively
understand, review, challenge and use the outcomes.
•Following the execution of results, we revisited the end-to-end process to learn key lessons and make continuous improvements for
the next stress testing cycle.
The process has involved engaging with stakeholders across our Finance, Corporate Sustainability and Risk functions, as well as global
businesses at Group and regional levels. We held ‘in-depth’ sessions with the Group Risk Management Meeting (‘RMM’), Group Risk
Committee (‘GRC’) and the Group Executive Committee covering data, models, risk assessments and outcomes. A series of governance
meetings culminating with the RMM and GRC reviewed, challenged and approved the overall outcomes of this exercise.
Our framework
We have created – and continue to develop – a target state framework for climate change stress testing and scenario analysis. This framework
uses many of the building blocks from of our traditional capital stress testing framework, but it demands larger and richer data that feeds
innovative and granular forecasting solutions. All activities in this framework need to be embedded in our business-as-usual processes to help
drive business decisions.
Scenarios and time horizons
We have developed capabilities to define parameters for bespoke scenario modelling. Our 2021 climate-related scenario analysis was run on a
suite of specific scenarios published by the Network of Central Banks and Supervisors for Greening the Financial System (‘NGFS’). The NGFS
scenarios test a broad range of possible outcomes and have been created as a starting point for central banks and supervisors, encompassing a
complex set of social, political and economic assumptions. The scenarios we considered were:
•An Orderly scenario assumes climate policies are introduced early and become gradually more stringent. As a result of early action to
tackle global warming and climate change, both physical and transition risks are relatively subdued. A moderate level of carbon
sequestration (which is the process of capturing and storing atmospheric carbon dioxide) is factored into the scenario.
•A Disorderly scenario explores higher transition risk due to policies being delayed or divergent across countries and sectors. Carbon
prices are typically higher for a given temperature outcome. There is a low level of carbon sequestration assumed in this scenario due
to the absence of timely and sizable investments in such technologies.
•A Hot house world scenario assumes that some climate policies are implemented in some jurisdictions, but global efforts are
insufficient to halt significant global warming. Critical temperature thresholds are exceeded, leading to severe physical risks and
irreversible impacts like sea-level rise. This scenario also assumes a low level of carbon sequestration.
Further details of these scenarios are available at: www.ngfs.net/ngfs-scenarios-portal.
The following pages highlight some of the analysis conducted. The nature of the scenarios, our developing capabilities, and limitations of the
analysis have led to outcomes that are directionally indicative of climate change headwinds, but they are not a direct forecast. Developments in
climate science, data, methodology, and scenario analysis techniques will help us shape our approach further. We therefore expect this view of
risk to change over time.
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HSBC Holdings plc
Insights from scenario analysis continued
Wholesale corporate lending portfolio methodology
We have developed a standardised framework to assess the financial impact of climate change on our wholesale corporate counterparties. We
carried out granular modelling for material counterparties, projecting how their financial position might be impacted under each scenario. As data
limitations often posed a challenge, we performed a high-level impact assessment for less material counterparties.
For simplicity, we assumed that our counterparty exposures would remain static over the 30-year horizon under all scenarios. Sectors already
transitioning, such as those with electric vehicles and renewable energy, are assumed to continue transitioning at a conservative level, based on
verifiable data and scenario assumptions. Companies with government support are also assumed to benefit. We have not considered the
impact of individual counterparties’ plans to adapt to climate change or the potential impact of supply chain disruptions. The analysis was
performed on a sample of the portfolio that focused on our most material counterparties and regions. Results should therefore be interpreted
accordingly.
How climate change is impacting our wholesale corporate lending portfolio
The table below illustrates the level of climate-related risk to which we are exposed within six key wholesale sectors. We have focused on
these sectors because they are most likely to be impacted by climate risk. We assessed these sectors against Orderly, Disorderly and Hot
house scenarios over a 30-year horizon. The two transition risk scenarios (Orderly and Disorderly) have the most impact on our wholesale
portfolio and therefore the commentary focuses on these scenarios. While cumulative impacts over the 2020 to 2050 scenario horizon are
broadly similar, the Disorderly scenario has a delayed disruptive transition and the Orderly scenario starts to impact the portfolio immediately.
Impact for key wholesale transition risk sectors 1
Sector
Sub-sectors
Projected impact
Impact analysis
Orderly
Disorderly
Hot
house
Building and
construction
Construction
d
d
d
Companies with carbon-intensive production activities, such
as steel and cement companies, are significantly impacted
under the Orderly and Disorderly scenarios due to their
expected vulnerability to carbon price increases and limited
options currently available to transition.
Steel
e
e
d
Cement
e
e
b
Oil and gas
Integrated
c
c
c
A number of our oil and gas counterparties are operating in
regions with low extraction costs, and are expected to be
more resilient in transition scenarios.
Profiting from greater diversification and size, integrated
companies perform relatively better compared with
counterparties specialised on one part of the value chain.
Services
c
c
b
Downstream
d
d
c
Upstream
d
d
c
Midstream
d
d
c
Automotive
Original equipment
manufacturers
c
c
b
Impacts are broadly similar in the automotive sector under
the transition risk scenarios due to a similar cumulative
effect of electrical vehicle sales and carbon pricing over the
30 years. As expected, companies with existing
investments in electrical vehicle manufacturing tend to be
less impacted, particularly as they scale up over time.
Dealers experience a more severe downgrade due to
carbon pricing impacting current financial positions.
Dealers
d
d
c
Suppliers
c
c
b
Power and
utilities
Gas and water utilities
c
c
b
Coal-focused companies are materially impacted in the
transition scenarios. In contrast, renewables-focused
counterparties benefit in the transition risk scenarios from
the increase in demand for their products, lower carbon tax
impacts and lower investment requirements. Overall, the
ability of power and utilities companies to transfer costs to
customers and the exposure to renewable-based power
generators offsets negative impacts from fossil fuel-based
counterparties.
Power generation
companies
c
b
b
Transmission,
distribution and other
electricity companies
c
c
a
Chemicals
Chemical companies
e
d
c
Carbon-intensive processes significantly impact part of the
chemicals sub-sector in the transition risk scenarios. In
contrast, companies in the pharmaceutical and other sub-
sectors tend to have less carbon-intensive processes,
naturally leading to lower carbon costs and abatement
expenses.
Pharmaceutical
companies
d
d
c
Metals and
mining
Core miners (bulk, base/
diversified, precious
metals)
d
d
c
As expected, coal-focused companies are heavily impacted
under the transition risk scenarios. Energy transition miners,
including companies mining lithium or copper, are less
impacted due to an increased demand for electrification.
Diversified miners also perform relatively better as they are
able to shift away from coal to other minerals. Overall,
energy transition and diversified miners offset some of the
downgrades.
Pure traders/services
c
c
c
a
b
c
d
e
Lower Impact
Higher Impact
1 This heat map is based on projected change in average credit ratings between 2020 and 2050 of counterparties by sector/sub-sector. Colours are defined based on
the distribution of credit rating changes for the six key wholesale sectors. The bigger the credit rating downgrade, the more severely the counterparty is impacted.
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HSBC Holdings plc
Insights from scenario analysis continued
Retail mortgage portfolio methodology
We used granular models to assess our material retail mortgage portfolios exposed to a high degree of climate change. After simulating
thousands of weather events and assessing their impact on each property’s value, we estimated expected physical losses under all scenarios.
Key parameters included insurance coverage, public defences and building resilience archetypes. Transition risk was modelled considering the
changes in key macroeconomic variables and region-specific policies, such as the requirement for homes to have certain minimum-rated energy
performance certificates (‘EPC’) in the UK.
Impact of climate risk on our retail mortgage portfolios
We assessed the impact of various peril risks that our retail mortgage customers could face, including flooding, wildfires and windstorms. These
risks influence property values and the ability and willingness of borrowers to service their debts. Another risk driver is the ability to respond and
adapt to new and emerging regulatory requirements, such as new energy efficiency standards, which may influence property values.
The table below focuses on our most material retail mortgage portfolios in Hong Kong and the UK – covering 66% of our retail mortgage
portfolio as of 31 December 2020. It demonstrates the potential physical risks of river, surface and coastal flooding, and how this may vary
under the Orderly, Disorderly and Hot house scenarios. We show the projected change in flood depth in metres given a 1-in-100-year flood
event. Since the Orderly and Disorderly scenarios use the same physical risk forecasts, these are combined into a single column.
Our analysis indicates that the most pronounced effects of physical risk on our retail mortgage customers are under a Hot house scenario
characterised by a more than 3°C increase in global temperatures, which leads to an increase in the frequency and severity of extreme weather
events. There are also risks posed by the transition to a net zero economy, predominantly through macroeconomic disruption, as well as some
country-specific policies that may be enacted to meet these targets, including introduction of minimum energy efficiency standards.
Impacts across mortgage portfolios are primarily driven by the increased risk of flooding, including river, surface and coastal flooding. While
relatively small proportions of the portfolios are predicted to be impacted by flooding events, the severity of these events is expected to
increase over time. Under a Hot house scenario, sea levels are expected to rise up to 1.5 metres, which would increase the risk of coastal
flooding for parts of the Hong Kong portfolio in the latter part of the century. The table shows that the Hot house scenario puts 25.6% of
properties in Hong Kong at risk of a 0.5 metre to 1.5 metres 1-in-100-year flood event, u p 18.7% from 6.9% in the Orderly and Disorderly
scenarios.
The risk of extreme wind stress has also been considered and is only deemed material in Hong Kong, where typhoons regularly occur. Buildings
standards in Hong Kong mean that structures are designed to withstand high wind speeds, and the severity of wind events is not predicted to
materially change between now and the end of the century.
We take into account the transition risk for our retail mortgage portfolio as part of our business-as-usual lending and scenario analysis exercises.
We focused on physical risk on this page because our current analysis shows it to be a material climate risk for this business.
Exposure to flooding
Proportion of properties predicted to be impacted by floods given a 1-in-100-year severity flood event (%)
Hong Kong
UK
Scenarios
2020 1
2050
2020 1
2050
Flood depth in
metres
Orderly and
Disorderly,
+1.5°C 2
Hot house,
+>3°C 3
Orderly and
Disorderly,
+1.5°C 2
Hot house,
+>3°C 3
0–0.5
92.1
92.0
73.3
98.5
97.5
96.1
0.5–1.5
6.9
6.9
25.6
1.3
2.3
3.6
>1.5
1.0
1.1
1.1
0.2
0.2
0.3
1 Represents the baseline flood risk in 2020.
2 Represents the flood risk in 2050 under a climate scenario aligned to a 1.5°C increase in global temperatures.
3 Represents the flood risk in 2050 under a climate scenario aligned to a more than 3°C increase in global temperatures.
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HSBC Holdings plc
Insights from scenario analysis continued
Commercial real estate portfolio methodology
The commercial real estate methodology is tailored to individual property characteristics and is used to analyse the impact on borrowers’ credit
risk. We have also taken into account existing property insurance in our portfolio. Transition risk drivers include country-specific net zero policies,
such as requirements for EPCs, and the associated macroeconomic disruption.
Impact of climate risk on our commercial real estate portfolios
We assessed the impact of various perils that our commercial real estate customers could be vulnerable to, including flooding, wildfires and
windstorms. The map below illustrates the potential impact of physical risk on our commercial real estate portfolio in Hong Kong under the Hot
house scenario. We have focused on this portfolio as it is our most material commercial real estate portfolio in terms of exposure. The map
shows a projected increase in average damage ratio, which represents the ratio between the cost of potential damage due to climate-related
perils and the value of the property. The key peril drivers in our results are coastal, river and surface water flooding, and wind under a Hot house
scenario.
Exposure to physical risk in Hong Kong under a Hot house scenario
The chart shows the increase in average damage ratio between 2020 and 2050 using a simple average for locations of our commercial real
estate properties in each district. Our approach assumes an acceleration of physical risk impacts from later in the century.
The table alongside shows the projected increase in financial impact over 30 years for our most material commercial real estate portfolios –
Hong Kong, the UK, Canada and the US, which cover 77% of the total commercial real estate portfolio as of 31 December 2020 – under the
Orderly, Disorderly and Hot house scenarios. The increase in projected financial impact represents the increase in expected credit losses
relative to exposure. The commentary highlights the key reasons for the change in impact between the Orderly scenario and alternative
scenarios.
Impact on commercial real estate for key countries/territories
Projected impact 1
Countries /territories
Country/territory-
specific EPC policies in
the scenario
Orderly, +1.5°C
Disorderly, +1.5°C
Hot house, +>3°C
Hong Kong
—
a
a
Higher value of
collateral helps reduce
impact
b
Increased risk of coastal
flooding
Canada
—
a
b
Macroeconomic
disruption due to late
policy action
b
Increased risk of
riverine and surface
water flooding
US
—
a
b
Macroeconomic
disruption due to late
policy action
a
No material increase of
physical risk due to
location of properties
UK 2
Energy efficiency
standards introduced
via EPC policies
a
b
Macroeconomic
disruption and stricter
EPC policies due to late
policy action
b
Increased risk of coastal
flooding
a
b
c
d
e
Lower Impact
Higher impact
1 Projected impacts from perils include flooding (coastal, river and surface water), wind and wildfires, without taking into account client adaptation plans or
management actions.
2 UK financial projections include transition risks related to meeting minimum energy efficiency standards, whereas the other countries/territories do not.
Under the Hot house scenario, the impacts are driven primarily by the increased risk of flooding (coastal, riverine and surface water). In this
scenario, Hong Kong and the UK would be particularly impacted by coastal flooding due to the estimated rise in the sea level of up to 1.5
metres, with an increase in the frequency and severity of extreme weather events. Risks posed by the transition to a net zero economy also
exist, which manifest mainly through macroeconomic disruption under the Disorderly scenario, as well as country-specific policies enacted to
meet these targets, such as, minimum energy efficiency standards in the UK.
We are continuing to refine the data used for physical and transition risk assessment of our portfolios together with our modelling capabilities
which use these inputs.
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HSBC Holdings plc
Understanding the resilience of our critical properties
Climate change poses a physical risk to the buildings that we occupy as an organisation, including our offices, retail branches and data centres.
We measure the impacts of climate and weather events to our buildings on an ongoing basis using historical, current and scenario modelled
forecast data. In 2021, there were 47 major events that had no impact on the availability of our buildings.
We use stress testing to evaluate the potential for impact to our owned or leased premises. Our scenario stress test, conducted in 2021,
analysed how seven different climate change-related hazards – comprising coastal inundation, extreme heat, extreme winds, wildfires, riverine
flooding, soil movement due to drought, and surface water flooding – could impact 250 of our critical buildings.
The 2021 scenario stress test of 250 of our critical buildings modelled climate change with a Hot house scenario that projects that the rise in the
temperature of the world will likely exceed 4°C by 2100. It also modelled a less severe scenario that projects that global warming will likely be
limited to 2°C, in line with the upper limit ambition of the Paris Agreement.
Key findings from the 4°C or greater Hot house scenario included:
•By 2050, 22 of our 250 critical buildings will have a high potential for impact due to climate change, with insurance-related losses
estimated to be in excess of 10% of the insured value of our buildings.
•The eight most affected locations face hazards relating to surface flooding, rising river levels and landslides, as well as coastal flooding
from rising sea levels and storms. Of the remaining 14 locations, 11 are data centres where the predominant hazards emanate from a
mixture of temperature extremes, water stress and drought for which the specific direct physical impact could be soil movement.
The other three are offices where the predominant hazard is coastal flooding.
•A further 25 locations have the potential to be impacted by climate change, albeit to a lesser extent, with insurance-related losses
estimated at between 5% and 10% of the insured value of our buildings.
A key finding from the 2°C, less severe scenario showed:
•The total number of buildings at risk reduces from 47 to 35, with the same eight key facilities still at risk by 2050 from the same
perils.
This forward-looking data will inform real estate planning. We will continue to improve our understanding of how extreme weather events
impact our building portfolio as climate risk assessment tools improve and evolve. Additionally, we buy insurance for property damage and
business interruption, and consider insurance as a loss mitigation strategy depending on its availability and price.
We regularly review and enhance our building selection process and global engineering standards, and will continue to assess historic claims
data to help ensure our building selection and design standards reflect the potential impacts of climate change.
Regulatory climate stress tests
Regulators in an increasing number of jurisdictions are incorporating climate factors in their supervisory tools, with different aspects considered
around the world. We have built flexibility into our approach to climate stress tests to support these differences. During 2021, we completed a
number of climate stress tests in response to regulatory requirements from the Bank of England, the Hong Kong Monetary Authority and the
Monetary Authority of Singapore. We expect to complete further tests in 2022.
Any specific outcomes and balances disclosed in this section should not be assumed to be those that have fed into our aggregated final climate
results for the Bank of England’s biennial exploratory scenario.
Our priority next steps
While we have conducted a number of climate change scenario analyses and stress tests in 2021, we continue to broaden and enhance our
capabilities in order to overcome the limitations identified. These include enhancing our climate data repository, expanding scenario analysis
methodology beyond credit risk, forecasting key climate metrics, integrating climate scenario analysis into risk management, business decisions
and strategic planning. Together, they will help us define and monitor targets to support the Group’s climate strategy. We aim to continue to
improve on scenario analysis disclosures in line with regulatory expectations, supported by robust control processes and governance.
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HSBC Holdings plc
Our approach to sustainability policies
We recognise that businesses can have an impact on the environment, individuals and communities around them. We have developed,
implemented and refined our approach to working with our business customers to understand and manage these issues. We have joined
various partnerships to support our role in this, including the Powering Past Coal Alliance and World Economic Forum’s Principles for Financing a
Just and Urgent Energy Transition.
Our policies
Our sustainability risk policies cover agricultural commodities, chemicals, energy, forestry, mining and metals, thermal coal, UNESCO World
Heritage Sites and Ramsar-designated wetlands.
These policies define our appetite for business in these sectors and seek to encourage customers to meet good international standards of
practice. Where we identify activities that could cause material negative impacts, we will only provide finance if we can confirm clients are
managing these risks responsibly. Such customers are subject to greater due diligence and generally require additional approval by sustainability
risk specialists.
Our sustainability policies continue to be aligned with our approach to climate risk, and our net zero ambition.
For further details on how we manage sustainability risk, as well as our full policies, see www.hsbc.com/our-approach/risk-and-responsibility/sustainability-risk.
Supporting the transition
Reinforcing our ambition to support our clients’ transition to lower carbon through transition financing – and particularly to the phase-out of
thermal coal – we published our thermal coal phase-out policy, which we introduced in December 2021 (see right).
Governance and implementation
Within our Global Risk and Compliance function, we have reputational and sustainability risk specialists who are responsible for reviewing,
implementing and managing our sustainability risk policies as well as our application of the Equator Principles. Our global network of more than
75 sustainability risk managers supports the implementation of these policies. In 2021, these local sustainability risk managers continued to be
supported by regional reputational risk managers across the Group who have taken on additional oversight responsibilities for sustainability risk.
The Sustainability Risk Oversight Forum, made up of senior members of the Global Risk and Compliance function and global businesses,
continued to oversee the development and implementation of policies that identify, manage and mitigate the Group’s sustainability risk,
including a refreshed assurance framework in 2021. This framework has been designed to take a more holistic view of the ESG risks we face in
our sustainability risk policies, including:
•monitoring ESG news across the sustainability risk policies;
•overseeing clients considered to be of higher risk or under exit;
•reviewing client files across the sustainability risk policies; and
•setting and reporting against a defined set of key control indicators aligned to our risk appetite.
The framework is used to monitor the in-scope portfolio and keep track if there is any deterioration in the risk ratings. With the respective risk
rating assigned, our sustainability risk specialists will take the necessary actions to mitigate unacceptable risks. If necessary, we will proactively
end the client relationship.
Our thermal coal phase-out policy
In fulfilment of our commitment approved by shareholders at the AGM in May 2021, we published a policy to phase out thermal coal financing
in EU and OECD markets by 2030, and globally by 2040. This incorporates project finance, direct lending, or arranging or underwriting of capital
markets transactions to in-scope clients, as well as the refinancing of existing finance facilities.
Every year we commit to review our policy and targets, taking into account evolving science and internationally recognised guidance.
Using our TCFD disclosures in 2020 as our baseline, we intend to reduce thermal coal financing exposure by at least 25% by 2025, and by 50%
by 2030. These targets will be reviewed in conjunction with assessments of client transition plans. For further details, see www.hsbc.com/
news-and-media/hsbc-news/were-phasing-out-coal-financing.
As shown in the wholesale loan exposure table on page 133, within the power and utilities, and metals and mining sectors, and recognising
external party assessments of power generation and mining capacity, our exposure to thermal coal at 31 December 2021 was $1.0 bn (2020:
$1.2 bn) or 0.2% of the total wholesale loans and advances figures.
In 2021, HSBC, together with other financial institutions, participated in capital markets transactions relating to clients who own or operate
thermal coal-fired powered plants or thermal coal mines. HSBC facilitated a total of $1.3 bn out of the total of these transactions.
Biodiversity and natural capital-related policies
We have taken several steps to unlock the value of natural capital in the global economy, and help tackle biodiversity loss and other nature-
related financial risks. However, we recognise we are at the beginning of our journey.
We regularly assess our clients for their commitment to sustainable business practices, and have clear policies to help mitigate the risk of
nature loss. Our sustainability risk policies are designed to provide several protections against financing, which will have a negative impact on
nature. These include our forestry and agricultural commodities policies, which put an emphasis on customers involved with the major forest-
risk commodities to obtain independent certification that their businesses operate in a sustainable manner. These include requiring palm oil
customers to commit to ‘No Deforestation, No Peat and No Exploitation’. Our World Heritage Sites and Ramsar-designated wetlands policy
prohibits the financing of any project that threatens the special natural characteristics of these internationally protected areas.
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Our approach to climate reporting
Task Force on Climate-related Financial Disclosures (‘TCFD’)
The table below sets out the 11 TCFD recommendations and summarises where additional information can be found.
Where we have not included climate-related financial disclosures consistent with all of the TCFD Recommendations and
Recommended Disclosures, the reasons for this and steps we are taking are set out in the additional information section on
page 402.
Recommendation
Response
Disclosure
location
Governance
a) Describe the Board’s oversight of climate-related risks and opportunities
Process, frequency and
training
The Board is responsible for our climate ambition, strategy and risk, receives
climate-focused updates throughout the year and receives ESG-related training.
Page 80
Page 229
Page 232
Sub-committee
accountability, processes
and frequency
The Group Risk Committee exercises oversight of climate risks.
The Group Audit Committee reviews and challenges ESG and climate-related
reporting and disclosure, including the climate change resolution and scenario
analysis disclosure.
Page 249
Page 245
Examples of the Board
and relevant Board
committees taking
climate into account
2021 was a significant year for the Group in its efforts to support the transition to
net zero – a key pillar of our overall Group strategy – with the passing of our
climate change resolution at our 2021 AGM and the publication of our thermal coal
phase-out policy being two of the most notable achievements. In January 2022,
the Board also approved the necessary investment required to develop and
implement a revised operating model for the Group's Sustainability function to
help ensure delivery against our sustainability ambitions.
The GRC and GAC convened a joint meeting to review the thermal coal phase-out
policy and our approach to financed emissions.
Page 24
Page 219
Page 241
b) Describe management’s role in assessing and managing climate-related risks and opportunities
Who manages climate-
related risks and
opportunities
The Group Executive Committee (‘GEC’) manages our climate ambition with
management responsibilities integrated into the relevant business and functional
areas. It oversees and directs the climate-related opportunities. It discussed climate-
related issues at six meetings in 2021.
The Group Chief Executive is responsible for overseeing the delivery of the
sustainable finance and investment ambition and realisation of commercial
opportunities.
The Group Chief Sustainability Officer holds joint responsibility for the ESG
committee that supports Group Executives in the development and delivery of
ESG strategy, key policies and material commitments by providing oversight,
coordination and management of ESG commitments and activities.
The Group Chief Risk and Compliance Officer and the chief risk officers of our
PRA-regulated businesses are the senior managers responsible for climate
financial risks under the UK Senior Managers Regime.
Page 80
How management
reports to the Board
The Group Chief Executive, the Group Chief Financial Officer, and the Chief Risk
and Compliance Officer provide regular verbal and written updates to the Board.
The ESG Committee will regularly report to the Board on progress against our ESG
ambitions, climate strategy and related commitments.
Page 80
Processes used to inform
management
The Group Chief Financial Officer provides an ESG dashboard including key
climate-related metrics within a quarterly report, presented to the GEC.
Management is informed by a number of specialist ESG governance forums.
Page 80
Strategy
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and
long term
Processes used to
determine material risks
and opportunities
We use scenario analysis to help us identify and understand climate-related risks.
We understand the need to find new solutions to increase the pace of change if
the world is to achieve the Paris Agreement’s goal of being net zero by 2050.
For wholesale customers, we use a questionnaire as part of the independent
review of risk, to understand their climate strategies and risks. It also helps us to
identify potential business opportunities to support the transition.
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Page 133
Relevant short, medium,
and long term time
horizons
We aim to achieve net zero in our financed emissions by 2050, and in our own
operations and supply chain by 2030.
We aim to provide and facilitate $750bn to $1tn of sustainable finance and
investment for our customers in their transition to net zero and a sustainable
future between 2020 and 2030.
We have taken these time horizons into our consideration. We consider short
term to be less than one year, medium term to be by 2030 and long term to be by
2050.
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Page 132
Transition or physical
climate-related issues
identified
Transition or physical climate-related risk impacts may manifest across our risk
taxonomy across all time horizons.
We are supporting our customers in their transition through our sustainable
finance and investment ambition. Our sustainable finance data dictionary includes
a detailed definition of contributing activities.
Page 132
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HSBC Holdings plc
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Disclosure
location
Strategy
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and
long term
Processes used to
determine material risks
and opportunities
We use scenario analysis to help us identify and understand climate-related risks.
We understand the need to find new solutions to increase the pace of change if
the world is to achieve the Paris Agreement’s goal of being net zero by 2050.
For wholesale customers, we use a questionnaire as part of the independent
review of risk, to understand their climate strategies and risks. It also helps us to
identify potential business opportunities to support the transition.
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Page 55
Page 133
Risks and opportunities
by sector and/or
geography
For our wholesale exposure we have focused on a group lens as a starting point,
primarily due to data limitations on client carbon emissions. Our scenario analysis
shows that transition risk represents a more material risk for corporate customers,
and physical risk is more material for our retail customers.
Opportunities include sustainable finance, sustainable investment and sustainable
infrastructure.
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Concentrations of credit
exposure to carbon-
related assets
We have identified and disclosed six sectors where our corporate customers have
the highest climate risk, which are: oil and gas; building and construction;
chemicals; automotive; power and utilities; and metals and mining.
We have also disclosed our exposure to thermal coal.
Our approach to financed emissions has focused primarily on oil and gas, and
power and utilities, and the specific areas of the value chain which are most
carbon intensive. We will aim to enhance our scope 3 emissions disclosure by
encouraging our customers to publicly disclose their carbon emissions
Page 133
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Page 402
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and
financial planning
Impact on strategy,
business, and financial
planning
Transition to net zero represents one of our four strategic pillars. We aim to be net
zero in our operations and supply chain by 2030 and in our financed emissions by
2050.
Due to transitional challenges, including data and system limitations, we do not
currently fully disclose the way in which climate-related issues have affected our
financial planning and performance. We have considered the impact of climate-
related issues on our businesses, strategy and financial planning, and will aim to
further enhance our processes in relation to acquisitions/divestments and access
to capital.
Page 14
Page 402
Impact on products and
services
We aim to help our customers’ transition to net zero and a sustainable future
through providing and facilitating between $750bn and $1tn of sustainable finance
and investment by 2030.
Page 53
Impact on supply chain
and/or value chain
We have started targeting our largest suppliers to encourage them to make their
own carbon commitments, and to disclose their emissions. We take into account
climate-related risks as part of our third-party risk management process.
Page 52
Impact on adaptation and
mitigation activities
We announced our ambition to achieving 100% renewable power across our
operations by 2030, and continue to look for opportunities to procure green
energy. We regularly review and enhance our building selection process and
global engineering standards, to help ensure our building selection and design
standards reflect the potential impacts of climate change.
Page 52
Impact on operations
We have analysed the resilience of our critical properties, identifying 22 of our 250
critical buildings have a high potential for impact due to climate change by 2050.
This will inform real estate planning. Our business continuity processes, including
people and infrastructure, will continue to evolve to take in account of climate-
related risks across regions and markets to avoid concentration risk.
Page 61
Impact on investment in
research and
development
We are working with the World Resources Institute and WWF, focusing our
collective efforts on climate-related innovation, nature-based solutions and energy
efficiency initiatives in Asia.
Page 77
How we are striving to
meet investor
expectations
The climate change resolution that was passed at our 2021 AGM committed us to
publishing our thermal coal phase-out policy and setting short and medium term
targets to align our provision of finance with the goals and timelines of the Paris
Agreement.
Page 18
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related
scenarios, including a 2°C or lower scenario
Embedding climate into
scenario analysis
We use the people, processes, controls and governance structures from our
traditional capital stress tests for our climate-related scenario analysis, as well as
bespoke data, modelling techniques and analysis.
Page 57
Key drivers of
performance and how
these have been taken
into account
In 2021, we ran our first climate stress testing and scenario analysis exercise. For
all portfolios, our assessments considered transition risk and physical risk.
We do not currently fully disclose the impacts of transition and physical risk
quantitatively, due to transitional challenges such as data limitations and evolving
science and methodologies.
Page 57
Page 402
Scenarios used and how
they factored in
government policies
Our climate-related scenario analysis was run on a suite of scenarios including Hot
house, Orderly and Disorderly scenarios, which incorporated a complex set of
social, political and economic decisions, including taking into account government
policies.
Page 57
How our strategies may
change and adapt
As our approach matures, we will look to begin incorporating our analysis into our
core banking processes including strategic planning and risk appetite.
We regularly review and enhance our own building selection process and design
standards to help these reflect the potential impacts of climate change.
Page 61
Risk management
a) Describe the organisation’s processes for identifying and assessing climate-related risks
Traditional banking risk
types considered
Our key climate risk types are: wholesale credit risk, retail credit risk, regulatory
compliance risk, resilience risk and strategic (reputational) risk.
We tailor our underlying policies and controls to manage the different risks and
exposures to reflect our respective roles in asset management, employee
pensions and insurance to meet the needs of our key stakeholders.
Page 131
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HSBC Holdings plc
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Disclosure
location
Process
The process of identification and assessment of climate risk differs according to
the risk type, taking into account material risk drivers. We use scenario analysis to
assess our portfolio’s exposure, which takes into account emerging regulatory
requirements, and we use our transition risk questionnaire to request information
from our corporate customers.
Page 131
Integration into policies
and procedures
We are integrating climate risk into the supporting policies, processes and controls
for our key climate risks and we will continue to update these as our climate risk
management capabilities mature over time.
Page 131
b) Describe the organisation’s processes for managing climate-related risks
Process and how we
make decisions
The Group Risk Management Meeting receives scheduled updates on climate
risk, and receive regular updates on our climate risk appetite and top and
emerging climate risks.
Our developing climate risk appetite metrics aim to support the oversight and
management of the financial and non-financial risks from climate change.
Our approach to climate risk management is developing and how we manage these risks will
vary by risk type. We will continue to align to our risk management framework when
determining the materiality of its exposure to climate-related risks.
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Page 131
c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the
organisation’s overall risk management framework
How we have aligned and
integrated our approach
Our approach to climate risk management is aligned to our Group-wide risk
management framework and three lines of defence model.
Page 131
How we take into account
interconnections between
entities, functions
Our dedicated climate risk programme continues to accelerate the development of
our climate risk management capabilities, taking into account relevant
interconnections within global businesses, functions and entities.
Page 131
Metrics and targets
a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its
strategy and risk management process
Metrics used to assess
the impact of climate-
related risks on our loan
portfolio
We disclose our wholesale loan exposure to the six high transition risk sectors. It
is also used to be a metric, together with our transition risk questionnaire to
assess impact of climate risk and help inform risk management.
We are starting to measure climate risk for our retail portfolio, starting with retail
properties in the UK.
Our climate risk management information dashboard includes metrics relating to
our key climate risks, and is reported to the Global Climate Risk Oversight Forum.
However, we do not fully disclose metrics used to assess the impact of climate-
related risks on retail lending, parts of wholesale lending and other financial
intermediary business activities
Page 133
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Page 402
Metrics used to assess
progress against
opportunities
We track our net zero progress using multiple metrics, tailoring methodologies to
the specific measures.
We do not currently fully disclose the proportion of revenue or proportion of
assets aligned with climate-related opportunities, relevant forward-looking metrics
or internal carbon prices due to transitional challenges including data and system
limitations.
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Page 402
Board or senior
management incentives
We use a number of climate-related metrics within annual incentive scorecards,
including those of the Group Chief Executive and Group Chief Financial Officer.
Page 17
b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks
Our own operations
We report scope 1, 2 and part of scope 3 greenhouse gas emissions resulting
from the energy used in our buildings and employees’ business travel.
Future disclosure on scope 3 supply chain emissions (suppliers), as well as its
related risks is reliant on our suppliers publicly disclosing their carbon emissions.
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Measuring our on-balance
sheet financed emissions
We have started to measure our scope 3 portfolio impact, beginning with the oil
and gas, and power and utilities sectors.
Future disclosure on scope 3 financed emissions (customers) is reliant on our
customers publicly disclosing their carbon emissions.
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Page 402
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets
Details of targets set and
whether they are absolute
or intensity based
One of our strategic pillars is to support the transition to a net zero global
economy. To support our ambition to align our financed emissions to achieve net
zero by 2050 or sooner, we have set a new absolute on-balance sheet financed
emissions 2030 target for the oil and gas sector, and an on-balance sheet financed
emissions intensity 2030 target for the power and utilities sector.
Given that climate scenarios are mainly focused on medium- to long-term
horizons, rather than short-term, we have set interim 2030 targets for on-balance
sheet financed emissions for the oil and gas and power and utilities sectors. We
do not currently disclose targets used to measure and manage physical risk, due
to transitional challenges and data limitations. We do not consider water usage to
be a material target for our business and therefore we have not included a target
in this year’s disclosure.
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Page 402
Other key performance
indicators used
We also use other indicators to assess our progress including energy consumption
and percentage of renewable electricity sourced.
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HSBC Holdings plc
Social
We aim to play an active role in opening up a world of opportunity for our customers, colleagues
and communities as we bring the benefits of connectivity and global economy to more people
around the world.
At a glance
Our relationships
Our purpose is opening up a world of opportunity, and we aim to bring that purpose to our customers, employees and the communities in
which we operate.
We create value by providing the products and services our customers need and aim to do so in a way that fits seamlessly into their lives. This
helps us to build long-lasting relationships with our customers. Through a series of surveys, we aim to listen to our customers to put them at
the centre of our decision making. If things do go wrong, we aim to take action in a timely manner.
Our organisation has been shaped by the many cultures, communities and continents we serve, with almost 220,000 full-time equivalent
employees (‘FTEs’) in 64 countries with 160 nationalities. We were founded on the strength of different experience and we continue to value
that difference. We strive to champion inclusivity to better reflect the worlds of our customers and communities.
We have a long-standing commitment to support our communities, in areas where we can make a difference and support sustainable economic
growth. We believe that financial services, when accessible and fair, can reduce inequality and help more people access opportunities.
Our culture is underpinned by our values: we value difference, we succeed together, we take responsibility, and we get it done.
In this section
Customers
Customer satisfaction
While customer satisfaction improved during the year,
we have work to do to improve our rank position
against competitors.
Page
67
How we listen
We aim to be open and consistent in how we track,
record and manage complaints.
Page
68
Employees
The future of work
As the Covid-19 pandemic tested our colleagues, we
expect the way we work to change as the workforce
meets new demands.
Page
70
Inclusion
We value diversity of thought and we are building an
inclusive environment that reflects our customers and
communities.
Page
71
Learning and skills
development
We aim to build a dynamic, inclusive culture where
colleagues can develop skills and experiences that help
them fulfil their potential.
Page
73
Listening to our
colleagues
We run a Snapshot survey every six months and report
insights to our Group Executive Committee and the
Board.
Page
74
Well-being
Our global well-being programme is a key enabler of
our people strategy, especially as we move to a more
hybrid way of working.
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76
Communities
Supporting
communities
We focus on a number of priorities where we can
make a difference and support sustainable economic
growth.
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77
Financial inclusion
We aim to build financial health and remove barriers
people can face in accessing financial services.
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78
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HSBC Holdings plc
Customers
We create value by providing the products and services our customers need and aim to do so in a way that fits seamlessly into their lives.
We aim to listen, learn and act on our customers’ feedback, and use the net promoter score (‘NPS’) system to compare our customer
satisfaction performance against our peers. We manage customer feedback when things go wrong and report on our actions against our key
customer complaints.
In this section, we report on our customers as three distinct groups: our wealth and personal banking customers; medium and large-sized
corporate customers; and our global and institutional customers. These groups are served by our three global businesses respectively: Wealth
and Personal Banking (‘WPB’), Commercial Banking (‘CMB’) and Global Banking and Markets (‘GBM’).
Customer satisfaction
We remain committed to improving customers’ experiences. In 2021, we gathered feedback from over one million customers across our three
global businesses to help us understand our strengths and the areas of focus.
Our recommendation scores improved in more than 60% of our markets, although we still have work to do to improve our rank position against
competitors, as some have accelerated their performance faster than us.
Listening to drive continuous improvement
Throughout 2021, we continued to embed our new feedback system so we can better listen, learn and act on our customers’ feedback. We use
NPS to provide a consistent measure of our performance. NPS is measured by subtracting the percentage of ‘Detractors’ from the percentage
of ‘Promoters’. ‘Detractors’ are customers who provide a score of 0 to 6, and ‘promoters’ are customers who provide a score of 9 to 10 to the
question: ‘On a scale on 0 to 10, how likely is it that you would recommend HSBC to a friend or colleague’.
We run studies that allow us to benchmark ourselves against other banks. In 2021, these were live in 10 WPB markets and 13 CMB markets,
and in our key regions for our private bank and GBM. These will be expanded to other key markets in 2022. We try to make it as easy as
possible for customers to give us feedback, accelerating our use of digital real-time surveys to capture insight. By sharing this and other
feedback with our front-line teams, and allowing them to respond directly to customers, we are improving how we address issues and realising
opportunities.
How we fared
In WPB, our NPS rose in seven markets. In Hong Kong, mainland China and UAE, we were ranked in the top-three banks, and in the UK,
Malaysia and Mexico we improved rank positions. Our rank in Singapore and the US remained flat while our positions slipped in Australia and
Canada. Customers told us we needed to focus on: making digital platforms more accessible, making payments easier, improving our account
opening experience and helping customers better monitor their spending. We have made a commitment to invest in making these things
better. In our private bank, our global NPS increased to 31, compared with 9 in 2020. This was largely due to an increase in our scores in Hong
Kong, the US and Germany, with scores in Switzerland, the UK and Luxembourg also performing strongly.
In CMB, NPS rose in eight of our 13 key markets, with our rank positions in Malaysia, India, UAE and Mexico either improving or in the top three
against competitors. In Hong Kong, we placed a stronger emphasis on innovation from a product and digital banking perspective. In the UK, as
we continued to navigate the broader impacts of Covid-19, we faced challenges providing consistent levels of customer service. We are
prioritising areas where we can improve the experience customers have with us.
In GBM, our NPS increased in Asia and the US. We ranked in first place in Asia, an improvement from third place in 2020. In the US, our NPS
increased by 16 points, consequently placing us in sixth place versus our ninth place ranking in 2020. While our NPS declined in Europe by four
points compared with 2020, our score improved among our key clients.
Number of markets in top three or improving rank 1
2021
WPB
6 out of 10
CMB
4 out of 13
1 In WPB, markets comprised: the UK, Hong Kong, Malaysia, Singapore, mainland China, Australia, UAE, Canada, Mexico and the US. In CMB, markets comprised:
the UK, Hong Kong, Malaysia, Singapore, Pearl River Delta, mainland China, India, Indonesia, Australia, UAE, Canada, Mexico and the US. Rank positions are
provided using data gathered through third-party research agencies.
Acting on feedback
We continued to focus on our digital capabilities in 2021 to enable better customer experiences.
In WPB, we introduced new mobile account opening functionality in Hong Kong, leading to improved NPS, and reaching an all-time high of 62 in
March. We also launched Trade25, our new stock trading platform for 18 to 25 year-olds. By the end of the year, 1,800 users had opted into the
programme. A new online banking platform was delivered across 20 markets to improve navigation and usability.
I n CMB, our digital self-service programme launched to enable our customers to undertake more of their day-to-day banking online. Since
introduction in early 2021, in the UK, over 140,000 customers changed their details online, 71,000 customers managed their debit and credit
cards and 389,000 cheques were deposited using the mobile application.
In GBM, our digitised account onboarding and lifecycle management platform has been extended to 21 markets with enhanced features and
capabilities including one time password and e-sign functionality. Integrated electronic identification and verification capabilities have also been
deployed to simplify the onboarding experience for our clients.
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How we listen
To improve how we serve our customers, we must be open to feedback and acknowledge when things go wrong. We have
adapted quickly to support our customers facing new challenges and new ways of working, especially as a result of Covid-19-
related lockdown restrictions.
We aim to be open and consistent in how we track, record and manage complaints, although as we serve a wide range of
customers – from personal banking and wealth customers to large corporates, institutions and governments – we tailor our
approach in each of our global businesses. As the table on the right demonstrates, we have a consistent set of principles that
enable us to remain customer-focused throughout the complaints process.
For further details on complaints volumes by geography, see our ESG Data Pack at www.hsbc.com/esg.
How we handle complaints
Our principles
Our actions
Making it easy for customers to
complain
Customers can complain via the channel that best suits them. We provide a
point of contact along with clear information on next steps and timescales.
Acknowledging complaints
All colleagues welcome complaints as opportunities and exercise empathy to
acknowledge our customers’ issues. Complaints are escalated if they cannot
be resolved at first point of contact.
Keeping the customer up to date
We set clear expectations and keep customers informed throughout the
complaint resolution process via their preferred channel.
Ensuring fair resolution
We thoroughly investigate all complaints to address concerns and ensure the
right outcome for our customers.
Providing available rights
We provide customers with information on their rights and the appeal process
if they are not satisfied with the outcome of the complaint.
Undertaking root cause analysis
Complaint causes are analysed on a regular basis to identify and address any
systemic issues and to inform process improvements.
Wealth and Personal Banking (‘WPB’)
In 2021, we received approximately 1.2 million complaints from customers. The ratio of complaints per 1,000 customers per month in our large
markets reduced from 2.7 to 2.5.
In the UK, complaints relating to our response to the Covid-19 pandemic reduced, due to the decline in demand for financial support, payment
holidays and additional lending. In the UK, we also implemented various initiatives to resolve common customer pain points and have provided
our people with enhanced guidance to help them identify complaints.
The increase in complaints in Hong Kong mainly related to stresses to our operations caused by events including frauds, Covid-19-related
government schemes and new business initiatives. We are addressing these by offering new flexible solutions, customer education on fraud
prevention and enhanced digital services.
The increase in complaints in Mexico was driven by unrecognised charges in debit and credit cards caused by fraud attacks. In response, our
fraud teams have taken actions to protect customers, including enhanced monitoring and customer alerts.
Our complaint management platform, now live in 11 markets, allows us to deliver a more customer-focused experience when managing
feedback. We have streamlined complaints procedures, introduced greater automation to track complaints and provide customers with regular
updates, and enhanced our reporting. Our new global complaints dashboard enables us to identify trends, and put in place actions to resolve
emerging issues.
In our private bank in 2021, we received 431 complaints, a 25% decrease on 2020, largely due to the reduction in administration and service
issues. Within this category, approximately 50% were attributable to processing errors/delays and client reporting delays/errors. In 2021, the
private bank resolved 431 complaints.
WPB complaint volumes 1 (per 1,000 customers per month)
2021
2020
Total 2
2.5
2.7
UK 3
↓
1.6
2.1
Hong Kong 3
↑
0.7
0.6
Mexico 3
↑
5.5
4.9
1 A complaint is any expression of dissatisfaction about HSBC’s activities, products or services whether justified or not.
2 Markets included: Hong Kong, mainland China, France, the UK, UAE, Mexico, Canada, US.
3 The UK, Mexico and Hong Kong make up 84% of total complaints.
Acting on feedback
In 2021, we revised our global complaint handling policy to simplify our process, and set a principle-based approach. We aim to ensure we
recognise those customers with enhanced care needs to deliver fair outcomes.
In March 2021, we were the first bank in Hong Kong to allow fully digital international account opening for both permanent and non-permanent
residents through the launch of a new international account opening service through our internet banking.
Since October 2021, our UK customers have benefited from enriched transaction details for their debit and credit cards on the mobile app. The
app provides a simpler interface, includes improved transaction descriptions and helps support customers where they are querying transactions
through the dispute process.
Contact centres are accelerating the digital transformation to deliver enhanced customer experience by streamlining and automating processes.
In 2021, we launched 14 new chat deployments, four new chatbots and security improvements that included voice biometrics and SMS
passwords that drive towards delivering seamless customer experiences when connecting with our contact centres.
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How we listen continued
Commercial Banking (‘CMB’)
In 2021, we received 82,238 customer complaints, a decrease of 22% from 2020. Of the overall volumes, 82% came from the UK, 10% from
Hong Kong and 2% from France. We resolved 81,968 complaints.
The most common complaint related to operations, namely payment processing errors and delays. However, complaints in this category fell
markedly compared with 2020, largely due to the significant reduction in complaints relating to the Bounce Back Loan Scheme in the UK after
the scheme was closed in March 2021. In Hong Kong, the number of complaints received were significantly lower in 2021 due to a reduction in
our due diligence reviews of customers as part of our global standards programme.
Encouraging our people to capture and log complaints allows us to continually improve the products and services we offer. To support this we
rolled out a new complaints tool across 36 markets to ensure effective complaint handling remains at the front and centre of how we operate.
CMB complaint volumes 1 (000s)
2021
2020
Total
82.2
105.1
UK 2
↓
67.1
81.9
Hong Kong 2
↓
8.2
16.3
Acting on feedback
We seek to ensure that we treat customers fairly when managing complaints, especially those who may be considered vulnerable or who have
enhanced care needs. In 2021, we introduced a way to identify complaints from such customers so that they get the right outcomes.
The majority of complaints related to payment processing. To improve our customers’ experience when making payments, we launched SMS
and We Chat notifications in Hong Kong to accelerate payment screening times.
The second highest contributor to complaint volumes related to contact centres, in particular the time taken for our customers to be served. In
the UK these complaints were driven by a rise in customer demand and operational challenges increasing call wait times. To improve response
times, we provided customers with more digital channels including web chat and upgraded our Business Banking mobile app.
We continued to strengthen our financial crime procedures as part of our commitment to safeguard our customers. While complaints related to
these processes and procedures remained high they fell by 2% compared with 2020.
Global Banking and Markets (‘GBM’)
We received 1,429 customer complaints in 2021, which was in line with complaint volumes in 2020. Of the complaints received in 2021, 92%
were closed.
Our Global Liquidity and Cash Management business recorded the most complaints, corresponding to the high transaction volumes associated
with this business. Complaint volumes were broadly stable throughout the year, with no material incidents observed. Some examples of
complaints raised include temporary issues with system performance, and customers citing query resolution times.
GBM complaint volumes 1
2021
2020
Total
1,429
1,432
Global Banking
↓
282
309
Global Markets and
Securities Services
↓
309
363
Global Liquidity and
Cash Management 3
↑
838
760
Acting on feedback
We have developed a client feedback tool to replace several legacy complaints logging tools for all GBM businesses. The tool is scheduled to go
live across all GBM markets by September 2022.
While global systems were stable throughout 2021, where issues occurred we deployed resources to restore services quickly, and performed
root-cause analysis to ensure fixes were implemented.
1 A complaint is any expression of dissatisfaction, whether justified or not, relating to the provision of, or failure to provide, a specific product or service or service
activity.
2 For our CMB business, the UK and Hong Kong make up 92% of total complaints.
3 Global Liquidity and Cash Management excludes 1,190 complaints relating to payment operations, which is part of Digital Business Services.
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Employees
Opening up a world of opportunity applies to colleagues, as well as our customers. We do this by building a diverse and inclusive organisation
that prioritises well-being. We invest in the development of talent, creating a culture of learning and we empower our colleagues to shape the
future of work.
We were founded on the strength of diverse experience, and we continue to seek different perspectives to ensure we are prepared to move at
pace, and deliver on behalf of our colleagues, customers and shareholders. We regularly listen to our colleagues through surveys and Exchange
sessions. The insight we collect shapes our approach to colleague engagement and support.
Our culture is underpinned by our values: we value difference, we succeed together, we take responsibility, and we get it done.
The future of work
The way we work is continuing to adapt as our workforce meets new demands, and as expectations change. In addition to this, our colleagues
are developing new skills and working more flexibly than ever before.
Adapting at pace
During the Covid-19 pandemic, our colleagues adapted at pace in a fast-changing environment to provide continuity of service for our
customers. This offered us the opportunity to rethink the future of work, taking the best of what we learnt to attract a better and more diverse
workforce.
To support our approach, we created three guiding principles:
•Customer focus: We aim to make sure the way we work helps deliver the best commercial outcomes for our customers.
•Team commitment: We will connect with each other, build our community and collaborate.
•Flexibility: We will provide our colleagues with more choice on how, when and where we work, suitable for the roles we do.
Our future of work initiative is driven by feedback and insights that we gain from our colleagues. In April 2021, our return to workplace survey
revealed approximately 70% of colleagues wanted individual flexibility around location and hours. In October 2021, our employee focus groups
showed approximately 85% of colleagues wanted leaders to set an example and encourage our new ways of working.
In 2021, we started to formalise hybrid working arrangements, splitting time between home, office or other locations. We developed e-learnings
and conversation guides to help managers discuss hybrid ways of working with their teams. We also created films and communications,
showcasing how leaders and colleagues were role modelling new ways of working.
To further support individual flexibility, we created a new global flexible working framework and best practice guidelines to enable all colleagues
to have more choice around how and where they work.
Our June 2021 Snapshot survey revealed there are five key areas our colleagues want us to get right for hybrid working to be successful:
•improve communication;
•offer the right level of flexibility;
•provide fit-for-purpose technology;
•facilitate collaboration; and
•enable our leaders to lead hybrid teams.
In line with this feedback, we improved technology platforms including the accelerated deployment of Microsoft Teams and improved remote
internet connection capabilities. We have commenced refurbishment of buildings to support better collaboration, while ensuring the safety of
our colleagues by continuing to provide social distancing measures. The future of work will remain an area of focus in 2022 and beyond.
We recognise we do not have all the answers, so we will continue to take a ‘test and learn’ approach, closely evaluating our success through
regular feedback and business performance.
Spotlight on hybrid working
Our colleagues in mainland China – one of the first markets to reopen following Covid-19-related restrictions – embraced our new hybrid ways
of working.
Managers assessed role types against a global ‘workstyle’ framework, which considers issues such as local laws, regulations and the need for
face-to-face contact. This helped management understand and role model a balance between home and office working. Managers were then
encouraged to have open discussions with their teams, supported by HR guidelines, around how individuals could be supported to work more
flexibly. Following these changes, we received feedback that showed that ways of working had changed, and where roles allowed, hybrid
working was now seen to be the standard way to work.
66%
of employees whose roles allow them to work remotely told us their ideal work pattern would be hybrid, according to the Snapshot employee
survey in December 2021.
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Inclusion
We value diversity of thought and we are building an environment that reflects our customers and communities. We are committed to
attracting, developing and retaining diverse talent by fostering an inclusive culture.
We recognise the importance of data in driving change, and in 2021 placed an increased focus on capturing diversity data in markets where this
is possible from a legal, data privacy and cultural perspective. We are now using data science to uncover barriers to more equal representation
across the organisation.
Our approach to inclusion is organised under four pillars:
Investing in talent
To ensure that we have diversity of thought and represent the communities we serve it is imperative that we attract, hire and develop high-
performing diverse talent. Our recruitment, retention and development initiatives include the following:
•In recruitment, it is now mandatory for all hiring managers to carry out inclusive hiring training. For external recruitment, we work with
agencies that specialise in promoting more diverse hires at all levels of seniority.
•To support our people managers and colleagues, we have invested in expanding our leadership development programmes, and in
initiatives relating to mental health and neurodiversity. We are also the first UK employer to be accredited as menopause friendly.
•We run targeted leadership programmes for underrepresented groups, and we have reviewed succession plans and pipelines for
senior leadership roles in our key markets with a focus on representation of female and ethnically diverse talent.
For further details on awards and employee programmes, see the ESG Data Pack at www.hsbc.com/esg.
Investing in employee networks
Tens of thousands of colleagues are part of our employee networks, focusing on age, disability, mental health, ethnicity, faith, gender, LGBT+,
working parents, carers, and wider common interest groups. Each network is supported by an executive sponsor. Some highlights from 2021
include:
•Balance, our gender network, launched an initiative that now runs across all employee networks, providing structured small group
executive coaching sessions led by internal leaders in 38 markets. Nearly 3,000 colleagues have benefited to date.
•Embrace, our ethnicity network, hosted global panel sessions on World Day for Cultural Diversity to discuss the importance of ethnic
and cultural inclusion and the actions needed to bring about sustainable change. In the US, Embrace held career insights workshops
showcasing the skills needed for various internal vacancies.
•Our Pride network launched ‘How to be an LGBT+ Ally’ e-learning in 10 languages. Approximately 2,500 colleagues completed the
training within five months, including the Group Executive Committee.
Investing in data
The diversity data we collect is reviewed by our Group Executive Committee on a quarterly basis and is used to make evidence-based decisions
and hold us accountable for progress against our commitments. We will use diversity data to enhance our understanding of employee
sentiment across diverse groups and to enable us to assess the inclusiveness of our hiring processes. In 2021, highlights included:
•We have expanded our self-identification capability to 38 markets, enabling 91% of our workforce to share their ethnic heritage.
•Employees can now also share their disability, gender identity and sexual orientation data. These self-identification options were
enabled for 90%, 80% and 70% of our workforce respectively, in markets where this was permitted from a legal, regulatory and
cultural perspective.
•As part of the hiring process, we have enabled candidates in 12 markets, including five of our largest, to share their diversity data. We
will add a further seven markets in 2022.
Supporting customers and communities
We are committed to supporting the diverse communities we serve, with actions across HSBC, and in our personal and wholesale businesses
specifically, including:
•We empowered female entrepreneurs to increase the scale of their business through masterclasses, coaching and networking as part
of HSBC Roar, a customer coaching and networking programme launched by HSBC Global Business Banking in partnership with
AllBright.
•We redesigned our retail banking apps in line with accessibility guidelines and transformed the physical appearance of our credit and
debit cards to make them more accessible.
•We demonstrated our commitment to promoting a culture of respect and equality by becoming a signatory in 2021 to the UN
Standards of Conduct for Business: Tackling discrimination against lesbian, gay, bi, trans and intersex people.
For further details of how we are making financial services more accessible and fair, see ‘Financial inclusion’ on page 78.
Disability confidence
Our employee networks are essential to fostering an inclusive culture. Our Ability network celebrated International Day of People with
Disabilities in partnership with PurpleSpace, which launched the Purple Light Up movement to build disability confidence for employees and
customers. Global events were held to celebrate the contribution of colleagues with disabilities, raise awareness of our disability confidence
goals, and build empathy and allyship.
In 2021, we made progress on our ambition to become a disability confident organisation. Key highlights were: running more than 50 digital
accessibility sessions attended by 15,000 employees and partners; launching local Ability networks in India and Poland, and increasing
membership across the Group; and welcoming six new colleagues with Down’s Syndrome to work in our UK branches.
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Inclusion continued
Women in sen ior leadership
After achieving our ambition of 30% women in senior leadership positions in 2020, we set a new goal to reach 35% by 2025. At the end of
2021, we had 31.7% of women in senior leadership roles.
Appointments of external female candidates into senior positions were 37.6%, up from 31.7% in 2020. Promotions of women into senior
leadership roles were 43.2%.
Talent programmes – including Accelerating Female Leaders and our Explore leadership course – have provided skills and coaching to help high-
performing women progress their careers at an accelerated rate.
1 Combined executive committee and direct reports includes HSBC Group Executives, General Managers, Managing Directors, Group Company Secretary
and Chief Governance Officer and their direct reports (excluding administrative staff).
2 Senior leadership is classified as those at band 3 and above in our global career band structure.
Our ethnicity commitments
In July 2020, we made a commitment to double the number of Black colleagues in senior leadership positions by 2025. We have focused on the
UK and US markets, where most of our Black colleagues are based. In 2021 we grew our number of Black senior leaders by 17.5%.
Our global campaign to invite colleagues to provide us with data on how they identify has provided us with a more robust understanding of the
ethnic profile of our workforce. Using this data, in 2022 we are refining our ethnic diversity goals to work towards a diverse senior leadership
representation that better reflects the communities we serve. We will maintain our focus on goals for Black senior leaders and will also
establish goals for other underrepresented ethnically diverse groups.
We put in place important foundations in 2021 through leadership development programmes, inclusive hiring, and investing in the next
generation of high-performing diverse talent.
Our Accelerating into Leadership programme was expanded to include ethnically diverse men as well as women in middle management. In the
UK, we piloted the Solaris Bridge development programme for high-performing Black women.
We have partnered with organisations that specialise in engaging ethnically diverse talent for graduate, mid-career and leadership recruitment,
and request diverse candidate slates from our recruitment partners.
We are building our pipeline of future talent through grants, scholarships and internships. We have signed up to the UK 10,000 Black Interns
initiative, pledging to hire 35 interns – which is the highest number of places among all financial services companies. In the UK we also donated
£2m to the #Merky Foundation to support 30 Stormzy Scholars at the University of Cambridge over the next three years. In the US, we have
established an $800,000 scholarship with the Executive Leadership Council to fund Black students interested in a career at HSBC.
Representation and pay gap reporting
We publish our gender representation, ethnicity representation and pay gap data annually to ensure we continue to make progress and to help
us identify new areas for action. We have been reporting our gender representation and pay gap data for the UK since 2017. In 2020, we
voluntarily extended our reporting to include ethnicity for the UK and gender for the US. In 2021, we extended this further to include ethnicity
for the US and gender for mainland China, Hong Kong, India and Mexico. This covers 70% of our organisation, providing a clear view of overall
representation.
While we are confident in our approach to pay, until women and ethnically diverse colleagues are appropriately represented at every level across
the organisation, and we have more complete ethnicity self-identification data, we will continue to see gaps in average pay. We review our pay
practices regularly and work with independent third parties to review equal pay. If pay differences are identified that are not due to objective,
tangible reasons such as performance or skills and experience, we make adjustments.
In 2021, our median aggregate UK-wide gender pay gap, including all reported HSBC entities, was 46.7%, compared with 48.0% in 2020, and
the ethnicity pay gap was -6.0%, compared with -5.6% in 2020. Our overall UK gender pay gap is driven by the shape of our UK workforce.
There are more men than women in senior and higher-paid roles, and more women than men in junior roles. We also have a number of senior,
global, head office roles based in the UK.
For further details on our gender representation, ethnicity representation, pay gap data, and actions we are taking, see www.hsbc.com/diversitycommitments and
the ESG Data Pack at www.hsbc.com/esg.
Diversity data
During 2021, our inclusion team worked with legal, regulatory and diversity and inclusion colleagues in each of our markets to ensure we
enabled as many colleagues as possible to share their data on a voluntary basis.
This was one of the biggest global initiatives we have run, and has resulted in significant engagement from colleagues sharing their ethnicity
data so far.
It will be a multi-year process for colleagues and candidates to feel comfortable sharing their diversity data with us. We will need to
demonstrate the robustness of our data security controls, deliver on our commitments to use this data to progress representation targets,
identify and remove inclusion barriers and enhance our inclusion culture.
Percentage of our senior leadership who are women
31.7%
(2020: 30.3%; 2019: 29.4%; 2018: 28.2%)
Ethnicity declaration
52.4%
Colleagues who have shared their ethnic heritage with us to date, out of 91% who are able to do so.
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Learning and skills development
We aim to build a dynamic, inclusive culture where colleagues can develop skills and undertake experiences that help them fulfil their potential.
This determines not only how we develop our people but also how we recruit, identify and nurture talent.
Our resources
We use a range of resources to help colleagues take ownership of their development and career including:
–HSBC University is our home for learning and skills, which is accessed online and through a network of training centres. Learning is
organised through technical academies aligned to businesses and functions and enterprise-wide academies.
–Our My HSBC Career portal offers career development information and resources to help colleagues manage the various stages of
their career from joining through to career progression.
–HSBC Talent Marketplace is a new online platform using artificial intelligence (‘AI’) to match those keen to learn specific skills while
they work, with opportunities to support relevant projects alongside existing work.
Developing strong foundations
We expect all colleagues to complete global mandatory training each year. It plays a critical role in shaping our culture, ensuring a focus on the
issues that are fundamental to working with us – such as sustainability, financial crime risk, and our intolerance of bullying and harassment. New
joiners attend our Global Discovery programme designed to enhance their knowledge of the organisation and engage them with our purpose,
values and strategy.
As our risks and opportunities change, our technical academies offer general and targeted development. Our Risk Academy provides learning
for every employee in traditional areas of risk like financial crime risk but also offers more specialised development for those in high-risk roles
and for emerging issues like climate risk or the ethics of AI and Big Data.
A focus on skills
Our approach to learning is skills based. Our academy teams work with businesses and functions to identify the key skills and capabilities they
need in the future. We also help colleagues identify, assess and develop the skills that match their aspirations.
In 2021, we ran a Future Skills campaign called Focus 4, encouraging colleagues to identify four skills to prioritise in their development plans.
During four themed weeks colleagues attended various events that introduced them to areas such as data, digital and sustainability skills, as
well as personal skills including critical thinking and resilience.
Changing how we learn
Colleagues can access HSBC University online via a learning platform called Degreed. This helps them identify, assess and develop skills
through internal and external courses and resources in a way that suits them. Launched in 2021, usage of Degreed grew significantly through
the year.
Degreed materials range from short videos, articles or podcasts to packaged programmes or curated learning pathways that link content in a
logical structure. Degreed changes the nature of learning, balancing time-intensive classroom learning with simple accessible and timely
content. By December, more than 115,000 colleagues were registered on the platform, and in 2021, overall training volumes were up to 26.7
hours per FTE from 23 hours per FTE in 2020.
Most development happens while our colleagues work. In 2021, we launched an AI-based platform called Talent Marketplace, which matches
colleagues to projects and experiences based on their aspirations. By December, this had been rolled out to nearly 50,000 colleagues in the US,
India, Singapore and the UK, and will be rolled out globally in 2022.
Leadership development
It remains critical to our ability to energise for growth that we manage people effectively and our leaders make an impact. In recent years, we
have refreshed how we provide leadership development. In 2021, we launched a new executive development curriculum for our most senior
leaders, combining internal programmes and business school activities with targeted technical programmes on key topics and skills.
Retaining and identifying future talent
The starting point to identifying talent is having a recruitment process that is fair and inclusive. In February 2021, we launched inclusive hiring
training to help managers make decisions in line with our hiring principles. Managers can now only hire once they have completed this training,
with over 13,500 managers receiving certification in 2021.
As we reshape HSBC we recognise that managing change well is critical. To that end, we have committed to focusing on redeploying those
colleagues impacted by restructuring. In 2021, 23% of staff impacted found new jobs within HSBC, compared with 14% in 2020.
Our global graduate programme welcomed 650 new colleagues to the organisation in 2021. We held a three-day virtual induction to help
graduates understand the programme and how they can play their part in bringing our purpose, strategy and values to life.
The Group Executive Committee takes time to identify successors for our most critical roles. Successors undergo robust assessment and
participate in executive development programmes.
New routes to opportunity
Our Talent Marketplace platform helps our colleagues to open up a world of new opportunities to develop their skills, connections and careers
to complement traditional learning.
Colleagues can create a profile that describes their skills, experience and aspirations. The system uses AI to match projects to potential
candidates, providing our colleagues with an opportunity to learn and offering project owners a diverse pool of talent from which to draw.
Having launched in a number of countries in 2021, Talent Marketplace is helping our colleagues to connect with each other around the world
and realise new opportunities. For example, one Singapore-based colleague who wanted to improve their communication skills and was
matched with a London-based project owner who needed local market knowledge and language skills.
Training at HSBC
5.9 million
Training hours carried out by our colleagues in 2021.
(2020: 5.2 million)
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Listening to our colleagues
We were founded on the strength of different experiences, attributes and voices. We believe that seeking out and listening to the views of our
colleagues is a fundamental part of who we are and how we work. This has been especially important in 2021, as we look to define the future
of work, support colleague well-being and develop the skills to enable future success.
Listening to colleague sentiment
We run a Snapshot survey every six months and report insights to our Group Executive Committee and the Board. Results are shared across
the Group to provide managers in each region with a better understanding to plan and make decisions. We complement these all-employee
surveys with targeted listening activity throughout the year, and in 2022 we will move to one all-employee Snapshot survey to reduce the risk of
survey fatigue.
We received 272,718 responses to our two Snapshot surveys in 2021, with a record response rate of 64% in June and 61% in December, up
from 62% and 56% respectively in the same periods of 2020.
Employee listening to support our people priorities
In addition to our regular Snapshot surveys, we captured monthly feedback through a series of pulse surveys from September 2020 through to
April 2021 to understand colleagues’ views on returning to the workplace and their preferences for the future of work, with more than 60,000
participants. This feedback was complemented by a virtual focus group involving 3,400 colleagues across 20 markets in September 2021, deep-
diving into hybrid working. We will continue to monitor employee attitudes and preferences for the future of work through our Snapshot surveys
and other targeted research. For further details on the future of work, see page 70.
We also used our Snapshot surveys and virtual focus groups to engage with colleagues about learning and skills development, with over 1,100
participants to a series of virtual focus groups in March 2021 on learning, development and skills for the future. In our December Snapshot, 76%
of colleagues said that where they work, people are empowered to seek opportunities to learn and develop new skills. For further details on
learning and skills development, see page 73.
Employee well-being has remained a central focus of our Snapshot research throughout 2021 with a dedicated section of each survey focused
on colleague well-being. For further details on well-being, see page 76.
We also used Snapshot and pulse surveys to measure the progress of our refreshed purpose, strategy and values, which we launched in
February 2021. By the end of 2021, 78% of colleagues said they were aware of these, and 82% of those believed that we have the right
purpose, strategy and values to drive success (see below).
Fostering an inclusive working environment
We expect our people to treat each other with dignity and respect and do not tolerate bullying or harassment on any grounds.
Over the past few years, we have strengthened our approach to bullying and harassment, improving our collective understanding of, and
response to, these issues. In 2021, we reinforced expected standards of conduct with a refreshed global anti-bullying and harassment code,
supplemented with local codes to reflect cultural context while maintaining consistent high standards across the Group.
We have added further anti-bullying and harassment messages to our mandatory training for all our colleagues, and continued our campaign to
encourage colleagues to be ‘active bystanders’ and speak up when they see or experience poor behaviours or things that do not seem right.
We have mandatory local procedures for handling employee concerns, including complaints of bullying and harassment. Where investigations
are required, we have a global framework setting the standards for those investigations and an additional quality assurance process. We monitor
bullying and harassment cases to inform our response and identify actions that could prevent future issues. The data is reported to
management committees.
We are not complacent and know that this journey continues. Our refreshed values will guide and inform our plans for 2022 to continue to
create and promote an inclusive working environment.
Employee engagement and turnover
2021
2020
Employee engagement
72%
72%
Voluntary turnover
12.7%
7.7%
Involuntary turnover
3.8%
3.6%
Embedding our new purpose and values
Following the launch of our new purpose and values in February 2021, we have continued to embed them in how we operate.
As well as building awareness through communications, we have helped leaders, teams and individuals explore how they bring them to life
through workshops, webinars and team discussions. We have further embedded the new values and their associated behaviours into our
learning programmes, recognition schemes and performance management processes across HSBC. We continue to find ways to make our
purpose and values a cornerstone of how we communicate, conduct business and deliver employee services.
Awareness of the new purpose and values has been consistently high, at 78% in June and December 2021. As evidence that the new purpose
and values are becoming embedded, we had positive change in sentiment during the year. Among colleagues who were aware of our purpose
and values, 76% of respondents to the December Snapshot survey believed that they will lead to meaningful changes in how we work. This
was a seven point increase from the survey result in June. Similarly, a total of 77% of employees stated in December that people around them
demonstrate the values in how they work, which was a seven point increase from June. Overall, 82% of aware employees believed that we
have the right purpose, strategy and values to drive success.
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Listening to our colleagues continued
Measuring our progress against peers
We use seven Snapshot indices to measure key areas of focus and to enable comparison against a peer group of global financial institutions.
The table sets out how we performed.
Index
Score 1
vs 2020
HSBC vs
benchmark 2
Questions that make up the index
Employee
engagement
72
0
+4
I am proud to say I work for this company.
I feel valued at this company.
I would recommend this company as a great place to work.
Employee focus
71
-1
+3
I generally look forward to going to work.
My work gives me a feeling of personal accomplishment.
My work is challenging and interesting.
Strategy
72
+4
+2
I have a clear understanding of this company's strategic objectives.
I am seeing the positive impact of our strategy.
I feel confident about this company's future.
Change leadership
74
0
-2
Leaders in my area set a positive example.
My line manager does a good job of communicating reasons behind important
changes that are made.
Senior leaders in my area communicate openly and honestly about changes to
the business.
Speak-up
75
0
+8
My company is genuine in its commitment to encourage colleagues to speak
up.
I feel able to speak up when I see behaviour which I consider to be wrong.
Where I work, people can state their opinion without the fear of negative
consequences.
Trust
76
+1
+5
I trust my direct manager.
I trust senior leadership in my area.
Where I work, people are treated fairly.
Career (new)3
67
+2
+3
I feel able to achieve my career objectives at this company.
I believe that we have fair processes for moving/promoting people into new
roles.
My line manager actively supports my career development.
1 Each index comprises three constituent questions, with the average of these questions forming the index score.
2 We benchmark Snapshot results against a peer group of global financial services institutions, provided by our research partner, Karian and Box. Scores for each
question are calculated as the percentage of employees who agree to each statement. For further details on the constituent questions and past results, see the ESG
Data Pack at www.hsbc.com/esg.
3 The career index was introduced in early 2021. It comprises questions that were asked in earlier surveys so we are able to report a comparison with 2020.
Managing employee engagement
Three of our seven Snapshot indices improved in 2021, following significant increases in 2020. Employee engagement, which is our headline
measure, was four points above benchmark and five points above 2019 levels. The measure was unchanged from 2020, as were the speak-up
and change leadership indices. The employee focus index dropped by one point, but remained three points above the benchmark.
Our response to the Covid-19 pandemic remained a strong positive driver of employee sentiment in 2021. Employee feedback frequently
references flexibility and the ability to work from home as an important factor in why they would recommend HSBC as a great place to work,
with employee well-being, HSBC’s Covid-19 response and the working environment having the greatest positive influence on employee
engagement. Looking beyond the pandemic, we will continue to focus on aspects of the wider employee experience that our research shows
are the strongest drivers of employee engagement. This included ensuring that colleagues feel a sense of belonging, feel trust towards
leadership, see career progression opportunities at HSBC and are confident in the company’s future.
Our strategy index continued to strengthen with employees increasingly confident about the future. We still trailed the benchmark by five points
for employees stating that they see the positive impact of our strategy. We hope to address this through a renewed focus on our purpose and
strategy as part of our 2022 employee engagement activities.
We note that voluntary turnover increased from 7.7% in 2020 to 12.7% in 2021, consistent with trends across the wider employment market.
Our Snapshot survey showed a slight decrease in employees who intend to stay with HSBC for five or more years, from 65% in 2020 to 64% in
2021. Our research shows that how employees feel about their career at HSBC is a key driver of their intent to stay. Ensuring that our people
have the opportunity to develop new skills and further their careers with HSBC is therefore important for retaining talent. We are reassured that
against this backdrop, our career index increased by two points since 2020 and was three points above the external benchmark.
For further details on how employee engagement scores, including among colleagues identifying as part of an ethnic minority or as having a disability, have an
impact on executive Director remuneration scorecards, see page 268 in our corporate governance report.
Employee engagement
72%
Employee engagement index score
(2020: 72%)
74%
Of colleagues feel confident about this company’s future
(2020: 70%)
67%
Of colleagues feel they can achieve their career objectives at this company
(2020: 66%)
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Well-being
We are deeply committed to supporting the well-being of our colleagues as we transition to new ways of working and support our colleagues
through the pandemic. Guided by data and feedback from our employee surveys, our approach will continue to adapt to ensure our services
remain relevant.
In 2021, our global well-being programme covered three pillars: mental, physical and financial. In 2022, we added social well-being as a fourth
pillar.
Mental well-being
Despite the immense challenges of the Covid-19 pandemic, 82% of colleagues in our December Snapshot survey rated their mental well-being
as positive, compared with 81% in 2020. However, colleagues faced challenges, with 27% asking for more support in this area. To address this,
we made Headspace, a meditation app, available to all colleagues globally. Since July 2021, 23,000 colleagues have used Headspace to access
guided exercises and meditations.
All colleagues took part in mental health awareness training, as part of our global mandatory training programme. We updated our mental health
e-learning to help colleagues identify signs of mental ill-health in other colleagues, in both remote and face-to-face settings, as well as to help
have supportive conversations with customers. Despite being voluntary, the e-learning has been completed by 26,000 colleagues, with 18% of
these being line managers.
To celebrate World Mental Health Day, we ran a global awareness campaign and created a film featuring colleagues sharing personal stories.
Throughout October 2021, we held over 60 virtual events globally, featuring external experts providing advice on mental health-related topics.
We know from employee surveys that colleagues are more likely to report better mental well-being when they are physically active, have a
good work-life balance, and have regular well-being conversations with their manager. We recognise there is more we can do to support these
good habits and will prioritise addressing them in 2022.
Physical well-being
Employee Snapshot surveys revealed 75% of colleagues rated their physical well-being positively, compared with 73% in 2020. As a result of
the pandemic, access to doctor appointments became limited in some locations. To reduce the risk of serious illnesses going undetected, we
increased the number of markets where we offered telemedicine services, allowing colleagues to have appointments with doctors virtually.
Coverage of our workforce increased from 50% in 2020 to 66% in 2021. We have continued to provide access to private medical insurance in
the majority of our countries, covering 98% of permanent employees. In certain countries we provide on-site medical centres that the majority
of employees can access.
In June, we ran a month-long global physical well-being campaign, featuring guidance from sport ambassadors and our Chief Medical Adviser on
topics including management of chronic conditions, exercise, nutrition and symptoms that should not be ignored.
Financial well-being
Snapshot surveys revealed a decrease in financial well-being, with 64% of colleagues reporting positively, compared with 68% in 2020.
However, colleagues felt more supported to manage their financial well-being, at 58%, an increase of two points, and more confident talking
about their financial well-being with their line manager, at 56%, an increase of six points.
During the pandemic, we preserved pay and benefits, and introduced hardship funds in some markets, which allowed colleagues to apply for
financial support. In 2021, we expanded our employee banking proposition, HSBC Together, into Asia and parts of Europe, providing financial
guidance and seminars in seven countries, covering 53% of colleagues.
We also introduced employee share plans in mainland China and Poland for the first time, meaning 90% of colleagues can invest in HSBC
shares.
Social well-being
At the beginning of 2022, we formalised social well-being as a new pillar of our programme. This was done to address challenges around
reduced in-person connections, and to continue the development of our colleagues’ work-life balance.
We will prioritise promoting team cohesion in a hybrid environment, with 25% of colleagues indicating they would like better technology and
support with interacting with one another. Snapshot surveys revealed 76% of colleagues say they can integrate their work and personal life
positively, compared with 74% in 2020. We will continue to facilitate this by introducing flexible working policies in line with our future of work
initiative (see page 69).
In 2021, we refreshed our At Our Best recognition online platform, which allows for real-time recognition and appreciation between colleagues.
In 2021, the total number of recognitions made was 1.1 million. In 2022, we will evolve the programme to encourage more recognitions,
including through access on mobile devices.
Award
Global Centre for Healthy Workplace Awards 2021
-Best global healthy workplace programme, multinational employer
Advocating change for positive mental health
In January 2021, we helped found and launch the Global Business Collaboration for Better Workplace Mental Health. It is the first global
business-led initiative of its kind designed to advocate for – and accelerate – positive change for mental health in the workplace.
Despite important progress in some countries, there remains a lack of evidence, best practice and tools, to effectively implement global
approaches to workplace mental health. This challenge is exacerbated by cultural complexities and stigma.
Together with academic experts and not-for-profit organisations, we want to create a world where all business leaders recognise, have the right
tools, and commit to take tangible and evidence-based action on mental health in the workplace, enabling their workplace to thrive.
This initiative seeks to advance progress around the world by committing business leaders to a pledge to create mentally healthy workplaces,
and by freely sharing insights and best practices to create a roadmap for change, wherever an organisation is on its journey.
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Communities
We have a long-standing commitment to support the communities in which we operate, in areas where we can make a difference and support
sustainable economic growth.
Our Future Skills strategy aims to provide our customers, colleagues and communities with the employability and financial capability skills and
knowledge needed to thrive in the post-pandemic environment, and through the transition to a sustainable future. Our five-year Climate
Solutions Partnership, powered by $100m of our philanthropic funding, aims to scale up climate innovation ventures and nature-based solutions,
and to help transition the energy sector towards renewable sources. We also recognise the importance of listening to – and addressing – local
community needs and causes. We earmark approximately a quarter of our funding for causes that are important to communities across our
network, such as environmental protection or healthcare.
Supporting communities
Future skills
Our Future Skills strategy, launched in 2018, has supported over 5.2 million people through more than $156m in charitable donations. Current
projections from our charity partners indicate our support during 2021 reached more than 1.2 million people through donations of $41.8m.
With the global economy still feeling the effects and restrictions from the Covid-19 pandemic, our colleagues and partners have continued to
deliver programmes aimed at ensuring that people likely to be most impacted are not left behind. We also funded global research by The
Prince’s Trust group of charities, to get a true understanding of how young people feel about the future of work in this context.
We support our charity partners to deliver a combination of global and locally-led programmes, including:
•Junior Achievement’s International Innovation Challenges, which encourage young people to use their creativity to help communities
develop financial capability;
•our Green Skills Innovation Challenge with Ashoka – a global network for social entrepreneurs – which recognised 12 innovators who
are simultaneously solving environmental and social problems;
•the Technovation Girls programme, which aims to address the lack of diversity in the technology sector by equipping young women
and girls with the skills to become technology entrepreneurs and leaders;
•Soliya, an international non-profit organisation, whose work enables young adults to gain the skills needed to thrive in a connected
world; and
•the Ryerson Diversity Institute’s Pursue Entrepreneurship programme, which supports Black high school students and recent
graduates to develop leadership skills and explore careers in entrepreneurship.
Our High Impact grants programme allows our teams to apply for additional funding to support local projects. This year we awarded $7.4m to 26
projects, which will be distributed over two years.
Climate Solutions Partnership
Working with the World Resources Institute and WWF, we are focusing our collective efforts on three global themes: climate-related
innovation, nature-based solutions and energy efficiency initiatives in Asia. We see these as having the potential to make a significant impact in
the mission to achieve a net zero, resilient and sustainable future. Since 2020, we have provided $28.4 m to our NGO partners.
Local priorities
Our support for Covid-19 relief efforts continued in 2021, with a further $10m donated in India. Focusing on the longer-term response to the
pandemic, we also launched a one-year programme with UNICEF to support the employability and financial capability of young people in
Mexico, Indonesia and India.
Employee volunteering
We offer paid volunteering days, and encourage our people to give time, skills and knowledge to causes within their communities. In 2021, our
colleagues gave over 79,000 hours to community activities during work time.
Engagement with pressure groups
We aim to maintain a constructive dialogue on important topics that are often raised by campaigning organisations and pressure groups.
Charitable giving in 2021
Social, including Future Skills: 39%
Environment, including the Climate Solutions Partnership: 18%
Local priorities: 22%
Disaster relief and other giving: 21%
Skills impact bond
In 2021, we supported India’s first skills impact bond, issued by the National Skills Development Corporation, a public-private partnership set up
by India’s Ministry of Finance. We are providing $4.3m as one of four outcome funders, who commit to pay out once the partnership achieves
its stated objectives. Over the next four years, the partnership aims to equip 50,000 young people with skills and vocational training, and to help
them to find employment. Our philanthropic funding towards the bond aims to prove the concept of this innovative approach, and act as a
catalyst for much wider impact in the future.
Total cash giving towards charitable programmes
$113.8m
Hours volunteered during work time
>7 9,000
People reached through our Future Skills programme
1.2 million
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Financial inclusion
We believe that financial services, when accessible and fair, can reduce inequality and help more people access opportunities. We aim to play
an active role in opening up a world of opportunity for individuals by building financial health and removing the different barriers that people can
face in accessing financial services.
Access to products and services
We remain committed to supporting individuals experiencing homelessness or housing difficulties through our ‘no fixed address’ service in the
UK and Hong Kong. We continue to support survivors of human trafficking in the UK, as well as refugees and unified screening mechanism
claimants in Hong Kong through the provision of basic banking services. In 2021, HSBC UK also supported 150 Afghan settlers who arrived in
the country as part of a resettlement scheme to open bank accounts, a crucial first step to moving their lives forward. In May 2021, as part of
our ongoing efforts to create innovative product offerings, we introduced basic banking services for ethnic minority customers in Hong Kong
who have a limited understanding of English or Chinese.
Making banking accessible
Number of accounts opened for homeless, refugees and survivors of human trafficking
Access to financial education
We continue to invest in financial education content and features across different channels, to help customers, colleagues and communities be
confident users of financial services. Throughout 2020 and 2021, we received over 2.8 million unique visitors to our digital financial education
content, making progress towards our 2019 goal of reaching 4 million unique visitors by the end of 2022. In the UK, we have a financial fitness
score that provides individuals with an indicative score on the healthiness of their finances based on details about their spending, borrowing and
saving habits, as well as tips to improve their financial fitness.
Our financial education offering is extended to our colleagues in the form of online learning modules, empowering them to improve their skills
and enhance their financial well-being. We also deliver digital content and webinars to employees of our corporate clients on a broad range of
financial topics. These are supported by financial health checks – a one-on-one conversation on a non-advised basis to discuss individuals’
circumstances based on their learning.
We support charity programmes that deliver financial education to our local communities. In 2021, we launched our Saving for Good programme
in partnership with JA Worldwide – Injaz Al-Arab. The programme aims to equip economically vulnerable migrant workers in Bahrain, Egypt,
Kuwait, Qatar and the UAE with financial literacy skills to strengthen their financial resilience.
We understand the importance of building financial capability in children to ensure future resilience, and continue to collaborate with partners to
deliver financial education programmes such as Money Heroes. In 2021, HSBC UK also introduced a programme to tackle the unhealthy
spending habits associated with the increased amount of gaming that young people are engaging with today. The programme featured digital
tools, videos and in-school lesson plans to educate children and parents on the issue.
Inclusive design
We aim to ensure that our banking products and services are designed to be accessible for customers experiencing either temporary or
permanent challenging circumstances, such as disability, impairment or a major life event. For further details on our new HSBC UK accessible
card features, see page 297.
We strive to make our digital channels accessible so they are usable by everyone, regardless of ability. We have now reviewed our browser-
based websites in 27 retail markets and our mobile banking services in 21 markets against the Web Content Accessibility Guidelines 2.0 AA
standards, which are stipulated by the World Wide Web Consortium. We are continuing to make progress in this area.
We also want to be more explicit about catering for neurodiverse users and have launched our first Neurodiversity Guidelines. The purpose of
these guidelines is to provide members of HSBC digital teams with guidance for how they should design, code and create digital content to
support the needs of people who are neurodiverse.
Within our insurance business, we are redesigning the layout of our documents, adding in visual graphics and simplifying the language used.
For further details of our product design and our product responsibilities, please see page 83.
Supporting women and minority-led businesses
We are aiming to support our diverse customers by opening up a world of opportunity for women and minorities. In October 2021, we
committed to allocating $100m in lending for companies that are founded and led by women and minorities through HSBC Ventures, which
provides capital to start-ups and early stage businesses around the world. We understand it is critical to provide financial support to founders
who are historically underrepresented, so that their businesses can grow and expand. Since 2019, we have also been in partnership with
AllBright, a network that helps women in business connect with funding and growth opportunities. Together with AllBright, we launched HSBC
Roar in 2021, a customer coaching and networking programme for female entrepreneurs.
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Governance
We remain committed to high standards of governance. We work alongside our regulators and
recognise our contribution to building healthy and sustainable societies.
At a glance
Our relationship
We act on our responsibility to run our business in a way that upholds high standards of corporate governance.
We are committed to working with our regulators to manage the safety of the financial system, adhering to the spirit and the letter of the rules
and regulations governing our industry. In our endeavour to restore trust in our industry, we aim to act with courageous integrity and learn from
past events to help prevent their recurrence.
We strive to meet our responsibilities to society, including through being transparent in our approach to paying taxes. We also seek to ensure
we respect global standards on human rights in our workplace and our supply chains, and continually work to improve our compliance
management capabilities.
We acknowledge that increasing financial inclusion is a continuing effort, and we are carrying out a number of initiatives to increase access to
financial services.
For further details on our corporate governance, see our corporate governance report on page 217.
In this section
How ESG is governed
We expect that our ESG governance approach is likely to continue to develop, in
line with our evolving approach to ESG matters and stakeholder expectations.
Page
80
Our respect for human
rights
As set out in our Human Rights Statement, we strive for continual improvement
in our approach to human rights.
Page
81
Conduct: Our product
responsibilities
Our conduct approach guides us to do the right thing and to focus on the impact
we have on our customers and the geographies in which we operate.
Page
83
Cybersecurity
We invest heavily in our business and technical controls to help prevent, detect
and mitigate cyber threats.
Page
85
Data privacy
We are committed to protecting and respecting the data we hold and process, in
accordance with the laws and regulations of the geographies in which we
operate.
Page
86
Our approach with
our suppliers
We require suppliers to meet our compliance and financial stability requirements,
as well as to comply with our supplier ethical code of conduct.
Page
86
Safeguarding the
financial system
We have continued our efforts to combat financial crime risks and reduce their
impact on our organisation, customers and communities that we serve.
Page
87
Whistleblowing
Our global whistleblowing channel, HSBC Confidential, allows our colleagues and
other stakeholders to raise concerns confidentially.
Page
87
A responsible approach
to tax
We seek to pay our fair share of tax in all jurisdictions in which we operate.
Page
88
Acting with integrity
We aim to act with courageous integrity and learn from past events to prevent
their recurrence.
Page
88
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How ESG is governed
The Board takes overall responsibility for ESG strategy, overseeing executive management in developing the approach, execution and
associated reporting. Progress against our ESG ambitions is reviewed through Board discussion and review of key topics such as updates on
net zero, customer experience and employee sentiment. Board members receive ESG-related training as part of their ongoing development, and
seek out further opportunities to build their skills and experience in this area. For further details on Board members' ESG skills and experience,
see page 220. For further details on their induction and training in 2021, see page 229. Given the wide-ranging remit of ESG matters, the
governance activities are managed through a combination of specialist governance infrastructure and regular meetings and committees, where
appropriate. These include the Disclosure Committee, which provides oversight for the scope and content of ESG disclosures, and the Group
People Committee, which provides oversight support for the Group’s approach to performance management.
For some areas, such as climate where our approach is more advanced, dedicated governance activities exist to support the wide range of
activities, from sustainable finance solution development in the Sustainability Execution Review Group to climate risk management in the
Climate Risk Oversight Forum.
The Group Chief Risk and Compliance Officer and the chief risk officers of our Prudential Regulation Authority-regulated businesses are the
senior managers responsible for climate financial risks under the UK Senior Managers Regime. The chief risk officers attend Board meetings
and where appropriate provide regular verbal and written updates to the Board and Group Executive Committee. Climate risks are also
considered in the Group Risk Management Meeting and the Group Risk Committee, with scheduled updates provided, as well as detailed
reviews of material matters, such as climate-related stress testing exercises.
The below table details the main specialist governance forums, their responsibilities and the responsible executives for the management of ESG
matters. We expect that our ESG governance approach is likely to continue to develop, in line with our evolving approach to ESG matters and
stakeholder expectations. The Board is regularly provided with specific updates on ESG matters, including the thermal coal phase-out policy and
exposures, human rights, and employee well-being.
Governance forums
Responsible for:
Responsibility held by:
ESG Committee (new)
Supports Group Executives in the
development and delivery of ESG strategy,
key policies and material commitments by
providing oversight, coordination and
management of ESG commitments and
activities
Group Chief Sustainability Officer and Group
Company Secretary and Chief Governance
Officer
Sustainability Execution Review Group (new)
Oversees the delivery of our ambition to
provide and facilitate $750bn to $1tn of
sustainable finance and investment, and
realisation of commercial opportunities
Group Chief Executive
Social management forums
Oversees employee engagement, diversity
and inclusion, community engagement,
customer satisfaction, and social
considerations for stakeholders
Group Chief Human Resources Officer and
Group Chief Communications Officer
Governance management forums
Oversees subsidiaries, business conduct
and ethics, corporate governance,
whistleblowing, reputational factors, data
privacy and human rights
Group Chief Risk and Compliance Officer
and Group Company Secretary and Chief
Governance Officer
Digital Business Services ESG Forum
Oversees the global delivery of ESG
activities within our own operations,
services and technology elements of our
strategy
Group Chief Operating Officer
Human Rights Steering Committee
Supports global leadership in promoting,
enhancing and reflecting human rights in
execution of the Group's strategic goals, as
well as developing the Group’s Human
Rights, and Modern Slavery and Human
Trafficking statements and associated
oversight of implementation
Group Chief Risk and Compliance Officer
Climate Risk Oversight Forum
Oversees all global risk activities relating to
climate risk management, including physical
and transition risks. Equivalent forums have
been established at regional level
Group Reputational Risk Committee
Oversees global executive support for
identification, management and ongoing
monitoring of reputational risks, including
those related to ESG matters
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Our respect for human rights
As set out in our Human Rights Statement, we follow the UN Guiding Principles on Business and Human Rights (‘UNGPs’). In 2021, with the
help of external stakeholders, we continued to review and improve our approach.
Our priorities on human rights
We respect all categories of human rights in the Universal Declaration of Human Rights. We focus our attention on those rights we assess as
most likely to be affected by our business activities and by those of our customers and suppliers.
Such assessment takes account of a range of factors, including geographical and cultural context and economic sectors, and is subject to
periodic review. After a policy review and prioritisation process, including consultation across key business units, we identified discrimination
and modern slavery as the two priority human rights issues on which we could use our influence to make the most positive impact. These
priorities also align closely with our commitments on diversity and inclusion and those we have made under the UN Global Compact and under
the WEF metrics on risk for incidents of child and forced or compulsory labour.
Our priority human rights Issues in 2021
Issues
Our employees
Suppliers’
employees
Customers
Communities
Discrimination
In the workplace
●
●
●
In our services
●
Modern slavery
●
●
●
●
For further details on our approach to tackling discrimination, see www.hsbc.com/diversitycommitments. For further details on our work on inclusion in the
workplace, see ‘Inclusion’ on page 71.
For further details of our approach to tackling modern slavery, including steps taken to eliminate child and forced labour practices, see www.hsbc.com/
modernslaveryact.
Sector policies
To meet our responsibility for respecting human rights under the UNGPs, we consider those rights that may be adversely impacted through
involvement in high-risk sectors. Our sector policies for agricultural commodities, energy, forestry, mining and metals all refer specifically to
human rights. These considerations include issues such as forced labour, harmful or exploitative child labour, trafficking, land rights, the rights of
indigenous peoples such as ‘free prior and informed consent’, workers’ rights, and the health and safety of communities.
Our policy for financing forest plantations and downstream supply chain operations in, or sourced from, high-risk countries is linked to
certification by the Forestry Stewardship Council or the Programme for the Endorsement of Forest Certification. Through our membership of
international certification schemes such as the Forestry Stewardship Council, the Roundtable on Sustainable Palm Oil and the Equator
Principles, we actively support the continual improvement of standards aimed at respecting human rights.
For further details of our policy prohibitions and other financing restrictions, see our sector-specific sustainability risk policies at www.hsbc.com/who-we-are/esg-
and-responsible-business/managing-risk/sustainability-risk.
Financial crime controls
The risk of us causing, contributing or being linked to negative human rights impacts is also mitigated by our financial crime framework, with
global policies to mitigate money laundering, sanctions, and bribery and corruption risks, including those where protecting human rights and
preventing financial crime converge. Our financial crime controls include customer due diligence, sanctions screening, transaction monitoring,
negative news screening and targeted investigations.
For further details of how we fight financial crime, see www.hsbc.com/who-we-are/esg-and-responsible-business/fighting-financial-crime.
Sustainable finance and the just transition
Our leading role in providing and facilitating sustainable finance to businesses around the world is another way in which we contribute to the
rights of the communities we serve. We support the drive for a ‘just transition’ to net zero, harnessing political momentum for action with
policies and finance to support disadvantaged sectors and communities. On 29 October 2021, we joined other private sector institutions in
signing up to the WEF Just and Urgent Energy Transition principles.
We are also harnessing our leadership position in sustainable finance to create products that will help our clients to support social development,
mobility and capability building, in line with International Capital Markets Association social bonds principles released in 2021.
For further details of how we support our customers with sustainable finance, see ‘Supporting customers through the transition’ on page 53.
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Our respect for human rights continued
Supporting change
We continued to expand our Survivor Bank programme, which has now benefited over 1,000 survivors of modern slavery and human trafficking
in the UK, and is a model for making financial services more accessible to vulnerable communities worldwide. We built on this experience in
developing access to banking services for customers in the UK and in Hong Kong with no fixed abode.
In Hong Kong, we also introduced basic banking services for ethnic minority customers who do not speak English or Chinese. The service
allows ethnic minorities who speak Hindi, Punjabi, Nepali and Urdu to open a Hong Kong Dollar Statement Savings account, by providing tailored
material in each of the four languages. In addition, we hired part-time ethnic minority customer service ambassadors to offer further support at
six designated branches. In May 2021, the Hong Kong Equal Opportunities Commission named HSBC a Gold Awardee in the inaugural Equal
Opportunity Employer Recognition scheme, which recognises organisations for setting an example in promoting and implementing equal
opportunities employment policies.
These initiatives support several different human rights, such as the right to adequate living standards and the right to own property. As well as
benefiting the communities we serve in the UK and Hong Kong, these initiatives allowed us to work alongside local non-governmental
organisations, learning from their understanding of human rights impacts.
We are committed to working with governments to help create inclusive communities. In 2021, we supported the development of regulation
related to human rights, including as an adviser to the UK Government on developing their online Registry of Statements under the Modern
Slavery Act.
Stakeholder engagement
In 2021, as part of an internal survey of senior executives, we gathered information from across our network on our engagement with civil
society stakeholders and those who represent individuals or groups at risk of impact from our activities or from the activities of those with
whom we have business relationships. As a result of this work, we acknowledged the need to expand our engagement in future. We also took
steps to ensure that our approach to human rights was well understood by our colleagues. In 2021:
•We offered a detailed course on human trafficking to new employees in the Global Risk Operations function, highlighting the
importance of identification and reporting.
•We provided detailed briefings to more than 250 senior colleagues on human rights and the UNGPs.
•We provided training materials to colleagues in our Procurement team on modern slavery.
•We delivered training on anti-discrimination as part of our diversity and inclusion programme.
As we develop our approach to human rights, we will focus on training modules for our colleagues, supplemented by role-specific training. We
also intend to improve the process for our suppliers to ensure that the key elements of our ethical code of conduct that relate to human rights
are clearly and regularly communicated. For retail customers, we aim to communicate our approach and expectations through our public
statements, and for our business customers, we aim to integrate our approach to human rights more clearly into our processes.
In developing the initiatives described above, we drew upon expertise from within our organisation, including the insights of specialist staff in
key departments and of 200 senior executives from every part of our network. We also engaged the support of external advisers with expertise
in human rights as they relate to business.
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Conduct: Our product responsibilities
Following the refresh of our purpose and values, we have taken the opportunity to align and simplify our conduct approach, making conduct
easier to understand and showing how it fulfils our value ‘we take responsibility’.
Our conduct approach guides us to do the right thing and to focus on the impact we have on our customers and the financial markets in which
we operate. It focuses on five clear outcomes:
•We understand our customers’ needs.
•We provide products and services that offer a fair exchange of value.
•We serve customers’ ongoing needs, and will put it right if we make a mistake.
•We act with integrity in the financial markets we operate in.
•We operate with resilience and security to avoid harm to customers and markets.
Our conduct approach is embedded into the way we develop, distribute, structure and execute products and services. For further details of our
approach to conduct, see page 208.
Designing products and services
Our approach to product design and development – including how we advertise our products – is set out in our policies, and provides a clear
basis from which strategic product and service decisions can be made. Our global businesses each take the following approach:
•We carry out robust testing during the design and development of a product to help ensure there is an identifiable need in the market.
•We consider the complexity of products and the possible financial risks to customers when determining the target market.
•We offer a carefully selected range of products that are managed through product inventories, helping to ensure they continue to
meet customers’ needs and continue to deliver a fair exchange of value.
•We regularly review products to help ensure they remain relevant and perform in line with expectations we have set.
•Where products do not meet our customers’ needs or no longer meet our high standards, improvements are made or they are
withdrawn from sale.
•Wherever possible, we act on feedback from our customers to provide better and more accessible products and services.
Our GBM business also considers our impact on the integrity of markets when introducing new products.
Oversight of product design and sales is provided by governance committees chaired and attended by senior executives who are accountable
for ensuring we manage risks appropriately, and within appetite, to ensure fair customer outcomes.
In 2021, we continued to develop our product governance. In CMB, we deployed our new Google Cloud-based product inventory, which has
improved the way we manage our products. Our product management and governance system supports our colleagues throughout the product
lifecycle, from product development to demise. In GBM’s markets business, we continued to focus on the development of our ESG product
suite across all asset classes, ensuring we maintain our position as an innovator of ESG products.
In WPB, we are developing our sustainable product suite, and remain committed to help mitigate against greenwashing risks. For further details
on the Group’s sustainable finance and investment ambition, see page 53.
Meeting our customers’ needs
Our customers’ interests are at the centre of everything we do, and we have policies and procedures in place that set the standards required to
protect them. These include:
•providing information on products and services that is clear, fair and not misleading;
•enabling customers to understand the key features of products and services, especially the risks, exclusions and limitations;
•enabling customers to make informed decisions before purchasing a product or service; and
•checking that customers are offered appropriate products and, where relevant, received the right advice.
Supporting customers with enhanced care needs
Our strategy to support customers with enhanced care needs continues to be a core focus. We have guidelines and have developed procedures
to ensure we provide the right outcomes for customers who may require enhanced care. We have made a number of improvements to our
products, services, governance and oversight, as well as developed our colleagues’ skills and capabilities.
In our CMB business in the UK, we identify customers with enhanced care needs to ensure we tailor our approach in our communications,
services and product design. This is supported by post-sale calls with these customers to ensure we identify and support their needs fairly. In
our UK retail branches, we have launched a daily quiet hour to help those needing access to banking in a calmer environment. For further details
on inclusive product design, see ‘Financial inclusion’ on page 78.
Managing incentives for front-line colleagues
In WPB, we continued to apply a discretionary approach to incentivising our front-line colleagues rather than applying a formulaic link to sales.
Following the review of incentives during 2020, we continued to embed the changes with the aim to be even more customer-centric and
focused on employee development. We also continued to strengthen our approach to third-party sales agents that distribute our products, such
as insurance and retail, to ensure that our principles on balanced reward are in place. While there is still more to do, this change is designed to
improve oversight and alignment with third-party sales agents.
In our CMB and GBM businesses, we recognise and reward exceptional conduct demonstrated by our colleagues while discouraging
misconduct and inappropriate behaviour that exposes us to financial, regulatory and reputational risks. During the annual pay review, we apply
adjustments to variable pay to employees who exhibit either exceptional behaviours, or behaviours not aligned to our values. In addition, the
businesses have specific goals to help drive conduct outcomes and ensure they are incorporated into how employees achieve their goals. CMB
has created a scorecard reference guide, and GBM has specific mandatory conduct objectives applicable to all global GBM colleagues.
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Conduct: Our product responsibilities continued
Ensuring sales quality
In WPB, we consider our customers’ financial needs and personal circumstances to assist us in offering suitable product recommendations.
This is achieved through measures such as:
•a globally consistent risk rating methodology for investment products, which is customised for local regulatory requirements; and
•a thorough customer risk profiling methodology to assess customers’ financial objectives, attitudes towards risk, financial ability to
bear investment risk, and knowledge and experience.
In WPB, sales quality and mystery shopping reviews assess whether customers receive a fair outcome. If any issues are identified, we
investigate the root cause, put things right and act to reduce the risk of the issue occurring again.
In CMB, we operate focused sales outcome testing to ensure that we correctly explain product features and pricing. We look at different
customer needs and circumstances, particularly where customers may have enhanced needs. In 2021, we identified issues relating to
documentation, sales process and pricing. Subsequently we ensured we put things right for our customers and took the necessary internal
action.
In GBM’s markets business, we undertake sample-based testing on sales of products to customers to ensure that product features and pricing
have been correctly explained and sales processes have been adhered to. Feedback is collated centrally and acted upon in a timely manner.
Supporting customers during Covid-19
We responded rapidly to the changing environment caused by the Covid-19 pandemic. Many of our personal banking and wealth customers
needed financial relief as a result of the pandemic, which we sought to address in a responsible way. We provided significant financial relief to
our WPB customers in several markets. These solutions varied by market and were aligned with government or regulatory guidance in each
jurisdiction. At its peak in 2021, we had payment relief measures offered to 1.6 million customers, which equated to $31bn in balances. We
support customers that are in arrears or experiencing financial difficulty, in line with our policies and procedures.
In our CMB business, we made more than 56 Covid-19-related enhancements to products in specific countries. We continue to review these to
ensure they remain appropriate. We aim to support our customers as and when any relief products are demised.
In Asia, given the ongoing Covid-19 environment, our CMB business temporarily enabled manual payments processes in Bangladesh, India and
Maldives to support relevant customers and ensure continuity of services and payment handling.
Training our colleagues to support our customers
In WPB, we provide training to our employees through our product management academy. In 2021, more than 750 of our colleagues completed
over 2,000 courses, relating to customer insight, customer-focused design, communications, product development, balance sheet management
and governance. We created global training, with over 60,000 courses completed by colleagues to manage situations for customers with
enhanced care needs, assigning to both customer-facing and non-customer-facing colleagues.
In CMB, we focused on training all our UK-based colleagues on meeting the needs of customers who require enhanced care due to their
circumstances. We delivered tailored training to our product managers to ensure that customers with enhanced care needs are considered
across each stage of the product lifecycle.
In GBM, we continued to develop and roll out interactive conduct training that focuses on behaviour. Following the successful completion of the
training by 21,000 colleagues early in 2021, this has now been adapted to cover joiners and those who have taken on a new management role.
Transition from Ibor
As a result of the planned cessation of the London interbank offered rates (‘Libor’), Euro Overnight Index Average (‘Eonia’) and other
benchmarks collectively known as Ibors, we are ensuring that we have the product capability in place to support our customers on the transition
to alternative rates. We aim to clearly outline the options available to our customers holding existing Ibor-based products, and our commercial
strategy is designed to minimise value transfer when transitioning their products from Ibor to alternative rates.
Transition from Libor and Eonia benchmarks to alternative risk-free rates (‘RFRs’) progressed significantly over 2021 and all industry cessation
milestones were met. We continued to proactively support the transition, or inclusion of contractual fallback provisions where more appropriate,
of customers’ legacy contracts referencing sterling, Japanese yen, euro and Swiss franc Libor to RFR products, or other alternatives, by the end
of 2021. We completed this transition in line with regulatory expectations and met our goal of transitioning more than 90% of contracts by the
end of 2021, with the balance continuing to be actively transitioned in early 2022 ahead of the next interest rate reset.
For further details of the transition from Ibors, see ‘Ibor transition’ in the Risk section on page 126.
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Cybersecurity
The threat of cyber-attacks remains a concern for our organisation, as it does across the entire financial sector. Failure to protect our operations
from cyber-attacks may result in financial loss, disruption for customers or loss of data. This could negatively affect our reputation and ability to
attract and retain customers.
Prevent, detect and mitigate
We invest in business and technical controls to help prevent, detect and mitigate cyber threats. We apply a 'defence in depth’ approach to cyber
controls, recognising the complexity of our environment. Our abilities to detect and respond to attacks through round-the-clock security
operations centre capabilities help to reduce the impact of attacks.
We continually evaluate threat levels for the most prevalent attack types and their potential outcomes. We have an internal cyber intelligence
and threat analysis capability, which proactively collects and analyses external cyber information. We input into the broader cyber intelligence
community through technical expertise in investigations and contributions to the cyber-sharing ecosystem in the financial services industry,
alongside government agencies around the world.
As we continue to grow and digitise at scale, we may be exposed to new cyber threats. In 2021, we further strengthened our cyber defences
and enhanced our cybersecurity capabilities to help reduce the likelihood and impact of advanced malware, security vulnerabilities being
exploited, data leakage and unauthorised access. These defences are grounded in controls that help to mitigate cyber-attacks and build upon a
proactive data analytical approach to help identify advanced targeted threats.
Policy and governance
We have a comprehensive range of cybersecurity policies and systems designed to help ensure that the organisation is well managed, with
oversight and control.
We operate a three lines of defence model, aligned to the operational risk management framework, to help ensure oversight and challenge of
our cybersecurity capabilities and priorities.
In the first line of defence, we have risk owners within global businesses and functions who are accountable for identifying, owning and
managing the cyber risk. They work with control owners to help ensure controls are in place to mitigate issues, prevent risk events from
occurring and resolve them if needed. These controls are executed in line with policies produced by our Resilience Risk teams, the second line
of defence, which provide independent review and challenge. They are overseen by the Global Internal Audit function, the third line of defence.
We regularly report and review cyber risk and control effectiveness at relevant governance forums and to the Board to help ensure visibility and
oversight. We also report across the global businesses, functions and regions to help ensure visibility and governance of risks and mitigating
controls.
We also work with our third parties to help reduce the threat of cyber-attacks impacting our business processes. We have an assessment
capability designed to review third parties’ compliance with our information security policies and standards.
Cyber training and awareness
We understand the important role our people play in protecting against cybersecurity threats. Our mission is to equip every colleague with the
tools to help prevent, mitigate and report cyber incidents to keep our organisation and customers’ data safe.
We provide cybersecurity training and awareness to all our people, ranging from our top executives to IT developers to front-line relationship
managers around the world.
We aim to ensure that cybersecurity is an integrated part of the building and maintenance of our technology environment. Over 90% of our IT
developers hold at least one of our internal security certifications to help ensure we build secure systems and products.
We host an annual cyber awareness campaign for all colleagues, covering topics such as social engineering, remote working security and data
management.
Our dedicated cybersecurity training and awareness team provides monthly webinars and bespoke training to our colleagues, customers,
regulators, governments and cross-sector partners.
We know it is critical that we protect our customers. While online banking has brought enormous benefits for our customers, it has increased
the threat of cyber-attacks. We provide a wide range of education and guidance about how to stay safe online to both customers and our
colleagues.
Over 99%
Employees completed mandatory cybersecurity training on time.
Over 90%
IT developers who hold at least one of our internal secure developer certifications.
Over 75
Cybersecurity education events held globally.
Over 95%
Survey respondents to cybersecurity education events who said they have a better understanding of cybersecurity following these events.
Protecting customers online
We are a founding sponsor of Get Safe Online, a joint initiative between the UK Government, police law enforcement and businesses. It gives
free advice in plain English about internet safety. We are committed to help our customers stay safe and secure when banking online. Our
online security centres provide security guidance from ‘How to protect devices from security threats’ to ‘Learn to spot fake websites’.
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Data privacy
We are committed to protecting and respecting the data we hold and process, in accordance with the laws and regulations of the geographies
in which we operate.
Our approach rests on having the right talent, technology, systems, controls, policies and processes to help ensure appropriate management of
privacy risk. Our Group-wide privacy policy and principles aim to provide a consistent global approach to managing data privacy risk, and must be
applied by all of our global businesses and global functions. Our privacy principles are available at www.hsbc.com/who-we-are/esg-and-
responsible-business/managing-risk/operational-risk.
We conduct regular employee training and awareness sessions on data privacy and security issues throughout the year, including global
mandatory training for all our colleagues, along with additional training sessions, where required, to keep abreast of new developments in this
space.
We provide transparency to our customers and stakeholders on how we collect, use and manage their personal data, and their associated
rights. Where relevant, we work closely with third parties to help ensure adequate protections are provided, in line with our data privacy policy
and as required under data privacy law. We offer a broad range of channels in the markets where we operate, through which customers and
stakeholders can raise any concerns regarding the privacy of their data.
Our dedicated privacy teams report to the highest level of management on data privacy risks and issues, and oversee our global data privacy
programmes. We review data privacy regularly at multiple governance forums, including at Board level, to help ensure there is appropriate
challenge and visibility among senior executives. As part of our three lines of defence model, our Global Internal Audit function provides
independent assurance as to whether our data privacy risk management approaches and processes are designed and operating effectively. In
addition, we have established data privacy governance structures, and continue to embed accountability across all businesses and functions.
We continue to implement industry practices for data privacy and security. Our privacy teams work closely with industry bodies and research
institutions to drive the design, implementation and monitoring of privacy solutions. We conduct regular reviews and privacy risk assessments,
and continue to develop solutions to strengthen our data privacy controls. In 2021, we implemented new tooling to improve accountability for
data privacy. We have procedures to articulate the actions needed to deal with data privacy considerations. These include notifying regulators,
customers or other data subjects, as required under applicable privacy laws and regulations, in the event of a reportable incident occurring.
Intellectual property rights practices
We have policies, controls and guidance to manage risk relating to intellectual property. This is to ensure that intellectual property is identified,
maintained and protected appropriately, and to help ensure we do not infringe third-party intellectual property rights during the course of
business and/or operation.
These policies and controls support our management of intellectual property risk, and operate to help ensure that intellectual property risk is
controlled consistently and effectively in line with our risk appetite.
The ethical use of Big Data and AI
Big Data technologies and artificial intelligence give us the ability to process and analyse data at a depth and breadth not previously possible.
While this technology offers significant potential benefits for our customers, it also poses potential ethical risks for the financial services
industry and society as a whole. We have developed a set of principles to help us consider and address the ethical issues that could arise.
HSBC’s Principles for the Ethical Use of Big Data and Artificial Intelligence are available at www.hsbc.com/who-we-are/esg-and-responsible-
business/our-conduct.
Our approach with our suppliers
We have globally consistent standards and procedures for the onboarding and use of external suppliers. We require suppliers to meet our
compliance and financial stability requirements, and to comply with our supplier ethical code of conduct.
Ethical code of conduct
We have an ethical and environmental code of conduct for suppliers of goods and services, which must be complied with by all suppliers. The
code of conduct provides suppliers with an outline for economic, environmental and social standards and the requirements for having a
reasonable governance and management structure.
At the end of 2021, we had approximately 9,600 contracted suppliers. In 2021, we had 8,144 engagements with suppliers that resulted in either
the confirmation that they adhered to our code of conduct or that their own code of conduct had been reviewed and accepted by Strategic
Procurement Services.
Managing environmental and social risk
We use an ESG reputational risk tool to identify environmental and social risk for supplier engagements with a contract value over $500,000.
The tool provides an ESG reputational risk score for the supplier. In 2021, 2,248 ESG reputational risk assessments were undertaken. A high-risk
score drives a manual review to assess the extent of the risk and whether we are willing to accept the heightened risk and onboard the
supplier. We are reviewing the reputational risk process to ensure we focus on sectors with high ESG risk going forward.
We formalise commitments to the ethical code with clauses in our suppliers’ contracts, which support the right to audit and act if a breach is
discovered.
In 2021, we produced an internal toolkit to explain how Strategic Procurement Services can integrate net zero initiatives into everyday
procurement activity. The toolkit, which outlines our net zero ambition and provides practical guidance on how Strategic Procurement Services
can improve the way it drives net zero initiatives, is available to our teams globally to ensure a consistent approach.
For further details of the number of suppliers by geographical region, see the ESG Data Pack at www.hsbc.com/esg.
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Safeguarding the financial system
We have continued our efforts to combat financial crime risks and reduce their impact on our organisation, customers and communities that we
serve. These financial crime risks include money laundering, fraud, bribery and corruption, tax evasion, sanctions breaches, terrorist financing
and proliferation financing.
We are committed to acting with integrity and have built a strong financial crime risk management framework across all global businesses and
all countries and territories in which we operate. The financial crime risk framework, which is overseen by the Board, is supported by our holistic
financial crime policies that enable adherence to applicable laws and regulations globally.
Annual mandatory training is provided to all colleagues, with additional targeted training tailored to certain individuals. We carry out regular risk
assessments, identifying where we need to respond to evolving financial crime threats, as well as conducting monitoring and testing of our
financial crime programme, with applicable findings included within our policies and framework.
We continue to invest in new technology such as contextual monitoring in our trade finance business, the enhancement of our fraud monitoring
and market surveillance capabilities, and the application of machine learning to improve the accuracy and timeliness of our detection capabilities.
We pay due care and attention to ethical questions when considering the use of AI. We are confident our adoption of these new technologies
will continue to enhance our ability to respond quickly to suspicious activity and be more granular in our risk assessments, helping to protect our
customers and the integrity of the financial system.
Our anti-bribery and corruption policy
Our global anti-bribery and corruption policy requires that all activity must be: conducted without intent to bribe or corrupt; reasonable and
transparent; considered to not be lavish nor disproportionate to the professional relationship; appropriately documented with business rationale;
and authorised at an appropriate level of seniority. There were no concluded, nor live active, legal cases regarding bribery or corruption brought
against HSBC or its employees in 2021.
Our global anti-bribery and corruption policy requires that we identify and mitigate the risk of our customers and third parties committing bribery
or corruption. We utilise anti-money laundering controls, including customer due diligence and transaction monitoring, to identify and mitigate
the risk that our customers are involved in bribery or corruption. We perform a bribery risk assessment on all third parties, and impose risk-
based controls on the third parties that expose us to bribery or corruption risk.
For further details on our financial crime risk management framework, see page 208.
The scale of our work
Each month, on average, we monitor over 1.1 billion transactions for signs of financial crime. During 2021, we filed over 56,000 suspicious
activity reports to law enforcement and regulatory authorities where we identified potential financial crime. In addition, we screen approximately
116 million customer records monthly for sanctions exposure.
99%
Total percentage of employees who have received training on the organisation’s anti-corruption policies and procedures.
Whistleblowing
We want colleagues and stakeholders to have confidence in speaking up when they observe unlawful or unethical behaviour. We offer a range
of speak-up channels to listen to their concerns and have a zero tolerance for acts of retaliation. However, we recognise that sometimes people
may still not be comfortable using these routes.
Listening through whistleblowing channels
Our global whistleblowing channel, HSBC Confidential, allows our colleagues and stakeholders to raise concerns confidentially and, if preferred,
anonymously (subject to local laws).
In the majority of countries, HSBC Confidential concerns are raised through an independent third-party provider that offers 24/7 hotlines and a
multiple language web portal to our colleagues. We also provide an external email address for concerns about accounting, internal financial
controls or auditing matters (accountingdisclosures@hsbc.com).
In 2021, while we continued to actively promote speak-up opportunities, the volume of HSBC Confidential concerns reduced by 11%, driven in
part, we believe, by the continued change to the working environment during the Covid-19 pandemic. Of the HSBC Confidential concerns
closed in 2021, 87% related to colleagues’ behaviour and personal conduct concerns, 9% to security and fraud risks, 3% to compliance risks
and less than 1% to other issues.
Concerns are investigated proportionately and independently, with action taken where appropriate. Actions can include disciplinary action,
dismissal, and adjustments to variable pay and performance ratings.
Compliance sets whistleblowing policy and procedures, and provides the Group Audit Committee with periodic reports on the effectiveness of
whistleblowing arrangements. These reports are informed by first line of defence control assessments, second line assurance reviews and third
line internal and external audit reports.
The Group Audit Committee has overall oversight of whistleblowing arrangements. The chair of the Group Audit Committee acts as HSBC’s
whistleblowers’ champion with responsibility for ensuring and overseeing the integrity, independence and effectiveness of our whistleblowing
policies and procedures.
Further details of the role of the Group Audit Committee in relation to whistleblowing can be found on page 244.
Whistleblowing concerns raised (subject to investigation) in 2021
2,224
(2020: 2,510)
Substantiated and partially substantiated whistleblowing cases in 2021
42%
(2020: 42%)
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A responsible approach to tax
We seek to pay our fair share of tax in all jurisdictions in which we operate and to minimise the likelihood of customers using our products and
services to evade or inappropriately avoid tax. We also abide by international protocols that affect our organisation. Our approach to tax and
governance processes is designed to achieve these goals.
Through adoption of the Group’s risk management framework, we have put in place regularly maintained controls. These aim to ensure, among
other things, that we do not adopt inappropriately tax-motivated transactions or products and that tax planning is scrutinised and supported by
genuine commercial activity. HSBC has no appetite for using aggressive tax structures. We continue to commit to making a significant
investment globally in implementation and maintenance of appropriate tax risk processes and controls.
With respect to our own taxes, we are guided by the following principles:
•We are committed to applying both the letter and spirit of the law. This includes adherence to a variety of measures arising from the
OECD Base Erosion and Profit Shifting initiative.
•We seek to have open and transparent relationships with all tax authorities. Given the size and complexity of our organisation, which
operates across over 60 jurisdictions, a number of areas of differing interpretation or disputes with tax authorities exist at any point in
time. We cooperate with the relevant local tax authorities to mutually agree and resolve these in a timely manner.
•We have applied the OECD/G20 Inclusive Framework Pillar 2 guidance to identify those jurisdictions in which we operate that have nil
or low tax rates (15% or below). We have identified 14 such jurisdictions in which we had active subsidiaries during 2021. We
continually monitor the number of active subsidiaries within each jurisdiction as part of our ongoing entity rationalisation programme.
We ensure that our entities active in nil or low tax jurisdictions have clear business rationale for why they are based in these locations
and appropriate transparency over their activities.
With respect to our customers’ taxes, we are guided by the following principles:
•We have made considerable investment implementing processes designed to enable us to support external tax transparency
initiatives and reduce the risk of banking services being used to facilitate customer tax evasion. Initiatives include the US Foreign
Account Tax Compliance Act, the OECD Standard for Automatic Exchange of Financial Account Information (‘Common Reporting
Standard’), and the UK legislation on the corporate criminal offence of failing to prevent the facilitation of tax evasion.
•We implement processes that aim to ensure that inappropriately tax-motivated products and services are not provided to our
customers.
Our tax contributions
The effective tax rate for the year was 22.3%. Further details are provided on page 338.
As highlighted below, in addition to paying $6.3bn of our own tax liabilities during 2021, we collected taxes of $9.2bn on behalf of governments
around the world. A more detailed geographical breakdown of the taxes paid in 2021 is provided in the ESG Data Pack.
$2,711m
Tax on profits
2020: $3,873m
$366m
Withholding taxes
2020: $386m
$1,125m
Employer taxes
2020: $1,121m
$479m
Bank levy
2020: $1.011m
$1,315m
Irrecoverable VAT
2020: $1,389m
$278m
Other duties and levies 1
2020: $278m
1 Other duties and levies includes property taxes of $126m (2020: $129m)
$3,170m
Europe
2020: $3,022m
$2,077m
Asia-Pacific
2020: $3,911m
$236m
Middle East and North
Africa
2020: $299m
$469m
North America
2020: $382m
$322m
Latin America
2020: $444m
$3,177m
Europe
2020: $3,462m
$3,584m
Asia-Pacific
2020: $3,595m
$78m
Middle East and North
Africa
2020: $90m
$1,081m
North America
2020: $1,089m
$1,343m
Latin America
2020: $1,302m
Acting with integrity
We aim to act with courageous integrity and learn from past events to prevent their recurrence. We recognise that restoration of trust in our
industry remains a significant challenge as past misdeeds continue to be in the spotlight. But it is a challenge we must meet successfully. We
owe this not just to our customers and to society at large, but to our colleagues to ensure they can be rightly proud of the organisation where
they work.
We aim to make decisions based on doing the right thing for our customers and never compromising our ethical standards or integrity.
Further information regarding the measures that we have taken to prevent the recurrence of past mistakes can be found at www.hsbc.com/
who-we-are/esg-and-responsible-business/esg-reporting-and-policies.
A chart reflecting fines and penalties arising out of significant investigations involving criminal, regulatory, competition or other law enforcement
authorities, and costs relating to payment protection insurance remediation is available in the ESG Data Pack at www.hsbc.com/esg.
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Financial review
The financial review gives detailed reporting of our financial performance at Group level as well as across our different global businesses
and geographical regions.
90 Financial summary
98 Global businesses and geographical regions
117 Reconciliation of alternative performance measures
Expanding opportunities beyond the branches
Mainland China has Asia’s largest pool of wealth and is set to
become the world’s biggest life insurance market by 2030.
Pinnacle is therefore critical to our ambition to be one of Asia’s
leading wealth managers. Colleagues run specialist seminars for
our customers, using digital tablets to facilitate visiting them in
their homes and offices, and are further supported by an award-
winning HSBC River bespoke financial planning mobile app. We
have nearly 700 digitally enabled wealth planners across five
mainland cities, and are looking to accelerate the trajectory of our
hiring towards a target of 3,000 planners, supported by the recent
regulatory approval to take full ownership of our life insurance
manufacturing joint venture.
HSBC Holdings plc Annual Report and Accounts 2021
89
Financial summary
Page
Use of alternative performance measures
90
Future accounting developments
90
Critical accounting estimates and judgements
90
Consolidated income statement
91
Income statement commentary
92
Consolidated balance sheet
95
Use of alternative performance measures
Our reported results are prepared in accordance with IFRSs
as detailed in the financial statements starting on page 308.
To measure our performance, we supplement our IFRSs figures
with non-IFRSs measures, which constitute alternative
performance measures under European Securities and Markets
Authority guidance and non-GAAP financial measures defined in
and presented in accordance with US Securities and Exchange
Commission rules and regulations. These measures include those
derived from our reported results that eliminate factors that distort
year-on-year comparisons. The ‘adjusted performance’ measure
used throughout this report is described below. Definitions and
calculations of other alternative performance measures are
included in our ‘Reconciliation of alternative performance
measures’ on page 117. All alternative performance measures are
reconciled to the closest reported performance measure.
The global business segmental results are presented on an
adjusted basis in accordance with IFRS 8 ‘Operating Segments’ as
detailed in Note 10 ‘Segmental analysis’ on page 341.
Adjusted performance
Adjusted performance is computed by adjusting reported results
for the effects of foreign currency translation differences and
significant items, which both distort year-on-year comparisons.
We consider adjusted performance provides useful information for
investors by aligning internal and external reporting, identifying
and quantifying items management believes to be significant, and
providing insight into how management assesses year-on-year
performance.
Significant items
‘Significant items’ refers collectively to the items that
management and investors would ordinarily identify and consider
separately to improve the understanding of the underlying trends
in the business.
The tables on pages 98 to 101 and pages 108 to 113 detail the
effects of significant items on each of our global business
segments, geographical regions and selected countries/territories
in 2021, 2020 and 2019.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of
the US dollar against most major currencies during 2021.
We exclude them to derive constant currency data, allowing us to
assess balance sheet and income statement performance on a
like-for-like basis and better understand the underlying trends in
the business.
Foreign currency translation differences
Foreign currency translation differences for 2021 are computed by
retranslating into US dollars for non-US dollar branches, subsidiaries, joint
ventures and associates:
•the income statements for 2020 and 2019 at the average rates of
exchange for 2021; and
•the balance sheets at 31 December 2020 and 31 December 2019 at the
prevailing rates of exchange on 31 December 2021.
No adjustment has been made to the exchange rates used to translate
foreign currency-denominated assets and liabilities into the functional
currencies of any HSBC branches, subsidiaries, joint ventures or
associates. The constant currency data of HSBC’s Argentinian subsidiaries
have not been adjusted further for the impacts of hyperinflation.
When reference is made to foreign currency translation differences in
tables or commentaries, comparative data reported in the functional
currencies of HSBC’s operations have been translated at the appropriate
exchange rates applied in the current period on the basis described above.
Future accounting developments
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with
amendments to the standard issued in June 2020. It has been
adopted for use in the EU but not yet for use in the UK. The
standard sets out the requirements that an entity should apply in
accounting for insurance contracts it issues and reinsurance
contracts it holds. Following the amendments, IFRS 17 is effective
from 1 January 2023. The Group is in the process of implementing
IFRS 17. Industry practice and interpretation of the standard are
still developing. Therefore, the likely impact of its implementation
remains uncertain. We expect to provide an update on the likely
impacts on our insurance business at or around our 2022 interim
results announcement. For the purpose of planning the Group’s
financial resources, our initial assumption (based on analysis of
the expected 2022 position) is that the accounting changes may
result in a reduction in the reported profit of our insurance
business by approximately two thirds on the transition to IFRS 17,
albeit with a range of expected outcomes. A similar impact is
expected on the equity of the insurance business, primarily
reflecting the elimination of the present value of in-force business
('PVIF') asset and creation of the contractual service margin (the
latter impacting tangible equity). The return on average ordinary
shareholders' equity ('RoE') of the insurance business is not
expected to be significantly impacted. At 31 December 2021, the
equity associated with our insurance manufacturing operations
was $17.0bn, including PVIF assets of $9.5bn and an associated
deferred tax liability of $1.6bn. These assumptions may change
significantly in the period prior to adoption of the standard.
Critical accounting estimates and judgements
The results of HSBC reflect the choice of accounting policies,
assumptions and estimates that underlie the preparation of
HSBC’s consolidated financial statements. The significant
accounting policies, including the policies which include
critical accounting estimates and judgements, are described
in Note 1.2 on the financial statements. The accounting policies
listed below are highlighted as they involve a high degree of
uncertainty and have a material impact on the financial
statements:
•Impairment of amortised cost financial assets and financial
assets measured at fair value through other comprehensive
income (‘FVOCI’): The most significant judgements relate to
defining what is considered to be a significant increase in credit
risk, determining the lifetime and point of initial recognition of
revolving facilities, and making assumptions and estimates to
incorporate relevant information about past events, current
conditions and forecasts of economic conditions. A high degree
of uncertainty is involved in making estimations using
assumptions that are highly subjective and very sensitive to the
risk factors. See Note 1.2(i) on page 323.
•Deferred tax assets: The most significant judgements relate to
judgements made in respect of expected future profitability.
See Note 1.2(l) on page 327.
•Valuation of financial instruments: In determining the fair value
of financial instruments a variety of valuation techniques are
used, some of which feature significant unobservable inputs
and are subject to substantial uncertainty. See Note 1.2(c) on
page 321.
•Impairment of interests in associates: Impairment testing
involves significant judgement in determining the value in use,
and in particular estimating the present values of cash flows
expected to arise from continuing to hold the investment,
based on a number of management assumptions. The most
significant judgements relate to the impairment testing of our
Financial summary
90
HSBC Holdings plc Annual Report and Accounts 2021
investment in Bank of Communications Co., Limited (‘BoCom’).
See Note 1.2(a) on page 319.
•Impairment of goodwill and non-financial assets: A high degree
of uncertainty is involved in estimating the future cash flows of
the cash-generating units (‘CGUs’) and the rates used to
discount these cash flows. See Note 1.2(a) on page 319.
•Provisions: Significant judgement may be required due to the
high degree of uncertainty associated with determining
whether a present obligation exists, and estimating the
probability and amount of any outflows that may arise. See
Note 1.2(m) on page 328.
•Post-employment benefit plans: The calculation of the defined
benefit pension obligation involves the determination of key
assumptions including discount rate, inflation rate, pension
payments and deferred pensions, pay and mortality. See Note
1.2(k) on page 327.
Given the inherent uncertainties and the high level of subjectivity
involved in the recognition or measurement of the items above, it
is possible that the outcomes in the next financial year could differ
from the expectations on which management’s estimates are
based, resulting in the recognition and measurement of materially
different amounts from those estimated by management in these
financial statements.
Consolidated income statement
Summary consolidated income statement
2021
2020
2019
2018
2017
$m
$m
$m
$m
$m
Net interest income
26,489
27,578
30,462
30,489
28,176
Net fee income
13,097
11,874
12,023
12,620
12,811
Net income from financial instruments held for trading or managed on a fair value basis
7,744
9,582
10,231
9,531
8,426
Net income/(expense) from assets and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or loss
4,053
2,081
3,478
(1,488)
2,836
Change in fair value of designated debt and related derivatives 1
(182)
231
90
(97)
155
Changes in fair value of other financial instruments mandatorily measured at fair value through
profit or loss
798
455
812
695
N/A
Gains less losses from financial investments
569
653
335
218
1,150
Net insurance premium income
10,870
10,093
10,636
10,659
9,779
Other operating income/(expense)
502
527
2,957
960
443
Total operating income
63,940
63,074
71,024
63,587
63,776
Net insurance claims and benefits paid and movement in liabilities to policyholders
(14,388)
(12,645)
(14,926)
(9,807)
(12,331)
Net operating income before change in expected credit losses and other
credit impairment charges/Loan impairment charges and other credit risk provisions 2
49,552
50,429
56,098
53,780
51,445
Change in expected credit losses and other credit impairment charges
928
(8,817)
(2,756)
(1,767)
N/A
Loan impairment charges and other credit risk provisions
N/A
N/A
N/A
N/A
(1,769)
Net operating income
50,480
41,612
53,342
52,013
49,676
Total operating expenses excluding impairment of goodwill and other intangible assets
(33,887)
(33,044)
(34,955)
(34,622)
(34,849)
Impairment of goodwill and other intangible assets
(733)
(1,388)
(7,394)
(37)
(35)
Operating profit
15,860
7,180
10,993
17,354
14,792
Share of profit in associates and joint ventures
3,046
1,597
2,354
2,536
2,375
Profit before tax
18,906
8,777
13,347
19,890
17,167
Tax expense
(4,213)
(2,678)
(4,639)
(4,865)
(5,288)
Profit for the year
14,693
6,099
8,708
15,025
11,879
Attributable to:
– ordinary shareholders of the parent company
12,607
3,898
5,969
12,608
9,683
– preference shareholders of the parent company
7
90
90
90
90
– other equity holders
1,303
1,241
1,324
1,029
1,025
– non-controlling interests
776
870
1,325
1,298
1,081
Profit for the year
14,693
6,099
8,708
15,025
11,879
Five-year financial information
2021
2020
2019
2018
2017
$
$
$
$
$
Basic earnings per share
0.62
0.19
0.30
0.63
0.48
Diluted earnings per share
0.62
0.19
0.30
0.63
0.48
Dividends per ordinary share (paid in the period)3
0.22
—
0.51
0.51
0.51
%
%
%
%
%
Dividend payout ratio 4
40.3
78.9
100.0
81.0
106.3
Post-tax return on average total assets
0.5
0.2
0.3
0.6
0.5
Return on average ordinary shareholders’ equity
7.1
2.3
3.6
7.7
5.9
Return on average tangible equity
8.3
3.1
8.4
8.6
6.8
Effective tax rate
22.3
30.5
34.8
24.5
30.8
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2 Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk
provisions, also referred to as revenue.
3 Includes an interim dividend of $0.07 per ordinary share in respect of the financial year ending 31 December 2021, paid in September 2021, and
an interim dividend of $0.15 per ordinary share in respect of the financial year ending 31 December 2020, paid in April 2021.
4 Dividend per ordinary share, in respect of the period, expressed as a percentage of basic earning per share.
Unless stated otherwise, all tables in the Annual Report and Accounts 2021 are presented on a reported basis.
For a summary of our financial performance in 2021, see page 27.
For further financial performance data for each global business and geographical region, see pages 98 to 101 and 106 to 116 respectively. The global business
segmental results are presented on an adjusted basis in accordance with IFRS 8 ‘Operating Segments’, in Note 10: Segmental analysis on page 341.
HSBC Holdings plc Annual Report and Accounts 2021
91
Income statement commentary
The following commentary compares Group financial performance for the year ended 2021 with 2020.
Net interest income
Year ended
Quarter ended
31 Dec
31 Dec
31 Dec
31 Dec
30 Sep
31 Dec
2021
2020
2019
2021
2021
2020
$m
$m
$m
$m
$m
$m
Interest income
36,188
41,756
54,695
9,219
9,010
9,301
Interest expense
(9,699)
(14,178)
(24,233)
(2,438)
(2,400)
(2,682)
Net interest income
26,489
27,578
30,462
6,781
6,610
6,619
Average interest-earning assets
2,209,513
2,092,900
1,922,822
2,251,433
2,207,960
2,159,003
%
%
%
%
%
%
Gross interest yield 1
1.64
2.00
2.84
1.62
1.62
1.71
Less: gross interest payable 1
(0.53)
(0.81)
(1.48)
(0.52)
(0.53)
(0.60)
Net interest spread 2
1.11
1.19
1.36
1.10
1.09
1.11
Net interest margin 3
1.20
1.32
1.58
1.19
1.19
1.22
1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’). Gross interest payable is the average
annualised interest cost as a percentage on average interest-bearing liabilities.
2 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and
the average annualised interest rate payable on average interest-bearing funds.
3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Summary of interest income by type of asset
2021
2020
2019
Average
balance
Interest
income
Yield
Average
balance
Interest
income
Yield
Average
balance
Interest
income
Yield
$m
$m
%
$m
$m
%
$m
$m
%
Short-term funds and loans and advances
to banks
450,678
1,105
0.25
298,255
1,264
0.42
212,920
2,411
1.13
Loans and advances to customers
1,060,658
26,071
2.46
1,046,795
29,391
2.81
1,021,554
35,578
3.48
Reverse repurchase agreements – non-trading
206,246
1,019
0.49
221,901
1,819
0.82
224,942
4,690
2.08
Financial investments
438,840
6,729
1.53
463,542
8,143
1.76
417,939
10,705
2.56
Other interest-earning assets
53,091
1,264
2.38
62,407
1,139
1.83
45,467
1,311
2.88
Total interest-earning assets
2,209,513
36,188
1.64
2,092,900
41,756
2.00
1,922,822
54,695
2.84
Summary of interest expense by type of liability
2021
2020
2019
Average
balance
Interest
expense
Cost
Average
balance
Interest
expense
Cost
Average
balance
Interest
expense
Cost
$m
$m
%
$m
$m
%
$m
$m
%
Deposits by banks 1
75,671
198
0.26
65,536
330
0.50
52,515
702
1.34
Customer accounts 2
1,362,580
4,099
0.30
1,254,249
6,478
0.52
1,149,483
11,238
0.98
Repurchase agreements – non-trading
114,201
363
0.32
125,376
963
0.77
160,850
4,023
2.50
Debt securities in issue – non-trading
193,137
3,603
1.87
219,610
4,944
2.25
211,229
6,522
3.09
Other interest-bearing liabilities
70,929
1,436
2.02
76,395
1,463
1.92
59,980
1,748
2.91
Total interest-bearing liabilities
1,816,518
9,699
0.53
1,741,166
14,178
0.81
1,634,057
24,233
1.48
1 Including interest-bearing bank deposits only.
2 Including interest-bearing customer accounts only.
Net interest income (‘NII’) for 2021 was $26.5bn, a decrease of
$1.1bn or 4% compared with 2020. This reflected lower average
market interest rates across the major currencies compared with
2020. This was partly offset by interest income associated with the
increase in average interest-earning assets (‘AIEA’) of $116.6bn or
5.6%.
Excluding the favourable effects of foreign currency translation
differences, net interest income decreased by $1.8bn or 6.2%.
NII for the fourth quarter was $6.8bn, up 2.4% compared with the
previous year. The increase was driven by a change in funding
composition leading to a reduction of debt securities and an
increase in lower-yielding customer deposits. This was partly
offset by lower interest income on AIEA, primarily driven by a
shift of balances from financial investments to lower yielding
short-term funds, and reduced yields on customer loans.
Compared with the previous quarter, NII was up 2.5%. The
increase was mainly driven by higher interest rates on other
interest-earning assets as well as growth in AIEA.
Net interest margin (‘NIM’) for 2021 of 1.20% was 12 basis
points (‘bps’) lower compared with 2020 as the reduction in the
yield on AIEA of 36bps was partly offset by the fall in funding
costs of average interest-bearing liabilities of 28bps. The decrease
in NIM in 2021 included the adverse effects of foreign currency
translation differences. Excluding this, NIM fell by 11bps.
NIM for the fourth quarter of 2021 was 1.19%, down 3bps year-
on-year, predominantly driven by a change in balance sheet
composition towards lower yielding short-term funds and loans
and advances to banks. NIM remained unchanged compared with
the previous quarter.
Interest income for 2021 of $36.2bn decreased by $5.6bn or
13%, primarily due to the lower average interest rates compared
with 2020 as the yield on AIEA fell by 36bps. This was partly offset
by income from balance sheet growth, predominantly in Asia and
the UK. In particular, balances of short-term funds and loans and
advances to banks grew by $152.4bn, and loans and advances to
customers grew by $13.9bn. The decrease in interest income
included $0.9bn from the favourable effects of foreign currency
Financial summary
92
HSBC Holdings plc Annual Report and Accounts 2021
translation differences. Excluding these, interest income decreased
by $6.5bn.
Interest income of $9.2bn in the fourth quarter was down $0.1bn
year-on-year. The decline was predominantly driven by a change
in the balance sheet composition where high-yielding financial
investments decreased by $33.8bn, while low-yielding short-term
funds and loans and advances to banks increased by $138.8bn.
Compared with the previous quarter interest income was up
$0.2bn, mainly due to improved yield on other interest-earning
assets, as well as growth in AIEA.
Interest expense for 2021 of $9.7bn represented a decrease by
$4.5bn or 32% compared with 2020. This reflected a decrease in
funding costs of 28bps, mainly arising from lower interest rates
paid on interest-bearing customer accounts, debt securities in
issue and repurchase agreements. Funding costs further declined
due to a change in funding composition from debt securities to
low-yielding customer deposits, which grew by $108bn,
predominantly in Asia and Europe. The decrease in interest
expense included the adverse effects of foreign currency
translation differences of $0.3bn. Excluding this, interest expense
decreased by $4.8bn.
Interest expense of $2.4bn in the fourth quarter of 2021 was down
$0.2bn year-on-year. The decline was predominantly driven by an
improved funding mix, with additional funding from lower costing
customer accounts, coupled with the impact of lower market
interest rates. Compared with the previous quarter, the interest
expense was materially unchanged.
Net fee income of $13.1bn was $1.2bn higher than in 2020, and
included a favourable impact from foreign currency translation
differences of $0.3bn. Net fee income grew in all of our global
businesses.
In WPB, net fee income increased by $0.5bn. Fee income grew,
mainly in Wealth, as improved market sentiment resulted in
increased customer demand. This increase included higher fee
income from funds under management, notably in Hong Kong, the
UK and France, and from unit trusts in Asia. Cards income grew as
spending increased compared with 2020. This also resulted in
higher fee expense.
In CMB, net fee income increased by $0.4bn. Fee income
increased from credit facilities, as well as from trade products, as
global trade volumes recovered during 2021. Income from account
services and remittances also rose as customer activity increased.
In GBM, net fee income increased by $0.3bn. This was driven by
higher fee income from growth in corporate finance activity and in
account services, which included higher activity from transaction
banking clients. Fee income also increased in remittances, credit
facilities, funds under management and global custody, reflecting
a higher level of client activity compared with 2020.
Net income from financial instruments held for trading or
managed on a fair value basis of $7.7bn was $1.8bn lower
compared with 2020 and included adverse fair value movements
on non-qualifying hedges of $0.4bn.
The remaining reduction was mainly in GBM, as 2020 benefited
from higher market volatility supporting a particularly strong
performance within Global Foreign Exchange and Global Debt
Markets, notably in the UK and the US.
Net income from assets and liabilities of insurance
businesses, including related derivatives, measured at fair
value through profit or loss of $4.1bn, compared with $2.1bn in
2020. This increase primarily reflected favourable equity market
performances in France and Hong Kong and higher gains on unit
trust assets, supporting insurance and investment contracts. This
compared with 2020, which was adversely impacted by the onset
of the Covid-19 pandemic.
This favourable movement resulted in a corresponding movement
in liabilities to policyholders and the present value of in-force long-
term insurance business (‘PVIF’) (see ‘Other operating income’
below). This reflected the extent to which the policyholders and
shareholders respectively participate in the investment
performance of the associated assets.
Change in fair value of designated debt and related
derivatives was $0.4bn adverse compared with 2020. These
movements were driven by the widening of long-term interest rate
curves between the periods, driven by the gradual recovery of
major economies.
All of our financial liabilities designated at fair value are fixed-rate,
long-term debt issuances and are managed in conjunction with
interest rate swaps as part of our interest rate management
strategy. These liabilities are discussed further on page 96.
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss of
$0.8bn was $0.3bn higher compared with 2020. This primarily
reflected the impact of adverse movements in equity markets in
the first half of 2020 following the onset of the Covid-19
pandemic, as well as from favourable equity market movements
during 2021.
Gains less losses from financial investments of $0.6bn were
$0.1bn lower compared with 2020, primarily reflecting lower gains
on the disposal of debt securities.
Net insurance premium income of $10.9bn was $0.8bn higher
than in 2020, primarily reflecting higher sales volumes, particularly
in France, the UK and Singapore.
Other operating income of $0.5bn was broadly unchanged
compared with 2020, as a $0.3bn decrease in net favourable
movements in PVIF was broadly offset by the gain on the sale of a
property in Germany and the non-recurrence of revaluation losses
on investment properties in Hong Kong in 2020.
The change in PVIF included a net reduction of $0.7bn from
assumption changes and experience variances, primarily reflecting
increased interest rates and the effect of sharing higher
investment returns with policyholders in Hong Kong and
Singapore. These were partly offset by France where higher
interest rates reduced the cost of guarantees. The net reduction
due to assumption changes was partly offset by a $0.3bn increase
in the value of new business written, primarily in Hong Kong.
PVIF is presented in accordance with IFRS 4 ‘Insurance Contracts’.
As set out in our Annual Report and Accounts 2020, IFRS 17
‘Insurance Contracts’ is effective from 1 January 2023. Under
IFRS 17, there will be no PVIF asset recognised. Instead, the
estimated future profit will be included in the measurement of the
insurance contract liability as the contractual service margin and
gradually recognised in revenue as services are provided over the
duration of the insurance contract.
Net insurance claims and benefits paid and movement in
liabilities to policyholders was $1.7bn higher, primarily due to
higher returns on financial assets supporting contracts where the
policyholder is subject to part or all of the investment risk and
higher sales volumes, particularly in France and the UK.
Changes in expected credit losses and other credit
impairment charges (‘ECL’) were a net release of $0.9bn,
compared with a charge of $8.8bn in 2020. The net release in
2021 reflected an improvement in the economic outlook, notably
in the UK, partly offset by an increase in allowances in the fourth
quarter, reflecting recent developments in China’s commercial real
estate sector. This compared with the significant build-up of stage
1 and stage 2 allowances in 2020 due to the worsening economic
outlook at the onset of the Covid-19 pandemic. The reduction in
ECL also reflected historically low levels of stage 3 charges,
although with some normalisation during the fourth quarter, as
well as the non-recurrence of a significant charge in 2020 related
to a corporate exposure in Singapore.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of the economic scenarios and
management judgemental adjustments, see pages 144 to 152.
HSBC Holdings plc Annual Report and Accounts 2021
93
Operating expenses – currency translation and significant items
Year ended
2021
2020
$m
$m
Significant items
2,472
3,095
– customer redress programmes
49
(54)
– impairment of goodwill and other intangibles
587
1,090
– past service costs of guaranteed minimum pension benefits equalisation
—
17
– restructuring and other related costs 1
1,836
1,908
– settlements and provisions in connection with legal and regulatory matters
—
12
– currency translation on significant items
122
Currency translation
(1,072)
Year ended 31 Dec
2,472
2,023
1 The year ended 2020 included impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m)
and impairment of tangible assets of $197m.
Operating expenses
Year ended
2021
2020
$m
$m
Gross employee compensation and benefits
19,612
19,396
Capitalised wages and salaries
(870)
(1,320)
Goodwill impairment
587
41
Property and equipment
5,145
5,322
Amortisation and impairment of intangibles
1,438
2,519
UK bank levy
116
802
Legal proceedings and regulatory matters
106
289
Other operating expenses 1
8,486
7,383
Total operating expenses (reported)
34,620
34,432
Total significant items (including currency translation on significant items)
(2,472)
(3,095)
Currency translation
1,072
Total operating expenses (adjusted)
32,148
32,409
1 Other operating expenses includes professional fees, contractor costs, transaction taxes, marketing and travel. The increase was driven by the
spend related to our cost reduction programme, as well as from the growth in investment in technology and regulatory programmes.
Staff numbers (full-time equivalents)
2021
2020
2019
Global businesses
Wealth and Personal Banking
130,185
135,727
141,341
Commercial Banking
42,969
43,221
44,706
Global Banking and Markets
46,166
46,729
48,859
Corporate Centre
377
382
445
At 31 Dec
219,697
226,059
235,351
Operating expenses of $34.6bn were broadly unchanged
compared with 2020. This included the impact of our cost saving
initiatives, as well as lower impairments of goodwill and other
intangible assets, as 2021 included a $0.6bn impairment of
goodwill related to our WPB business in Latin America to reflect
the macroeconomic outlook, as well as the impact of foreign
exchange rate deterioration and inflationary pressures, notably on
our Argentina business. However, 2020 included a $1.3bn
impairment of intangible assets, mainly in Europe. There was also
a $0.6bn reduction in the UK bank levy due to a change in the
basis of calculation to only include the UK balance sheet rather
than the global balance sheet, as well as a credit of $0.1bn relating
to the 2020 charge.
These decreases were broadly offset by an increase in
performance-related pay of $0.7bn as Group performance
improved, and by an increase in investment in technology of
$0.9bn (gross of cost savings of $0.5bn). The remaining increase
primarily reflected inflationary impacts, non-technology
investment in regulatory programmes, and business growth
notably Asia wealth investment. In addition, there was an adverse
impact of foreign currency translation differences of $1.1bn.
In February 2020, we announced a plan to substantially reduce the
cost base by 2022 and accelerate the pace of change. We
continue to target $5bn to $5.5bn of cost saves for 2020 to 2022,
while spending around $7bn in costs to achieve, which are
included in restructuring and other related costs. Cumulative costs
to achieve spend since the start of the programme in 2020 was
$3.6bn, with related saves of $3.3bn. In 2021, the total cost to
achieve spend was $1.8bn with saves during the year of $2.2bn.
Share of profit in associates and joint ventures of $3.0bn
was $1.4bn higher, primarily reflecting a higher share of profit
from The Saudi British Bank (‘SABB’) due to the non-recurrence of
our share of its goodwill impairment charge in 2020, and an
increased share of profit from BoCom. Our share of profit also rose
from Business Growth Fund in the UK due to a recovery in asset
valuations relative to 2020.
At 31 December 2021, we performed an impairment review of our
investment in BoCom and concluded that it was not impaired,
based on our value-in-use (‘VIU’) calculations. The excess of the
VIU of BoCom and its carrying value has increased over the
period, reflecting the impact of BoCom’s performance on the VIU.
For more information, see Note 19: Interests in associates and
joint ventures on page 359.
Tax expense
The effective tax rate for 2021 of 22.3% was lower than the 30.5%
for 2020. The effective tax rate for 2021 was increased by the
impact of substantively enacted legislation to increase the UK
statutory tax rate from 1 April 2023. The 2020 effective tax rate
was high, due mainly to the non-recognition of deferred tax on
losses in the UK and France.
Financial summary
94
HSBC Holdings plc Annual Report and Accounts 2021
Consolidated balance sheet
Five-year summary consolidated balance sheet
2021
2020
2019
2018
2017
$m
$m
$m
$m
$m
Assets
Cash and balances at central banks
403,018
304,481
154,099
162,843
180,624
Trading assets
248,842
231,990
254,271
238,130
287,995
Financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
49,804
45,553
43,627
41,111
N/A
Financial assets designated at fair value
N/A
N/A
N/A
N/A
29,464
Derivatives
196,882
307,726
242,995
207,825
219,818
Loans and advances to banks
83,136
81,616
69,203
72,167
90,393
Loans and advances to customers 1
1,045,814
1,037,987
1,036,743
981,696
962,964
Reverse repurchase agreements – non-trading
241,648
230,628
240,862
242,804
201,553
Financial investments
446,274
490,693
443,312
407,433
389,076
Other assets
242,521
253,490
230,040
204,115
159,884
Total assets at 31 Dec
2,957,939
2,984,164
2,715,152
2,558,124
2,521,771
Liabilities and equity
Liabilities
Deposits by banks
101,152
82,080
59,022
56,331
69,922
Customer accounts
1,710,574
1,642,780
1,439,115
1,362,643
1,364,462
Repurchase agreements – non-trading
126,670
111,901
140,344
165,884
130,002
Trading liabilities
84,904
75,266
83,170
84,431
184,361
Financial liabilities designated at fair value
145,502
157,439
164,466
148,505
94,429
Derivatives
191,064
303,001
239,497
205,835
216,821
Debt securities in issue
78,557
95,492
104,555
85,342
64,546
Liabilities under insurance contracts
112,745
107,191
97,439
87,330
85,667
Other liabilities
199,994
204,019
194,876
167,574
113,690
Total liabilities at 31 Dec
2,751,162
2,779,169
2,522,484
2,363,875
2,323,900
Equity
Total shareholders’ equity
198,250
196,443
183,955
186,253
190,250
Non-controlling interests
8,527
8,552
8,713
7,996
7,621
Total equity at 31 Dec
206,777
204,995
192,668
194,249
197,871
Total liabilities and equity at 31 Dec
2,957,939
2,984,164
2,715,152
2,558,124
2,521,771
1 Net of impairment allowances.
A more detailed consolidated balance sheet is contained in the financial statements on page 310.
Five-year selected financial information
2021
2020
2019
2018
2017
$m
$m
$m
$m
$m
Called up share capital
10,316
10,347
10,319
10,180
10,160
Capital resources 1
177,786
184,423
172,150
173,238
182,383
Undated subordinated loan capital
1,968
1,970
1,968
1,969
1,969
Preferred securities and dated subordinated loan capital 2
28,568
30,721
33,063
35,014
42,147
Risk-weighted assets
838,263
857,520
843,395
865,318
871,337
Total shareholders’ equity
198,250
196,443
183,955
186,253
190,250
Less: preference shares and other equity instruments
(22,414)
(22,414)
(22,276)
(23,772)
(23,655)
Total ordinary shareholders’ equity
175,836
174,029
161,679
162,481
166,595
Less: goodwill and intangible assets (net of tax)
(17,643)
(17,606)
(17,535)
(22,425)
(21,680)
Tangible ordinary shareholders’ equity
158,193
156,423
144,144
140,056
144,915
Financial statistics
Loans and advances to customers as a percentage of customer accounts
61.1%
63.2%
72.0%
72.0%
70.6%
Average total shareholders’ equity to average total assets
6.62%
6.46%
6.97%
7.16%
7.33%
Net asset value per ordinary share at year-end ($)3
8.76
8.62
8.00
8.13
8.35
Tangible net asset value per ordinary share at year-end ($)4
7.88
7.75
7.13
7.01
7.26
Tangible net asset value per fully diluted share at year-end ($)
7.84
7.72
7.11
6.98
7.22
Number of $0.50 ordinary shares in issue (millions)
20,632
20,694
20,639
20,361
20,321
Basic number of $0.50 ordinary shares outstanding (millions)
20,073
20,184
20,206
19,981
19,960
Basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary
shares (millions)
20,189
20,272
20,280
20,059
20,065
Closing foreign exchange translation rates to $:
$1: £
0.739
0.732
0.756
0.783
0.740
$1: €
0.880
0.816
0.890
0.873
0.834
1 Capital resources are regulatory total capital, the calculation of which is set out on page 193.
2 Including perpetual preferred securities, details of which can be found in Note 28: Subordinated liabilities on page 370.
3 The definition of net asset value per ordinary share is total shareholders’ equity, less non-cumulative preference shares and capital securities,
divided by the number of ordinary shares in issue, excluding own shares held by the company, including those purchased and held in treasury.
4 The definition of tangible net asset value per ordinary share is total ordinary shareholder’s equity excluding goodwill, PVIF and other intangible
assets (net of deferred tax), divided by the number of basic ordinary shares in issue, excluding own shares held by the company, including those
purchased and held in treasury.
HSBC Holdings plc Annual Report and Accounts 2021
95
Balance sheet commentary compared with
31 December 2020
At 31 December 2021, our total assets were $3.0tn, which were
$26bn or 1% lower on a reported basis and $19bn or 1% higher on
a constant currency basis.
The decrease in total assets reflected lower derivative assets and a
fall in financial investments, in part reflecting a redeployment of
our commercial surplus into cash. Reported customer lending
balances were $8bn higher, mainly from growth in mortgage
balances.
Reported loans and advances to customers as a percentage of
customer accounts was 61.1%, which was lower compared with
63.2% at 31 December 2020. This was due to an increase in
customer accounts as corporate customers continued to build up
liquidity and personal customers grew their savings accounts.
Assets
Cash and balances at central banks increased by $99bn or
32%, mainly in the UK and the US, as we redeployed our
commercial surplus to cash to increase liquidity for our clients and
as a result of deposit inflows.
Trading assets increased by $17bn or 7%, notably from an
increase in equity securities held, particularly in Hong Kong and
the US, largely driven by client demand. These were partly offset
by a reduction of debt securities in the US.
Derivative assets decreased by $111bn or 36%, primarily in the
UK and France. This reflected adverse revaluation movements on
interest rate contracts due to higher long-term yield curve rates in
most major markets. Foreign exchange contracts also decreased
as a result of foreign exchange rate movements in the UK and
Hong Kong and lower client demand in the US. The decrease in
derivative assets was consistent with the decrease in derivative
liabilities, as the underlying risk is broadly matched.
Loans and advances to customers of $1.0tn increased by $8bn
on a reported basis, which included adverse effects of foreign
currency translation differences of $16bn. On a constant currency
basis, customer lending balances were $23bn higher, despite $3bn
of loans and advances to customers being reclassified to assets
held for sale in the US.
The commentary below is on a constant currency basis.
Customer lending increased in WPB by $27bn to $489bn, mainly
from growth in mortgage balances of $23bn, notably in the UK (up
$10bn), Hong Kong (up $7bn) and Canada (up $4bn) as housing
market activity continued to increase.
In CMB, customer lending of $349bn was $11bn higher, as we
grew trade lending by $13bn, reflecting a recovery in global trade
volumes, which more than offset a reduction in other term
lending.
In GBM, lending of $207bn fell by $14bn, due to a reduction in
other term lending mainly in the UK.
Reverse repurchase agreements – non-trading increased by
$11bn or 5%, primarily in Asia due to client demand. This was
partly offset by the redeployment of our commercial surplus to
cash in the US.
There was also an increase in balances eligible for netting in the
UK, resulting in an overall balance reduction.
Financial investments decreased by $44bn or 9%, mainly as we
reduced our holdings of debt securities and treasury bills through
a combination of disposals and maturities. A notable portion of
these funds was redeployed into cash as we managed our
commercial surplus.
Other assets decreased by $11bn due to lower cash collateral as
derivative balances decreased, partly offset by an increase from
the reclassification of loans and advances to customers to assets
held for sale, reflecting our exit of mass market retail banking in
the US.
Liabilities
Customer accounts of $1.7tn increased by $68bn or 4% on a
reported basis, which included adverse effects of foreign currency
translation differences of $23bn. On a constant currency basis,
customer accounts were $90bn higher, with growth across all of
our global businesses, despite a reclassification of $10bn to
liabilities of disposal groups held for sale in the US. The increase
was primarily in the UK, Hong Kong and the rest of Asia, as
corporate customers continued to build up liquidity and personal
customers grew their savings as spending remained below pre-
pandemic levels.
D eposits by banks increased by $19bn or 23%, primarily in the
UK, relating to the utilisation of a Bank of England scheme to
provide loans to corporate customers during the year. There were
also increases in Hong Kong and the US.
Repurchase agreements – non-trading increased by $15bn or
13%, primarily in Hong Kong, as client demand increased.
Derivative liabilities decreased by $112bn or 37%, which is
consistent with the decrease in derivative assets, since the
underlying risk is broadly matched.
Other liabilities decreased by $4bn or 2% due to lower cash
collateral as derivative balances decreased, partly offset by an
increase from a reclassification of customer accounts to liabilities
held for sale, reflecting our exit of mass market retail banking in
the US.
Equity
Total shareholders’ equity, including non-controlling interests,
increased by $2bn or 1% compared with 31 December 2020. This
reflected the effects of profits generated of $15bn, partly offset by
a reduction in other comprehensive income (‘OCI’) of $5bn,
dividend payments and coupon distributions on securities
classified as equity of $6bn a nd a $2bn reduction related to our
share buy-back programme. Movements in OCI included fair value
losses on debt instruments of $2bn, driven by unrealised losses on
fixed rate bonds due to higher long-term yield curve rates, and
adverse foreign exchange differences of $2bn.
Risk-weighted assets
Risk-weighted assets (‘RWAs’) totalled $838.3 bn at 31 December
2021, a $19.2 bn decrease since 2020. Excluding foreign currency
translation differences, RWAs fell by $6.3 bn in 2021. This was due
to the following movements:
•a $4.7 bn asset size increase, mostly caused by CMB and WPB
lending growth in Asia, while lending fell in GBM;
•a $8.0 bn reduction in RWAs due to changes in asset quality
from favourable portfolio mix and credit migration, mostly in
CMB and WPB in Asia and North America; and
•a $3.0 bn fall in RWAs due to changes in methodology and
policy. This was primarily the result of risk parameter
refinements in GBM and CMB, partly offset by higher market
risk RWAs following our adoption of a Pillar 1 approach to the
capitalisation of structural foreign exchange.
Financial summary
96
HSBC Holdings plc Annual Report and Accounts 2021
Customer accounts by country/territory
2021
2020
$m
$m
Europe
667,769
629,647
– UK
535,797
504,275
– France
56,841
55,111
– Germany
22,509
21,605
– Switzerland
10,680
10,102
– other
41,942
38,554
Asia
792,098
762,406
– Hong Kong
549,429
531,489
– Singapore
57,572
55,140
– mainland China
59,266
56,826
– Australia
28,240
29,286
– India
24,507
20,199
– Malaysia
16,500
15,997
– Taiwan
15,483
16,041
– Indonesia
6,019
5,198
– other
35,082
32,230
Middle East and North Africa (excluding Saudi Arabia)
42,629
41,221
– United Arab Emirates
20,943
20,974
– Turkey
4,258
3,987
– Egypt
6,699
5,659
– other
10,729
10,601
North America
178,565
182,028
– US 1
111,921
117,485
– Canada
58,071
56,520
– other
8,573
8,023
Latin America
29,513
27,478
– Mexico
23,583
22,220
– other
5,930
5,258
At 31 Dec
1,710,574
1,642,780
1 At 31 December 2021, customer accounts of $8.8bn relating to the disposal of the US retail banking business met the criteria to be classified as
held for sale and are reported within ‘Accruals, deferred income and other liabilities’ on the balance sheet. Refer to Note 36 on page 387 for
further details.
Loans and advances, deposits by currency
At
31 Dec 2021
$m
USD
GBP
HKD
EUR
CNY
Others 1
Total
Loans and advances to banks
21,474
3,991
524
3,970
6,545
46,632
83,136
Loans and advances to customers
169,055
280,909
223,714
83,457
44,093
244,586
1,045,814
Total loans and advances
190,529
284,900
224,238
87,427
50,638
291,218
1,128,950
Deposits by banks
37,962
20,909
2,757
24,393
5,049
10,082
101,152
Customer accounts
453,864
463,232
318,702
133,604
65,052
276,120
1,710,574
Total deposits
491,826
484,141
321,459
157,997
70,101
286,202
1,811,726
At
31 Dec 2020
$m
USD
GBP
HKD
EUR
CNY
Others
Total
Loans and advances to banks
17,959
3,495
7,155
4,601
6,063
42,343
81,616
Loans and advances to customers
173,117
280,803
222,138
89,851
37,671
234,407
1,037,987
Total loans and advances
191,076
284,298
229,293
94,452
43,734
276,750
1,119,603
Deposits by banks
30,239
7,856
2,884
25,291
4,904
10,906
82,080
Customer accounts
433,647
431,143
310,197
135,851
60,971
270,971
1,642,780
Total deposits
463,886
438,999
313,081
161,142
65,875
281,877
1,724,860
1 ‘Others’ includes items with no currency information available ($11,028 m for loans to banks, $64,491 m for loans to customers, $23 m for deposits
by banks and $5 m for customer accounts).
HSBC Holdings plc Annual Report and Accounts 2021
97
Global businesses and
geographical regions
Page
Summary
98
Reconciliation of reported and adjusted items – global businesses
98
Reconciliation of reported and adjusted risk-weighted assets
101
Supplementary tables for WPB and GBM
101
Analysis of reported results by geographical regions
106
Reconciliation of reported and adjusted items – geographical regions
108
Analysis by country
114
.
Summary
The Group Chief Executive, supported by the rest of the Group
Executive Committee (‘GEC'), reviews operating activity on a
number of bases, including by global business and geographical
region. Our global businesses – Wealth and Personal Banking,
Commerical Banking, and Global Banking and Markets – along
with Corporate Centre are our reportable segments under IFRS 8
‘Operating Segments’ and are presented below and in Note 10:
Segmental analysis on page 341.
Geographical information is classified by the location of the
principal operations of the subsidiary or, for The Hongkong and
Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC UK
Bank plc, HSBC Bank Middle East Limited and HSBC Bank USA,
by the location of the branch responsible for reporting the results
or providing funding.
The expense of the UK bank levy is included in the Europe
geographical region as HSBC regards the levy as a cost of being
headquartered in the UK. From 2021, the UK bank levy was
partially allocated to global businesses, which was previously
retained in Corporate Centre. Comparative periods have not been
re-presented.
The results of geographical regions are presented on a reported
basis on page 106 and an adjusted basis on page 108.
Reconciliation of reported and adjusted items – global businesses
Supplementary unaudited analysis of significant items by global business is presented below.
2021
Wealth and
Personal Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Revenue 1
Reported
22,117
13,431
14,588
(584)
49,552
Significant items
(7)
(16)
414
147
538
– customer redress programmes
7
(18)
—
—
(11)
– fair value movements on financial instruments 2
—
(1)
19
224
242
– restructuring and other related costs 3
(14)
3
395
(77)
307
Adjusted
22,110
13,415
15,002
(437)
50,090
ECL
Reported
288
300
337
3
928
Adjusted
288
300
337
3
928
Operating expenses
Reported
(16,306)
(7,055)
(10,203)
(1,056)
(34,620)
Significant items
922
82
197
1,271
2,472
– customer redress programmes
39
1
—
9
49
– impairment of goodwill and other intangibles
587
—
—
—
587
– restructuring and other related costs
296
81
197
1,262
1,836
Adjusted
(15,384)
(6,973)
(10,006)
215
(32,148)
Share of profit in associates and joint ventures
Reported
34
1
—
3,011
3,046
Adjusted
34
1
—
3,011
3,046
Profit before tax
Reported
6,133
6,677
4,722
1,374
18,906
Significant items
915
66
611
1,418
3,010
– revenue
(7)
(16)
414
147
538
– operating expenses
922
82
197
1,271
2,472
Adjusted
7,048
6,743
5,333
2,792
21,916
Loans and advances to customers (net)
Reported
488,786
349,126
207,162
740
1,045,814
Adjusted
488,786
349,126
207,162
740
1,045,814
Customer accounts
Reported
859,029
506,688
344,205
652
1,710,574
Adjusted
859,029
506,688
344,205
652
1,710,574
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
Global businesses
98
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of reported and adjusted items (continued)
2020
Wealth and
Personal Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Revenue 1
Reported
21,999
13,294
14,994
142
50,429
Currency translation
560
405
456
(28)
1,393
Significant items
12
19
318
(401)
(52)
– customer redress programmes
5
16
—
—
21
– disposals, acquisitions and investment in new businesses
9
—
—
1
10
– fair value movements on financial instruments 2
—
1
2
(267)
(264)
– restructuring and other related costs 3
—
1
307
(138)
170
– currency translation on significant items
(2)
1
9
3
11
Adjusted
22,571
13,718
15,768
(287)
51,770
ECL
Reported
(2,855)
(4,754)
(1,209)
1
(8,817)
Currency translation
(150)
(235)
(80)
—
(465)
Adjusted
(3,005)
(4,989)
(1,289)
1
(9,282)
Operating expenses
Reported
(15,446)
(6,900)
(10,169)
(1,917)
(34,432)
Currency translation
(432)
(214)
(451)
25
(1,072)
Significant items
435
217
980
1,463
3,095
– customer redress programmes
(64)
1
—
9
(54)
– impairment of goodwill and other intangibles
294
45
577
174
1,090
– past service costs of guaranteed minimum pension benefits
equalisation
—
—
—
17
17
– restructuring and other related costs 4
192
165
326
1,225
1,908
– settlements and provisions in connection with legal and regulatory
matters
—
—
2
10
12
– currency translation on significant items
13
6
75
28
122
Adjusted
(15,443)
(6,897)
(9,640)
(429)
(32,409)
Share of profit in associates and joint ventures
Reported
6
(1)
—
1,592
1,597
Currency translation
1
—
—
132
133
Significant items
—
—
—
462
462
– impairment of goodwill 5
—
—
—
462
462
– currency translation on significant items
—
—
—
—
—
Adjusted
7
(1)
—
2,186
2,192
Profit/(loss) before tax
Reported
3,704
1,639
3,616
(182)
8,777
Currency translation
(21)
(44)
(75)
129
(11)
Significant items
447
236
1,298
1,524
3,505
– revenue
12
19
318
(401)
(52)
– operating expenses
435
217
980
1,463
3,095
– share of profit in associates and joint ventures
—
—
—
462
462
Adjusted
4,130
1,831
4,839
1,471
12,271
Loans and advances to customers (net)
Reported
469,186
343,182
224,364
1,255
1,037,987
Currency translation
(6,900)
(4,989)
(3,672)
(24)
(15,585)
Adjusted
462,286
338,193
220,692
1,231
1,022,402
Customer accounts
Reported
834,759
470,428
336,983
610
1,642,780
Currency translation
(10,768)
(6,048)
(5,819)
(17)
(22,652)
Adjusted
823,991
464,380
331,164
593
1,620,128
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
4 Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of
tangible assets of $197m.
5 In 2020, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in
2019. HSBC's post-tax share of the goodwill impairment was $462m.
HSBC Holdings plc Annual Report and Accounts 2021
99
Reconciliation of reported and adjusted items (continued)
2019
Wealth and
Personal Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Revenue 1
Reported
25,552
15,256
14,894
396
56,098
Currency translation
358
327
303
22
1,010
Significant items
230
11
85
(999)
(673)
– customer redress programmes
155
7
—
1
163
– disposals, acquisitions and investment in new businesses 2
52
—
—
(820)
(768)
– fair value movements on financial instruments 3
7
4
84
(179)
(84)
– currency translation on significant items
16
—
1
(1)
16
Adjusted
26,140
15,594
15,282
(581)
56,435
ECL
Reported
(1,437)
(1,192)
(162)
35
(2,756)
Currency translation
61
(2)
7
3
69
Adjusted
(1,376)
(1,194)
(155)
38
(2,687)
Operating expenses
Reported
(17,351)
(9,905)
(13,790)
(1,303)
(42,349)
Currency translation
(431)
(184)
(337)
(29)
(981)
Significant items
1,959
3,061
4,236
511
9,767
– costs of structural reform 4
—
4
42
112
158
– customer redress programmes
1,264
17
—
—
1,281
– goodwill impairment
431
2,956
3,962
—
7,349
– restructuring and other related costs
180
51
217
379
827
– settlements and provisions in connection with legal and regulatory matters
(69)
—
2
6
(61)
– currency translation on significant items
153
33
13
14
213
Adjusted
(15,823)
(7,028)
(9,891)
(821)
(33,563)
Share of profit in associates and joint ventures
Reported
55
—
—
2,299
2,354
Currency translation
(1)
1
1
141
142
Adjusted
54
1
1
2,440
2,496
Profit before tax
Reported
6,819
4,159
942
1,427
13,347
Currency translation
(13)
142
(26)
137
240
Significant items
2,189
3,072
4,321
(488)
9,094
– revenue
230
11
85
(999)
(673)
– operating expenses
1,959
3,061
4,236
511
9,767
Adjusted
8,995
7,373
5,237
1,076
22,681
Loans and advances to customers (net)
Reported
443,025
346,105
246,492
1,121
1,036,743
Currency translation
5,855
2,611
1,570
20
10,056
Adjusted
448,880
348,716
248,062
1,141
1,046,799
Customer accounts
Reported
753,769
388,723
295,880
743
1,439,115
Currency translation
4,645
3,410
2,738
17
10,810
Adjusted
758,414
392,133
298,618
760
1,449,925
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes $0.8bn dilution gain following the merger of The Saudi British Bank (‘SABB’) with Alawwal bank.
3 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
4 Comprises costs associated with preparations for the UK’s exit from the European Union.
Global businesses
100
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of reported and adjusted risk-weighted assets
At 31 Dec 2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$bn
$bn
$bn
$bn
$bn
Risk-weighted assets
Reported
178.3
332.9
236.2
90.9
838.3
Adjusted 1
178.3
332.9
236.2
90.9
838.3
At 31 Dec 2020
Risk-weighted assets
Reported
172.8
327.7
265.1
91.9
857.5
Currency translation
(2.7)
(5.3)
(4.1)
(0.8)
(12.9)
Adjusted 1
170.1
322.4
261.0
91.1
844.6
At 31 Dec 2019
Risk-weighted assets
Reported
162.6
325.9
273.4
81.5
843.4
Currency translation
(0.3)
1.5
(0.6)
0.1
0.7
Adjusted 1
162.3
327.4
272.8
81.6
844.1
1 Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and
significant items.
Supplementary tables for WPB and GBM
WPB adjusted performance by business unit
A breakdown of WPB by business unit is presented below to reflect the basis of how the revenue performance of the business units is
assessed and managed.
WPB – summary (adjusted basis)
Total
WPB
Consists of 1
Banking
operations
Insurance
manufacturing
Global Private
Banking
Asset
management
$m
$m
$m
$m
$m
2021
Net operating income before change in expected credit losses and other credit
impairment charges 2
22,110
16,440
2,625
1,826
1,219
– net interest income
14,198
11,237
2,316
647
(2)
– net fee income/(expense)
5,894
4,405
(620)
933
1,176
– other income
2,018
798
929
246
45
ECL
288
292
(17)
14
(1)
Net operating income
22,398
16,732
2,608
1,840
1,218
Total operating expenses 3
(15,384)
(12,401)
(589)
(1,565)
(829)
Operating profit
7,014
4,331
2,019
275
389
Share of profit in associates and joint ventures
34
16
18
—
—
Profit before tax
7,048
4,347
2,037
275
389
2020
Net operating income before change in expected credit losses and other credit
impairment charges 2
22,571
17,840
1,869
1,789
1,073
– net interest income
15,470
12,536
2,249
688
(3)
– net fee income/(expense)
5,519
4,175
(527)
843
1,028
– other income
1,582
1,129
147
258
48
ECL
(3,005)
(2,866)
(67)
(71)
(1)
Net operating income
19,566
14,974
1,802
1,718
1,072
Total operating expenses
(15,443)
(12,774)
(486)
(1,429)
(754)
Operating profit
4,123
2,200
1,316
289
318
Share of profit in associates and joint ventures
7
6
1
—
—
Profit before tax
4,130
2,206
1,317
289
318
HSBC Holdings plc Annual Report and Accounts 2021
101
WPB – summary (adjusted basis) (continued)
Total
WPB
Consists of 1
Banking
operations
Insurance
manufacturing
Global Private
Banking
Asset
management
$m
$m
$m
$m
$m
2019
Net operating income before change in expected credit losses and other credit
impairment charges 2
26,140
20,508
2,663
1,917
1,052
– net interest income
17,820
14,737
2,179
911
(7)
– net fee income/(expense)
5,753
4,684
(726)
797
998
– other income
2,567
1,087
1,210
209
61
ECL
(1,376)
(1,286)
(66)
(24)
—
Net operating income
24,764
19,222
2,597
1,893
1,052
Total operating expenses
(15,823)
(13,085)
(485)
(1,480)
(773)
Operating profit
8,941
6,137
2,112
413
279
Share of profit in associates and joint ventures
54
11
43
—
—
Profit before tax
8,995
6,148
2,155
413
279
1 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-
insurance operations. These eliminations are presented within Banking operations.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. This differs from
the WPB Life insurance manufacturing revenue shown in the managed view of adjusted revenue on page 31, which excludes the impact of
Argentina hyperinflation and includes the effect of goodwill adjustments.
3 Operating expenses in Global Private Banking in 2021 included a one-off charge of $0.1bn, which did not meet the criteria to be classified as a
significant item.
WPB insurance manufacturing adjusted results
The following table shows the results of our insurance
manufacturing operations by income statement line item. It shows
the results of insurance manufacturing operations for WPB and for
all global business segments in aggregate, and separately the
insurance distribution income earned by HSBC bank channels.
These results are prepared in accordance with current IFRSs which
will change following adoption of IFRS 17 ‘Insurance Contracts’,
effective from 1 January 2023. Further information about the
adoption of IFRS 17 is provided on page 90.
Adjusted results of insurance manufacturing operations and insurance distribution income earned by HSBC bank channels 1, 2
2021
2020
2019
WPB
All global
businesses
WPB
All global
businesses
WPB
All global
businesses
$m
$m
$m
$m
$m
$m
Net interest income
2,316
2,492
2,249
2,414
2,179
2,318
Net fee income/(expense)
(620)
(652)
(527)
(564)
(726)
(750)
– fee income
105
128
111
132
108
131
– fee expense
(725)
(780)
(638)
(696)
(834)
(881)
Net income/(expenses) from financial instruments held for trading or managed on a fair
value basis
6
—
66
84
(107)
(117)
Net income/(expense) from assets and liabilities of insurance businesses, including
related derivatives, measured at fair value through profit or loss
4,061
4,100
2,066
2,019
3,671
3,654
Gains less losses from financial investments
86
90
13
13
5
5
Net insurance premium income
10,516
10,998
9,822
10,313
10,572
10,932
Other operating income
192
175
333
347
1,801
1,814
Of which: PVIF
100
93
368
381
1,724
1,769
Total operating income
16,557
17,203
14,022
14,626
17,395
17,856
Net insurance claims and benefits paid and movement in liabilities to policyholders
(13,932)
(14,442)
(12,153)
(12,653)
(14,732)
(15,115)
Net operating income before change in expected credit losses and other
credit impairment charges 3
2,625
2,761
1,869
1,973
2,663
2,741
Change in expected credit losses and other credit impairment charges
(17)
(20)
(67)
(78)
(66)
(70)
Net operating income
2,608
2,741
1,802
1,895
2,597
2,671
Total operating expenses
(589)
(618)
(486)
(514)
(485)
(506)
Operating profit
2,019
2,123
1,316
1,381
2,112
2,165
Share of profit in associates and joint ventures
18
18
1
1
43
43
Profit before tax of insurance manufacturing operations 4
2,037
2,141
1,317
1,382
2,155
2,208
Annualised new business premiums of insurance manufacturing operations
2,838
2,892
2,320
2,384
3,348
3,427
Insurance distribution income earned by HSBC bank channels
762
832
751
816
961
1,057
1 Adjusted results are derived by adjusting for year-on-year effects of foreign currency translation differences, and the effect of significant items that
distort year-on-year comparisons. There are no significant items included within insurance manufacturing, and the impact of foreign currency
translation on all global businesses’ profit before tax is 2020: $5m favourable (reported: $1,377m), 2019: $73m favourable (reported: $2,135m).
2 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-
insurance operations.
3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
4 The effect on the insurance manufacturing operations of applying hyperinflation accounting in Argentina resulted in an increase in adjusted
revenue in 2021 of $12m (2020: increase of $5m, 2019: reduction of $1m) and an increase in profit before tax in 2021 of $10m (2020: increase of
$12m, 2019: increase of $3m). These effects are recorded within ‘All global businesses’.
Global businesses
102
HSBC Holdings plc Annual Report and Accounts 2021
Insurance manufacturing
The following commentary, unless otherwise specified, relates to
the ‘All global businesses’ results.
HSBC recognises the present value of long-term in-force insurance
contracts and investment contracts with discretionary
participation features (‘PVIF’) as an asset on the balance sheet.
The overall balance sheet equity, including PVIF, is therefore a
measure of the embedded value in the insurance manufacturing
entities, and the movement in this embedded value in the period
drives the overall income statement result.
Adjusted profit before tax of $2.1bn increased by $0.8bn or 55%
compared with 2020.
Adjusted net operating income before change in expected credit
losses and other credit impairment changes was $0.8bn or 40%
higher than in 2020. This reflected the following:
•‘Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through
profit or loss’ of $4.1bn in 2021 compared with $2.0bn in 2020.
This increase primarily reflected favourable equity market
performance in France and Hong Kong and higher gains on unit
trust assets, supporting insurance and investment contracts.
This compared with 2020, which was adversely impacted by
the onset of the Covid-19 pandemic.
•This favourable movement resulted in a corresponding
movement in liabilities to policyholders and PVIF (see ‘Other
operating income’ below), to the extent to which policyholders
and shareholders respectively participate in the investment
performance of the associated assets.
•Net insurance premium income of $11bn was $0.7bn higher
than in 2020, primarily reflecting higher sales volumes
particularly in France, the UK and Singapore.
•Other operating income of $0.2bn decreased by $0.2bn
compared with 2020, mainly from adverse movements in PVIF.
This included a reduction of $0.7bn due to assumption changes
and experience variances, primarily reflecting increased interest
rates and the effect of sharing higher investment returns with
policyholders in Hong Kong and Singapore, partly offset in
France where higher interest rates reduced the cost of
guarantees. The net reduction from assumption changes and
experience variances was partly offset by a $0.3bn increase in
the value of new business written, primarily in Hong Kong.
•Net insurance claims and benefits paid and movement in
liabilities to policyholders was $1.8bn higher, primarily due to
higher returns on financial assets supporting contracts where
the policyholder is subject to part or all of the investment risk
and higher sales volumes, particularly in France and the UK.
Adjusted operating expenses of $0.6bn increased by 20%
compared with 2020, reflecting investments in core insurance
functions and capabilities during the period.
Annualised new business premiums (‘ANP’) is used to assess new
insurance premium generation by the business. It is calculated as
100% of annualised first year regular premiums and 10% of single
premiums, before reinsurance ceded. Higher ANP during the
period reflected improved new business volumes, mainly in Hong
Kong.
Insurance distribution income from HSBC channels included
$486m (2020: $476m; 2019: $665m) on HSBC manufactured
products, for which a corresponding fee expense is recognised
within insurance manufacturing, and $346m (2020: $340m;
2019: $392m) on products manufactured by third-party providers.
The WPB component of this distribution income was $433m
(2020: $428m; 2019: $589m) from HSBC manufactured products
and $329m (2020: $323m; 2019: $372m) from third-party
products.
WPB: Wealth adjusted revenue by geography
The following table shows the adjusted revenue of our Wealth business by region. Our Wealth business comprises investment
distribution, life insurance manufacturing, Global Private Banking and Asset Management.
Wealth adjusted revenue by geography
2021
2020
2019
$m
$m
$m
Europe
2,381
1,859
2,402
Asia
5,780
5,246
5,587
MENA
180
163
126
North America
530
520
562
Latin America
252
216
246
Total
9,123
8,004
8,923
WPB: Wealth balances
The following table shows the wealth balances, which include invested assets and wealth deposits. Invested assets comprise customer
assets either managed by our Asset Management business or by external third-party investment managers, as well as self-directed
investments by our customers.
HSBC Holdings plc Annual Report and Accounts 2021
103
WPB – reported wealth balances 1
2021
2020
$bn
$bn
Global Private Banking invested assets
351
326
– managed by Global Asset Management
67
66
– external managers, direct securities and other
284
260
Retail invested assets
434
407
– managed by Global Asset Management
229
219
– external managers, direct securities and other
205
188
Asset Management third-party distribution
334
317
Reported invested assets 1
1,119
1,050
Wealth deposits (Premier, Jade and Global Private Banking)2
551
538
Total reported wealth balances
1,670
1,588
1 Invested assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our
role as investment manager.
2 Premier, Jade and Global Private Banking deposits, which include Prestige deposits in Hang Seng Bank, form part of the total WPB customer
accounts balance of $859bn (2020: $835bn) on page 98.
Asset Management: funds under management
The following table shows the funds under management of our
Asset Management business. Funds under management
represents assets managed, either actively or passively, on behalf
of our customers. Funds under management are not reported on
the Group’s balance sheet, except where it is deemed that we are
acting as principal rather than agent in our role as investment
manager.
Asset Management – reported funds under management
2021
2020
$bn
$bn
Opening balance
602
506
Net new invested assets
27
53
Net market movements
18
17
Foreign exchange and others
(17)
26
Closing balance
630
602
Asset Management – reported funds under management by geography
2021
2020
$bn
$bn
Europe
367
346
Asia
180
176
MENA
5
6
North America
69
65
Latin America
9
9
Closing balance
630
602
At 31 December 2021, Asset Management funds under
management amounted to $630bn, an increase of $28bn or 5%.
The increase reflected strong net new invested assets, primarily
from passive and managed solutions investment products. There
was a positive market performance, although this was largely
offset by adverse foreign exchange translation.
Global Private Banking: client assets
Global Private Banking client assets comprises invested assets and
deposits, which are translated at the rates of exchange applicable
for their respective year-ends, with the effects of currency
translation reported separately.
Global Private Banking – reported client assets 1
2021
2020
$bn
$bn
Opening balance
394
361
Net new invested assets
19
3
Increase/(decrease) in deposits
4
3
Net market movements
17
6
Foreign exchange and others
(11)
21
Closing Balance
423
394
Global Private Banking – reported client assets by geography 1
2021
2020
$bn
$bn
Europe
174
174
Asia
178
176
North America
71
44
Closing balance
423
394
1 Client assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role
as investment manager. Customer deposits included in these client assets are on balance sheet.
Global businesses
104
HSBC Holdings plc Annual Report and Accounts 2021
Retail invested assets
The following table shows the invested assets of our retail
customers. These comprise customer assets either managed by
our Asset Management business or by external third-party
investment managers as well as self-directed investments by our
customers. Retail invested assets are not reported on the Group’s
balance sheet, except where it is deemed that we are acting as
principal rather than agent in our role as investment manager.
Retail invested assets
2021
2020
$bn
$bn
Opening balance
407
380
Net new invested assets 1
26
10
Net market movements
5
5
Foreign exchange and others
(4)
12
Closing balance
434
407
Retail invested assets by geography
2021
2020
$bn
$bn
Europe
81
71
Asia
293
281
MENA
4
4
North America
47
42
Latin America
9
9
Closing balance
434
407
1‘Retail net new invested assets’ covers nine markets, comprising Hong Kong including Hang Seng Bank (Hong Kong), mainland China, Malaysia,
Singapore, HSBC Bank UK, UAE, US, Canada and Mexico. The net new invested assets related to all other geographies is reported in ‘exchange
and other’.
WPB invested assets
Net new invested assets represents the net customer inflows from
retail invested assets, Asset Management third-party distribution
and Global Private Banking invested assets. It excludes all
customer deposits. The net new invested assets in the table below
is non-additive from the tables above, as net new invested assets
managed by Asset Management that is generated by retail clients
or Global Private Banking will be recorded in both businesses.
WPB: Invested assets
2021
2020
$bn
$bn
Opening balance
1,050
925
Net new invested assets
64
53
Net market movements
33
21
Foreign exchange and others
(28)
51
Closing balance
1,119
1,050
WPB: Net new invested assets by geography
2021
2020
$bn
$bn
Europe
17
21
Asia
36
15
MENA
—
—
North America
10
16
Latin America
1
1
Total
64
53
GBM: Securities Services and Issuer Services
Assets held in custody
Custody is the safekeeping and servicing of securities and other
financial assets on behalf of clients. Assets held in custody are not
reported on the Group’s balance sheet, except where it is deemed
that we are acting as principal rather than agent in our role as
investment manager. At 31 December 2021, we held $10.8tn of
assets as custodian, 7% higher than at 31 December 2020. The
balance comprised $10.0tn of assets in Securities Services, which
were recorded at market value, and $0.8tn of assets in Issuer
Services, recorded at book value.
The growth was driven by Securities Services balances, from net
client asset inflows, including increases from new client
mandates, notably in Asia, the US and the UK, and favourable
market movements. These increases were partly offset by the
adverse impact of currency translation differences.
Assets under administration
Our assets under administration business, which includes the
provision of bond and loan administration services, transfer
agency services and the valuation of portfolios of securities and
other financial assets on behalf of clients, complements the
custody business. At 31 December 2021, the value of assets held
under administration by the Group amounted to $4.9tn, which was
10% higher than at 31 December 2020. The balance comprised
$3.0tn of assets in Securities Services, which were recorded at
market value, and $1.9tn of assets in Issuer Services, recorded at
book value.
The increase was mainly driven by Securities Services balances,
from a net inflow of client assets, particularly in the UK and Hong
Kong, and from favourable market movements.
HSBC Holdings plc Annual Report and Accounts 2021
105
Analysis of reported results by geographical regions
HSBC reported profit/(loss) before tax and balance sheet data
2021
Europe
Asia
MENA
North
America
Latin
America
Intra-HSBC
Total
$m
$m
$m
$m
$m
$m
$m
Net interest income
6,454
12,596
1,299
2,845
2,195
1,100
26,489
Net fee income
3,882
5,871
774
2,056
514
—
13,097
Net income from financial instruments held for trading or managed
on a fair value basis
2,602
3,643
431
426
476
166
7,744
Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit
and loss
1,670
2,340
—
—
45
(2)
4,053
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
1,973
(3)
(3)
54
40
(1,263)
798
Other income/(expense)1
3,523
1,316
59
673
(212)
(7,988)
(2,629)
Net operating income before change in
expected credit losses and other credit
impairment charges 2
20,104
25,763
2,560
6,054
3,058
(7,987)
49,552
Change in expected credit losses and other credit
impairment charges
1,601
(840)
132
238
(203)
—
928
Net operating income
21,705
24,923
2,692
6,292
2,855
(7,987)
50,480
Total operating expenses excluding impairment of goodwill and
other intangible assets
(18,099)
(15,136)
(1,536)
(4,905)
(2,198)
7,987
(33,887)
Impairment of goodwill and other intangible assets
(95)
(24)
(8)
(13)
(593)
—
(733)
Operating profit/(loss)
3,511
9,763
1,148
1,374
64
—
15,860
Share of profit/(loss) in associates and joint ventures
268
2,486
275
—
17
—
3,046
Profit/(loss) before tax
3,779
12,249
1,423
1,374
81
—
18,906
%
%
%
%
%
%
Share of HSBC’s profit before tax
20.0
64.8
7.5
7.3
0.4
100.0
Cost efficiency ratio
90.5
58.8
60.3
81.2
91.3
69.9
Balance sheet data
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net)
397,090
492,525
26,375
108,717
21,107
—
1,045,814
Total assets
1,354,483
1,261,707
70,974
362,150
46,602
(137,977)
2,957,939
Customer accounts
667,769
792,098
42,629
178,565
29,513
—
1,710,574
Risk-weighted assets 3
261,115
396,206
60,223
110,412
35,915
838,263
2020
Net interest income
5,695
14,318
1,465
2,836
1,960
1,304
27,578
Net fee income
3,499
5,418
695
1,795
467
—
11,874
Net income from financial instruments held for trading or managed
on a fair value basis
3,266
4,273
402
997
593
51
9,582
Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit
and loss
327
1,699
—
—
55
—
2,081
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
1,747
17
3
2
40
(1,354)
455
Other income/(expense)1
3,885
1,197
63
745
(95)
(6,936)
(1,141)
Net operating income before change in expected credit losses and
other credit impairment charges 2
18,419
26,922
2,628
6,375
3,020
(6,935)
50,429
Change in expected credit losses and other credit
impairment charges
(3,751)
(2,284)
(758)
(900)
(1,124)
—
(8,817)
Net operating income
14,668
24,638
1,870
5,475
1,896
(6,935)
41,612
Total operating expenses excluding impairment of goodwill and
other intangible assets
(17,860)
(13,584)
(1,521)
(5,081)
(1,933)
6,935
(33,044)
Impairment of goodwill and other intangible assets
1,014
(78)
(65)
(226)
(5)
—
(1,388)
Operating profit/(loss)
(4,206)
10,976
284
168
(42)
—
7,180
Share of profit/(loss) in associates and joint ventures
1
1,856
(265)
—
5
—
1,597
Profit/(loss) before tax
(4,205)
12,832
19
168
(37)
—
8,777
%
%
%
%
%
%
Share of HSBC’s profit before tax
(47.9)
146.2
0.2
1.9
(0.4)
100.0
Cost efficiency ratio
102.5
50.7
60.4
83.2
64.2
68.3
Balance sheet data
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net)
408,495
473,165
28,700
107,969
19,658
—
1,037,987
Total assets
1,416,111
1,206,404
68,860
373,167
49,703
(130,081)
2,984,164
Customer accounts
629,647
762,406
41,221
182,028
27,478
—
1,642,780
Risk-weighted assets 3
284,322
384,228
60,181
117,755
35,240
—
857,520
Geographical regions
106
HSBC Holdings plc Annual Report and Accounts 2021
HSBC reported profit/(loss) before tax and balance sheet data (continued)
2019
Europe
Asia
MENA
North
America
Latin
America
Intra-HSBC/
global
impairment 4
Total
$m
$m
$m
$m
$m
$m
$m
Net interest income
5,601
16,607
1,781
3,241
2,061
1,171
30,462
Net fee income
3,668
5,325
685
1,804
540
1
12,023
Net income from financial instruments held for trading or managed
on a fair value basis
3,785
4,735
327
873
883
(372)
10,231
Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit and loss
1,656
1,803
—
—
14
5
3,478
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
1,516
28
1
31
41
(805)
812
Other income/(expense)1
1,830
1,921
916
638
(23)
(6,190)
(908)
Net operating income before loan impairment (charges)/recoveries
and other credit risk provisions 2
18,056
30,419
3,710
6,587
3,516
(6,190)
56,098
Change in expected credit losses and other credit
impairment (charges)/recoveries
(938)
(724)
(117)
(237)
(740)
—
(2,756)
Net operating income
17,118
29,695
3,593
6,350
2,776
(6,190)
53,342
Total operating expenses excluding impairment of goodwill and
other intangible assets
(19,209)
(13,284)
(1,452)
(5,150)
(2,050)
6,190
(34,955)
Impairment of goodwill and other intangible assets
(2,550)
(13)
(97)
(433)
(339)
(3,962)
(7,394)
Operating profit/(loss)
(4,641)
16,398
2,044
767
387
(3,962)
10,993
Share of profit in associates and joint ventures
(12)
2,070
283
—
13
—
2,354
Profit/(loss) before tax
(4,653)
18,468
2,327
767
400
(3,962)
13,347
%
%
%
%
%
%
Share of HSBC’s profit before tax
(34.9)
138.4
17.4
5.7
3.0
(29.6)
100.0
Cost efficiency ratio
120.5
43.7
41.8
84.8
67.9
75.5
Balance sheet data
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net)
393,850
477,727
28,556
113,474
23,136
—
1,036,743
Total assets
1,248,205
1,102,805
65,369
377,095
52,879
(131,201)
2,715,152
Customer accounts
528,718
697,358
38,126
146,676
28,237
—
1,439,115
Risk-weighted assets 3
280,983
366,375
57,492
121,953
38,460
—
843,395
1‘Other income/(expense)’ in this context comprises where applicable net income/expense from other financial instruments designated at fair value,
gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance
claims and benefits paid and movement in liabilities to policyholders.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.
4 Includes the impact of goodwill impairment. As per Group accounting policy, HSBC’s cash-generating units are based on geographical regions
subdivided by global business, except for Global Banking and Markets, for which goodwill is monitored on a global basis.
HSBC Holdings plc Annual Report and Accounts 2021
107
Reconciliation of reported and adjusted items – geographical regions
Reconciliation of reported and adjusted items
2021
Europe
Asia
MENA
North
America
Latin
America
Total
$m
$m
$m
$m
$m
$m
Revenue 1
Reported 2
20,104
25,763
2,560
6,054
3,058
49,552
Significant items 2
125
(164)
—
10
5
538
– customer redress programmes
(11)
—
—
—
—
(11)
– fair value movements on financial instruments 3
226
11
—
5
—
242
– restructuring and other related costs 2,4
(90)
(175)
—
5
5
307
Adjusted 2
20,229
25,599
2,560
6,064
3,063
50,090
ECL
Reported
1,601
(840)
132
238
(203)
928
Adjusted
1,601
(840)
132
238
(203)
928
Operating expenses
Reported 2
(18,194)
(15,160)
(1,544)
(4,918)
(2,791)
(34,620)
Significant items 2
1,367
509
56
432
670
2,472
– customer redress programmes
49
—
—
—
—
49
– impairment of goodwill and other intangibles
—
—
—
—
587
587
– restructuring and other related costs 2
1,318
509
56
432
83
1,836
Adjusted 2
(16,827)
(14,651)
(1,488)
(4,486)
(2,121)
(32,148)
Share of profit in associates and joint ventures
Reported
268
2,486
275
—
17
3,046
Adjusted
268
2,486
275
—
17
3,046
Profit before tax
Reported
3,779
12,249
1,423
1,374
81
18,906
Significant items
1,492
345
56
442
675
3,010
– revenue 2
125
(164)
—
10
5
538
– operating expenses 2
1,367
509
56
432
670
2,472
Adjusted
5,271
12,594
1,479
1,816
756
21,916
Loans and advances to customers (net)
Reported
397,090
492,525
26,375
108,717
21,107
1,045,814
Adjusted
397,090
492,525
26,375
108,717
21,107
1,045,814
Customer accounts
Reported
667,769
792,098
42,629
178,565
29,513
1,710,574
Adjusted
667,769
792,098
42,629
178,565
29,513
1,710,574
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
3 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
4 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
Geographical regions
108
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of reported and adjusted items (continued)
2021
UK
Hong
Kong
Mainland
China
US
Mexico
$m
$m
$m
$m
$m
Revenue 1
Reported
16,415
14,463
3,734
4,006
2,341
Significant items
(18)
61
(41)
14
15
– customer redress programmes
(11)
—
—
—
—
– fair value movements on financial instruments 2
220
7
—
5
—
– restructuring and other related costs 3
(227)
54
(41)
9
15
Adjusted
16,397
14,524
3,693
4,020
2,356
ECL
Reported
1,645
(608)
(89)
205
(224)
Adjusted
1,645
(608)
(89)
205
(224)
Operating expenses
Reported
(14,808)
(7,955)
(2,773)
(3,683)
(1,565)
Significant items
1,193
227
32
355
59
– customer redress programmes
49
—
—
—
—
– restructuring and other related costs
1,144
227
32
355
59
Adjusted
(13,615)
(7,728)
(2,741)
(3,328)
(1,506)
Share of profit in associates and joint ventures
Reported
267
16
2,461
—
17
Adjusted
267
16
2,461
—
17
Profit before tax
Reported
3,519
5,916
3,333
528
569
Significant items
1,175
288
(9)
369
74
– revenue
(18)
61
(41)
14
15
– operating expenses
1,193
227
32
355
59
Adjusted
4,694
6,204
3,324
897
643
Loans and advances to customers (net)
Reported
306,464
311,947
54,239
52,678
18,043
Adjusted
306,464
311,947
54,239
52,678
18,043
Customer accounts
Reported
535,797
549,429
59,266
111,921
23,583
Adjusted
535,797
549,429
59,266
111,921
23,583
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
HSBC Holdings plc Annual Report and Accounts 2021
109
Reconciliation of reported and adjusted items (continued)
2020
Europe
Asia
MENA
North
America
Latin
America
Total
$m
$m
$m
$m
$m
$m
Revenue 1
Reported 2
18,419
26,922
2,628
6,375
3,020
50,429
Currency translation 2
1,171
335
(58)
109
(69)
1,393
Significant items 2
(233)
(36)
(1)
42
—
(52)
– customer redress programmes
21
—
—
—
—
21
– disposals, acquisitions and investment in new businesses
—
—
—
10
—
10
– fair value movements on financial instruments 3
(254)
(5)
—
(2)
(3)
(264)
– restructuring and other related costs 2,4
(9)
(32)
—
35
—
170
– currency translation on significant items
9
1
(1)
(1)
3
11
Adjusted 2
19,357
27,221
2,569
6,526
2,951
51,770
ECL
Reported
(3,751)
(2,284)
(758)
(900)
(1,124)
(8,817)
Currency translation
(337)
(57)
3
(24)
(50)
(465)
Adjusted
(4,088)
(2,341)
(755)
(924)
(1,174)
(9,282)
Operating expenses
Reported 2
(18,874)
(13,662)
(1,586)
(5,307)
(1,938)
(34,432)
Currency translation 2
(1,000)
(198)
39
(69)
61
(1,072)
Significant items 2
2,335
171
81
603
81
3,095
– customer redress programmes
(54)
—
—
—
—
(54)
– impairment of goodwill and other intangibles
803
—
64
223
—
1,090
– past service costs of guaranteed minimum pension benefits equalisation
17
—
—
—
—
17
– restructuring and other related costs 2,5
1,425
171
19
378
91
1,908
– settlements and provisions in connection with legal and regulatory matters
12
—
—
—
—
12
– currency translation on significant items
132
—
(2)
2
(10)
122
Adjusted 2
(17,539)
(13,689)
(1,466)
(4,773)
(1,796)
(32,409)
Share of profit/(loss) in associates and joint ventures
Reported
1
1,856
(265)
—
5
1,597
Currency translation
—
133
—
—
—
133
Significant items
—
—
462
—
—
462
– impairment of goodwill 6
—
—
462
—
—
462
– currency translation on significant items
—
—
—
—
—
—
Adjusted
1
1,989
197
—
5
2,192
Profit/(loss) before tax
Reported
(4,205)
12,832
19
168
(37)
8,777
Currency translation
(166)
213
(16)
16
(58)
(11)
Significant items
2,102
135
542
645
81
3,505
– revenue 2
(233)
(36)
(1)
42
—
(52)
– operating expenses 2
2,335
171
81
603
81
3,095
– share of profit in associates and joint ventures
—
—
462
—
—
462
Adjusted
(2,269)
13,180
545
829
(14)
12,271
Loans and advances to customers (net)
Reported
408,495
473,165
28,700
107,969
19,658
1,037,987
Currency translation
(9,176)
(4,397)
(1,423)
199
(788)
(15,585)
Adjusted
399,319
468,768
27,277
108,168
18,870
1,022,402
Customer accounts
Reported
629,647
762,406
41,221
182,028
27,478
1,642,780
Currency translation
(12,835)
(6,887)
(1,748)
234
(1,416)
(22,652)
Adjusted
616,812
755,519
39,473
182,262
26,062
1,620,128
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
3 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
4 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
5 Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of
tangible assets of $197m.
6 In 2020, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in
2019. HSBC's post-tax share of the goodwill impairment was $462m.
Geographical regions
110
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of reported and adjusted items (continued)
2020
UK
Hong
Kong
Mainland
China
US
Mexico
$m
$m
$m
$m
$m
Revenue 1
Reported
13,886
16,345
3,088
4,590
2,234
Currency translation
1,048
(29)
220
—
124
Significant items
(180)
14
(5)
41
(11)
– customer redress programmes
21
—
—
—
—
– disposals, acquisitions and investment in new businesses
—
—
—
10
—
– fair value movements on financial instruments 2
(256)
—
(1)
(2)
(1)
– restructuring and other related costs 3
48
15
(4)
33
(12)
– currency translation on significant items
7
(1)
—
—
2
Adjusted
14,754
16,330
3,303
4,631
2,347
ECL
Reported
(3,256)
(824)
(114)
(622)
(1,050)
Currency translation
(306)
2
(9)
—
(69)
Adjusted
(3,562)
(822)
(123)
(622)
(1,119)
Operating expenses
Reported
(14,855)
(7,312)
(2,211)
(4,194)
(1,376)
Currency translation
(875)
14
(152)
—
(74)
Significant items
1,430
99
20
556
42
– customer redress programmes
(54)
—
—
—
—
– impairment of goodwill and other intangibles
650
—
—
223
—
– past service costs of guaranteed minimum pension benefits equalisation
17
—
—
—
—
– restructuring and other related costs
693
100
19
333
42
– settlements and provisions in connection with legal and regulatory matters
12
—
—
—
—
– currency translation on significant items
112
(1)
1
—
—
Adjusted
(14,300)
(7,199)
(2,343)
(3,638)
(1,408)
Share of profit/(loss) in associates and joint ventures
Reported
1
(2)
1,849
—
5
Currency translation
—
—
132
—
—
Adjusted
1
(2)
1,981
—
5
Profit/(loss) before tax
Reported
(4,224)
8,207
2,612
(226)
(187)
Currency translation
(133)
(13)
191
—
(19)
Significant items
1,250
113
15
597
31
– revenue
(180)
14
(5)
41
(11)
– operating expenses
1,430
99
20
556
42
Adjusted
(3,107)
8,307
2,818
371
(175)
Loans and advances to customers (net)
Reported
314,530
302,454
46,113
58,082
17,296
Currency translation
(2,764)
(1,741)
1,278
—
(471)
Adjusted
311,766
300,713
47,391
58,082
16,825
Customer accounts
Reported
504,275
531,489
56,826
117,485
22,220
Currency translation
(4,432)
(3,060)
1,575
—
(605)
Adjusted
499,843
528,429
58,401
117,485
21,615
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
HSBC Holdings plc Annual Report and Accounts 2021
111
Reconciliation of reported and adjusted items (continued)
2019
Europe
Asia
MENA
North
America
Latin
America
Total
$m
$m
$m
$m
$m
$m
Revenue 1
Reported 2
18,056
30,419
3,710
6,587
3,516
56,098
Currency translation 2
1,353
354
(72)
99
(666)
1,010
Significant items
41
35
(827)
68
10
(673)
– customer redress programmes
163
—
—
—
—
163
– disposals, acquisitions and investment in new businesses 3
—
—
(828)
59
1
(768)
– fair value movements on financial investments 4
(137)
35
—
9
9
(84)
– currency translation on significant items
15
—
1
—
—
16
Adjusted 2
19,450
30,808
2,811
6,754
2,860
56,435
ECL
Reported
(938)
(724)
(117)
(237)
(740)
(2,756)
Currency translation
(69)
(11)
4
(4)
149
69
Adjusted
(1,007)
(735)
(113)
(241)
(591)
(2,687)
Operating expenses
Reported 2,6
(21,759)
(13,297)
(1,549)
(5,583)
(2,389)
(42,349)
Currency translation 2
(1,246)
(177)
59
(61)
386
(981)
Significant items 6
4,655
127
112
544
367
9,767
– costs of structural reform 5
154
4
—
—
—
158
– customer redress programmes
1,281
—
—
—
—
1,281
– goodwill impairment 6
2,522
—
97
431
337
7,349
– restructuring and other related costs
538
123
15
113
38
827
– settlements and provisions in connection with legal and regulatory matters
(60)
(1)
—
—
—
(61)
– currency translation on significant items
220
1
—
—
(8)
213
Adjusted 2,6
(18,350)
(13,347)
(1,378)
(5,100)
(1,636)
(33,563)
Share of profit/(loss) in associates and joint ventures
Reported
(12)
2,070
283
—
13
2,354
Currency translation
1
142
—
—
(1)
142
Adjusted
(11)
2,212
283
—
12
2,496
Profit/(loss) before tax
Reported 6
(4,653)
18,468
2,327
767
400
13,347
Currency translation 6
39
308
(9)
34
(132)
240
Significant items 6
4,696
162
(715)
612
377
9,094
– revenue
41
35
(827)
68
10
(673)
– operating expenses 6
4,655
127
112
544
367
9,767
Adjusted
82
18,938
1,603
1,413
645
22,681
Loans and advances to customers (net)
Reported
393,850
477,727
28,556
113,474
23,136
1,036,743
Currency translation
8,549
4,264
(1,482)
1,165
(2,440)
10,056
Adjusted
402,399
481,991
27,074
114,639
20,696
1,046,799
Customer accounts
Reported
528,718
697,358
38,126
146,676
28,237
1,439,115
Currency translation
11,240
4,003
(2,091)
1,183
(3,525)
10,810
Adjusted
539,958
701,361
36,035
147,859
24,712
1,449,925
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
3 Includes $0.8bn dilution gain following the merger of The Saudi British Bank (‘SABB’) with Alawwal bank.
4 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
5 Comprises costs associated with preparations for the UK’s exit from the European Union.
6 Amounts are non-additive across geographical regions due to goodwill impairment recognised on the Global Banking and Markets cash-
generating unit, which is monitored on a global basis.
Geographical regions
112
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of reported and adjusted items (continued)
2019
UK
Hong
Kong
Mainland
China
US
Mexico
$m
$m
$m
$m
$m
Revenue 1
Reported
13,538
19,412
3,101
4,638
2,555
Currency translation
1,148
153
219
—
(129)
Significant items
40
26
1
66
7
– customer redress programmes
162
—
—
—
—
– disposals, acquisitions and investment in new businesses
—
—
—
59
—
– fair value movements on financial instruments 2
(139)
26
1
7
8
– currency translation on significant items
17
—
—
—
(1)
Adjusted
14,726
19,591
3,321
4,704
2,433
ECL
Reported
(714)
(459)
(129)
(170)
(491)
Currency translation
(58)
(3)
(9)
—
25
Adjusted
(772)
(462)
(138)
(170)
(466)
Operating expenses
Reported
(16,157)
(6,935)
(2,111)
(4,033)
(1,390)
Currency translation
(1,010)
(51)
(153)
—
71
Significant items
1,941
65
7
93
19
– costs of structural reform 3
101
4
—
—
—
– customer redress programmes
1,281
—
—
—
—
– restructuring and other related costs
405
61
6
93
20
– settlements and provisions in connection with legal and regulatory matters
8
(1)
—
—
—
– currency translation on significant items
146
1
1
—
(1)
Adjusted
(15,226)
(6,921)
(2,257)
(3,940)
(1,300)
Share of profit in associates and joint ventures
Reported
(12)
31
2,016
—
13
Currency translation
1
—
143
—
(1)
Adjusted
(11)
31
2,159
—
12
Profit/(loss) before tax
Reported
(3,345)
12,049
2,877
435
687
Currency translation
81
99
200
—
(34)
Significant items
1,981
91
8
159
26
– revenue
40
26
1
66
7
– operating expenses
1,941
65
7
93
19
Adjusted
(1,283)
12,239
3,085
594
679
Loans and advances to customers (net)
Reported
303,041
306,964
42,380
63,588
20,426
Currency translation
7,175
(372)
4,054
—
(1,561)
Adjusted
310,216
306,592
46,434
63,588
18,865
Customer accounts
Reported
419,642
499,955
48,323
90,834
23,051
Currency translation
9,935
(606)
4,622
—
(1,762)
Adjusted
429,577
499,349
52,945
90,834
21,289
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3 Comprises costs associated with preparations for the UK’s exit from the European Union.
HSBC Holdings plc Annual Report and Accounts 2021
113
Analysis by country
Profit/(loss) before tax by country/territory within global businesses
Wealth and
Personal
Banking
Commercial
Banking
Global Banking
and Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Europe
1,817
2,893
(299)
(632)
3,779
– UK 1
1,511
2,475
(487)
20
3,519
– of which: HSBC UK Bank plc (ring-fenced bank)
2,047
2,929
127
(318)
4,785
– of which: HSBC Bank plc (non-ring-fenced bank)
176
259
220
(17)
638
– of which: Holdings and other
(712)
(713)
(834)
355
(1,904)
– France
236
163
(97)
(133)
169
– Germany
17
82
155
67
321
– Switzerland
46
10
—
(12)
44
– other
7
163
130
(574)
(274)
Asia
4,366
2,364
3,193
2,326
12,249
– Hong Kong
4,076
1,303
920
(383)
5,916
– Australia
146
132
131
(26)
383
– India
20
265
593
232
1,110
– Indonesia
14
12
111
(8)
129
– mainland China
(95)
288
586
2,554
3,333
– Malaysia
37
(23)
145
(20)
139
– Singapore
145
107
231
(13)
470
– Taiwan
14
16
106
(5)
131
– other
9
264
370
(5)
638
Middle East and North Africa
194
235
805
189
1,423
– Egypt
79
42
163
(2)
282
– UAE
91
3
342
(61)
375
– Saudi Arabia
17
—
65
274
356
– other
7
190
235
(22)
410
North America
60
1,023
697
(406)
1,374
– US
(131)
472
524
(337)
528
– Canada
141
544
145
(62)
768
– other
50
7
28
(7)
78
Latin America
(304)
162
326
(103)
81
– Mexico
305
88
222
(46)
569
– other 2
(609)
74
104
(57)
(488)
Year ended 31 Dec 2021
6,133
6,677
4,722
1,374
18,906
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
2 Includes the impact of goodwill impairment of $587m. As per Group accounting policy, HSBC’s cash-generating units are based on geographical
regions, subdivided by global business.
Geographical regions
114
HSBC Holdings plc Annual Report and Accounts 2021
Profit/(loss) before tax by country/territory within global businesses (continued)
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking
and Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Europe
(680)
(529)
(1,809)
(1,187)
(4,205)
– UK 1
(357)
(543)
(1,769)
(1,555)
(4,224)
– of which: HSBC UK Bank plc (ring-fenced bank)
113
167
90
(124)
246
– of which: HSBC Bank plc (non-ring-fenced bank)
109
36
(1,030)
(454)
(1,339)
– of which: Holdings and other
(579)
(746)
(829)
(977)
(3,131)
– France
(340)
(168)
(347)
(310)
(1,165)
– Germany
17
16
197
(15)
215
– Switzerland
(2)
(4)
—
(10)
(16)
– other
2
170
110
703
985
Asia
5,031
1,944
4,002
1,855
12,832
– Hong Kong
4,927
1,787
1,674
(181)
8,207
– Australia
108
76
138
(7)
315
– India
16
187
593
228
1,024
– Indonesia
(6)
(14)
147
(13)
114
– mainland China
(34)
295
506
1,845
2,612
– Malaysia
8
33
141
(55)
127
– Singapore
45
(644)
239
(12)
(372)
– Taiwan
9
18
104
(2)
129
– other
(42)
206
460
52
676
Middle East and North Africa
(15)
(120)
478
(324)
19
– Egypt
68
46
185
(1)
298
– UAE
(21)
(210)
102
(39)
(168)
– Saudi Arabia
21
—
26
(264)
(217)
– other
(83)
44
165
(20)
106
North America
(449)
366
712
(461)
168
– US
(547)
139
573
(391)
(226)
– Canada
52
225
100
(67)
310
– other
46
2
39
(3)
84
Latin America
(183)
(22)
233
(65)
(37)
– Mexico
(115)
(106)
59
(25)
(187)
– other
(68)
84
174
(40)
150
Year ended 31 Dec 2020
3,704
1,639
3,616
(182)
8,777
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
HSBC Holdings plc Annual Report and Accounts 2021
115
Profit/(loss) before tax by country/territory within global businesses (continued)
Wealth and
Personal Banking
Commercial
Banking
Global
Banking
and Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Europe
(841)
(1,324)
(997)
(1,491)
(4,653)
– UK 1
(1,053)
904
(1,217)
(1,979)
(3,345)
– of which: HSBC UK Bank plc (ring-fenced bank)
(331)
1,555
70
13
1,307
– of which: HSBC Bank plc (non-ring fenced bank)
245
278
(186)
(467)
(130)
– of which: Holdings and other
(967)
(929)
(1,101)
(1,525)
(4,522)
– France
55
120
(65)
(74)
36
– Germany
18
46
95
2
161
– Switzerland
93
7
(3)
(6)
91
– other 2
46
(2,401)
193
566
(1,596)
Asia
7,715
4,519
4,083
2,151
18,468
– Hong Kong
7,220
3,242
1,729
(142)
12,049
– Australia
130
127
199
(12)
444
– India
67
201
533
205
1,006
– Indonesia
20
55
127
14
216
– mainland China
(73)
317
512
2,121
2,877
– Malaysia
102
73
189
(22)
342
– Singapore
154
105
250
(31)
478
– Taiwan
43
25
97
(4)
161
– other
52
374
447
22
895
Middle East and North Africa
254
212
761
1,100
2,327
– Egypt
73
81
245
11
410
– UAE
139
94
246
(54)
425
– Saudi Arabia
(3)
—
13
1,145
1,155
– other 2
45
37
257
(2)
337
North America
(573)
855
729
(244)
767
– US
(277)
386
547
(221)
435
– Canada
70
427
143
(22)
618
– other 2
(366)
42
39
(1)
(286)
Latin America
264
(103)
328
(89)
400
– Mexico
311
176
229
(29)
687
– other 2
(47)
(279)
99
(60)
(287)
GBM goodwill impairment 2
—
—
(3,962)
—
(3,962)
Year ended 31 Dec 2019
6,819
4,159
942
1,427
13,347
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
2 Includes the impact of goodwill impairment. As per Group accounting policy, HSBC’s cash-generating units are based on geographical regions,
subdivided by global business.
Geographical regions
116
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of alternative
performance measures
Page
Use of alternative performance measures
117
Return on average ordinary shareholders’ equity and return on average
tangible equity
117
Net asset value and tangible net asset value per ordinary share
118
Post-tax return and average total shareholders’ equity on average total
assets
119
Expected credit losses and other credit impairment charges as % of
average gross loans and advances to customers
119
Use of alternative performance measures
Our reported results are prepared in accordance with IFRSs
as detailed in our financial statements starting on page 308.
As described on page 90, we use a combination of reported and
alternative performance measures, including those derived from
our reported results that eliminate factors that distort year-on-year
comparisons. These are considered alternative performance
measures (non-GAAP financial measures).
The following information details the adjustments made to the
reported results and the calculation of other alternative
performance measures. All alternative performance measures are
reconciled to the closest reported performance measure.
Return on average ordinary shareholders’
equity and return on average tangible equity
Return on average ordinary shareholders’ equity (‘RoE’) is
computed by taking profit attributable to the ordinary shareholders
of the parent company (‘reported results’), divided by average
ordinary shareholders’ equity (‘reported equity’) for the period. The
adjustment to reported results and reported equity excludes
amounts attributable to non-controlling interests and holders of
preference shares and other equity instruments.
Return on average tangible equity (‘RoTE’) is computed by
adjusting reported results for the movements in the present value
of in-force long-term insurance business (‘PVIF’) and for
impairment of goodwill and other intangible assets (net of tax),
divided by average reported equity adjusted for goodwill,
intangibles and PVIF for the period.
Return on average tangible equity excluding significant items is
annualised profit attributable to ordinary shareholders, excluding
changes in PVIF and significant items (net of tax), divided by
average tangible shareholders’ equity excluding fair value of own
debt, debt valuation adjustment (‘DVA’) and other adjustments for
the period. Since 1 January 2021, the UK bank levy has no longer
been excluded from the calculation of this measure. Comparative
data have not been re-presented.
We provide RoTE ratios in addition to RoE as a way of assessing
our performance, which is closely aligned to our capital position.
Return on average ordinary shareholders’ equity and return on average tangible equity
2021
2020
2019
$m
$m
$m
Profit
Profit attributable to the ordinary shareholders of the parent company
12,607
3,898
5,969
Impairment of goodwill and other intangible assets (net of tax)
608
1,036
7,349
Decrease/(increase) in PVIF (net of tax)
(58)
(253)
(1,248)
Profit attributable to the ordinary shareholders, excluding goodwill, other
intangible assets impairment and PVIF
13,157
4,681
12,070
Significant items (net of tax) and other adjustments 1
2,086
2,402
2,251
Profit attributable to the ordinary shareholders, excluding goodwill impairment, PVIF and significant items 1
15,243
7,083
14,321
Equity
Average total shareholders’ equity
199,295
189,719
189,035
Effect of average preference shares and other equity instruments
(22,814)
(22,326)
(23,614)
Average ordinary shareholders’ equity
176,481
167,393
165,421
Effect of goodwill, PVIF and other intangibles (net of deferred tax)
(17,705)
(17,292)
(22,574)
Average tangible equity
158,776
150,101
142,847
Fair value of own debt, DVA and other adjustments
1,278
422
1,032
Average tangible equity excluding fair value of own debt, DVA and other adjustments
160,054
150,523
143,879
%
%
%
Ratio
Return on average ordinary shareholders’ equity
7.1
2.3
3.6
Return on average tangible equity
8.3
3.1
8.4
Return on average tangible equity excluding significant items 1
9.5
4.7
10.0
1 Since 1 January 2021, the UK bank levy has no longer been excluded from the calculation of this measure. Comparative data have not been re-
presented.
HSBC Holdings plc Annual Report and Accounts 2021
117
The following table details the adjustments made to reported results by global business:
Return on average tangible equity by global business
Year ended 31 Dec 2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Profit before tax
6,133
6,677
4,722
1,374
18,906
Tax expense
(1,540)
(1,783)
(1,020)
130
(4,213)
Profit after tax
4,593
4,894
3,702
1,504
14,693
Less attributable to: preference shareholders, other equity holders, non-controlling
interests
(735)
(665)
(618)
(68)
(2,086)
Profit attributable to ordinary shareholders of the parent company
3,858
4,229
3,084
1,436
12,607
Increase in PVIF (net of tax)
(65)
4
—
3
(58)
Significant items (net of tax)1
850
51
517
1,269
2,687
Other adjustments
3
(4)
(3)
11
7
Profit attributable to ordinary shareholders, excluding PVIF, significant
items 1
4,646
4,280
3,598
2,719
15,243
Average tangible shareholders’ equity excluding fair value of own debt, DVA and
other adjustments
30,587
39,487
41,816
48,164
160,054
Return on average tangible equity excluding significant items (%)1
15.2
10.8
8.6
5.6
9.5
Year ended 31 Dec 2020
Profit before tax
3,704
1,639
3,616
(182)
8,777
Tax expense
(509)
(661)
(977)
(531)
(2,678)
Profit after tax
3,195
978
2,639
(713)
6,099
Less attributable to: preference shareholders, other equity holders, non-controlling
interests
(736)
(673)
(784)
(8)
(2,201)
Profit attributable to ordinary shareholders of the parent company
2,459
305
1,855
(721)
3,898
Increase in PVIF (net of tax)
(242)
(10)
—
(1)
(253)
Significant items (net of tax) and UK bank levy
190
208
958
2,041
3,397
Other adjustments
20
(14)
(25)
60
41
Profit attributable to ordinary shareholders, excluding PVIF, significant items and
bank levy
2,427
489
2,788
1,379
7,083
Average tangible shareholders’ equity excluding fair value of own debt, DVA and
other adjustments
26,551
37,826
41,566
44,580
150,523
Return on average tangible equity excluding significant items and UK bank levy (%)
9.1
1.3
6.7
3.1
4.7
1 Since 1 January 2021, the UK bank levy has no longer been excluded from the calculation of this measure. Comparative data have not been re-
presented.
Net asset value and tangible net asset value
per ordinary share
Net asset value per ordinary share is total shareholders' equity less
non-cumulative preference shares and capital securities (‘total
ordinary shareholders’ equity’), divided by the number of ordinary
shares in issue excluding shares that the company has purchased
and are held in treasury.
Tangible net asset value per ordinary share is total ordinary
shareholders’ equity excluding goodwill, PVIF and other intangible
assets (net of deferred tax) (‘tangible ordinary shareholders’
equity’), divided by the number of basic ordinary shares in issue
excluding shares that the company has purchased and are held in
treasury.
Net asset value and tangible net asset value per ordinary share
2021
2020
2019
$m
$m
$m
Total shareholders’ equity
198,250
196,443
183,955
Preference shares and other equity instruments
(22,414)
(22,414)
(22,276)
Total ordinary shareholders’ equity
175,836
174,029
161,679
Goodwill, PVIF and intangible assets (net of deferred tax)
(17,643)
(17,606)
(17,535)
Tangible ordinary shareholders’ equity
158,193
156,423
144,144
Basic number of $0.50 ordinary shares outstanding
20,073
20,184
20,206
$
$
$
Value per share
Net asset value per ordinary share
8.76
8.62
8.00
Tangible net asset value per ordinary share
7.88
7.75
7.13
Reconciliation of alternative performance measures
118
HSBC Holdings plc Annual Report and Accounts 2021
Post-tax return and average total shareholders’
equity on average total assets
Post-tax return on average total assets is profit after tax divided by
average total assets for the period.
Average total shareholders’ equity to average total assets is
average total shareholders' equity divided by average total assets
for the period.
Post-tax return and average total shareholders’ equity on average total assets
2021
2020
2019
$m
$m
$m
Profit after tax
14,693
6,099
8,708
Average total shareholders’ equity
199,295
189,719
189,035
Average total assets
3,012,437
2,936,939
2,712,376
Ratio
%
%
%
Post-tax return on average total assets
0.5
0.2
0.3
Average total shareholders’ equity to average total assets
6.62
6.46
6.97
Expected credit losses and other credit
impairment charges as % of average gross
loans and advances to customers
Expected credit losses and other credit impairment charges (‘ECL’)
as % of average gross loans and advances to customers is the
annualised adjusted ECL divided by adjusted average gross loans
and advances to customers for the period.
The adjusted numbers are derived by adjusting reported ECL and
loans and advances to customers for the effects of foreign
currency translation differences.
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers
2021
2020
2019
$m
$m
$m
Expected credit losses and other credit impairment charges (‘ECL’)
928
(8,817)
(2,756)
Currency translation
(465)
69
Adjusted ECL
928
(9,282)
(2,687)
Average gross loans and advances to customers
1,057,412
1,047,114
1,021,238
Currency translation
(8,487)
20,243
22,292
Average gross loans and advances to customers – at most recent balance sheet foreign exchange rates
1,048,925
1,067,357
1,043,530
%
%
%
Ratio
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers
(0.09)
0.87
0.26
HSBC Holdings plc Annual Report and Accounts 2021
119
Risk
Our risk review outlines our approach to risk management, how
we identify and monitor top and emerging risks, and the actions
we take to mitigate them. In addition, it explains our material
banking risks, including how we manage capital.
Page
Our approach to risk
121
Our risk appetite
121
Risk management
121
Key developments in 2021
124
Top and emerging risks
124
Externally driven
124
Internally driven
129
Areas of special interest
131
Risks related to Covid-19
131
Climate-related risks
131
Our material banking risks
135
Credit risk
137
Treasury risk
189
Market risk
203
Resilience risk
207
Regulatory compliance risk
208
Financial crime risk
208
Model risk
209
Insurance manufacturing operations risk
210
Investing in technology to screen suspicious activities
We screen the names of more than 112 million personal and
corporate customers every day against external and internal
watchlists to identify potential financial crime risks and their
impact on our customers and organisation. This currently
generates approximately 350,000 alerts for our colleagues to
review each month. In October, working with technology company
Silent Eight, we launched a global automated alert adjudication
tool for name screening, which will be able to close 50% of the
false positives without human intervention. This will help us
increase the speed and accuracy of monitoring adherence to risk
appetite, while reducing the cost of compliance.
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Our approach to risk
Our risk appetite
We recognise the importance of a strong culture, which refers to
our shared attitudes, values and standards that shape behaviours
related to risk awareness, risk taking and risk management. All our
people are responsible for the management of risk, with the
ultimate accountability residing with the Board.
We seek to build our business for the long term by balancing
social, environmental and economic considerations in the
decisions we make. Our strategic priorities are underpinned by our
endeavour to operate in a sustainable way. This helps us to carry
out our social responsibility and manage the risk profile of the
business. We are committed to managing and mitigating climate-
related risks, both physical and transition risks, and continue to
incorporate consideration of these into how we manage and
oversee risks internally and with our customers.
The following principles guide the Group’s overarching appetite for
risk and determine how our businesses and risks are managed.
Financial position
•We aim to maintain a strong capital position, defined by
regulatory and internal capital ratios.
•We carry out liquidity and funding management for each
operating entity, on a stand-alone basis.
Operating model
•We seek to generate returns in line with our risk appetite and
strong risk management capability.
•We aim to deliver sustainable and diversified earnings and
consistent returns for shareholders.
Business practice
•We have zero tolerance for any of our people knowingly
engaging in any business, activity or association where
foreseeable reputational risk or damage has not been
considered and/or mitigated.
•We have no appetite for deliberately or knowingly causing
detriment to consumers, or incurring a breach of the letter or
spirit of regulatory requirements.
•We have no appetite for inappropriate market conduct by any
member of staff or by any Group business.
•We are committed to managing the climate risks that have an
impact on our financial position, and delivering on our net zero
ambition.
Enterprise-wide application
Our risk appetite encapsulates the consideration of financial and
non-financial risks. We define financial risk as the risk of a
financial loss as a result of business activities. We actively take
these types of risks to maximise shareholder value and profits.
Non-financial risk is the risk to achieving our strategy or objectives
as the result of failed internal processes, people and systems, or
from external events.
Our risk appetite is expressed in both quantitative and qualitative
terms and applied at the global business level, at the regional level
and to material operating entities. Every three years, the Global
Risk and Compliance function commissions an external
independent firm to review the Group’s approach to risk appetite
and to help ensure that it remains in line with market best practice
and regulatory expectations. This review was last carried out in
2019 and confirmed the Group’s risk appetite statement (‘RAS’)
remains aligned to best practices, regulatory expectations and
strategic goals. Our risk appetite continues to evolve and expand
its scope as part of our regular review process.
The Board reviews and approves the Group’s risk appetite twice a
year to make sure it remains fit for purpose. The Group’s risk
appetite is considered, developed and enhanced through:
•an alignment with our strategy, purpose, values and customer
needs;
•trends highlighted in other Group risk reports;
•communication with risk stewards on the developing risk
landscape;
•strength of our capital, liquidity and balance sheet;
•compliance with applicable laws and regulations;
•effectiveness of the applicable control environment to mitigate
risk, informed by risk ratings from risk control assessments;
•functionality, capacity and resilience of available systems to
manage risk; and
•the level of available staff with the required competencies to
manage risks.
We formally articulate our risk appetite through our RAS. Setting
out our risk appetite ensures that we agree a suitable level of risk
for our strategy. In this way, risk appetite informs our financial
planning process and helps senior management to allocate capital
to business activities, services and products.
The RAS consists of qualitative statements and quantitative
metrics, covering financial and non-financial risks. It is applied to
the development of business line strategies, strategic and business
planning and remuneration. At a Group level, performance against
the RAS is reported to the Group Risk Management Meeting
(‘RMM’) alongside key risk indicators to support targeted insight
and discussion on breaches of risk appetite and any associated
mitigating actions. This reporting allows risks to be promptly
identified and mitigated, and informs risk-adjusted remuneration
to drive a strong risk culture.
Each global business, region and strategically important country
and territory is required to have its own RAS, which is monitored
to help ensure it remains aligned with the Group’s RAS. Each RAS
and business activity is guided and underpinned by qualitative
principles and/or quantitative metrics.
Risk management
We recognise that the primary role of risk management is to
protect our customers, business, colleagues, shareholders and the
communities that we serve, while ensuring we are able to support
our strategy and provide sustainable growth. This is supported
through our three lines of defence model described on page 123.
The implementation of our business strategy, which includes a
major transformation programme, remains a key focus. As we
implement change initiatives, we actively manage the execution
risks. We also perform periodic risk assessments, including
against strategies, to help ensure retention of key personnel for
our continued safe operation.
We aim to use a comprehensive risk management approach
across the organisation and across all risk types, underpinned by
our culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks, both financial and non-
financial. The framework fosters continual monitoring, promotes
risk awareness and encourages a sound operational and strategic
decision-making and escalation process. It also supports a
consistent approach to identifying, assessing, managing and
reporting the risks we accept and incur in our activities, with clear
accountabilities. We continue to actively review and develop our
risk management framework and enhance our approach to
managing risk, through our activities with regard to: people and
capabilities; governance; reporting and management information;
credit risk management models; and data.
We merged our Group Risk and Compliance functions on
1 July 2021 to take an increasingly comprehensive view of risk,
and enhance cross-discipline collaboration on key areas such as
fraud, credit and conduct risk. This merger did not have an impact
on our policies and practices regarding the management of risk.
Led by the Group Chief Risk and Compliance Officer, this merged
function plays an important role in reinforcing our culture and
values. It focuses on creating an environment that encourages our
people to speak up and do the right thing.
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121
Group Risk and Compliance is independent from the global
businesses, including our sales and trading functions, to provide
challenge, oversight and appropriate balance in risk/reward
decisions.
Our risk management framework
The following diagram and descriptions summarise key aspects of
the risk management framework, including governance, structure,
risk management tools and our culture, which together help align
employee behaviour with risk appetite.
Key components of our risk management framework
HSBC Values and risk culture
Risk governance
Non-executive risk governance
The Board approves the Group’s risk appetite, plans and performance
targets. It sets the ‘tone from the top’ and is advised by the Group Risk
Committee (see page 232).
Executive risk governance
Our executive risk governance structure is responsible for the enterprise-
wide management of all risks, including key policies and frameworks for
the management of risk within the Group (see pages 123 and 135).
Roles and
responsibilities
Three lines of defence model
Our ‘three lines of defence’ model defines roles and responsibilities for
risk management. An independent Global Risk and Compliance function
helps ensure the necessary balance in risk/return decisions (see page
123).
Processes and tools
Risk appetite
The Group has processes in place to identify/assess, monitor, manage
and report risks to help ensure we remain within our risk appetite.
Enterprise-wide risk management tools
Active risk management: identification/assessment,
monitoring, management and reporting
Internal controls
Policies and procedures
Policies and procedures define the minimum requirements for the
controls required to manage our risks.
Control activities
Operational and resilience risk management defines minimum standards
and processes for managing operational risks and internal controls.
Systems and infrastructure
The Group has systems and/or processes that support the identification,
capture and exchange of information to support risk management
activities.
Risk governance
The Board has ultimate responsibility for the effective
management of risk and approves our risk appetite.
The Group Chief Risk and Compliance Officer, supported by the
RMM, holds executive accountability for the ongoing monitoring,
assessment and management of the risk environment and the
effectiveness of the risk management framework.
The Group Chief Risk and Compliance Officer is also responsible
for the oversight of reputational risk, with the support of the Group
Reputational Risk Committee. The Group Reputational Risk
Committee considers matters arising from customers, transactions
and third parties that either present a serious potential reputational
risk to the Group or merit a Group-led decision to ensure a
consistent risk management approach across the regions, global
businesses and global functions. Our reputational risk policy sets
out our risk appetite and the principles for managing reputational
risk. Further details can be found under the ‘Reputational risk’
section of www.hsbc.com/our-approach/risk-and-responsibility.
Day-to-day responsibility for risk management is delegated
to senior managers with individual accountability for decision
making. All our people have a role to play in risk management.
These roles are defined using the three lines of defence model,
which takes into account our business and functional structures as
described in the following commentary, 'Our responsibilities’.
We use a defined executive risk governance structure to help
ensure there is appropriate oversight and accountability of risk,
which facilitates reporting and escalation to the Group RMM. This
structure is summarised in the following table.
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Risk Management Meeting
Group Chief Risk and Compliance
Officer
Group Chief Legal Officer
Group Chief Executive
Group Chief Financial Officer
All other Group Executive Committee
members
•Supporting the Group Chief Risk and Compliance Officer in exercising Board-
delegated risk management authority
•Overseeing the implementation of risk appetite and the risk management
framework
•Forward-looking assessment of the risk environment, analysing possible risk
impacts and taking appropriate action
•Monitoring all categories of risk and determining appropriate mitigating action
•Promoting a supportive Group culture in relation to risk management and conduct
Global Risk Executive
Committee
Group Chief Risk and Compliance
Officer
Chief risk officers of HSBC’s
global businesses and regions
Heads of Global Risk and Compliance
sub-functions
•Supporting the Group Chief Risk and Compliance Officer in providing strategic
direction for the Global Risk and Compliance function, setting priorities and
providing oversight
•Overseeing a consistent approach to accountability for, and mitigation of, risk and
compliance across the Group
Global business/regional
risk management meetings
Global business/regional chief
risk officer
Global business/regional chief
executive officer
Global business/regional chief financial
officer
Global business/regional heads
of global functions
•Supporting the Group Chief Risk and Compliance Officer in exercising Board-
delegated risk management authority
•Forward-looking Group assessment of the risk environment, analysing the
possible risk impact and taking appropriate action
•Implementation of risk appetite and the risk management framework
•Monitoring all categories of risk and determining appropriate mitigating actions
•Embedding a supportive culture in relation to risk management and controls
Governance structure for the management of risk and compliance
Authority
Membership
Responsibilities include:
The Board committees with responsibility for oversight of risk-related matters are set out on page 237.
.
Our responsibilities
All our people are responsible for identifying and managing
risk within the scope of their roles. Roles are defined using the
three lines of defence model, which takes into account our
business and functional structures as described below.
Three lines of defence
To create a robust control environment to manage risks, we use
an activity-based three lines of defence model. This model
delineates management accountabilities and responsibilities
for risk management and the control environment.
The model underpins our approach to risk management by
clarifying responsibility and encouraging collaboration, as well as
enabling efficient coordination of risk and control activities.
The three lines of defence are summarised below:
•The first line of defence owns the risks and is responsible
for identifying, recording, reporting and managing them in line
with risk appetite, and ensuring that the right controls and
assessments are in place to mitigate them.
•The second line of defence challenges the first line of defence
on effective risk management, and provides advice and
guidance in relation to the risk.
•The third line of defence is our Global Internal Audit function,
which provides independent assurance as to whether our risk
management approach and processes are designed and
operating effectively.
Global Risk and Compliance function
Our Global Risk and Compliance function is responsible for the
Group’s risk management framework. This responsibility includes
establishing global policy, monitoring risk profiles, and identifying
and managing forward-looking risk. Global Risk and Compliance is
made up of sub-functions covering all risks to our business.
Forming part of the second line of defence, the Global Risk and
Compliance function is independent from the global businesses,
including sales and trading functions, to provide challenge,
appropriate oversight and balance in risk/return decisions.
Responsibility for minimising both financial and non-financial risk
lies with our people. They are required to manage the risks of the
business and operational activities for which they are responsible.
We maintain adequate oversight of our risks through our various
specialist risk stewards and the collective accountability held by
our chief risk officers.
We have continued to strengthen the control environment and our
approach to the management of non-financial risk, as broadly set
out in our risk management framework. The management of non-
financial risk focuses on governance and risk appetite, and
provides a single view of the non-financial risks that matter the
most and the associated controls. It incorporates a risk
management system designed to enable the active management
of non-financial risk. Our ongoing focus is on simplifying our
approach to non-financial risk management, while driving more
effective oversight and better end-to-end identification and
management of non-financial risks. This is overseen by the
Operational and Resilience Risk function, headed by the Group
Head of Operational and Resilience Risk.
Stress testing and recovery planning
We operate a wide-ranging stress testing programme that is a key
part of our risk management and capital and liquidity planning.
Stress testing provides management with key insights into the
impact of severely adverse events on the Group, and provides
confidence to regulators on the Group’s financial stability.
Our stress testing programme assesses our capital and liquidity
strength through a rigorous examination of our resilience to
external shocks. As well as undertaking regulatory-driven stress
tests, we conduct our own internal stress tests in order to
understand the nature and level of all material risks, quantify the
impact of such risks and develop plausible business-as-usual
mitigating actions.
Internal stress tests
Our internal capital assessment uses a range of stress scenarios
that explore risks identified by management. They include
potential adverse macroeconomic, geopolitical and operational
risk events, as well as other potential events that are specific to
HSBC.
The selection of stress scenarios is based upon the output of our
identified top and emerging risks and our risk appetite. Stress
testing analysis helps management understand the nature and
extent of vulnerabilities to which the Group is exposed. Using this
information, management decides whether risks can or should be
mitigated through management actions or, if they were to
crystallise, be absorbed through capital and liquidity. This in turn
informs decisions about preferred capital and liquidity levels and
allocations.
In addition to the Group-wide stress testing scenarios, each major
subsidiary conducts regular macroeconomic and event-driven
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123
scenario analyses specific to its region. They also participate, as
required, in the regulatory stress testing programmes of the
jurisdictions in which they operate, such as the Bank of England
(‘BoE’) stress tests required in the UK, Comprehensive Capital
Analysis and Review and Dodd-Frank Act Stress Testing
programmes in the US, and the stress tests of the Hong Kong
Monetary Authority (‘HKMA’). Global functions and businesses
also perform bespoke stress testing to inform their assessment of
risks to potential scenarios.
We also conduct reverse stress tests each year at Group level and,
where required, at subsidiary entity level to understand potential
extreme conditions that would make our business model non-
viable. Reverse stress testing identifies potential stresses and
vulnerabilities we might face, and helps inform early warning
triggers, management actions and contingency plans designed to
mitigate risks.
Recovery and resolution plans
Recovery and resolution plans form part of the integral framework
safeguarding the Group’s financial stability. The Group recovery
plan, together with stress testing, helps us understand the likely
outcomes of adverse business or economic conditions and in the
identification of appropriate risk mitigating actions. The Group is
committed to further developing its recovery and resolution
capabilities in line with the BoE resolvability assessment
framework requirements.
Key developments in 2021
We continued to actively manage the risks resulting from the
Covid-19 pandemic and its impacts on our customers and
operations during 2021, as well as other key risks described in this
section. In addition, we enhanced our risk management in the
following areas:
•We streamlined the articulation of our risk appetite framework,
providing further clarity on how risk appetite interacts with
strategic planning and recovery planning processes.
•We continued to simplify our approach to non-financial risk
management, with the implementation of more effective
oversight tools and techniques to improve end-to-end
identification and management of these risks.
•We accelerated the transformation of our approach to
managing financial risks across the businesses and risk
functions, including initiatives to enhance portfolio monitoring
and analytics, credit risk management, traded risk
management, treasury risk management and models used to
manage financial risks.
•We are progressing with a comprehensive regulatory reporting
programme to strengthen our global processes, improve
consistency, and enhance controls.
•We launched an enhanced approach to conduct for all
colleagues, businesses and geographies, establishing the
outcomes to be achieved for customers and markets in all risk
disciplines, operations and technologies and integrating it into
our approach to culture and our risk management
arrangements.
•We continued to enhance our approach to portfolio risk
management, through clearly defined roles and responsibilities,
and improving our data and management information reporting
capabilities.
•The Climate Risk Oversight Forum continued to shape and
oversee our approach to climate risk. We appointed a Head of
Climate Risk in support of our climate change strategy and to
oversee the development of our climate risk management
capabilities. The climate risk programme continues to drive the
delivery of our enhanced climate risk management approach.
•We continued to improve the effectiveness of our financial
crime controls with a targeted update of our fraud controls. We
refreshed our financial crime policies, ensuring they remained
up to date and addressed changing and emerging risks, and we
continued to meet our regulatory obligations.
•We introduced enhanced governance and oversight around
management judgemental adjustments and related processes
for IFRS 9 models and Sarbanes-Oxley controls.
Top and emerging risks
We use a top and emerging risks process to provide a forward-
looking view of issues with the potential to threaten the execution
of our strategy or operations over the medium to long term.
We proactively assess the internal and external risk environment,
as well as review the themes identified across our regions and
global businesses, for any risks that may require global escalation.
We update our top and emerging risks as necessary.
Our current top and emerging risks are as follows.
Externally driven
Geopolitical and macroeconomic risks
Our operations and portfolios are exposed to risks associated with
political instability, civil unrest and military conflict, which could
lead to disruption of our operations, physical risk to our staff and/
or physical damage to our assets.
Global tensions over trade, technology and ideology are
manifesting themselves in divergent regulatory standards and
compliance regimes, presenting long-term strategic challenges for
multinational businesses.
The Covid-19 pandemic brought supply chain issues into focus,
with shortages appearing across several regions and products
throughout 2020 and 2021, and it is not expected that these issues
will ease significantly before mid-2022.
The pandemic has also heightened geopolitical tensions, which
could have implications for the Group and its customers.
The Group will continue to need to consider potential regulatory,
reputational and market risks arising from the evolving geopolitical
landscape. In 2021, there was an escalation of diplomatic tensions
between China and the US, and increasingly extending to the UK,
the EU, India and other countries.
The US-China relationship in particular remains complex, with
tensions over a number of critical issues. The US, the UK, the EU,
Canada and other countries have imposed various sanctions and
trade restrictions on Chinese individuals or companies, and the US
continues to develop its approach to perceived strategic
competition with China.
Among these, the US Hong Kong Autonomy Act authorises the
imposition of secondary sanctions against non-US financial
institutions found to be knowingly engaged in significant
transactions with individuals and entities subject to US sanctions
for engaging in certain activities that undermine Hong Kong’s
autonomy. In addition, the US has imposed restrictions on US
persons’ ability to buy or sell certain publicly traded securities
linked to a number of prominent Chinese companies.
There is also a risk of increased sanctions being imposed by the
US and other governments in relation to human rights, technology
and other issues with China, and this could create a more complex
operating environment for the Group and its customers. Notably,
alongside the EU, UK, and Canada, the US has increasingly
imposed sanctions and other measures in response to allegations
of human rights abuses in Xinjiang.
China, in turn, has announced a number of its own sanctions and
trade restrictions that target, or provide authority to target, foreign
individuals or companies. These have been imposed mainly
against certain public officials associated with the implementation
of foreign sanctions against China. China has also promulgated
new laws that provide a legal framework for imposing further
sanctions and export restrictions, including laws prohibiting
implementation of – or compliance with – foreign sanctions
against China and creating a private right of action in Chinese
courts for damages caused by third parties implementing foreign
sanctions or other discriminatory measures.
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These and any future measures and countermeasures that may be
taken by the US, China and other countries may affect the Group,
its customers and the markets in which the Group operates.
As the geopolitical landscape evolves, compliance by multinational
corporations with their legal or regulatory obligations in one
jurisdiction may be seen as supporting the law or policy objectives
of that jurisdiction over another, creating additional compliance,
reputational and political risks for the Group. We maintain
dialogue with our regulators in various jurisdictions on the impact
of legal and regulatory obligations on our business and customers.
Tensions between Russia and the US and a number of European
states have heightened significantly following the increasing risk
of hostilities between Russia and Ukraine. While negotiations are
ongoing to seek a resolution, a continuation of or any further
deterioration to the situation could have significant geopolitical
implications, including economic, social and political
repercussions on a number of regions that may impact HSBC and
its customers. In addition, the US, the UK and the EU have
threatened a significant expansion of sanctions and trade
restrictions against Russia in the event of a Russian incursion into
Ukraine, and Russian countermeasures are also possible.
Expanding data privacy and cybersecurity laws in a number of
markets could pose potential challenges to intra-group data
sharing. These developments could increase financial institutions’
compliance burdens in respect of cross-border transfers of
personal information.
Political disagreements between the UK and the EU, notably over
the future operation of the Northern Ireland Protocol, have meant
work on the creation of a framework for voluntary regulatory
cooperation in financial services following the UK’s withdrawal
from the EU has stalled. While negotiations are continuing, it is
unclear whether or when an agreement will be reached, and this
has led to speculation that the UK may trigger Article 16 of the
Protocol, which could suspend the operation of the Protocol in
certain respects. Any decision to do so could be met with
retaliatory action by the EU, complicating the terms of trade
between the UK and the EU and potentially preventing progress in
other areas such as financial services. We are monitoring the
situation closely, including the potential impacts on our
customers.
Our global presence and diversified customer base should help
mitigate the direct impacts on our financial position of the absence
of a comprehensive EU-UK agreement on financial services. Our
wholesale and markets footprint in the EU provides a strong
foundation for us to build upon. Over the medium to long term,
the UK’s withdrawal from the EU may impact markets and
increase economic risk, particularly in the UK, which could
adversely impact our profitability and prospects for growth in this
market.
Monetary and fiscal policies in developed markets will likely
remain broadly accommodative for some time owing to
uncertainty over the economic outlook, although rising global
inflation – partly on the back of higher energy prices – is putting
pressure on central banks to tighten monetary policy. The US
Federal Reserve Board began tapering its asset purchases in
November 2021 and financial markets currently expect it to raise
the Federal Funds rate over the next year. The European Central
Bank is on course to end its extraordinary asset purchase
programme in March 2022.
Persistent supply issues or further increases in energy prices – for
instance as a result of escalation in the Russia-Ukraine crisis –
could keep inflation high and force central banks to tighten
monetary policies faster than currently envisaged. Conversely,
monetary policy tightening may be constrained by the emergence
and spread of new Covid-19 variants that dampen economic
recovery. We continue to monitor our risk profile closely in the
context of uncertainty over monetary policy.
The global economic recovery in 2021 eased financial difficulties
for some of our customers, which contributed to a reduction in
ECL charges. For further details on customer relief programmes,
see page 159.
Mitigating actions
•We closely monitor geopolitical and economic developments in
key markets and sectors and undertake scenario analysis where
appropriate. This helps us to take portfolio actions where
necessary, including enhanced monitoring, amending our risk
appetite and/or reducing limits and exposures.
•We stress test portfolios of particular concern to identify
sensitivity to loss under a range of scenarios, with management
actions being taken to rebalance exposures and manage risk
appetite where necessary.
•We regularly review key portfolios to help ensure that individual
customer or portfolio risks are understood and our ability to
manage the level of facilities offered through any downturn is
appropriate.
•We continue to monitor the UK’s relationship with the EU, and
assess the potential impact on our people, operations and
portfolios.
•We have taken steps, where necessary, to enhance physical
security in geographical areas deemed to be at high risk from
terrorism and military conflicts.
Environmental, social and governance risk
We are subject to financial and non-financial risks associated with
environmental, social and governance (‘ESG’) related matters. Our
current areas of focus are climate risk, nature-related risks and
human rights risks. These can impact us both directly and
indirectly through our customers. For details on how we govern
ESG, see page 80.
Climate-related risk increased over 2021, owing to the pace and
volume of policy and regulatory changes globally particularly on
climate risk management, stress testing and scenario analysis and
disclosures. If we fail to meet evolving regulatory expectations or
requirements on climate risk management, this could have
regulatory compliance and reputational impacts.
We face increased reputational, legal and regulatory risk as we
make progress towards our net zero ambition, with stakeholders
likely to place greater focus on our actions such as the
development of climate-related policies, our disclosures and
financing and investment decisions relating to our ambition. We
will face additional risks if we are perceived to mislead
stakeholders in respect of our climate strategy, the climate impact
of a product or service, or the commitments of our customers.
To track and report on progress towards achieving our ambition,
we rely on internal and, where appropriate and available, external
data, guided by certain industry standards. While emissions
reporting has improved over time, data remains of limited quality
and consistency. Methodologies we have used may develop over
time in line with market practice and regulations, as well as owing
to developments in climate science. Any developments in data and
methodologies could result in revisions to reported data going
forward, including on financed emissions, meaning that reported
figures may not be reconcilable or comparable year-on-year. We
may also have to reevaluate our progress towards our climate-
related targets in future and this could result in reputational, legal
and regulatory risks.
Climate risk will also have an impact on model risk, as models play
an important role in risk management and the financial reporting
of climate-related risks. The uncertain impacts of climate change
and data limitations present challenges to creating reliable and
accurate model outputs.
We could also face increased resilience risk, retail credit risk and
wholesale credit risk owing to the increase in frequency and
severity of weather events and chronic shifts in weather patterns.
These risks could affect our own critical operations, impacting our
customers and resulting in losses to our operations. Our
customers’ operations and assets could also be affected, reducing
their ability to afford mortgage or loan repayments, and leading to
credit risk impacts.
There is increasing evidence that a number of nature-related risks
beyond climate change – which include risks that can be
HSBC Holdings plc Annual Report and Accounts 2021
125
represented more broadly by economic dependence on nature –
can and will have significant economic impact. These risks arise
when the provision of natural services – such as water availability,
air quality, and soil quality – is compromised by overpopulation,
urban development, natural habitat and ecosystem loss, and other
environmental stresses beyond climate change. They can show
themselves in various ways, including through macroeconomic,
market, credit, reputational, legal and regulatory risks, for both
HSBC and our customers. In 2021, we added nature-related risks
as a new emerging risk driver, under the umbrella theme of ESG
risks and we continue to engage with investors, regulators and
customers on nature-related risks to evolve our approach and
understand best practice risk mitigation.
Regulation and disclosure requirements in relation to human
rights, and to modern slavery in particular, are increasing.
Businesses are expected to explain more about their efforts to
identify and respond to the risk of negative human rights impacts
arising from the actions of their employees, suppliers, customers
and those in whom they invest.
Mitigating actions
•We continue to deepen our understanding of the drivers of
climate risk as well as manage our exposure. A dedicated
Climate Risk Oversight Forum is responsible for shaping and
overseeing our approach and providing support in managing
climate risk. For further details on the Group’s ESG governance
structure, see page 80.
•Our climate risk programme continues to accelerate the
development of our climate risk management capabilities
across four key pillars – governance and risk appetite, risk
management, stress testing and scenario analysis, and
disclosures. We are also enhancing our approach to
greenwashing risk management.
•In December, we published our thermal coal phase-out policy,
which committed to phase out the financing of coal-fired power
and thermal coal mining in EU/OECD markets by 2030, and
globally by 2040. The policy helps us chart the path to net zero
and is a component of our approach towards managing the
climate risk of our lending portfolio.
•Climate stress tests and scenarios are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making.
•We are undertaking training and adding additional roles with
specialist skills to manage climate-related model risk.
•We have delivered climate risk training to our legal entity
boards and wider target audiences.
•With the help of external stakeholders, we continued to review
and improve our approach to human rights issues, following
the UN Guiding Principles on Business and Human Rights.
•In 2021, we joined several industry working groups dedicated
to helping us assess and manage nature-related risks, such as
the Taskforce on Nature-related Financial Disclosure (‘TNFD’).
Our asset management business also published its biodiversity
policy to publicly explain how our analysts address nature-
related issues.
•We continue to engage with our customers, investors and
regulators proactively on the management of ESG risks. We
also engage with initiatives, including the Climate Financial
Risk Forum, Equator Principles, Taskforce on Climate-related
Financial Disclosures and CDP (formerly the Carbon Disclosure
Project) to drive best practice for climate risk management.
For further details on our approach to climate risk management, see ‘Areas of
special interest’ on page 131.
For further details on ESG risk management see ‘Financial crime risk
environment and ‘Regulatory compliance risk environment including conduct’
on page 129.
Our ESG review can be found on page 43.
Ibor transition
Interbank offered rates (‘Ibors’) have historically been used
extensively to set interest rates on different types of financial
transactions and for valuation purposes, risk measurement and
performance benchmarking.
Following the UK’s Financial Conduct Authority (‘FCA’)
announcement in July 2017 that it would no longer continue to
persuade or require panel banks to submit rates for the London
interbank offered rate (‘Libor’) after 2021, we have been actively
working to transition legacy contracts from Ibors to products
linked to near risk-free replacement rates (‘RFRs’) or alternative
reference rates. In March 2021, in accordance with the 2017 FCA
announcement, ICE Benchmark Administration Limited (‘IBA’)
announced that it would cease publication of 24 of the 35 main
Libor currency interest rate benchmark settings from the end of
2021, and that the most widely used US dollar Libor settings
would cease from 30 June 2023. The FCA subsequently used its
regulatory powers to compel IBA to publish the remaining six
sterling and Japanese yen settings, from 1 January 2022, under an
amended methodology, commonly known as ‘synthetic’ Libor. As
a result, our focus during 2021 was on the transition of legacy
contracts referencing the Euro Overnight Index average (‘Eonia’)
and the Libor settings that demised from the end of 2021,
including those settings subsequently being published on a
‘synthetic’ basis.
During 2021, we continued the development of IT and RFR
product capabilities, implemented supporting operational
processes, and engaged with our clients to discuss options for the
transition of their legacy contracts. The successful implementation
of new processes and controls, as well as the transition of
contracts away from Ibors, reduced the heightened financial and
non-financial risks to which we were exposed. However, while all
but exceptional new Libor contract issuance ceased during 2021,
or from the end of 2021 for US dollar Libor, we remain exposed to
material risks. These include from so-called ‘tough legacy’
contracts, which have not been able to be transition to a new RFR
rate and will use a ‘synthetic’ Libor or a contractual fallback rate,
and from legacy contracts that reference the remaining US dollar
Libor tenors, which are expected to demise from June 2023.
Financial risks have been largely mitigated as a result of the
implementation of model and pricing changes. However,
differences in US dollar Libor and its replacement RFR, Secured
Overnight Funding Rate (‘SOFR’), create a basis risk in the trading
book and banking book due to the asymmetric adoption of SOFR
across assets, liabilities and products that we need to actively
manage through appropriate financial hedging. Additionally, the
comparatively limited use of the SOFR benchmark for new RFR
products to date and lack of alignment around conventions could
potentially delay transition of some US dollar contracts into 2023.
This would compress the amount of time to transition these
contracts, which could lead to heightened operational and
conduct-related risk.
Additional non-financial risks, including regulatory compliance
risk, resilience risk, financial reporting risk, and legal risk also
remain for ‘tough legacy’ contracts, and the US dollar legacy
portfolio. These risks continue to be actively managed and
mitigated with a focus on ensuring that fair outcomes for our
clients are achieved.
These risks are present in different degrees across our product
offering.
Transition of legacy contracts
During 2021 we successfully transitioned over 90% of legacy Ibor
lending contracts in sterling, Swiss franc, euro and Japanese yen
Libor interest rates, as well as Eonia, directly or via appropriate
fallback mechanisms. The majority of the remaining contracts will
transition in advance of their next interest payment date, with only
a small proportion of ‘tough legacy’ contracts remaining. We
expect that out of approximately 5,000 lending contracts there will
be less than 50 ‘tough legacy’ contracts, the majority of which will
be transitioned to alternative rates during 2022. Our approach to
transition ‘tough legacy’ and US dollar Libor legacy contracts will
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differ by product and business area, but will be based on the
lessons learned from the successful transition of contracts during
2021. We will continue to communicate with our clients and
investors in a structured manner and be client led in the timing
and nature of the transition.
For derivatives, approximately 99% of our sterling, Swiss franc,
euro and Japanese yen Libor interest rate exposures at the end of
2021 had successfully transitioned directly or via appropriate
fallback mechanisms, leaving a small number of ‘tough legacy’
contracts. Out of the approximately 13,000 bilateral derivatives
trades there are expected to be less than 20 that remain ‘tough
legacy’, the majority of which are expected to mature or transition
in 2022. We anticipate our ‘tough legacy’ and US dollar exposure
will continue to reduce through 2022 as a result of contract
maturities, and active transition. We will continue to look to
actively reduce our US dollar exposure by transitioning trades
ahead of the demise date of 30 June 2023, by working with our
clients to determine their needs and discuss how we transition
their contracts. Additionally, we are working with market
participants, including clearing houses, to ensure we are able to
transition our cleared derivative contracts as the US dollar Libor
benchmark demise date approaches.
For our loan book, approximately 85% of our reported exposure at
the end of 2021 linked to sterling, Swiss franc, euro and Japanese
yen Libor interest rate contracts required no further client
negotiation but remained drawn as they have yet to reach their
next interest payment date. The majority of the remaining
exposure linked to benchmarks that demised from the end of 2021
relates to contracts where discussions with our clients and other
market participants, for syndicated transactions, have continued
into early 2022, in advance of their next scheduled interest
payment date, and this has led to further transitions being
completed. A small number of ‘tough legacy’ contracts, less than
50, that were unable to transition prior to their first interest
payment date in 2022, are expected to use legislative reliefs, such
as ‘synthetic’ Libor, or an alternative rate determined by the
contractual fallback language, and in the main will be transitioned
during 2022. For the remaining demising Ibors, notably US dollar
Libor, we have implemented new products and processes and
updated our systems in readiness for transition. In our US retail
bank, our mortgage products are offered in SOFR, and the
transition of legacy contracts will occur once an industry spread
adjustment is available. Global Banking, Commercial Banking and
Global Private Banking have begun to engage with clients who
have upcoming contract maturities with a view to refinancing
using an appropriate replacement rate. Further communications
and outreach to customers with US dollar Libor contracts with
later maturities will occur in due course.
For the Group’s own debt securities issuances, in 2021 HSBC
launched a consent solicitation to remediate Ibor references in five
of its English law governed regulatory capital and MREL sterling
and Singapore dollar instruments. The proposed amendments
were successfully adopted on all of the sterling instruments, but
were not adopted with respect to the Singapore dollar instruments
as the minimum quorum requirements were not met. The terms of
these two instruments provide for an Ibor benchmark being used
to reset the coupon rate if HSBC chooses not to redeem the
instruments on the respective call date, or dates, for each series.
We remain mindful of the various factors that impact on the Ibor
remediation strategy for our regulatory capital and MREL
instruments, including – but not limited to – timescales for
cessation of relevant Ibor rates, constraints relating to the
governing law of outstanding instruments, and the potential
relevance of legislative solutions. We remain committed in seeking
to remediate or mitigate relevant risks relating to Ibor-demise, as
appropriate, on our outstanding regulatory capital and MREL
instruments before the relevant calculation dates, which may
occur post-cessation of the relevant Ibor rate or rates. Where we
hold bonds issued by other institutions, we have remained
dependent on the issuer’s agents to engage in the transition
process, although analysis will be undertaken of the issuers in US
dollar Libor bonds to reduce our exposure, as occurred through
2021.
The completion of an orderly transition from the remaining Ibors,
notably US dollar Libor, continues to be our programme’s key
objective through 2022 and 2023, with the aim of putting systems
and processes in place to help achieve this.
Mitigating actions
•Our global Ibor transition programme, which is overseen by the
Group Chief Risk and Compliance Officer, will continue to
deliver IT and operational processes to meet its objectives.
•We carry out extensive training, communication and client
engagement to facilitate appropriate selection of new rates and
products.
•We have dedicated teams in place to support the transition.
•We actively transitioned legacy contracts and ceased new
issuance of Libor-based contracts, other than those allowed
under regulatory exemptions, with associated monitoring and
controls.
•We assess, monitor and dynamically manage risks arising from
Ibor transition, and implement specific mitigating controls
when required.
•We continue to actively engage with regulatory and industry
bodies to mitigate risks relating to ‘tough legacy’ contracts.
F inancial instruments impacted by Ibor reform
(Audited)
Interest Rate Benchmark Reform Phase 2, the amendments to
IFRSs issued in August 2020, represents the second phase of the
IASB’s project on the effects of interest rate benchmark reform.
The amendments address issues affecting financial statements
when changes are made to contractual cash flows and hedging
relationships.
Under these amendments, changes made to a financial instrument
measured at other than fair value through profit or loss 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. Instead they require
the effective interest rate to be updated to reflect the change in
the interest rate benchmark. In addition, hedge accounting will not
be discontinued solely because of the replacement of the interest
rate benchmark if the hedge meets other hedge accounting
criteria.
HSBC Holdings plc Annual Report and Accounts 2021
127
Financial instruments yet to transition to alternative
benchmarks, by main benchmark
USD Libor
GBP Libor
JPY Libor
Others 1
At 31 Dec 2021
$m
$m
$m
$m
Non-derivative financial assets
Loans and advances to customers
70,932
18,307
370
8,259
Other financial assets
5,131
1,098
—
2
Total non-derivative financial assets 2
76,063
19,405
370
8,261
Non-derivative financial liabilities
Financial liabilities designated at fair value
20,219
4,019
1,399
1
Debt securities in issue
5,255
—
—
—
Other financial liabilities
2,998
78
—
—
Total non-derivative financial liabilities
28,472
4,097
1,399
1
Derivative notional contract amount
Foreign exchange
137,188
5,157
31,470
9,652
Interest rate
2,318,613
284,898
72,229
133,667
Others
—
—
—
—
Total derivative notional contract amount
2,455,801
290,055
103,699
143,319
At 31 Dec 2020
Non-derivative financial assets
Loans and advances to customers
85,378
43,681
371
10,751
Other financial assets
8,770
2,906
—
12
Total non-derivative financial assets 2
94,148
46,587
371
10,763
Non-derivative financial liabilities
Financial liabilities designated at fair value
24,350
6,219
1,548
128
Debt securities in issue
5,840
—
—
416
Other financial liabilities
3,412
964
—
5
Total non-derivative financial liabilities
33,602
7,183
1,548
549
Derivative notional contract amount
Foreign exchange
196,774
6,374
28,411
22,762
Interest rate
2,848,552
1,190,491
479,789
492,197
Others
11
—
—
—
Total derivative notional contract amount
3,045,337
1,196,865
508,200
514,959
1 Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, Swiss franc
Libor, Eonia, SOR, THBFIX and Sibor).
2 Gross carrying amount excluding allowances for expected credit losses.
The amounts in the above table relate to HSBC’s main operating
entities where HSBC has material exposures impacted by Ibor
reform, including in the UK, Hong Kong, France, the US, Mexico,
Canada, Singapore, the UAE, Bermuda, Australia, Qatar, Germany,
Japan and Thailand. The amounts provide an indication of the
extent of the Group’s exposure to the Ibor benchmarks that are
due to be replaced. Amounts are in respect of financial
instruments that:
•contractually reference an interest rate benchmark that is
planned to transition to an alternative benchmark;
•have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
•are recognised on HSBC’s consolidated balance sheet.
In March 2021, the administrator of Libor, IBA, announced that the
publication date of most US dollar Libor tenors has been extended
from 31 December 2021 to 30 June 2023. Publication of one-week
and two-month tenors ceased after 31 December 2021. This
change, together with the extended publication dates of Sibor,
SOR and THBFIX, reduce the amounts presented at 31 December
2021 in the above table as some financial instruments included at
31 December 2020 will reach their contractual maturity date prior
to the extended publication dates. Comparative data have not
been re-presented.
Financial crime risk environment
Financial institutions remain under considerable regulatory
scrutiny regarding their ability to prevent and detect financial
crime. The financial crime threats we face have continued to
evolve, often in tandem with broader geopolitical, socioeconomic
and technological shifts in our markets, leading to challenges such
as managing conflicting laws and approaches to legal and
regulatory regimes.
Financial crime risk evolved during the Covid-19 pandemic,
notably with the manifestation of fraud risks linked to the
economic slowdown and resulting deployment of government
relief measures. The accelerated digitisation of financial services
has fostered significant changes to the payments ecosystem,
including a multiplicity of providers and new payment
mechanisms, not all of which are subject to the same level of
regulatory scrutiny or regulations as financial institutions. This is
presenting increasing challenges to the industry in terms of
maintaining required levels of transparency, notably where
institutions serve as intermediaries. Developments around digital
assets and currencies, notably the role of stablecoins and central
bank digital currencies, have continued at pace, with an increasing
regulatory and enforcement focus on the financial crimes linked to
these types of assets.
Expectations with respect to the intersection of ESG issues and
financial crime as our organisation, customers and suppliers
transition to net zero, are increasing, not least with respect to
potential ‘greenwashing’. Companies also face a heightened
regulatory focus on both human rights issues and environmental
crimes from a financial crime perspective. We also continue to
face increasing challenges presented by national data privacy
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requirements, which may affect our ability to manage financial
crime risks holistically and effectively.
Mitigating actions
•We are strengthening our fraud and surveillance controls, and
investing in next generation capabilities to fight financial crime
through the application of advanced analytics and artificial
intelligence (‘AI’).
•We are looking at the impact of a rapidly changing payments
ecosystem to ensure our financial crime controls remain
appropriate for changes in customer behaviour and gaps in
regulatory coverage, including the development of procedures
and controls to manage the risks associated with direct and
indirect exposure to digital assets and currencies.
•We are assessing our existing policies and control framework
to ensure that developments in the ESG space are considered
and the risks mitigated.
•We work with jurisdictions and relevant international bodies to
address data privacy challenges through international
standards, guidance, and legislation to help enable effective
management of financial crime risk.
•We work closely with our regulators and engage in public-
private partnerships, playing an active role in shaping the
industry’s financial crime controls for the future, notably with
respect to the enhanced, and transparent, use of technology.
Regulatory compliance risk environment including
conduct
We keep abreast of the emerging regulatory compliance and
conduct agenda, which currently includes, but is not limited to:
ESG matters; operational resilience; how digital and technology
changes, including payments, are impacting financial institutions;
how we are ensuring good customer outcomes, including
addressing customer vulnerabilities; regulatory reporting; and
employee compliance. We monitor regulatory developments
closely and engage with regulators, as appropriate, to help ensure
new regulatory requirements are implemented effectively and in a
timely way.
The competitive landscape in which the Group operates may be
impacted by future regulatory changes and government
intervention. In the UK, potential regulatory developments include
any legislative changes resulting from a statutory review of ring-
fencing, which has been undertaken by an independent panel
appointed by HM Treasury. The panel has recommended several
adjustments to the regime and HM Treasury is reviewing these
recommendations. Legislative amendments may be proposed in
due course.
Mitigating actions
•We monitor for regulatory developments to understand the
evolving regulatory landscape and respond with changes in a
timely way.
•We engage, wherever possible, with governments and
regulators to make a positive contribution to regulations and
ensure that new requirements are considered properly and can
be implemented effectively. We hold regular meetings with
relevant authorities to discuss strategic contingency plans,
including those arising from geopolitical issues.
•We launched our simplified conduct approach to align to our
new purpose and values, in particular the value ‘we take
responsibility’.
Cyber threat and unauthorised access to systems
Together with other organisations, we continue to operate in an
increasingly hostile cyber threat environment. This requires
ongoing investment in business and technical controls to defend
against these threats, including potential unauthorised access to
customer accounts, attacks on our systems, and attacks on our
third-party suppliers.
Mitigating actions
•We continually evaluate threat levels for the most prevalent
attack types and their potential outcomes. To further protect
HSBC and our customers and help ensure the safe expansion of
our global business lines, we strengthen our controls to reduce
the likelihood and impact of advanced malware, data leakage,
exposure through third parties and security vulnerabilities.
•We continue to enhance our cybersecurity capabilities,
including Cloud security, identity and access management,
metrics and data analytics, and third-party security reviews. An
important part of our defence strategy is ensuring our
colleagues remain aware of cybersecurity issues and know how
to report incidents.
•We report and review cyber risk and control effectiveness at
executive and non-executive Board level. We also report across
our global businesses, functions and regions to help ensure
appropriate visibility and governance of the risk and mitigating
actions.
•We participate globally in industry bodies and working groups
to collaborate on tactics employed by cyber-crime groups and
to collaborate in fighting, detecting and preventing cyber-
attacks on financial organisations.
Digitalisation and technological advances
Developments in technology and changes in regulations are
enabling new entrants to the industry. This challenges HSBC to
continue to innovate and optimise in order to take advantage of
new digital capabilities to best serve our customers, and adapt our
products to attract and retain customers. As a result, we may need
to increase our investment in our business to modify or adapt our
existing products and services or develop new products and
services to respond to our customers’ needs.
Mitigating actions:
•We continue to monitor this emerging risk, as well as the
advances in technology, and changes in customer behaviours
to understand how these may impact our business.
•We closely monitor and assess financial crime and the impact
on payment transparency and architecture.
Internally driven
Data management
We use a large number of systems and growing quantities of data
to support our customers. Risk arises if data is incorrect,
unavailable, misused, or unprotected. Along with other banks and
financial institutions, we need to meet external regulatory
obligations and laws that cover data, such as the Basel Committee
on Banking Supervision’s 239 guidelines and the General Data
Protection Regulation (‘GDPR’).
Mitigating actions
•Through our global data management framework, we monitor
proactively the quality, availability and security of data that
supports our customers and internal processes. We resolve any
identified data issues in a timely manner.
•We have made improvements to our data policies and are
implementing an updated control framework to enhance the
end-to-end management of data risk by our global businesses,
global functions and regions.
•We protect customer data via our data privacy framework,
which establishes practices, design principles and guidelines
that enable us to demonstrate compliance with data privacy
laws and regulations.
•We continue to modernise our data and analytics infrastructure
through investments in Cloud technology, data visualisation,
machine learning and AI.
•We educate our employees on data risk and data management
and have delivered global mandatory training on the
importance of protecting data and managing data
appropriately.
HSBC Holdings plc Annual Report and Accounts 2021
129
Model risk management
Model risk arises whenever business decision making includes
reliance on models. We use models in both financial and non-
financial contexts, as well as in a range of business applications
such as customer selection, product pricing, financial crime
transaction monitoring, creditworthiness evaluation and financial
reporting. Assessing model performance is a continuous
undertaking. Models can need redevelopment as market
conditions change. This was required following the outbreak of
Covid-19 as some models used for estimating credit losses needed
to be redeveloped due to the dramatic change to inputs. This
included GDP; unemployment rates; housing prices; and the
varying government support measures introduced.
We prioritised the redevelopment of internal ratings-based (‘IRB’)
and internal model methods (‘IMM’) models, in relation to
counterparty credit, as part of the IRB repair and Basel III
programmes with a key focus on enhancing the quality of data
used as model inputs. Submission of these models to the UK’s
Prudential Regulation Authority (‘PRA’) and other key regulators
for feedback and approval is in progress. Some IMM and internal
model approach (‘IMA’) models have been approved for use and
feedback has been received for some IRB models. Climate risk
modelling is a key focus for the Group as HSBC’s commitment to
sustainability has become a critical part of the Group’s strategy.
Mitigating actions
•We further enhanced the monitoring, review and challenge of
loss model performance through our Model Risk Management
function as part of a broader quarterly process to determine
loss levels. The Model Risk Management team aims to provide
strong and effective review and challenge of any future
redevelopment of these models.
•Model Risk Management works closely with businesses to
ensure that IRB/IMM/IMA models in development meet risk
management, pricing and capital management needs. Global
Internal Audit provides assurance over the risk management
framework for models.
•Additional assurance work is performed by the model risk
governance teams, which act as second lines of defence. The
teams test whether controls implemented by model users
comply with model risk policy and if model risk standards are
adequate.
•Models using advanced machine learning techniques are
validated and monitored to ensure that risks that are
determined by the algorithms have adequate oversight and
review.
Risks arising from the receipt of services from
third parties
We use third parties to provide a range of goods and services.
Risks arising from the use of third-party providers and their supply
chain may be harder to identify. It is critical that we ensure we
have appropriate risk management policies, processes and
practices over the selection, governance and oversight of third
parties and their supply chain, particularly for key activities that
could affect our operational resilience. Any deficiency in the
management of risks associated with our third parties could affect
our ability to support our customers and meet regulatory
expectations.
Mitigating actions
•We have enhanced our control framework for external supplier
arrangements to ensure the risks associated with third-party
arrangements are understood and managed effectively by our
global businesses, global functions and regions.
•We have applied the same control standards to intra-group
arrangements as we have for external third-party arrangements
to ensure we are managing them effectively.
•We are implementing the changes required by the new global
third-party risk policy to comply with new regulations as
defined by our regulators.
Risks associated with workforce capability, capacity
and environmental factors with potential impact on
growth
Our success in delivering our strategic priorities and managing the
regulatory environment proactively depends on the development
and retention of our leadership and high-performing employees. A
very competitive employment market will continue to test our
ability to attract and retain talent. Changed working arrangements,
local Covid-19 restrictions and health concerns during the
pandemic have also impacted on employee mental health and
well-being.
Mitigating actions
•We have put in place measures to help support our people so
they are able to work safely during the Covid-19 pandemic.
While our approach to workplace recovery around the world is
consistent, the measures we take in different locations are
specific to their environment.
•We promote a diverse and inclusive workforce and provide
active support across a wide range of health and well-being
activities. We continue to build our speak-up culture through
active campaigns.
•We monitor people risks that could arise due to organisational
restructuring, helping to ensure we manage redundancies
sensitively and support impacted employees. We encourage
our people leaders to focus on talent retention at all levels, with
an empathetic mindset and approach, while ensuring the whole
proposition of working at HSBC is well understood.
•Our Future Skills curriculum helps provide critical skills that will
enable employees and HSBC to be successful in the future.
•We continue to develop succession plans for key management
roles, with actions agreed and reviewed on a regular basis by
the Group Executive Committee.
IT systems infrastructure and resilience
We operate an extensive and complex technology landscape,
which must remain resilient in order to support customers, the
organisation and markets globally. Risks arise where technology is
not understood or maintained, and development of technology is
not controlled.
Mitigating actions
•We continue to invest in transforming how software solutions
are developed, delivered and maintained. We concentrate on
improving system resilience and service continuity testing. We
continue to ensure security is built into our software
development life cycle and improve our testing processes and
tools.
•We continue to upgrade many of our IT systems, simplify our
service provision and replace older IT infrastructure and
applications. These enhancements supported global
improvements in service availability during 2021 for both our
customers and colleagues.
Change execution risk
We have continued our increased investment in strategic change
to support the delivery of our strategic priorities and regulatory
commitments. This requires change to be executed safely and
efficiently.
Mitigating actions
•A global transformation programme is progressing with the
delivery of strategic change commitments made in February
2020 to restructure our business, reallocate capital into higher
growth and higher return businesses and markets, and to
simplify our organisation to improve operational resilience and
reduce costs.
•The remit of the Transformation Oversight Executive
Committee, established in 2020 to oversee the global
transformation programme, was expanded in 2021 to oversee
the prioritisation, strategic alignment and management of
execution risk for all change portfolios and initiatives.
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•We continue to work to strengthen our change management
practices to deliver sustainable change, increased adoption of
Agile ways of working, and a more consistent standard of
delivery. The Transformation Oversight Executive Committee
oversees the continued embedding of our improved Group-
wide change framework released in May 2021, which sets out
the mandatory principles and standards relating to leading and
delivering change.
Areas of special interest
During 2021, a number of areas were identified and considered as
part of our top and emerging risks because of the effect they may
have on the Group. While considered under the themes captured
under top and emerging risks, in this section we have placed a
particular focus on the Covid-19 pandemic and climate-related
risks.
Risks related to Covid-19
Despite the successful roll-out of vaccines around the world, the
Covid-19 pandemic and its effect on the global economy have
continued to impact our customers and organisation. The global
vaccination roll-out in 2021 helped reduce the social and economic
impact of the Covid-19 pandemic, although there has been
significant divergence in the speed at which vaccines have been
deployed around the world. Most developed countries have now
vaccinated a large proportion of their populations, but many less
developed countries have struggled to secure supplies and are at
an earlier stage of their roll-out. By the end of 2021, high
vaccination rates had ensured that many Covid-19-related
restrictions on activity in developed markets had been lifted and
travel constraints were easing. However, the emergence of the
Omicron variant in late 2021 demonstrated the continued risk new
variants pose.
The pandemic necessitated governments to respond at
unprecedented levels to protect public health, and to support local
economies and livelihoods. The resulting government support
measures and restrictions created additional challenges, given the
rapid pace of change and significant operational demands.
Renewed outbreaks, particularly those resulting from the
emergence of variants of the virus, emphasise the ongoing threat
of Covid-19 and could result in further tightening of government
restrictions. There remains a divergence in approach taken by
countries to the level of restrictions on activity and travel. Such
diverging approaches to future pandemic waves could prolong or
worsen supply chain and international travel disruptions. The
evolving Covid-19 restrictions in Hong Kong, including travel,
public gathering and social distancing restrictions, are impacting
the Hong Kong economy, and may affect the ability to attract and
retain staff.
We continue to support our personal and business customers
through market-specific measures initiated during the Covid-19
pandemic, and by supporting those remaining national
government schemes that focus on the parts of the economy most
impacted by the pandemic. For further details of our customer
relief programmes, see page 159.
The rapid introduction and varying nature of the government
support schemes introduced throughout the Covid-19 pandemic
led to increased operational risks, including complex conduct
considerations, increased reputational risk and increased risk of
fraud. These risks are likely to be heightened further as and when
those remaining government support schemes are unwound.
These events have also led to increased litigation risk.
The impact of the pandemic on the long-term prospects of
businesses in the most vulnerable sectors of the economy – such
as retail, hospitality, travel and commercial real estate – remains
uncertain and may lead to significant credit losses on specific
exposures, which may not be fully captured in ECL estimates. In
addition, in times of stress, fraudulent activity is often more
prevalent, leading to potentially significant credit or operational
losses.
As economic conditions improve, and government support
measures come to an end, there is a risk that the outputs of IFRS 9
models may have a tendency to underestimate loan losses. To
help mitigate this risk, model outputs and management
adjustments are closely monitored and independently reviewed at
the Group and country level for reliability and appropriateness. For
further details on model risk, see page 209.
Despite the ongoing economic recovery, significant uncertainties
remain in assessing the duration and impact of the Covid-19
pandemic, including whether any subsequent outbreaks result in a
reimposition of government restrictions. There is a risk that
economic activity remains below pre-pandemic levels for a
prolonged period, increasing inequality across markets, and it will
likely be some time before societies return to pre-pandemic levels
of social interactions. As a result, there may still be a requirement
for additional mitigating actions including further use of
adjustments, overlays and model redevelopment.
Governments and central banks in major economies have
deployed extensive measures to support their local populations.
This is expected to reverse partially in 2022. Central banks in major
markets are expected to raise interest rates, but such increases are
expected to be gradual and monetary policy is expected to remain
accommodative overall. Policy tightening in major emerging
markets has already begun in order to counteract rising inflation
and the risk of capital outflows. Governments are also expected to
reduce the level of fiscal support they offer households and
businesses as the appetite for broad lockdowns and public health
restrictions decreases. Government debt has risen in most
advanced economies, and is expected to remain high into the
medium term. High government debt burdens have raised fiscal
vulnerabilities, increasing the sensitivity of debt service costs to
interest rate increases and potentially reducing the fiscal space
available to address future economic downturns. Our Central
scenario used to calculate impairment assumes that economic
activity will continue to recover through 2022, surpassing peak
pre-pandemic levels of GDP in all our key markets. It is assumed
that private sector growth accelerates, ensuring a strong recovery
is sustained even as pandemic-related fiscal support is withdrawn.
However, there is a high degree of uncertainty associated with
economic forecasts in the current environment and there are
significant risks to our Central scenario. The degree of uncertainty
varies by market, driven by country-specific trends in the evolution
of the pandemic and associated policy responses. As a result, our
Central scenario for impairment has not been assigned an equal
likelihood of occurrence across our key markets. For further details
of our Central and other scenarios, see ‘Measurement uncertainty
and sensitivity analysis of ECL estimates’ on page 144.
We continue to monitor the situation closely, and given the novel
and prolonged nature of the pandemic, additional mitigating
actions may be required.
Climate-related risks
Climate change can have an impact across HSBC’s risk taxonomy
through both transition and physical channels. Transition risk can
arise from the move to a net zero economy, such as through
policy, regulatory and technological changes. Physical risk can
arise through increasing severity and/or frequency of severe
weather or other climatic events, such as rising sea levels and
flooding.
These have the potential to cause both idiosyncratic and systemic
risks, resulting in potential financial and non-financial impacts for
HSBC. Financial impacts could materialise if transition and
physical risks impact the ability of our customers to repay their
loans. Non-financial impacts could materialise if our own assets or
operations are impacted by extreme weather or chronic changes
in weather patterns, or as a result of business decisions to achieve
our climate ambition.
How climate risk can impact our customers
Climate change could impact our customers in two main ways.
Firstly, customer business models may fail to align to a net zero
economy, which could mean that new climate-related regulation
would have a material impact on their business. Secondly,
extreme weather events or chronic changes in weather patterns
HSBC Holdings plc Annual Report and Accounts 2021
131
may damage our customers’ assets leaving them unable to
operate their business or potentially even live in their home.
One of the most valuable ways we can help our customers
navigate the transition challenges and to become more resilient to
the physical impacts of climate change is through financing and
investment. To do this effectively, we must understand the risks
they are facing.
The table below summarises the key categories of transition and
physical risk, with examples of how our customers might be
affected financially by climate change and the shift to a low-
carbon economy.
Climate risk
Main causes of financial impact on customers
Transition
Policy and
legal
Mandates on, and regulation of, existing
products and services
Litigation from parties who have suffered
from the effects of climate change
Technology
Replacement of existing products with lower
emission options
End-demand
(market)
Changing consumer behaviour
Reputational
Increased scrutiny following a change in
stakeholder perceptions of climate-related
action or inaction
Physical
Acute
Increased frequency and severity of weather
events
Chronic
Changes in precipitation patterns
Rising temperatures
For further details on how we manage climate risk for our other
stakeholders, see the ESG review on page 56.
Integrating climate into enterprise-wide risk management
Our approach to climate risk management is aligned to our Group-
wide risk management framework and three lines of defence
model, which sets out how we identify, assess and manage our
risks. This approach ensures the Board and senior management
have visibility and oversight of our key climate risks.
Climate risk appetite
Our developing climate risk appetite measures support the
oversight and management of the financial and non-financial risks
from climate change, meet regulatory expectations and support
the business to deliver our climate ambition in a safe and
sustainable way. Our initial measures are focused on the oversight
and management of our key climate risks: wholesale credit risk,
retail credit risk, reputational risk, resilience risk and regulatory
compliance. These measures are implemented at a global and
regional level. We continue to develop climate risk appetite
measures and our future ambition for our climate risk appetite is
to:
•adapt the risk appetite metrics to incorporate forward-looking
transition plans and net zero commitments;
•expand metrics to consider other financial and non-financial
risks; and
•use enhanced scenario analysis capabilities.
Climate risk policies, processes and controls
We are integrating climate risk into the policies, processes and
controls for our key climate risks and we will continue to update
these as our climate risk management capabilities mature over
time. We have updated our policy on product management, and
developed the first version of a climate risk scoring tool for our
corporate portfolios. In addition, we published and started to
implement our new thermal coal phase-out policy. For further
details on our thermal coal phase-out policy, see page 62.
Climate risk governance and reporting
Our global and regional Climate Risk Oversight Forums are
responsible for the oversight, management and escalation of
climate risks across the Group and are supported by specific
forums for our global businesses, as well as for our Risk and
Compliance function. These include the Sustainability Risk
Oversight Forum, the WPB Risk Management Meeting and the
Regulatory Compliance ESG and Climate Risk Working Group.
Our climate risk management information dashboard includes
metrics relating to our key climate risks, and is reported to the
Group Climate Risk Oversight Forum. The Group Risk
Management Meeting and the Group Risk Committee receive
scheduled updates on climate risk, and receive regular updates on
our climate risk appetite and top and emerging climate risks.
For further details on the Group’s ESG governance structure, see
page 80.
The Group Chief Risk and Compliance Officer is the key senior
manager responsible for the management of climate-related
financial risks under the UK Senior Managers Regime. The Group
Chief Risk and Compliance Officer is the overall accountable
executive for the Group’s climate risk programme, including
responsibility for governance, risk management, stress testing and
scenario analysis and disclosures.
Climate risk programme
Our dedicated programme continues to accelerate the
development of our climate risk management capabilities. The key
achievements in 2021 include:
•We delivered tailored training sessions to our legal entity
boards.
•We delivered training to colleagues across the three lines of
defence so they can understand climate risk as part of their
role, and we also included an introduction to our climate
ambition in our global mandatory training.
•We developed our climate risk scoring tool for corporate
customers for use in priority regions, which builds on our
corporate transition questionnaire.
•We introduced a risk appetite based on monitoring climate risk
exposure at property level across the UK mortgage portfolio.
•We have continued to develop our climate stress testing and
scenarios capabilities, including model development and
delivered regulatory climate stress tests. These are being used
to further improve our understanding of our risk exposures for
use in risk management and business decision making. For
more detail on our approach to climate stress testing and
scenario analysis, see page 57.
We will continue to enhance our climate risk management
capabilities throughout 2022. This will include the further roll-out
of training, refinement of our risk appetite, enhancement of our
climate risk scoring tool and increasing the availability and quality
of data so that new metrics can be developed.
How climate risk can impact HSBC
Below, we provide details on how climate risk impacts to our
customers might manifest across our key climate risks, and the
potential timeframes involved using the TCFD’s four main drivers
of transition climate risk – policy and legal, technology, end-
demand (market) and reputational – and two physical risk drivers –
acute and chronic.
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132
HSBC Holdings plc Annual Report and Accounts 2021
Risk management framework
Financial risks
Non-financial risk
Risk type
Wholesale
credit
Retail credit
Strategic risk
(reputational)
Resilience risk
Regulatory
compliance risk
Timescale 1
All term
periods
Medium–long
term
All term
periods
All term
periods
Short–medium
Transition risk drivers 2
– policy and legal
l
l
l
– technology
l
– end-demand (market)
l
l
– reputational
l
l
l
Physical risk drivers 2
– acute – increased frequency and severity of weather events
l
l
l
– chronic – changes in weather patterns
l
l
l
1 Short-term: less than one year; medium term: period to 2030; long term: period to 2050.
2 Transition and physical risk drivers defined by TCFD.
Wholesale credit risk
Identification and assessment
We have identified six key sectors where our wholesale credit
customers have the highest climate risk, based on their carbon
emissions. These are oil and gas, building and construction,
chemicals, automotive, power and utilities, and metals and
mining. We continue to roll out our transition and physical risk
questionnaire to our largest customers in high-risk sectors, with
the addition of four more sectors: agriculture, manufacturing, real
estate and transportation. The questionnaires will help us to
assess and improve our understanding of the impact of climate
changes on our customers’ business models and any related
transition strategies. It also helps us to identify potential business
opportunities to support the transition. In 2022, we intend to
increase the scope of the questionnaires by adding more countries
to the scope.
Management
In 2021, we developed a scoring tool, which provides a climate
risk score for each customer based on questionnaire responses.
The climate risk score will then be used in portfolio level
management information to assess and compare clients. The
scoring tool will be enhanced and refined over time as more data
becomes available. The results of the tool have been provided to
business and risk management teams. During 2021, we also
performed a climate-related stress test, as explained further on
page 58. In 2022 we aim to further embed climate risk
considerations in our credit risk management processes.
Aggregation and reporting
We currently internally report our transition risk exposure and
RWAs consumed by the six high-risk sectors in the wholesale
portfolio.
We also report the proportion of questionnaire responses that
reported either having a board policy or management plan for
transition risk. Our key wholesale credit exposures are included as
part of our broader ESG management information dashboard,
which is presented to the Group Executive Committee each
quarter. In addition, a representative from wholesale credit risk
attends the Global Climate Risk Oversight Forum to ensure
consideration of this risk type, and we report our exposure through
the climate risk management information dashboard at this
meeting.
We will continue to report these metrics in 2022 and will aim to
cascade these measures to global businesses and to provide
insight on the climate risk profile of our portfolio and customers.
In the table below, we capture our lending activity, including
environmentally responsible and sustainable finance activities, to
customers within the six high risk sectors. Green financing for
large companies that work in high transition sectors is also
included. The overall exposure has increased slightly to 20.0%
(2020:19.6%). For further details on how we designate
counterparties as high transition risk, see footnote 2.
Since 2019, we have received responses from customers within
the six high transition risk sectors, which represent 56% of our
exposure, an increase in coverage of 15% since last year. The
breakdown of our customer responses is presented by sector in
the table below.
Within the power and utilities, and metals and mining sectors
shown in the table below, and recognising external third-party
assessments of power generation and mining capacity, our
exposure to thermal coal is 0.2% of the total wholesale loans and
advances figures.
Wholesale loan exposure to transition risk sectors and customer questionnaire responses at 31 December 2021
Automotive
Chemicals
Construction
and building
materials
Metals and
mining
Oil and
gas
Power and
utilities
Total
%
%
%
%
%
%
%
Wholesale loan exposure as % of total wholesale loans and advances to
customers and banks 1,2,3
≤ 2.8
≤ 3.4
≤ 4.5
≤ 2.4
≤ 3.4
≤ 3.5
≤ 20.0
Proportion of sector for which questionnaires were completed 4
59
44
56
52
64
59
56
Proportion of questionnaire responses that reported either having a
board policy or a management plan 4
65
76
76
57
77
90
75
Sector weight as proportion of high transition risk sector 4
14
17
22
12
17
18
100
1 Amounts shown in the table also include green and other sustainable finance loans, which support the transition to the net zero economy. The
methodology for quantifying our exposure to high transition risk sectors and the transition risk metrics will evolve over time as more data becomes
available and is incorporated in our risk management systems and processes.
2 Counterparties are allocated to the high transition risk sectors via a two-step approach. Firstly, where the main business of a group of connected
counterparties is in a high transition risk sector, all lending to the group is included irrespective of the sector of each individual obligor within the
group. Secondly, where the main business of a group of connected counterparties is not in a high transition risk sector, only lending to individual
obligors in the high transition risk sectors is included. For Global Banking and Markets clients, the main business of a group of connected
counterparties is identified by the relationship manager for the group. For Commercial Banking clients, the main business of a group of connected
counterparties is identified based on the largest industry of HSBC’s total lending limits to the group.
3 Total wholesale loans and advances to customers and banks amount to $662bn (2020: $673bn).
4 All percentages are weighted by exposure.
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133
Retail credit risk
Identification and assessment
We manage retail credit risk under a framework of controls that
enable the identification and assessment of credit risk across the
retail portfolio.
In 2021, we completed a Group-wide climate scenario analysis
and stress testing exercise. This enabled us to enhance our
understanding and assess the impact of physical risk to our
mortgage portfolio under three potential future climate scenarios,
with a focus on the UK, Hong Kong and Canada.
Additionally, for the UK mortgage portfolio, we considered the
impact of potential minimum energy performance certificate
(‘EPC’) rating requirements, as well as changes to the availability
of buildings insurance following the demise of FloodRe. These
factors were considered alongside macroeconomic drivers, given
the supplemental data available for the UK.
FloodRe is a scheme between the UK Government and the
insurance industry that aims to improve the availability and
affordability of flood cover for properties in high flood risk areas. It
is currently in place until 2039.
Understanding the impact of future climate risk relies heavily upon
the availability of quality data, as well as on the evolution of
climate risk modelling expertise. As this matures, we plan to
expand our approach to additional markets.
Management
We are focusing on embedding climate risk into retail credit risk
management processes, prioritising the largest residential
mortgage portfolios.
We continue to update our risk management framework to reflect
lessons learnt.
Aggregation and reporting
We manage and monitor the integration of climate risk across
Wealth and Personal Banking through the Risk Management
Meeting.
We have also developed and are implementing metrics to support
active risk management, which will be tracked and monitored
through relevant credit risk meetings.
A representative from Retail Credit Risk attends the Group Climate
Risk Oversight Forum to ensure this risk type is considered.
How we are starting to measure climate risk
We are starting to measure climate risk with the most material
market, which is the UK, where the primary risk facing properties
is flooding.
Using a risk methodology that considers a combination of the
likelihood and severity of flood hazard affecting individual
properties, we estimate that on a total volume basis, and at
present day levels, 3.5% of the UK retail banking mortgage
portfolio is at high risk of flooding, and 0.3% is at a very high risk.
This is based on 94% coverage of our mortgage portfolio and is
reliant on flood data provided by Ambiental Risk Analytics, flood
risk experts and suppliers of flood models to more than 50% of the
UK insurance industry.
This data will enable monitoring and reporting of properties at risk
of flooding, which will support activities to educate impacted
customers and protect the Group from incurring losses as a result
of climate events.
Our transition risk efforts in the UK have focused on obtaining
current and potential energy efficiency ratings for individual
properties, sourced from property EPC data.
The UK Government has a stated ambition to improve the EPC
ratings of housing stock as set out in its Clean Growth Strategy.
We are working towards improving the proportion of properties on
our book with an EPC rating of C or above and on improving the
EPC data coverage.
We have approximately 53% of properties in our portfolio with a
valid EPC certificate (i.e. dated within the last 10 years) and 35.7%
of these are rated A to C.
For further details and metrics relating to physical and transition
risk to our UK mortgage portfolio, see our ESG Data Pack at
www.hsbc.com/esg.
Reputational risk
Identification and assessment
We implement sustainability risk policies, including the Equator
Principles, as part of our broader reputational risk framework. We
focus on sensitive sectors that may have a high adverse impact on
people or the environment, and in which we have a significant
number of customers. A key area of focus is high-carbon sectors,
which include oil and gas, power generation, mining, agricultural
commodities and forestry. During 2021 we published our thermal
coal phase-out policy.
Management
As the primary point of contact for our customers, our relationship
managers are responsible for checking that our customers meet
policies aimed at reducing carbon impacts. Our global network of
more than 75 sustainability risk managers provides local policy
support and expertise to relationship managers. A central
Sustainability Risk team provides a higher level of guidance and is
responsible for the oversight of policy compliance and
implementation over wholesale banking activities. During 2021,
we introduced a refreshed assurance framework, which takes a
risk-based approach focusing on higher risks.
For further details on our sustainability risk policies, see our ESG
review on page 62.
Aggregation and reporting
Our Sustainability Risk Oversight Forum provides a Group-wide
forum for senior members of our Global Risk and Compliance
team and global businesses. It also oversees the development and
implementation of sustainability risk policies. Cases involving
complex sustainability risk issues related to customers,
transactions or third parties are managed through the reputational
risk and client selection governance process. We report annually
on our implementation of the Equator Principles and the corporate
loans, project-related bridge loans and advisory mandates
completed under the principles. With the introduction of Equator
Principles IV, a training programme was delivered to raise the
awareness of the changes and obligations therein.
For the latest report, see: www.hsbc.com/who-we-are/our-climate-
strategy/sustainability-risk/equator-principles.
A representative from Reputational risk attends the Group Climate
Risk Forum to ensure consideration of this risk type.
Regulatory compliance risk
Identification and assessment
Compliance, as a sub-function within Group Risk and Compliance,
continues to prioritise the identification and assessment of
compliance risks that may arise from climate risk. Although not an
exhaustive list, key regulatory compliance risks under
consideration include those related to product management, mis-
selling, marketing, conflicts of interest and regulatory change.
An area of particular focus is the risk of greenwashing. We regard
greenwashing as the act of knowingly or unknowingly misleading
stakeholders regarding our climate ambition, the climate impact/
benefits of a product or service or regarding the climate
commitments of our customers. For the Compliance function,
product-based greenwashing is a key area of focus. When
considering product-based greenwashing, we seek to:
•effectively and consistently consider climate risk factors in the
development and ongoing governance of new, changed or
withdrawn products and services through the enhancement of
existing risk management frameworks utilised within the
Group’s operating entities and lines of business, enabling
climate risks to be identified and assessed in a timely manner;
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HSBC Holdings plc Annual Report and Accounts 2021
•ensure that climate-related products and services offered to
customers are appropriately designed and that related sales
practices and marketing materials are clear, fair and not
misleading; and
•develop climate-related products and services consistent with
the evolving expectations of the Group’s regulators and other
relevant authorities.
Management
We continue to develop our compliance policies and underlying
measurement capability to enhance the management of climate
risks in line with our climate ambition and risk appetite. As such,
we have integrated and are continuing to enhance climate risk
considerations within our product and customer life-cycle policies.
Our policies set the minimum standards that are required to
manage the risk of breaches of our regulatory duty to customers,
including those related to climate risk, ensuring fair customer
outcomes are achieved.
The Compliance sub-function placed significant focus in 2021 on
supporting and improving the capability of Compliance colleagues
through climate-specific training, communications and guidance
materials to ensure the robust identification, assessment and
management of climate risks.
Aggregation and reporting
The Compliance sub-function continues to operate an ESG and
Climate Risk Working Group. This group tracks and monitors the
integration and embedding of Climate risk within the management
of regulatory compliance risks and controls more generally, and
monitors ongoing regulatory and legislative changes across the
sustainability and climate risk agenda.
We have also developed and implemented climate risk metrics
and indicators aligned to wider regulatory compliance risks.
The Compliance sub-function is also represented at the Group’s
Climate Risk Oversight Forum to ensure this risk type is
considered.
Resilience risk
Identification and assessment
Our assessment of climate risk identified building unavailability,
workplace safety, information technology and cybersecurity risk,
transaction processing risk, and third-party risk as the key risks
facing our operational resilience.
In 2021 we repeated and extended our scenario stress testing. We
will continue to work with our partners to identify and assess
emerging climate risks.
Management
In 2021, we reviewed existing policies, processes and controls,
which were then revised as required. This work will continue in
subsequent years.
Identification of new tooling, both internally and through
collaboration with business partners, for the management of
climate risk is ongoing with new tooling being introduced as
appropriate.
Our stress test results will continue to inform our approach to
climate risk management.
Aggregation and reporting
Our exposure to climate risk will continue to be aggregated and
reported to the Group Climate Risk Forum and other relevant
formal governance forums.
Our material banking risks
The material risk types associated with our banking and insurance manufacturing operations are described in the following tables:
Description of risks – banking operations
Risks
Arising from
Measurement, monitoring and management of risk
Credit risk (see page 137)
Credit risk is the risk of financial
loss if a customer or
counterparty fails to meet an
obligation under a contract.
Credit risk arises principally
from direct lending, trade
finance and leasing business,
but also from other products
such as guarantees and
derivatives.
Credit risk is:
•measured as the amount that could be lost if a customer or counterparty fails to
make repayments;
•monitored using various internal risk management measures and within limits
approved by individuals within a framework of delegated authorities; and
•managed through a robust risk control framework, which outlines clear
and consistent policies, principles and guidance for risk managers.
Treasury risk (see page 189)
Treasury risk is the risk of
having insufficient capital,
liquidity or funding resources to
meet financial obligations and
satisfy regulatory requirements,
including the risk of adverse
impact on earnings or capital
due to structural foreign
exchange exposures and
changes in market interest
rates, together with pension
and insurance risk.
Treasury risk arises from
changes to the respective
resources and risk profiles
driven by customer behaviour,
management decisions, or the
external environment
Treasury risk is:
•measured through risk appetite and more granular limits, set to provide an early
warning of increasing risk, minimum ratios of relevant regulatory metrics, and
metrics to monitor the key risk drivers impacting treasury resources;
•monitored and projected against appetites and by using operating plans based on
strategic objectives together with stress and scenario testing; and
•managed through control of resources in conjunction with risk profiles, strategic
objectives and cash flows.
Market risk (see page 203)
Market risk is the risk of an
adverse financial impact on
trading activities arising from
changes in market parameters
such as interest rates, foreign
exchange rates, asset prices,
volatilities, correlations and
credit spreads.
Exposure to market risk is
separated into two portfolios:
trading portfolios and non-
trading portfolios.
Market risk exposures arising
from our insurance operations
are discussed on page 185.
Market risk is:
•measured using sensitivities, value at risk and stress testing, giving a detailed
picture of potential gains and losses for a range of market movements and
scenarios, as well as tail risks over specified time horizons;
•monitored using value at risk, stress testing and other measures; and
•managed using risk limits approved by the RMM and the risk management meeting
in various global businesses.
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135
Description of risks – banking operations (continued)
Risks
Arising from
Measurement, monitoring and management of risk
Resilience risk (see page 207)
Resilience risk is the risk that
we are unable to provide critical
services to our customers,
affiliates and counterparties as
a result of sustained and
significant operational
disruption.
Resilience risk arises from
failures or inadequacies in
processes, people, systems or
external events.
Resilience risk is:
•measured using a range of metrics with defined maximum acceptable impact
tolerances, and against our agreed risk appetite;
•monitored through oversight of enterprise processes, risks, controls and strategic
change programmes; and
•managed by continual monitoring and thematic reviews.
Regulatory compliance risk (see page 208)
Regulatory compliance risk is
the risk associated with
breaching our duty to clients
and other counterparties,
inappropriate market conduct
and breaching related financial
services regulatory standards.
Regulatory compliance risk
arises from the failure to
observe relevant laws, codes,
rules and regulations and can
manifest itself in poor market or
customer outcomes and lead to
fines, penalties and reputational
damage to our business.
Regulatory compliance risk is:
•measured by reference to risk appetite, identified metrics, incident assessments,
regulatory feedback and the judgement and assessment of our regulatory
compliance teams;
•monitored against the first line of defence risk and control assessments, the results
of the monitoring and control assurance activities of the second line of defence
functions, and the results of internal and external audits and regulatory inspections;
and
•managed by establishing and communicating appropriate policies and procedures,
training employees in them and monitoring activity to help ensure their observance.
Proactive risk control and/or remediation work is undertaken where required.
Financial crime risk (see page 208)
Financial crime risk is the risk of
knowingly or unknowingly
helping parties to commit or to
further potentially illegal activity
through HSBC, including
money laundering, fraud,
bribery and corruption, tax
evasion, sanctions breaches,
and terrorist and proliferation
financing.
Financial crime risk arises from
day-to-day banking operations
involving customers, third
parties and employees.
Financial crime risk is:
• measured by reference to risk appetite, identified metrics, incident assessments,
regulatory feedback and the judgement of, and assessment by, our compliance
teams;
• monitored against the first line of defence risk and control assessments, the results
of the monitoring and control assurance activities of the second line of defence
functions, and the results of internal and external audits and regulatory inspections;
and
• managed by establishing and communicating appropriate policies and procedures,
training employees in them and monitoring activity to help ensure their observance.
Proactive risk control and/or remediation work is undertaken where required.
Model risk (see page 209)
Model risk is the risk of
inappropriate or incorrect
business decisions arising from
the use of models that have
been inadequately designed,
implemented or used or that
model does not perform in line
with expectations and
predictions.
Model risk arises in both
financial and non-financial
contexts whenever business
decision making includes
reliance on models.
Model risk is:
•measured by reference to model performance tracking and the output of detailed
technical reviews, with key metrics including model review statuses and findings;
•monitored against model risk appetite statements, insight from the independent
review function, feedback from internal and external audits, and regulatory reviews;
and
•managed by creating and communicating appropriate policies, procedures and
guidance, training colleagues in their application, and supervising their adoption to
ensure operational effectiveness.
Our insurance manufacturing subsidiaries are regulated separately
from our banking operations. Risks in our insurance entities are
managed using methodologies and processes that are subject to
Group oversight. Our insurance operations are also subject to
many of the same risks as our banking operations, and these are
covered by the Group’s risk management processes. However,
there are specific risks inherent to the insurance operations as
noted below.
Financial risk (see page 214)
For insurance entities, financial risk
includes the risk of not being able
to effectively match liabilities
arising under insurance contracts
with appropriate investments and
that the expected sharing of
financial performance with
policyholders under certain
contracts is not possible.
Exposure to financial risk arises
from:
•market risk affecting the fair
values of financial assets or
their future cash flows;
•credit risk; and
•liquidity risk of entities being
unable to make payments to
policyholders as they
fall due.
Financial risk is:
•measured (i) for credit risk, in terms of economic capital and the amount that
could be lost if a counterparty fails to make repayments; (ii) for market risk, in
terms of economic capital, internal metrics and fluctuations in key financial
variables; and (iii) for liquidity risk, in terms of internal metrics including stressed
operational cash flow projections;
•monitored through a framework of approved limits and delegated authorities; and
•managed through a robust risk control framework, which outlines clear and
consistent policies, principles and guidance. This includes using product design,
asset liability matching and bonus rates.
Insurance risk (see page 216)
Insurance risk is the risk that, over
time, the cost of insurance policies
written, including claims and
benefits, may exceed the total
amount of premiums and
investment income received.
The cost of claims and benefits
can be influenced by many
factors, including mortality and
morbidity experience, as well
as lapse and surrender rates.
Insurance risk is:
•measured in terms of life insurance liabilities and economic capital allocated to
insurance underwriting risk;
•monitored through a framework of approved limits and delegated authorities; and
•managed through a robust risk control framework, which outlines clear and
consistent policies, principles and guidance. This includes using product design,
underwriting, reinsurance and claims-handling procedures.
Description of risks – insurance manufacturing operations
Risks
Arising from
Measurement, monitoring and management of risk
Risk
136
HSBC Holdings plc Annual Report and Accounts 2021
Credit risk
Page
Overview
137
Credit risk management
137
Credit risk in 2021
139
Summary of credit risk
140
Stage 2 decomposition as at December 2021
143
Credit exposure
143
Measurement uncertainty and sensitivity analysis of ECL estimates
144
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
152
Credit quality
155
Customer relief programmes
159
Wholesale lending
162
Personal lending
176
Supplementary information
183
HSBC Holdings
188
Overview
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet an obligation under a contract. Credit risk arises
principally from direct lending, trade finance and leasing business,
but also from other products such as guarantees and credit
derivatives.
Credit risk management
Key developments in 2021
There were no material changes to the policies and practices
for the management of credit risk in 2021. We continued to apply
the requirements of IFRS 9 ‘Financial Instruments’ within the
Credit Risk sub-function.
Due to the Covid-19 pandemic and its continued effects on the
global economy we provided short-term support to customers
through market-specific measures under the current credit policy
framework. We have also implemented the guidance provided by
regulators on managing the credit portfolio as required throughout
the course of the customer relief life cycle.
The extent of our support depends on the degree of country-
specific government support measures, restrictions, associated
policy responses, and the effects of new Covid-19 variants.
The majority of the customer relief programmes that we provided
during the Covid-19 pandemic ended by 31 December 2021 and
will not be reassessed under the revised definition of default. For
further details of market-specific measures to support our personal
and business customers, see page 159.
In the second half of 2021, market concerns regarding China’s
commercial real estate sector emerged. At 31 December 2021 we
had no direct exposures to developers in the ‘red’ category under
the Chinese government’s ‘three red lines’ framework used to
govern the real estate sector. We continue to monitor the situation
closely, including potential indirect impacts that may arise, and
seek to take mitigating actions as required under our existing
policy framework.
During 2021, we adopted the EBA ‘Guidelines on the application
of definition of default’ for our wholesale portfolios. This did not
have a material impact on our wholesale portfolios. For our retail
portfolios, these guidelines will be adopted in 2022 and this is not
expected to have a material impact.
Governance and structure
We have established Group-wide credit risk management and
related IFRS 9 processes. We continue to assess the impact of
economic developments in key markets on specific customers,
customer segments or portfolios. As credit conditions change, we
take mitigating actions, including the revision of risk appetites or
limits and tenors, as appropriate. In addition, we continue to
evaluate the terms under which we provide credit facilities within
the context of individual customer requirements, the quality of the
relationship, local regulatory requirements, market practices and
our local market position.
Credit Risk sub-function
(Audited)
Credit approval authorities are delegated by the Board to the
Group Chief Executive together with the authority to sub-delegate
them. The Credit Risk sub-function in Global Risk and Compliance
is responsible for the key policies and processes for managing
credit risk, which include formulating Group credit policies and
risk rating frameworks, guiding the Group’s appetite for credit risk
exposures, undertaking independent reviews and objective
assessment of credit risk, and monitoring performance and
management of portfolios.
The principal objectives of our credit risk management are:
•to maintain across HSBC a strong culture of responsible
lending, and robust risk policies and control frameworks;
•to both partner and challenge our businesses in defining,
implementing and continually re-evaluating our risk appetite
under actual and scenario conditions; and
•to ensure there is independent, expert scrutiny of credit risks,
their costs and their mitigation.
Key risk management processes
IFRS 9 ‘Financial Instruments’ process
The IFRS 9 process comprises three main areas: modelling and
data; implementation; and governance.
Modelling and data
We have established IFRS 9 modelling and data processes in
various geographies, which are subject to internal model risk
governance including independent review of significant model
developments.
Implementation
A centralised impairment engine performs the expected credit
losses calculation using data, which is subject to a number of
validation checks and enhancements, from a variety of client,
finance and risk systems. Where possible, these checks and
processes are performed in a globally consistent and centralised
manner.
Governance
Regional management review forums are established in key sites
and regions in order to review and approve the impairment results.
Regional management review forums have representatives from
Credit Risk and Finance. The key site and regional approvals are
reported up to the global business impairment committee for final
approval of the Group’s ECL for the period. Required members of
the committee are the global heads of Wholesale Credit, Market
Risk, and Wealth and Personal Banking Risk, as well as the
relevant global business Chief Financial Officer and the Global
Financial Controller.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of
counterparties or exposures have comparable economic
characteristics, or such counterparties are engaged in similar
activities or operate in the same geographical areas or industry
sectors so that their collective ability to meet contractual
obligations is uniformly affected by changes in economic, political
or other conditions. We use a number of controls and measures to
minimise undue concentration of exposure in our portfolios across
industries, countries and global businesses. These include portfolio
and counterparty limits, approval and review controls, and stress
testing.
C redit quality of financial instruments
(Audited)
Our risk rating system facilitates the internal ratings-based
approach under the Basel framework adopted by the Group to
support the calculation of our minimum credit regulatory capital
requirement. The five credit quality classifications encompass a
range of granular internal credit rating grades assigned to
HSBC Holdings plc Annual Report and Accounts 2021
137
wholesale and retail customers, and the external ratings attributed
by external agencies to debt securities.
For debt securities and certain other financial instruments, external
ratings have been aligned to the five quality classifications based
upon the mapping of related customer risk rating (‘CRR’) to
external credit rating.
Wholesale lending
The CRR 10-grade scale summarises a more granular underlying
23-grade scale of obligor probability of default (‘PD’). All corporate
customers are rated using the 10- or 23-grade scale, depending on
the degree of sophistication of the Basel approach adopted for the
exposure.
Each CRR band is associated with an external rating grade by
reference to long-run default rates for that grade, represented by
the average of issuer-weighted historical default rates. This
mapping between internal and external ratings is indicative and
may vary over time.
Retail lending
Retail lending credit quality is based on a 12-month point-in-time
probability-weighted PD.
Credit quality classification
Sovereign debt
securities
and bills
Other debt
securities
and bills
Wholesale lending
and derivatives
Retail lending
External credit
rating
External credit
rating
Internal credit
rating
12-month Basel
probability of
default %
Internal credit
rating
12 month
probability-
weighted PD %
Quality classification 1,2
Strong
BBB and above
A- and above
CRR 1 to CRR 2
0–0.169
Band 1 and 2
0.000–0.500
Good
BBB- to BB
BBB+ to BBB-
CRR 3
0.170–0.740
Band 3
0.501–1.500
Satisfactory
BB- to B and
unrated
BB+ to B and
unrated
CRR 4 to CRR 5
0.741–4.914
Band 4 and 5
1.501–20.000
Sub-standard
B- to C
B- to C
CRR 6 to CRR 8
4.915–99.999
Band 6
20.001–99.999
Credit impaired
Default
Default
CRR 9 to CRR 10
100
Band 7
100
1 Customer risk rating (‘CRR’).
2 12-month point-in-time probability-weighted probability of default (‘PD’).
Quality classification definitions
•‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of
expected loss.
•‘Good’ exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk.
•‘Satisfactory’ exposures require closer monitoring and demonstrate an average-to-fair capacity to meet financial commitments, with moderate default
risk.
•‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern.
•‘Credit-impaired’ exposures have been assessed as described on Note 1.2(i) on the financial statements.
Renegotiated loans and forbearance
(Audited)
‘Forbearance’ describes concessions made on the contractual
terms of a loan in response to an obligor’s financial difficulties.
A loan is classed as ‘renegotiated’ when we modify the
contractual payment terms on concessionary terms because we
have significant concerns about the borrowers’ ability to meet
contractual payments when due. Non-payment-related
concessions (e.g. covenant waivers), while potential indicators of
impairment, do not trigger identification as renegotiated loans
under our existing disclosures.
Loans that have been identified as renegotiated retain this
designation until maturity or derecognition under our existing
disclosures.
For details of our policy on derecognised renegotiated loans, see Note 1.2(i)
on the financial statements.
Credit quality of renegotiated loans
On execution of a renegotiation, the loan will also be classified as
credit impaired if it is not already so classified. In wholesale
lending, all facilities with a customer, including loans that have not
been modified, are considered credit impaired following the
identification of a renegotiated loan under our existing disclosures.
Wholesale renegotiated loans are classified as credit impaired until
there is sufficient evidence to demonstrate a significant reduction
in the risk of non-payment of future cash flows, observed over a
minimum one-year period, and there are no other indicators of
impairment. Personal renegotiated loans generally remain credit
impaired until repayment, write-off or derecognition.
Renegotiated loans and recognition of expected credit lo sses
(Audited)
For retail lending, unsecured renegotiated loans are generally
segmented from other parts of the loan portfolio. Renegotiated
expected credit loss assessments reflect the higher rates of losses
typically encountered with renegotiated loans. For wholesale
lending, renegotiated loans are typically assessed individually.
Credit risk ratings are intrinsic to the impairment assessments. The
individual impairment assessment takes into account the higher
risk of the future non-payment inherent i n renegotiated loans.
Customer relief programmes and renegotiated loans
In response to the Covid-19 pandemic, governments and
regulators around the world encouraged a range of customer relief
programmes including payment deferrals. In determining whether
a customer is experiencing financial difficulty for the purposes of
identifying renegotiated loans a payment deferral requested under
such schemes, or an extension thereof, is not automatically
determined to be evidence of financial difficulty and would
therefore not automatically trigger identification as renegotiated
loans. Rather, information provided by payment deferrals is
considered in the context of other reasonable and supportable
information. The IFRS 9 treatment of customer relief programmes
is explained on page 159.
Impairment assessment
(Audited)
For details of our impairment policies on loans and advances and
financial investments, see Note 1.2(i) on the financial statements.
Risk
138
HSBC Holdings plc Annual Report and Accounts 2021
Write-off of loans and advances
(Audited)
For details of our policy on the write-off of loans and advances,
see Note 1.2(i) on the financial statements.
Unsecured personal facilities, including credit cards, are generally
written off at between 150 and 210 days past due. The standard
period runs until the end of the month in which the account
becomes 180 days contractually delinquent. However, in
exceptional circumstances to achieve a fair customer outcome,
and in line with regulatory expectations, they may be extended
further.
For secured facilities, write-off should occur upon repossession of
collateral, receipt of proceeds via settlement, or determination that
recovery of the collateral will not be pursued.
Any secured assets maintained on the balance sheet beyond
60 months of consecutive delinquency-driven default require
additional monitoring and review to assess the prospect of
recovery.
There are exceptions in a few countries and territories where local
regulation or legislation constrains earlier write-off, or where the
realisation of collateral for secured real estate lending takes more
time. Write-off, either partially or in full, may be earlier when there
is no reasonable expectation of further recovery, for example, in
the event of a bankruptcy or equivalent legal proceedings.
Collection procedures may continue after write-of f.
Credit risk in 2021
At 31 December 2021, gross loans and advances to customers
and banks of $1,140bn increased by $6.3bn, compared with
31 December 2020. This included adverse foreign exchange
movements of $17.0bn and a $2.4bn decrease due to domestic
mass market retail banking in the US being reclassified to assets
held for sale.
Excluding foreign exchange movements, the growth was driven by
a $24.0bn increase in personal loans and advances to customers
and a $3.0bn increase in loans and advances to banks. Wholesale
loans and advances to customers decreased by $3.7bn.
The increase in personal loans and advances to customers was
driven by mortgage growth of $22.8bn, mainly in the UK (up
$10.1bn), Hong Kong (up $6.6bn), Canada (up $3.4bn) and
Australia (up $2.1bn). Other personal lending increased by $1.2bn,
mainly from unsecured personal lending in Hong Kong (up $1.0bn)
and Latin America (up $0.7bn), as well as guaranteed loans in
respect of residential property in France (up $0.8bn). These were
offset by a decrease in credit cards mainly in the US (down
$0.9bn).
At 31 December 2021, the allowance for ECL of $12.2 bn
decreased by $3.5 bn compared with 31 December 2020, including
favourable foreign exchange movements of $0.4 bn. The $12.2 bn
allowance comprised $11.6 bn in respect of assets held at
amortised cost, $0.4 bn in respect of loan commitments and
financial guarantees, and $0.1 bn in respect of debt instruments
measured at fair value through other comprehensive income
(‘FVOCI’).
During the first half of 2021, the Group experienced a release in
allowances for ECL, reflecting an improvement of the economic
outlook. This trend continued during the second half of the year
following better than expected levels of credit performance and
lower levels of stage 3 charges. However, in the later part of the
year the trend slowed down due to the emergence of the new
Omicron variant and the recent developments in China’s
commercial real estate sector.
Excluding foreign exchange movements, the allowance for ECL in
relation to loans and advances to customers decreased by $2.7 bn
from 31 December 2020. This was attributable to:
•a $1.2bn decrease in wholesale loans and advances to
customers, of which $1.0bn was driven by stages 1 and 2; and
•a $1.5 bn decrease in personal loans and advances to
customers, of which $1.3bn was driven by stages 1 and 2.
During the first six months of the year, the Group experienced
significant migrations from stage 2 to stage 1, reflecting an
improvement of the economic outlook. This trend continued
during the second half of 2021 as forecasts underpinning forward
economic guidance stabilised.
Stage 3 balances at 31 December 2021 remained broadly stable
compared with 31 December 2020.
The ECL release for 2021 was $0.9bn, inclusive of recoveries. This
release comprised $0.6bn in respect of wholesale lending, of
which the stage 3 and purchased or originated credit impaired
(‘POCI‘) charge was $0.5bn, and $0.3bn in respect of personal
lending, of which the stage 3 charge was $0.4bn. Uncertainty
remains as countries recover from the pandemic at different
speeds, government support measures unwind and the
emergence of new strains of the virus continue to test the efficacy
of vaccination programmes.
During 2021, we continued to provide Covid-19-related support to
customers under the current policy framework. For further details
of market-specific measures to support our personal and business
customers, see page 159.
Income statement movements are analysed further on page 92.
While credit risk arises across most of our balance sheet, ECL
have typically been recognised on loans and advances to
customers and banks, in addition to securitisation exposures and
other structured products. As a result, our disclosures focus
primarily on these two areas. For further details of:
•maximum exposure to credit risk, see page 144;
•measurement uncertainty and sensitivity analysis of ECL
estimates, see page 144;
•reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers
including loan commitments and financial guarantees, see page
152;
•credit quality, see page 155;
•customer relief programmes, see page 159;
•total wholesale lending for loans and advances to banks and
customers by stage distribution, see page 163;
•wholesale lending collateral, see page 169;
•total personal lending for loans and advances to customers at
amortised cost by stage distribution, see page 177; and
•personal lending collateral, see page 181.
HSBC Holdings plc Annual Report and Accounts 2021
139
Summary of credit risk
The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in
IFRS 9 are applied and the associated allowance for ECL.
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
(Audited)
31 Dec 2021
At 31 Dec 2020
Gross carrying/
nominal amount
Allowance for
ECL 1
Gross carrying/
nominal amount
Allowance for
ECL 1
$m
$m
$m
$m
Loans and advances to customers at amortised cost
1,057,231
(11,417)
1,052,477
(14,490)
– personal
478,337
(3,103)
460,809
(4,731)
– corporate and commercial
513,539
(8,204)
527,088
(9,494)
– non-bank financial institutions
65,355
(110)
64,580
(265)
Loans and advances to banks at amortised cost
83,153
(17)
81,658
(42)
Other financial assets measured at amortised cost
880,351
(193)
772,408
(175)
– cash and balances at central banks
403,022
(4)
304,486
(5)
– items in the course of collection from other banks
4,136
—
4,094
—
– Hong Kong Government certificates of indebtedness
42,578
—
40,420
—
– reverse repurchase agreements – non-trading
241,648
—
230,628
—
– financial investments
97,364
(62)
88,719
(80)
– prepayments, accrued income and other assets 2
91,603
(127)
104,061
(90)
Total gross carrying amount on-balance sheet
2,020,735
(11,627)
1,906,543
(14,707)
Loans and other credit-related commitments
627,637
(379)
659,783
(734)
– personal
239,685
(39)
236,170
(40)
– corporate and commercial
283,625
(325)
299,802
(650)
– financial
104,327
(15)
123,811
(44)
Financial guarantees
27,795
(62)
18,384
(125)
– personal
1,130
—
900
(1)
– corporate and commercial
22,355
(58)
12,946
(114)
– financial
4,310
(4)
4,538
(10)
Total nominal amount off-balance sheet 3
655,432
(441)
678,167
(859)
2,676,167
(12,068)
2,584,710
(15,566)
Fair value
Memorandum
allowance for
ECL 4
Fair value
Memorandum
allowance for
ECL 4
$m
$m
$m
$m
Debt instruments measured at fair value through other comprehensive income (‘FVOCI’)
347,203
(96)
399,717
(141)
1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial
asset, in which case the ECL is recognised as a provision.
2 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. ‘Prepayments, accrued income and other
assets’, as presented within the consolidated balance sheet on page 310, includes both financial and non-financial assets. The 31 December 2021
balances include $2,424m gross carrying amounts and $39m allowances for ECL related to assets held for sale due to the exit of domestic mass
market retail banking in the US.
3 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
4 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is
recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.
The following table provides an overview of the Group’s credit risk
by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
•Stage 1: These financial assets are unimpaired and without
significant increase in credit risk on which a 12-month
allowance for ECL is recognised.
•Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition
for which a lifetime ECL is recognised.
•Stage 3: There is objective evidence of impairment and the
financial assets are therefore considered to be in default or
otherwise credit impaired on which a lifetime ECL is
recognised.
•POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
Risk
140
HSBC Holdings plc Annual Report and Accounts 2021
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 December 2021
(Audited)
Gross carrying/nominal amount 1
Allowance for ECL
ECL coverage %
Stage 1
Stage 2
Stage 3
POCI 2
Total
Stage 1
Stage 2
Stage 3
POCI 2
Total
Stage 1
Stage 2
Stage 3
POCI 2
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
%
%
%
%
%
Loans and
advances to
customers at
amortised cost
918,936
119,224
18,797
274
1,057,231
(1,367)
(3,119)
(6,867)
(64)
(11,417)
0.1
2.6
36.5
23.4
1.1
– personal
456,956
16,439
4,942
—
478,337
(658)
(1,219)
(1,226)
—
(3,103)
0.1
7.4
24.8
—
0.6
– corporate and
commercial
400,894
98,911
13,460
274
513,539
(665)
(1,874)
(5,601)
(64)
(8,204)
0.2
1.9
41.6
23.4
1.6
– non-bank
financial
institutions
61,086
3,874
395
—
65,355
(44)
(26)
(40)
—
(110)
0.1
0.7
10.1
—
0.2
Loans and
advances to
banks at
amortised cost
81,636
1,517
—
—
83,153
(14)
(3)
—
—
(17)
—
0.2
—
—
—
Other financial
assets measured
at amortised
cost
875,016
4,988
304
43
880,351
(91)
(54)
(42)
(6)
(193)
—
1.1
13.8
14.0
—
Loan and other
credit-related
commitments
594,473
32,389
775
—
627,637
(165)
(174)
(40)
—
(379)
—
0.5
5.2
—
0.1
– personal
237,770
1,747
168
—
239,685
(37)
(2)
—
—
(39)
—
0.1
—
—
—
– corporate and
commercial
254,750
28,269
606
—
283,625
(120)
(165)
(40)
—
(325)
—
0.6
6.6
—
0.1
– financial
101,953
2,373
1
—
104,327
(8)
(7)
—
—
(15)
—
0.3
—
—
—
Financial
guarantees
24,932
2,638
225
—
27,795
(11)
(30)
(21)
—
(62)
—
1.1
9.3
—
0.2
– personal
1,114
15
1
—
1,130
—
—
—
—
—
—
—
—
—
—
– corporate and
commercial
20,025
2,107
223
—
22,355
(10)
(28)
(20)
—
(58)
—
1.3
9.0
—
0.3
– financial
3,793
516
1
—
4,310
(1)
(2)
(1)
—
(4)
—
0.4
100.0
—
0.1
At 31 Dec
2021
2,494,993
160,756
20,101
317
2,676,167
(1,648)
(3,380)
(6,970)
(70)
(12,068)
0.1
2.1
34.7
22.1
0.5
1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
2 Purchased or originated credit-impaired (‘POCI’).
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
they are 30 days past due (‘DPD’) and are transferred from stage 1
to stage 2. The following disclosure presents the ageing of stage 2
financial assets by those less than 30 days and greater than 30
DPD and therefore presents those financial assets classified as
stage 2 due to ageing (30 DPD) and those identified at an earlier
stage (less than 30 DPD).
Stage 2 days past due analysis at 31 December 2021
(Audited)
Gross carrying amount
Allowance for ECL
ECL coverage %
Stage 2
Up-to-
date
1 to 29
DPD 1,2
30 and >
DPD 1,2
Stage 2
Up-to-
date
1 to 29
DPD 1,2
30 and >
DPD 1,2
Stage 2
Up-to-
date
1 to 29
DPD 1,2
30 and >
DPD 1,2
$m
$m
$m
$m
$m
$m
$m
$m
%
%
%
%
Loans and advances to
customers at amortised
cost
119,224
115,350
2,193
1,681
(3,119)
(2,732)
(194)
(193)
2.6
2.4
8.8
11.5
– personal
16,439
14,124
1,387
928
(1,219)
(884)
(160)
(175)
7.4
6.3
11.5
18.9
– corporate and
commercial
98,911
97,388
806
717
(1,874)
(1,822)
(34)
(18)
1.9
1.9
4.2
2.5
– non-bank financial
institutions
3,874
3,838
—
36
(26)
(26)
—
—
0.7
0.7
—
—
Loans and advances to
banks at amortised cost
1,517
1,517
—
—
(3)
(3)
—
—
0.2
0.2
—
—
Other financial assets
measured at amortised
cost
4,988
4,935
22
31
(54)
(47)
(4)
(3)
1.1
1.0
18.2
9.7
1 Days past due (‘DPD’).
2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.
HSBC Holdings plc Annual Report and Accounts 2021
141
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 December 2020 (continued)
(Audited)
Gross carrying/nominal amount 1
Allowance for ECL
ECL coverage %
Stage 1
Stage 2
Stage 3
POCI 2
Total
Stage 1
Stage 2
Stage 3
POCI 2
Total
Stage 1
Stage 2
Stage 3
POCI 2
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
%
%
%
%
%
Loans and
advances to
customers at
amortised cost
869,920
163,185
19,095
277
1,052,477
(1,974)
(4,965)
(7,439)
(112)
(14,490)
0.2
3.0
39.0
40.4
1.4
– personal
430,134
25,064
5,611
—
460,809
(827)
(2,402)
(1,502)
—
(4,731)
0.2
9.6
26.8
—
1.0
– corporate and
commercial
387,563
126,287
12,961
277
527,088
(1,101)
(2,444)
(5,837)
(112)
(9,494)
0.3
1.9
45.0
40.4
1.8
– non-bank
financial
institutions
52,223
11,834
523
—
64,580
(46)
(119)
(100)
—
(265)
0.1
1.0
19.1
—
0.4
Loans and
advances to
banks at
amortised cost
79,654
2,004
—
—
81,658
(33)
(9)
—
—
(42)
—
0.4
—
—
0.1
Other financial
assets measured
at amortised
cost
768,216
3,975
177
40
772,408
(80)
(44)
(42)
(9)
(175)
—
1.1
23.7
22.5
—
Loan and other
credit-related
commitments
604,485
54,217
1,080
1
659,783
(290)
(365)
(78)
(1)
(734)
—
0.7
7.2
100.0
0.1
– personal
234,337
1,681
152
—
236,170
(39)
(1)
—
—
(40)
—
0.1
—
—
—
– corporate and
commercial
253,062
45,851
888
1
299,802
(236)
(338)
(75)
(1)
(650)
0.1
0.7
8.4
100.0
0.2
– financial
117,086
6,685
40
—
123,811
(15)
(26)
(3)
—
(44)
—
0.4
7.5
—
—
Financial
guarantees
14,090
4,024
269
1
18,384
(37)
(62)
(26)
—
(125)
0.3
1.5
9.7
—
0.7
– personal
872
26
2
—
900
—
(1)
—
—
(1)
—
3.8
—
—
0.1
– corporate and
commercial
9,536
3,157
252
1
12,946
(35)
(54)
(25)
—
(114)
0.4
1.7
9.9
—
0.9
– financial
3,682
841
15
—
4,538
(2)
(7)
(1)
—
(10)
0.1
0.8
6.7
—
0.2
At 31 Dec 2020
2,336,365
227,405
20,621
319
2,584,710
(2,414)
(5,445)
(7,585)
(122)
(15,566)
0.1
2.4
36.8
38.2
0.6
1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
2 Purchased or originated credit-impaired (‘POCI’).
Stage 2 days past due analysis at 31 December 2020
(Audited)
Gross carrying amount
Allowance for ECL
ECL coverage %
Stage 2
Up-to-date
1 to 29
DPD 1,2
30 and >
DPD 1,2
Stage 2
Up-to-date
1 to 29
DPD 1,2
30 and >
DPD 1,2
Stage 2
Up-to-date
1 to 29
DPD 1,2
30 and >
DPD 1,2
$m
$m
$m
$m
$m
$m
$m
$m
%
%
%
%
Loans and advances to
customers at amortised cost
163,185
159,367
2,052
1,766
(4,965)
(4,358)
(275)
(332)
3.0
2.7
13.4
18.8
– personal
25,064
22,250
1,554
1,260
(2,402)
(1,895)
(227)
(280)
9.6
8.5
14.6
22.2
– corporate and commercial
126,287
125,301
489
497
(2,444)
(2,344)
(48)
(52)
1.9
1.9
9.8
10.5
– non-bank financial
institutions
11,834
11,816
9
9
(119)
(119)
—
—
1.0
1.0
—
—
Loans and advances to banks at
amortised cost
2,004
2,004
—
—
(9)
(9)
—
—
0.4
0.4
—
—
Other financial assets measured
at amortised cost
3,975
3,963
3
9
(44)
(44)
—
—
1.1
1.1
—
—
1 Days past due (‘DPD’).
2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.
Risk
142
HSBC Holdings plc Annual Report and Accounts 2021
Stage 2 decomposition at 31 December 2021
The following disclosure presents the stage 2 decomposition of
gross carrying amount and allowances for ECL for loans and
advances to customers.
The table below discloses the reasons why an exposure moved
into stage 2 originally, and is therefore presented as a significant
increase in credit risk since origination.
The quantitative classification shows when the relevant reporting
date PD measure exceeds defined quantitative thresholds for retail
and wholesale exposures, as set out in Note 1.2 ‘Summary of
significant accounting policies’, on page 324.
The qualitative classification primarily accounts for CRR
deterioration, watch and worry and retail management
judgemental adjustments.
For further details on our approach to the assessment of
significant increase in credit risk, see ‘Summary of significant
accounting policies’ on page 324.
Loans and advances to customers 1
Gross carrying amount
Allowance for ECL
ECL
coverage
Total
Personal
Corporate and
commercial
Non-bank
financial
institutions
Total
Personal
Corporate and
commercial
Non-bank
financial
institutions
Total
$m
$m
$m
$m
$m
$m
$m
$m
%
Quantitative
9,907
68,000
3,041
80,948
(1,076)
(1,347)
(19)
(2,442)
3.0
Qualitative
6,329
30,326
818
37,473
(134)
(520)
(7)
(661)
1.8
30 DPD backstop 2
203
585
15
803
(9)
(7)
—
(16)
2.0
Total stage 2
16,439
98,911
3,874
119,224
(1,219)
(1,874)
(26)
(3,119)
2.6
1 Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross
exposure and ECL have been assigned in order of categories presented.
2 Days past due (‘DPD’).
Credit exposure
Maximum exposure to credit risk
(Audited)
This section provides information on balance sheet items and their
offsets as well as loan and other credit-related commitments.
Commentary on consolidated balance sheet movements in 2021
is provided on page 96.
The offset on derivatives remains in line with the movements
in maximum exposure amounts.
‘Maximum exposure to credit risk’ table
The following table presents our maximum exposure before taking
account of any collateral held or other credit enhancements (unless such
enhancements meet accounting offsetting requirements). The table
excludes financial instruments whose carrying amount best represents the
net exposure to credit risk, and it excludes equity securities as they are not
subject to credit risk. For the financial assets recognised on the balance
sheet, the maximum exposure to credit risk equals their carrying amount
and is net of the allowance for ECL. For financial guarantees and other
guarantees granted, it is the maximum amount that we would have to pay
if the guarantees were called upon. For loan commitments and other
credit-related commitments, it is generally the full amount of the
committed facilities.
The offset in the table relates to amounts where there is a legally
enforceable right of offset in the event of counterparty default and where,
as a result, there is a net exposure for credit risk purposes. However, as
there is no intention to settle these balances on a net basis under normal
circumstances, they do not qualify for net presentation for accounting
purposes. No offset has been applied to off-balance sheet collateral. In the
case of derivatives, the offset column also includes collateral received in
cash and other financial assets.
Other credit risk mitigants
While not disclosed as an offset in the following ‘Maximum
exposure to credit risk’ table, other arrangements are in place that
reduce our maximum exposure to credit risk. These include a
charge over collateral on borrowers’ specific assets, such as
residential properties, collateral held in the form of financial
instruments that are not held on the balance sheet and short
positions in securities. In addition, for financial assets held as part
of linked insurance/investment contracts the risk is predominantly
borne by the policyholder. See page 322 and Note 30 on the
financial statements for further details of collateral in respect of
certain loans and advances and derivatives.
Collateral available to mitigate credit risk is disclosed in the
‘Collateral’ section on page 169.
HSBC Holdings plc Annual Report and Accounts 2021
143
Maximum exposure to credit risk
(Audited)
2021
2020
Maximum
exposure
Offset
Net
Maximum
exposure
Offset
Net
$m
$m
$m
$m
$m
$m
Loans and advances to customers held at amortised cost
1,045,814
(22,838)
1,022,976
1,037,987
(27,221)
1,010,766
– personal
475,234
(4,461)
470,773
456,078
(4,287)
451,791
– corporate and commercial
505,335
(16,824)
488,511
517,594
(21,102)
496,492
– non-bank financial institutions
65,245
(1,553)
63,692
64,315
(1,832)
62,483
Loans and advances to banks at amortised cost
83,136
—
83,136
81,616
—
81,616
Other financial assets held at amortised cost
882,708
(12,231)
870,477
774,116
(14,668)
759,448
– cash and balances at central banks
403,018
—
403,018
304,481
—
304,481
– items in the course of collection from other banks
4,136
—
4,136
4,094
—
4,094
– Hong Kong Government certificates of indebtedness
42,578
—
42,578
40,420
—
40,420
– reverse repurchase agreements – non-trading
241,648
(12,231)
229,417
230,628
(14,668)
215,960
– financial investments
97,302
—
97,302
88,639
—
88,639
– prepayments, accrued income and other assets
94,026
—
94,026
105,854
—
105,854
Derivatives
196,882
(188,284)
8,598
307,726
(293,240)
14,486
Total on-balance sheet exposure to credit risk
2,208,540
(223,353)
1,985,187
2,201,445
(335,129)
1,866,316
Total off-balance sheet
928,183
—
928,183
940,185
—
940,185
– financial and other guarantees
113,088
—
113,088
96,147
—
96,147
– loan and other credit-related commitments
815,095
—
815,095
844,038
—
844,038
At 31 Dec
3,136,723
(223,353)
2,913,370
3,141,630
(335,129)
2,806,501
Concentration of exposure
We have a number of global businesses with a broad range of
products. We operate in a number of geographical markets with
the majority of our exposures in Asia and Europe.
For an analysis of:
•financial investments, see Note 17 on the financial statements;
•trading assets, see Note 11 on the financial statements;
•derivatives, see page 176 and Note 16 on the financial
statements; and
•loans and advances by industry sector and by the location
of the principal operations of the lending subsidiary (or, in the
case of the operations of The Hongkong and Shanghai Banking
Corporation Limited, HSBC Bank plc, HSBC Bank Middle East
Limited and HSBC Bank USA, by the location of the lending
branch), see page 162 for wholesale lending and page 176 for
personal lending.
C redit deterioration of financial instruments
(Audited)
A summary of our current policies and practices regarding the identification,
treatment and measurement of stage 1, stage 2, stage 3 (credit impaired) and
POCI financial instruments can be found in Note 1.2 on the financial
statements.
Measurement uncertainty and sensitivity analysis
of ECL estimates
(Audited)
Despite a broad recovery in economic conditions during 2021, ECL
estimates continued to be subject to a high degree of uncertainty,
and management judgements and estimates continued to reflect a
degree of caution, both in the selection of economic scenarios and
their weightings, and through management judgemental
adjustments. Releases of provisions were made progressively as
economic conditions recovered and by 31 December 2021 the
majority of the 2020 uplift in ECL provisions had been reversed. By
the end of 2021, we retained $0.6b n (15%) of the $3.9b n uplift in
stage 1 and stage 2 ECL provisions on loans made during 2020.
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions
to credit risk models to estimate future credit losses, and
probability-weight the results to determine an unbiased ECL
estimate. Management judgemental adjustments are used to
address late-breaking events, data and model limitations, model
deficiencies and expert credit judgements.
Methodology
Four economic scenarios are used to capture the current
economic environment and to articulate management’s view of
the range of potential outcomes. Scenarios produced to calculate
ECL are aligned to HSBC’s top and emerging risks.
In the second quarter of 2020, to ensure that the severe risks
associated with the pandemic were appropriately captured,
management added a fourth, more severe, scenario to use in the
measurement of ECL. Starting in the fourth quarter of 2021,
HSBC’s methodology has been adjusted so that the use of four
scenarios, of which two are Downside scenarios, is the standard
approach to ECL calculation.
Three of the scenarios are drawn from consensus forecasts and
distributional estimates. The Central scenario is deemed the ‘most
likely’ scenario, and usually attracts the largest probability
weighting, while the outer scenarios represent the tails of the
distribution, which are less likely to occur. The Central scenario is
created using the average of a panel of external forecasters.
Consensus Upside and Downside scenarios are created with
reference to distributions for select markets that capture
forecasters’ views of the entire range of outcomes. In the later
years of the scenarios, projections revert to long-term consensus
trend expectations. In the consensus outer scenarios, reversion to
trend expectations is done mechanically with reference to
historically observed quarterly changes in the values of
macroeconomic variables.
The fourth scenario, Downside 2, is designed to represent
management’s view of severe downside risks. It is a globally
consistent narrative-driven scenario that explores more extreme
economic outcomes than those captured by the consensus
scenarios. In this scenario, variables do not, by design, revert to
long-term trend expectations. They may instead explore alternative
states of equilibrium, where economic activity moves permanently
away from past trends.
The consensus Downside and the consensus Upside scenarios are
each constructed to be consistent with a 10% probability. The
Downside 2 is constructed with a 5% probability. The Central
scenario is assigned the remaining 75%. This weighting scheme is
deemed appropriate for the unbiased estimation of ECL in most
circumstances. However, management may depart from this
probability-based scenario weighting approach when the
economic outlook is determined to be particularly uncertain and
risks are elevated.
In light of ongoing risks, related primarily to the Covid-19
pandemic, management deviated from this probability weighting
in most markets in the fourth quarter of 2021.
Risk
144
HSBC Holdings plc Annual Report and Accounts 2021
Description of economic scenarios
The economic assumptions presented in this section have been
formed by HSBC with reference to external forecasts specifically
for the purpose of calculating ECL.
The global economy experienced a recovery in 2021, following an
unprecedented contraction in 2020. Restrictions to mobility and
travel eased across our key markets, aided by the successful roll-
out of vaccination programmes. The emergence of new variants
that potentially reduce the efficacy of vaccines remains a risk.
Economic forecasts remain subject to a high degree of
uncertainty. Risks to the economic outlook are dominated by the
progression of the pandemic, vaccine roll-out and the public policy
response. Geopolitical risks also remain significant and include
continued differences between the US and other countries with
China over a range of economic and strategic defence issues.
Continued uncertainty over the long-term economic relationship
between the UK and EU also present downside risks.
The scenarios used to calculate ECL in the Annual Report and
Accounts 2021 are described below.
The consensus Central scenario
HSBC’s Central scenario features a continued recovery in
economic growth in 2022 as activity and employment gradually
return to the levels reached prior to the outbreak of Covid-19.
Our Central scenario assumes that the stringent restrictions on
activity, imposed across several countries and territories in 2020
and 2021 are not repeated. The new viral strain that emerged late
in 2021, Omicron, has only a limited impact on the recovery,
according to this scenario. Consumer spending and business
investment, supported by elevated levels of private sector savings,
are expected to drive the economic recovery as fiscal and
monetary policy support recedes.
Regional differences in the speed of economic recovery in the
Central scenario reflect differences over the progression of the
pandemic, roll-out of vaccination programmes, national level
restrictions imposed and scale of support measures. Global GDP is
expected to grow by 4.2% in 2022 in the Central scenario and the
average rate of global GDP growth is 3.1% over the five-year
forecast period. This exceeds the average growth rate over the
five-year period prior to the onset of the pandemic.
The key features of our Central scenario are:
•Economic activity in our top eight markets continues to
recover. GDP grows at a moderate rate and exceeds pre-
pandemic levels across all our key markets in 2022.
•Unemployment declines to levels only slightly higher than
existed pre-pandemic, with the exception of France where the
downward trend in unemployment, related to structural
changes to the labour market, resumes.
•Covid-19-related fiscal spending recedes in 2022 as fewer
restrictions on activity allow fiscal support to be withdrawn.
Deficits remain high in several countries as they embark on
multi-year investment programmes to support recovery,
productivity growth and climate transition.
•Inflation across many of our key markets remains elevated
through 2022. Supply-driven price pressures persist through
the first half of 2022 before gradually easing. In subsequent
years, inflation quickly converges back towards central bank
target rates.
•Policy interest rates in key markets rise gradually over our
projection period, in line with economic recovery.
•The West Texas Intermediate oil price is forecast to average
$62 per barrel over the projection period.
In the longer term, growth reverts back towards similar rates that
existed prior to the pandemic, suggesting that the damage to long-
term economic prospects is expected to be minimal.
The Central scenario was first created with forecasts available in
November, and subsequently updated in December. Probability
weights assigned to the Central scenario vary from 60% to 80%
and reflect relative differences in uncertainty across markets.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Central scenario.
Central scenario 2022–2026
UK
US
Hong Kong
Mainland China
Canada
France
UAE
Mexico
%
%
%
%
%
%
%
%
GDP growth rate
2022: Annual average growth rate
5.0
4.0
3.1
5.3
4.1
3.9
4.4
2.9
2023: Annual average growth rate
2.1
2.4
2.9
5.4
2.8
2.1
3.4
2.3
2024: Annual average growth rate
1.9
2.1
2.6
5.1
2.0
1.6
3.0
2.2
5-year average
2.5
2.5
2.7
5.1
2.5
2.1
3.2
2.3
Unemployment rate
2022: Annual average rate
4.5
4.2
4.1
3.8
6.3
8.0
3.1
4.0
2023: Annual average rate
4.3
3.8
3.6
3.7
5.9
7.7
3.0
3.9
2024: Annual average rate
4.2
3.8
3.5
3.8
5.8
7.6
2.9
3.8
5-year average
4.3
3.8
3.6
3.8
5.9
7.7
3.0
3.8
House price growth
2022: Annual average growth rate
5.5
10.3
3.4
0.3
6.4
4.9
4.9
5.8
2023: Annual average growth rate
3.3
5.4
2.4
4.7
2.8
4.6
—
5.0
2024: Annual average growth rate
3.3
3.7
2.0
4.9
2.1
4.0
2.1
4.4
5-year average
3.5
5.4
2.6
3.5
3.3
3.9
2.7
4.7
Short-term interest rate
2022: Annual average rate
1.0
0.5
0.5
3.1
1.1
(0.5)
1.1
7.2
2023: Annual average rate
1.3
1.1
1.1
3.2
2.0
(0.3)
1.7
8.1
2024: Annual average rate
1.2
1.5
1.6
3.4
2.2
(0.1)
2.2
8.0
5-year average
1.2
1.3
1.4
3.4
1.9
(0.2)
2.0
7.9
Probability
60
75
70
80
75
60
70
65
HSBC Holdings plc Annual Report and Accounts 2021
145
The graphs comparing the respective Central scenarios in the fourth quarters of 2020 and 2021 reveal the extent of economic dislocation
that occurred in 2020 and compare current economic expectations with those held a year ago.
GDP growth: Comparison
UK
Note: Real GDP shown as year-on-year percentage change.
Hong Kong
Note: Real GDP shown as year-on-year percentage change.
US
Note: Real GDP shown as year-on-year percentage change.
Mainland China
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
Compared with the Central scenario, the consensus Upside
scenario features a faster recovery in economic activity during the
first two years, before converging to long-run trend expectations.
The scenario is consistent with a number of key upside risk
themes. These include the orderly and rapid global abatement of
Covid-19 via successful containment and ongoing vaccine
efficacy; de-escalation of tensions between the US and China;
continued fiscal and monetary support; and smooth relations
between the UK and the EU.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Upside scenario.
Consensus Upside scenario best outcome
UK
US
Hong Kong
Mainland China
Canada
France
UAE
Mexico
%
%
%
%
%
%
%
%
GDP growth rate
9.9
(1Q22)
7.3
(3Q22)
10.3
(4Q22)
11.8
(4Q22)
9.1
(3Q22)
7.0
(2Q22)
10.8
(1Q22)
7.6
(3Q22)
Unemployment rate
3.0
(4Q23)
2.7
(2Q23)
2.7
(4Q23)
3.5
(1Q23)
5.0
(2Q23)
6.6
(4Q23)
2.3
(4Q23)
3.3
(3Q22)
House price growth
7.4
(2Q23)
14.8
(1Q22)
11.9
(4Q22)
8.2
(4Q22)
16.0
(4Q22)
6.8
(2Q22)
14.4
(2Q22)
9.6
(1Q23)
Short-term interest rate
0.7
(1Q22)
0.4
(1Q22)
0.6
(1Q22)
3.2
(1Q22)
0.9
(1Q22)
(0.5)
(1Q22)
0.9
(1Q22)
8.7
(1Q22)
Probability
10
5
5
5
10
10
5
5
Note: Extreme point in the consensus Upside is ‘best outcome’ in the scenario, for example the highest GDP growth and the lowest unemployment
rate, in the first two years of the scenario.
Downside scenarios
The progress of the pandemic and the ongoing public policy
response continue to be a key sources of risk. Downside scenarios
assume that new strains of the virus result in an acceleration in
infection rates and increased pressure on public health services,
necessitating restrictions on activity. The reimposition of such
restrictions could be assumed to have a damaging effect on
consumer and business confidence.
Government fiscal programmes in advanced economies in 2020
and 2021 were supported by accommodative actions taken by
central banks. These measures have provided households and
firms with significant support. An inability or unwillingness to
continue with such support or the untimely withdrawal of support
present a downside risk to growth.
While Covid-19 and related risks dominate the economic outlook,
geopolitical risks also present a threat. These risks include:
•continued differences between the US and other countries with
China, which could affect sentiment and restrict global
economic activity;
•the re-emergence of social unrest in Hong Kong; and
•potential disagreements between the UK and the EU, which
may hinder the ability to reach a more comprehensive
agreement on trade and services, despite the Trade and
Cooperation Agreement averting a disorderly UK departure.
Risk
146
HSBC Holdings plc Annual Report and Accounts 2021
The consensus Downside scenario
In the consensus Downside scenario, economic recovery is
weaker compared with the Central scenario as key global risks,
including the Covid-19 pandemic, escalate. Compared with the
Central scenario, GDP growth is expected to be lower,
unemployment rates rise moderately and asset and commodity
prices fall, before gradually recovering towards their long-run
trend expectations.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Downside scenario.
Consensus Downside scenario worst outcome
UK
US
Hong Kong
Mainland China
Canada
France
UAE
Mexico
%
%
%
%
%
%
%
%
GDP growth rate
(0.5)
(3Q23)
0.0
(4Q22)
(1.0)
(4Q22)
2.3
(4Q22)
(0.5)
(4Q22)
0.5
(4Q23)
(2.0)
(4Q22)
(0.7)
(4Q22)
Unemployment rate
5.6
(4Q22)
5.6
(3Q22)
5.6
(2Q22)
4.0
(2Q22)
7.3
(3Q22)
9.1
(3Q22)
4.3
(3Q22)
4.8
(3Q22)
House price growth
(4.2)
(1Q23)
3.0
(4Q23)
(7.9)
(4Q22)
(3.7)
(2Q22)
(2.3)
(4Q22)
2.0
(4Q22)
(6.6)
(1Q23)
2.5
(1Q23)
Short-term interest rate
0.2
(4Q23)
0.3
(1Q22)
0.4
(1Q22)
2.9
(1Q22)
0.5
(3Q23)
(0.5)
(1Q22)
0.6
(4Q23)
4.6
(1Q22)
Probability
15
10
20
10
10
15
20
20
Note: Extreme point in the consensus Downside is 'worst outcome' in the scenario, for example lowest GDP growth and the highest unemployment
rate, in the first two years of the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession. In this
scenario, new Covid-19 variants emerge that cause infections to
rise sharply in 2022, resulting in setbacks to vaccination
programmes and the rapid imposition of restrictions on mobility
and travel across some countries. The scenario also assumes
governments and central banks are unable to significantly increase
fiscal and monetary support, which results in abrupt corrections in
labour and asset markets.
The following table describes key macroeconomic variables and
the probabilities assigned in the Downside 2 scenario.
Downside 2 scenario worst outcome
UK
US
Hong Kong
Mainland China
Canada
France
UAE
Mexico
%
%
%
%
%
%
%
%
GDP growth rate
(4.6)
(4Q22)
(4.6)
(4Q22)
(8.2)
(4Q22)
(4.8)
(4Q22)
(13.9)
(4Q22)
(4.6)
(4Q22)
(12.5)
(4Q22)
(8.5)
(4Q22)
Unemployment rate
7.5
(2Q23)
10.6
(4Q23)
6.1
(4Q22)
5.4
(4Q23)
11.5
(2Q23)
10.0
(4Q23)
4.7
(2Q22)
5.9
(2Q23)
House price growth
(14.2)
(2Q23)
(6.2)
(4Q22)
(17.7)
(4Q22)
(24.8)
(4Q22)
(23.8)
(1Q23)
(6.0)
(2Q23)
(16.2)
(4Q22)
1.0
(2Q23)
Short-term interest rate
1.6
(2Q22)
1.3
(2Q22)
1.3
(2Q22)
4.0
(2Q22)
0.5
(3Q23)
0.4
(2Q22)
1.5
(2Q22)
9.6
(2Q22)
Probability
15
10
5
5
5
15
5
10
Note: Extreme point in the Downside 2 is 'worst outcome' in the scenario, for example lowest GDP growth and the highest unemployment rate, in the
first two years of the scenario.
Scenario weighting
In reviewing the economic conjuncture, the level of uncertainty
and risk, management has considered both global and country-
specific factors. This has led management to assign scenario
probabilities that are tailored to its view of uncertainty in individual
markets.
To inform its view, management has considered the progression
of the virus in individual countries, the speed of vaccine roll-outs,
the degree of current and expected future government support
and connectivity with other countries. Management has also been
guided by the policy response and economic performance through
the pandemic, as well as the evidence that economies have
adapted as the virus has progressed.
A key consideration in the fourth quarter was the emergence of
the new variant, Omicron. The virulence and severity of the new
strain, in addition to the continued efficacy of vaccines against it,
was unknown when the variant first emerged. Management
therefore determined that uncertainty attached to forecasts had
increased and sought to reflect this in scenario weightings.
China’s significant capacity to extend policy support to the
economy and manage through Covid-19-related disruptions, led
management to conclude that the outlook for mainland China was
the least uncertain of all our key markets. The Central scenario
was given an 80% probability while a total of 15% has been
assigned to the two Downside scenarios.
In Hong Kong, the combination of recurrent outbreaks and the
other risks outlined above led management to assign a 25%
weight to the two Downside scenarios.
The UK and France faced the greatest economic uncertainties of
our key markets. The emergence of Omicron exacerbated the rise
in case rates and hospitalisations in both countries, necessitating
the imposition of new restrictions. These increase uncertainties
around economic growth and employment. Accordingly, the
Central scenario was assigned a 60% weight in both countries.
The two Downside scenarios were given a combined probability
weighting of 30% for both the UK and France.
For the US, Canada and Mexico, connectivity across the three
North American economies has been considered. For the US and
Mexico, management similarly sought to reflect the increase in
uncertainty by raising the probability weighting of the Downside 2
scenario. The two Downside scenarios combined have been given
weights of between 20% and 30%. For Canada, the probability
attached to the Downside 2 scenario was reduced. This follows
from an adjustment to the methodology used for this scenario,
which increased its overall severity. The change aligned the
methodology to the global approach and weighting adjustments
reflect the greater implied severity. In the UAE, the impact of the
oil price on the economy and the ability of non-oil sectors to
contribute to economic recovery have influenced the view of
uncertainty. The Central scenario has been assigned between 65%
and 75% weight for these four markets and, with risks perceived
as being weighted to the downside, the two Downside scenarios
have been given weights of between 15% and 30%.
HSBC Holdings plc Annual Report and Accounts 2021
147
The following graphs show the historical and forecasted GDP
growth rate for the various economic scenarios in our four largest
markets.
US
UK
Hong Kong
Mainland China
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involves significant
judgements, assumptions and estimates. Despite a general
recovery in economic conditions during 2021, the level of
estimation uncertainty and judgement has remained high during
2021 as a result of the ongoing economic effects of the Covid-19
pandemic and other sources of economic instability, including
significant judgements relating to:
•the selection and weighting of economic scenarios, given
rapidly changing economic conditions in an unprecedented
manner, uncertainty as to the effect of government and central
bank support measures designed to alleviate adverse economic
impacts, and a wider distribution of economic forecasts than
before the pandemic. The key judgements are the length of
time over which the economic effects of the pandemic will
occur, and the speed and shape of recovery. The main factors
include the effectiveness of pandemic containment measures,
the pace of roll-out and effectiveness of vaccines, and the
emergence of new variants of the virus, plus a range of
geopolitical uncertainties, which together represent a high
degree of estimation uncertainty, particularly in assessing
Downside scenarios;
•estimating the economic effects of those scenarios on ECL,
where there is no observable historical trend that can be
reflected in the models that will accurately represent the effects
of the economic changes of the severity and speed brought
about by the Covid-19 pandemic and the recovery from those
conditions. Modelled assumptions and linkages between
economic factors and credit losses may underestimate or
overestimate ECL in these conditions, and there is significant
uncertainty in the estimation of parameters such as collateral
values and loss severity; and
•the identification of customers experiencing significant
increases in credit risk and credit impairment, particularly
where those customers have accepted payment deferrals and
other reliefs designed to address short-term liquidity issues
given muted default experience to date. The use of
segmentation techniques for indicators of significant increases
in credit risk involves significant estimation uncertainty.
How economic scenarios are reflected in ECL
calculations
Models are used to reflect economic scenarios on ECL estimates.
As described above, modelled assumptions and linkages based on
historical information could not alone produce relevant information
under the conditions experienced in 2021, and management
judgemental adjustments were still required to support modelled
outcomes.
We have developed globally consistent methodologies for the
application of forward economic guidance into the calculation of
ECL for wholesale and retail credit risk. These standard
approaches are described below, followed by the management
judgemental adjustments made, including those to reflect the
circumstances experienced in 2021.
For our wholesale portfolios, a global methodology is used for the
estimation of the term structure of probability of default (‘PD’) and
loss given default (‘LGD’). For PDs, we consider the correlation of
forward economic guidance to default rates for a particular
industry in a country. For LGD calculations, we consider the
correlation of forward economic guidance to collateral values and
realisation rates for a particular country and industry. PDs and
LGDs are estimated for the entire term structure of each
instrument.
For impaired loans, LGD estimates take into account independent
recovery valuations provided by external consultants where
available or internal forecasts corresponding to anticipated
economic conditions and individual company conditions. In
estimating the ECL on impaired loans that are individually
considered not to be significant, we incorporate forward economic
guidance proportionate to the probability-weighted outcome and
the Central scenario outcome for non-stage 3 populations.
Risk
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HSBC Holdings plc Annual Report and Accounts 2021
For our retail portfolios, the impact of economic scenarios on PD is
modelled at a portfolio level. Historical relationships between
observed default rates and macroeconomic variables are
integrated into IFRS 9 ECL estimates by using economic response
models. The impact of these scenarios on PD is modelled over a
period equal to the remaining maturity of the underlying asset or
assets. The impact on LGD is modelled for mortgage portfolios by
forecasting future loan-to-value (‘LTV’) profiles for the remaining
maturity of the asset by using national level forecasts of the house
price index and applying the corresponding LGD expectation.
These models are based largely on historical observations and
correlations with default rates. Management judgemental
adjustments are described below.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments
are short-term increases or decreases to the ECL at either a
customer, segment or portfolio level to account for late-breaking
events, model and data limitations and deficiencies, and expert
credit judgement applied following management review and
challenge.
At 31 December 2021, management judgements were applied to
reflect credit risk dynamics not captured by our models. The
drivers of the management judgemental adjustments reflect the
changing economic outlook and evolving risks across our
geographies.
Where the macroeconomic and portfolio risk outlook continues to
improve, supported by low levels of observed defaults,
adjustments initially taken to reflect increased risk expectations
have been retired or reduced.
However, other adjustments have increased where modelled
outcomes are overly sensitive and not aligned to observed
changes in the risk of the underlying portfolios during the
pandemic, or where sector-specific risks are not adequately
captured.
The effects of management judgemental adjustments are
considered for balances and ECL when determining whether or
not a significant increase in credit risk has occurred and are
attributed or allocated to a stage as appropriate. This is in
accordance with the internal adjustments framework.
Management judgemental adjustments are reviewed under the
governance process for IFRS 9 (as detailed in the section ‘Credit
risk management’ on page 137). Review and challenge focuses on
the rationale and quantum of the adjustments with a further
review carried out by the second line of defence where significant.
For some management judgemental adjustments, internal
frameworks establish the conditions under which these
adjustments should no longer be required and as such are
considered as part of the governance process. This internal
governance process allows management judgemental
adjustments to be reviewed regularly and, where possible, to
reduce the reliance on these through model recalibration or
redevelopment, as appropriate.
Management judgemental adjustments made in estimating the
scenario-weighted reported ECL at 31 December 2021 are set out
in the following table. The table includes adjustments in relation to
data and model limitations, including those driven by late-breaking
events and sector-specific risks and as a result of the regular
process of model development and implementation.
Management judgemental adjustments to ECL at 31 December
2021 1
Retail
Wholesale
Total
$bn
$bn
$bn
Low-risk counterparties
(banks, sovereigns and
government entities)
(0.1)
(0.1)
Corporate lending
adjustments
1.3
1.3
Retail lending probability
of default adjustments
—
Retail model default
timing adjustments
—
Macroeconomic-related
adjustments
—
Pandemic-related
economic recovery
adjustments
0.2
0.2
Other retail lending
adjustments
0.3
0.3
Total
0.5
1.2
1.7
.
Management judgemental adjustments to ECL at 31 December
2020 1
Retail
Wholesale
Total
$bn
$bn
$bn
Low-risk counterparties
(banks, sovereigns and
government entities)
(0.7)
(0.7)
Corporate lending
adjustments
0.5
0.5
Retail lending probability
of default adjustments
(0.8)
(0.8)
Retail model default
timing adjustment
1.9
1.9
Macroeconomic-related
adjustments
0.1
0.1
Pandemic-related
economic recovery
adjustments
—
Other retail lending
adjustments
0.3
0.3
Total
1.5
(0.2)
1.3
1 Management judgemental adjustments presented in the table reflect
increases or (decreases) to ECL, respectively.
Management judgemental adjustments at 31 December 2021
were an increase to ECL of $1.2b n for the wholesale portfolio and
an increase to ECL of $0.5b n for the retail portfolio.
During 2021, management judgemental adjustments reflected an
evolving macroeconomic outlook and the relationship of the
modelled ECL to this outlook and to late-breaking and sector-
specific risks.
At 31 December 2021, wholesale management judgemental
adjustments were an ECL increase of $1.2b n (31 December 2020:
$0.2bn decrease).
•Adjustments relating to low credit-risk exposures decreased
ECL by $0.1b n at 31 December 2021 (31 December 2020:
$0.7b n decrease). These were mainly to highly rated banks,
sovereigns and US government-sponsored entities, where
modelled credit factors did not fully reflect the underlying
fundamentals of these entities or the effect of government
support and economic programmes in the Covid-19
environment. The decrease in adjustment impact relative to
31 December 2020 was mostly driven by increased alignment
of modelled outcomes to management expectations following
changes in systems and data.
•Adjustments to corporate exposures increased ECL by $1.3b n
at 31 December 2021 (31 December 2020: $0.5b n increase).
These principally reflected the outcome of management
judgements for high-risk and vulnerable sectors in some of our
key markets, supported by credit experts’ input, portfolio risk
metrics, quantitative analyses and benchmarks. Considerations
include risk of individual exposures under different
HSBC Holdings plc Annual Report and Accounts 2021
149
macroeconomic scenarios and comparison of key risk metrics
to pre-pandemic levels, resulting in either releases or increases
to ECL in each geography. The increase in adjustment impact
relative to 31 December 2020 was mostly driven by
management judgements as a result of the effect of further
improvement of macroeconomic scenarios on modelled
outcomes and increased dislocation of modelled outcomes to
management expectations for high-risk sectors and due to late-
breaking events not fully reflected in the underlying data. The
highest increase was observed in the real estate sector,
including an adjustment to reflect the uncertainty of the higher
risk Chinese commercial real estate offshore exposures, booked
in Hong Kong, on account of tightening liquidity and increased
refinancing risks resulting in the downgrade of even some
previously highly rated borrowers.
At 31 December 2021, retail management judgemental
adjustments were an ECL increase of $0.5b n (31 December 2020:
$1.5b n increase).
•Pandemic-related economic recovery adjustments increased
ECL by $0.2b n (31 December 2020: $0) to adjust for the effects
of the volatile pace of recovery from the pandemic. This is
where in management’s judgement, supported by quantitative
analyses of portfolio and economic metrics, modelled
outcomes are overly sensitive given the limited observed
deterioration in the underlying portfolio during the pandemic.
•Other retail lending adjustments increased ECL by $0.3b n
(31 December 2020: $0.3b n increase). These were primarily to
address areas such as model recalibration and redevelopment,
customer relief and data limitations.
Economic scenarios sensitivity analysis of ECL
estimates
Management considered the sensitivity of the ECL outcome
against the economic forecasts as part of the ECL governance
process by recalculating the ECL under each scenario described
above for selected portfolios, applying a 100% weighting to each
scenario in turn. The weighting is reflected in both the
determination of a significant increase in credit risk and the
measurement of the resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the
future under different economic scenarios is captured by
recalculating ECL for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing more severe risk scenarios when assigned a
100% weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL and financial instruments related to defaulted (stage
3) obligors. It is generally impracticable to separate the effect of
macroeconomic factors in individual assessments of obligors in
default. The measurement of stage 3 ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios, and loans to defaulted obligors are a small
portion of the overall wholesale lending exposure, even if
representing the majority of the allowance for ECL. Therefore, the
sensitivity analysis to macroeconomic scenarios does not capture
the residual estimation risk arising from wholesale stage 3
exposures.
For retail credit risk exposures, the sensitivity analysis includes
ECL for loans and advances to customers related to defaulted
obligors. This is because the retail ECL for secured mortgage
portfolios including loans in all stages is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated inclusive of
management judgemental adjustments, as appropriate to each
scenario. The results tables exclude portfolios held by the
insurance business and small portfolios, and as such cannot be
directly compared to personal and wholesale lending presented in
other credit risk tables. Additionally, in both the wholesale and
retail analysis, the comparative period results for Downside 2
scenarios are also not directly comparable with the current period,
because they reflect different risk profiles relative to the consensus
scenarios for the period end.
Wholesale analysis
IFRS 9 ECL sensitivity to future economic conditions 1, 2, 3
Gross carrying
amount 2
Reported ECL
Consensus
Central scenario
ECL
Consensus
Upside scenario
ECL
Consensus
Downside
scenario ECL
Downside 2
scenario ECL
By geography at 31 Dec 2021
$m
$m
$m
$m
$m
$m
UK
483,273
920
727
590
944
1,985
US
227,817
227
204
155
317
391
Hong Kong
434,608
767
652
476
984
1,869
Mainland China
120,627
149
113
36
216
806
Canada
85,117
151
98
61
150
1,121
Mexico
23,054
118
80
61
123
358
UAE
44,767
158
122
73
214
711
France
163,845
133
121
106
162
187
By geography at 31 Dec 2020
UK
430,555
2,077
1,514
1,026
2,271
3,869
US
201,263
369
314
219
472
723
Hong Kong
452,983
474
388
211
672
1,363
Mainland China
118,163
116
93
28
252
1,158
Canada
85,720
183
140
82
253
528
Mexico
25,920
246
222
177
285
437
UAE
44,777
250
241
190
330
536
France
164,899
117
109
97
131
238
1 ECL sensitivity includes off-balance sheet financial instruments that are subject to significant measurement uncertainty.
2 Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the
above scenarios.
3 Excludes defaulted obligors. For a detailed breakdown of performing and non-performing wholesale portfolio exposures, see page 162.
Risk
150
HSBC Holdings plc Annual Report and Accounts 2021
At 31 December 2021, the most significant level of ECL sensitivity
was observed in Hong Kong, the UK and Canada. Real estate was
the sector with higher sensitivity to a severe scenario, namely in
Hong Kong and Canada. In the case of Hong Kong, the higher ECL
sensitivity was mainly driven by increased uncertainty due to
tightening liquidity and increased refinancing risks resulting in the
downgrade of even some previously highly rated borrowers. In the
case of Canada, the higher ECL sensitivity was mainly driven by
the adoption of a new Downside 2 scenario, which resulted in
increased modelled ECL for this scenario relative to 31 December
2020.
Retail analysis
IFRS 9 ECL sensitivity to future economic conditions 1
Gross carrying
amount
Reported ECL
Consensus Central
scenario ECL
Consensus Upside
scenario ECL
Consensus
Downside scenario
ECL
Downside 2
scenario ECL
ECL of loans and advances to
customers at 31 December 2021
$m
$m
$m
$m
$m
$m
UK
Mortgages
155,084
191
182
175
197
231
Credit cards
8,084
439
381
330
456
987
Other
7,902
369
298
254
388
830
Mexico
Mortgages
4,972
123
116
106
130
164
Credit cards
1,167
141
134
122
150
176
Other
2,935
366
360
350
374
401
Hong Kong
Mortgages
96,697
—
—
—
—
—
Credit cards
7,644
218
206
154
231
359
Other
5,628
109
101
88
128
180
UAE
Mortgages
1,982
45
44
42
46
57
Credit cards
429
43
41
29
54
82
Other
615
19
18
13
21
25
France
Mortgages
23,159
63
62
62
63
64
Other
1,602
61
61
60
61
63
US
Mortgages
15,379
28
27
26
29
41
Credit cards
446
80
76
70
83
118
Canada
Mortgages
26,097
28
27
26
29
48
Credit cards
279
9
9
9
10
13
Other
1,598
19
18
17
19
27
IFRS 9 ECL sensitivity to future economic conditions 1
Gross carrying
amount
Reported ECL
Central scenario
ECL
Upside scenario
ECL
Downside scenario
ECL
Additional
Downside scenario
ECL of loans and advances to customers
at 31 December 2020
$m
$m
$m
$m
$m
$m
UK
Mortgages
146,478
197
182
172
205
221
Credit cards
7,869
857
774
589
904
1,084
Other
9,164
897
795
471
1,022
1,165
Mexico
Mortgages
3,896
111
101
79
136
167
Credit cards
1,113
260
255
243
269
290
Other
2,549
436
428
411
451
491
Hong Kong
Mortgages
89,943
—
—
—
—
—
Credit cards
7,422
266
259
247
277
405
Other
6,020
112
105
102
115
130
UAE
Mortgages
1,889
66
63
53
73
78
Credit cards
426
92
81
62
107
126
Other
683
38
37
33
41
46
France
Mortgages
24,565
68
68
68
69
70
Other
1,725
88
87
85
88
91
US
Mortgages
15,399
41
39
38
41
53
Credit cards
570
86
84
81
88
119
Canada
Mortgages
22,454
31
30
29
31
36
Credit cards
260
9
9
8
9
9
Other
1,775
22
21
20
24
28
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
HSBC Holdings plc Annual Report and Accounts 2021
151
At 31 December 2021, the most significant level of ECL sensitivity
was observed in the UK, Mexico and Hong Kong. Mortgages
reflected the lowest level of ECL sensitivity across most markets
as collateral values remained resilient. Hong Kong mortgages had
low levels of reported ECL due to the credit quality of the portfolio,
and so presented sensitivity was negligible. Credit cards and other
unsecured lending are more sensitive to economic forecasts,
which improved during 2021.
Group ECL sensitivity results
The ECL impact of the scenarios and management judgemental
adjustments are highly sensitive to movements in economic
forecasts. Based upon the sensitivity tables presented above, if the
Group ECL balance was estimated solely on the basis of the
Central scenario, Downside scenario or the Downside 2 scenario
at 31 December 2021, it would increase/(decrease) as presented in
the below table.
Retail 1
Wholesale 1
Total Group ECL at 31 December 2021
$bn
$bn
Reported ECL
3.0
3.1
Scenarios
100% Consensus Central scenario
(0.2)
(0.6)
100% Consensus Upside scenario
(0.5)
(1.2)
100% Consensus Downside scenario
0.2
0.6
100% Downside 2 scenario
2.0
5.5
Retail 1
Wholesale
Total Group ECL at 31 December 2020
$bn
$bn
Reported ECL
4.5
4.5
Scenarios
100% Consensus Central scenario
(0.3)
(0.9)
100% Consensus Upside scenario
(1.0)
(2.0)
100% Consensus Downside scenario
0.3
1.0
100% Downside 2 scenario
1.3
5.9
1 On the same basis as retail and wholesale sensitivity analysis.
For both retail and wholesale portfolios, the reported ECL
decreased since 31 December 2020. The relative sensitivity of the
Group total consensus Central scenario remained relatively stable,
while the Group total consensus Upside and consensus Downside
sensitivities both reduced since 31 December 2020. The Group
total Downside 2 scenario continues to present the highest level of
sensitivity. The Group results are reflective of the improvement in
economic expectations, inclusive of the continuing pandemic-
related and sector-specific uncertainty.
Reconciliation of changes in gross carrying/
nominal amount and allowances for loans and
advances to banks and customers including loan
commitments and financial guarantees
The following disclosure provides a reconciliation by stage of the
Group’s gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan
commitments and financial guarantees. Movements are calculated
on a quarterly basis and therefore fully capture stage movements
between quarters. If movements were calculated on a year-to-date
basis they would only reflect the opening and closing position of
the financial instrument.
The transfers of financial instruments represents the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the
underlying customer risk rating (‘CRR’)/probability of default (‘PD’)
movements of the financial instruments transferring stage. This is
captured, along with other credit quality movements in the
‘changes in risk parameters – credit quality’ line item.
Changes in ‘New financial assets originated or purchased’, ‘assets
derecognised (including final repayments)’ and ‘changes to risk
parameters – further lending/repayment’ represent the impact
from volume movements within the Group’s lending portfolio.
Risk
152
HSBC Holdings plc Annual Report and Accounts 2021
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
1,506,451
(2,331)
223,432
(5,403)
20,424
(7,544)
279
(113)
1,750,586
(15,391)
Transfers of financial instruments:
21,107
(1,792)
(27,863)
2,601
6,756
(809)
—
—
—
—
– transfers from stage 1 to stage 2
(159,633)
527
159,633
(527)
—
—
—
—
—
—
– transfers from stage 2 to stage 1
182,432
(2,279)
(182,432)
2,279
—
—
—
—
—
—
– transfers to stage 3
(2,345)
24
(6,478)
1,010
8,823
(1,034)
—
—
—
—
– transfers from stage 3
653
(64)
1,414
(161)
(2,067)
225
—
—
—
—
Net remeasurement of ECL arising
from transfer of stage
—
1,225
—
(596)
—
(34)
—
—
—
595
New financial assets originated or
purchased
444,070
(553)
—
—
—
—
124
—
444,194
(553)
Assets derecognised (including final
repayments)
(304,158)
174
(31,393)
489
(2,750)
458
(10)
6
(338,311)
1,127
Changes to risk parameters –
further lending/repayment
(61,742)
547
(3,634)
498
(1,268)
576
(108)
12
(66,752)
1,633
Changes to risk parameters – credit
quality
—
1,111
—
(1,012)
—
(2,354)
—
28
—
(2,227)
Changes to models used for ECL
calculation
—
(17)
—
(33)
—
1
—
—
—
(49)
Assets written off
—
—
—
—
(2,610)
2,605
(7)
7
(2,617)
2,612
Credit-related modifications that
resulted in derecognition
—
—
—
—
(125)
—
—
—
(125)
—
Foreign exchange
(25,231)
26
(2,918)
45
(479)
157
(4)
1
(28,632)
229
Others 1
(2,915)
53
(1,882)
85
(151)
16
—
(5)
(4,948)
149
At 31 Dec 2021
1,577,582
(1,557)
155,742
(3,326)
19,797
(6,928)
274
(64)
1,753,395
(11,875)
ECL income statement change for
the period
2,487
(654)
(1,353)
46
526
Recoveries
409
Others
(111)
Total ECL income statement
change for the period
824
1 Total includes $3.0b n of gross carrying loans and advances to customers, which were classified to assets held for sale and a corresponding
allowance for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.
At 31 Dec 2021
12 months ended
31 Dec 2021
Gross carrying/nominal
amount
Allowance for ECL
ECL charge
$m
$m
$m
As above
1,753,395
(11,875)
824
Other financial assets measured at amortised cost
880,351
(193)
(19)
Non-trading reverse purchase agreement commitments
42,421
—
—
Performance and other guarantees not considered for IFRS 9
—
—
75
Summary of financial instruments to which the impairment requirements in
IFRS 9 are applied/Summary consolidated income statement
2,676,167
(12,068)
880
Debt instruments measured at FVOCI
347,203
(96)
48
Total allowance for ECL/total income statement ECL change for the period
n/a
(12,164)
928
As shown in the previous table, the allowance for ECL for loans
and advances to customers and banks and relevant loan
commitments and financial guarantees decreased $3,516m during
the period from $15,391m at 31 December 2020 to $11,875m at
31 December 2021.
This decrease was primarily driven by:
•$2,612m of assets written off;
•$2,207m relating to volume movements, which included the
ECL allowance associated with new originations, assets
derecognised and further lending/repayment;
•$595m relating to the net remeasurement impact of stage
transfers; and
•foreign exchange and other movements of $378m.
These were partly offset by:
•$2,227m relating to underlying credit quality changes, including
the credit quality impact of financial instruments transferring
between stages; and
•$49m of changes to models used for ECL calculation.
The ECL release for the period of $526m presented in the previous
table consisted of $2,207m relating to underlying net book volume
movement and $595m relating to the net remeasurement impact
of stage transfers. This was partly offset by $2,227m relating to
underlying credit quality changes, including the credit quality
impact of financial instruments transferring between stages and
$49m in changes to models used for ECL calculation.
Summary views of the movement in wholesale and personal
lending are presented on pages 165 and 179.
HSBC Holdings plc Annual Report and Accounts 2021
153
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
POCI
Gross
exposure
Allowance/
provision
for ECL
Gross
exposure
Allowance/
provision
for ECL
Gross
exposure
Allowance/
provision for
ECL
Gross
exposure
Allowance/
provision
for ECL
Gross
exposure
Allowance/
provision for
ECL
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2020
1,561,613
(1,464)
105,551
(2,441)
14,335
(5,121)
345
(99)
1,681,844
(9,125)
Transfers of financial instruments:
(129,236)
(1,122)
116,783
1,951
12,453
(829)
—
—
—
—
– transfers from stage 1 to stage 2
(298,725)
947
298,725
(947)
—
—
—
—
—
—
– transfers from stage 2 to stage 1
172,894
(2,073)
(172,894)
2,073
—
—
—
—
—
—
– transfers to stage 3
(3,942)
30
(10,320)
986
14,262
(1,016)
—
—
—
—
– transfers from stage 3
537
(26)
1,272
(161)
(1,809)
187
—
—
—
—
Net remeasurement of ECL arising
from transfer of stage
—
907
—
(1,158)
—
(750)
—
—
—
(1,001)
New financial assets originated or
purchased
437,836
(653)
—
—
—
—
25
(1)
437,861
(654)
Assets derecognised (including final
repayments)
(313,347)
160
(37,409)
464
(3,430)
485
(23)
2
(354,209)
1,111
Changes to risk parameters –
further lending/repayment
(83,147)
157
29,092
85
(597)
248
(50)
(2)
(54,702)
488
Changes to risk parameters – credit
quality
—
(408)
—
(4,374)
—
(4,378)
—
(39)
—
(9,199)
Changes to models used for ECL
calculation
—
134
—
294
—
5
—
—
—
433
Assets written off
—
—
—
—
(2,946)
2,944
(30)
30
(2,976)
2,974
Credit-related modifications that
resulted in derecognition
—
—
—
—
(23)
7
—
—
(23)
7
Foreign exchange
32,808
(47)
9,123
(223)
633
(163)
4
(3)
42,568
(436)
Others
(76)
5
292
(1)
(1)
8
8
(1)
223
11
At 31 Dec 2020
1,506,451
(2,331)
223,432
(5,403)
20,424
(7,544)
279
(113)
1,750,586
(15,391)
ECL income statement change for
the period
297
(4,689)
(4,390)
(40)
(8,822)
Recoveries
326
Others
(84)
Total ECL income statement change
for the period
(8,580)
At 31 Dec 2020
12 months ended 31 Dec 2020
Gross carrying/
nominal amount
Allowance for ECL
ECL charge
$m
$m
$m
As above
1,750,586
(15,391)
(8,580)
Other financial assets measured at amortised cost
772,408
(175)
(95)
Non-trading reverse purchase agreement commitments
61,716
—
—
Performance and other guarantees not considered for IFRS 9
—
—
(94)
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/
Summary consolidated income statement
2,584,710
(15,566)
(8,769)
Debt instruments measured at FVOCI
399,717
(141)
(48)
Total allowance for ECL/total income statement ECL change for the period
n/a
(15,707)
(8,817)
Risk
154
HSBC Holdings plc Annual Report and Accounts 2021
Credit quality
Credit quality of financial instruments
(Audited)
We assess the credit quality of all financial instruments that are
subject to credit risk. The credit quality of financial instruments is
a point-in-time assessment of PD, whereas stages 1 and 2 are
determined based on relative deterioration of credit quality since
initial recognition. Accordingly, for non-credit-impaired financial
instruments, there is no direct relationship between the credit
quality assessment and stages 1 and 2, although typically the
lower credit quality bands exhibit a higher proportion in stage 2.
The five credit quality classifications each encompass a range of
granular internal credit rating grades assigned to wholesale and
personal lending businesses and the external ratings attributed by
external agencies to debt securities, as shown in the table on
page 138.
Distribution of financial instruments by credit quality at 31 December 2021
(Audited)
Gross carrying/notional amount
Allowance for
ECL/other
credit
provisions
Net
Strong
Good
Satisfactory
Sub-standard
Credit
impaired
Total
$m
$m
$m
$m
$m
$m
$m
$m
In-scope for IFRS 9
Loans and advances to customers
held at amortised cost
544,695
230,326
233,739
29,404
19,067
1,057,231
(11,417)
1,045,814
– personal
388,903
52,080
30,492
1,920
4,942
478,337
(3,103)
475,234
– corporate and commercial
124,819
158,938
188,858
27,194
13,730
513,539
(8,204)
505,335
– non-bank financial institutions
30,973
19,308
14,389
290
395
65,355
(110)
65,245
Loans and advances to banks held
at amortised cost
72,978
4,037
5,020
1,118
—
83,153
(17)
83,136
Cash and balances at central
banks
400,176
1,675
1,171
—
—
403,022
(4)
403,018
Items in the course of collection
from other banks
4,122
10
4
—
—
4,136
—
4,136
Hong Kong Government
certificates of indebtedness
42,578
—
—
—
—
42,578
—
42,578
Reverse repurchase agreements –
non-trading
175,576
46,412
18,881
779
—
241,648
—
241,648
Financial investments
84,477
11,442
1,401
1
43
97,364
(62)
97,302
Prepayments, accrued income and
other assets
67,097
12,109
11,685
408
304
91,603
(127)
91,476
– endorsements and acceptances
1,742
5,240
4,038
199
26
11,245
(17)
11,228
– accrued income and other
65,355
6,869
7,647
209
278
80,358
(110)
80,248
Debt instruments measured at
fair value through other
comprehensive income 1
320,161
12,298
11,677
1,087
46
345,269
(96)
345,173
Out-of-scope for IFRS 9
Trading assets
101,879
16,254
20,283
678
134
139,228
—
139,228
Other financial assets designated
and otherwise mandatorily
measured at fair value through
profit or loss
6,438
723
4,455
150
—
11,766
—
11,766
Derivatives
146,748
42,717
6,691
719
7
196,882
—
196,882
Total gross carrying amount
on balance sheet
1,966,925
378,003
315,007
34,344
19,601
2,713,880
(11,723)
2,702,157
Percentage of total credit quality
72.5%
13.9%
11.6%
1.3%
0.7%
100%
Loan and other credit-related
commitments
389,865
136,297
92,558
8,142
775
627,637
(379)
627,258
Financial guarantees
16,511
4,902
5,166
991
225
27,795
(62)
27,733
In-scope: Irrevocable loan
commitments and financial
guarantees
406,376
141,199
97,724
9,133
1,000
655,432
(441)
654,991
Loan and other credit-related
commitments
62,701
65,031
56,446
3,327
332
187,837
—
187,837
Performance and other
31,510
32,193
19,265
2,027
539
85,534
(179)
85,355
Out-of-scope: Revocable loan
commitments and non-
financial guarantees
94,211
97,224
75,711
5,354
871
273,371
(179)
273,192
1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss
allowance. As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it
excludes fair value gains and losses.
HSBC Holdings plc Annual Report and Accounts 2021
155
Distribution of financial instruments by credit quality at 31 December 2020 (continued)
(Audited)
Gross carrying/notional amount
Allowance for
ECL/other
credit
provisions
Net
Strong
Good
Satisfactory
Sub- standard
Credit impaired
Total
$m
$m
$m
$m
$m
$m
$m
$m
In-scope for IFRS 9
Loans and advances to customers
held at amortised cost
506,231
233,320
256,584
36,970
19,372
1,052,477
(14,490)
1,037,987
– personal
357,821
53,892
38,520
4,965
5,611
460,809
(4,731)
456,078
– corporate and commercial
120,971
158,601
203,560
30,718
13,238
527,088
(9,494)
517,594
– non-bank financial institutions
27,439
20,827
14,504
1,287
523
64,580
(265)
64,315
Loans and advances to banks held
at amortised cost
71,318
5,496
3,568
1,276
—
81,658
(42)
81,616
Cash and balances at central
banks
302,028
1,388
1,070
—
—
304,486
(5)
304,481
Items in the course of collection
from other banks
4,079
9
6
—
—
4,094
—
4,094
Hong Kong Government
certificates of indebtedness
40,420
—
—
—
—
40,420
—
40,420
Reverse repurchase agreements –
non-trading
177,457
40,461
12,398
312
—
230,628
—
230,628
Financial investments
77,361
9,781
1,537
1
39
88,719
(80)
88,639
Prepayments, accrued income and
other assets
81,886
10,129
11,570
298
178
104,061
(90)
103,971
– endorsements and acceptances
1,458
4,355
4,245
229
20
10,307
(30)
10,277
– accrued income and other
80,428
5,774
7,325
69
158
93,754
(60)
93,694
Debt instruments measured at fair
value through other
comprehensive income 1
367,685
12,678
10,409
825
306
391,903
(141)
391,762
Out-of-scope for IFRS 9
Trading assets
117,972
14,694
20,809
829
43
154,347
—
154,347
Other financial assets designated
and otherwise mandatorily
measured at fair value through
profit or loss
6,440
2,378
1,827
109
—
10,754
—
10,754
Derivatives
243,005
54,581
8,709
1,359
72
307,726
—
307,726
Total gross carrying amount on
balance sheet
1,995,882
384,915
328,487
41,979
20,010
2,771,273
(14,848)
2,756,425
Percentage of total credit quality
72.0%
13.9%
11.9%
1.5%
0.7%
100%
Loan and other credit-related
commitments
400,911
157,339
90,784
9,668
1,081
659,783
(734)
659,049
Financial guarantees
6,356
5,194
5,317
1,247
270
18,384
(125)
18,259
In-scope: Irrevocable loan
commitments and financial
guarantees
407,267
162,533
96,101
10,915
1,351
678,167
(859)
677,308
Loan and other credit-related
commitments
59,392
62,664
59,666
2,837
430
184,989
—
184,989
Performance and other guarantees
26,082
27,909
21,256
2,112
755
78,114
(226)
77,888
Out-of-scope: Revocable loan
commitments and non-financial
guarantees
85,474
90,573
80,922
4,949
1,185
263,103
(226)
262,877
1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss
allowance. As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it
excludes fair value gains and losses.
Risk
156
HSBC Holdings plc Annual Report and Accounts 2021
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(Audited)
Gross carrying/notional amount
Allowance
for ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers at amortised
cost
544,695
230,326
233,739
29,404
19,067
1,057,231
(11,417)
1,045,814
– stage 1
537,642
206,645
169,809
4,840
—
918,936
(1,367)
917,569
– stage 2
7,053
23,681
63,930
24,560
—
119,224
(3,119)
116,105
– stage 3
—
—
—
—
18,797
18,797
(6,867)
11,930
– POCI
—
—
—
4
270
274
(64)
210
Loans and advances to banks at amortised cost
72,978
4,037
5,020
1,118
—
83,153
(17)
83,136
– stage 1
72,903
3,935
4,788
10
—
81,636
(14)
81,622
– stage 2
75
102
232
1,108
—
1,517
(3)
1,514
– stage 3
—
—
—
—
—
—
—
—
– POCI
—
—
—
—
—
—
—
—
Other financial assets measured at amortised
cost
774,026
71,648
33,142
1,188
347
880,351
(193)
880,158
– stage 1
773,427
70,508
30,997
84
—
875,016
(91)
874,925
– stage 2
599
1,140
2,145
1,104
—
4,988
(54)
4,934
– stage 3
—
—
—
—
304
304
(42)
262
– POCI
—
—
—
—
43
43
(6)
37
Loan and other credit-related commitments
389,865
136,297
92,558
8,142
775
627,637
(379)
627,258
– stage 1
387,434
129,455
76,043
1,541
—
594,473
(165)
594,308
– stage 2
2,431
6,842
16,515
6,601
—
32,389
(174)
32,215
– stage 3
—
—
—
—
775
775
(40)
735
– POCI
—
—
—
—
—
—
—
—
Financial guarantees
16,511
4,902
5,166
991
225
27,795
(62)
27,733
– stage 1
16,351
4,469
3,929
183
—
24,932
(11)
24,921
– stage 2
160
433
1,237
808
—
2,638
(30)
2,608
– stage 3
—
—
—
—
225
225
(21)
204
– POCI
—
—
—
—
—
—
—
—
At 31 Dec 2021
1,798,075
447,210
369,625
40,843
20,414
2,676,167
(12,068)
2,664,099
Debt instruments at FVOCI 1
– stage 1
319,557
12,196
11,354
—
—
343,107
(67)
343,040
– stage 2
604
102
323
1,087
—
2,116
(22)
2,094
– stage 3
—
—
—
—
—
—
—
—
– POCI
—
—
—
—
46
46
(7)
39
At 31 Dec 2021
320,161
12,298
11,677
1,087
46
345,269
(96)
345,173
1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss
allowance. As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it
excludes fair value gains and losses.
HSBC Holdings plc Annual Report and Accounts 2021
157
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(continued)
(Audited)
Gross carrying/notional amount
Strong
Good
Satisfactory
Sub-standard
Credit
impaired
Total
Allowance for
ECL
Net
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers at amortised
cost
506,231
233,320
256,584
36,970
19,372
1,052,477
(14,490)
1,037,987
– stage 1
499,836
199,138
165,507
5,439
—
869,920
(1,974)
867,946
– stage 2
6,395
34,182
91,077
31,531
—
163,185
(4,965)
158,220
– stage 3
—
—
—
—
19,095
19,095
(7,439)
11,656
– POCI
—
—
—
—
277
277
(112)
165
Loans and advances to banks at amortised cost
71,318
5,496
3,568
1,276
—
81,658
(42)
81,616
– stage 1
71,126
5,098
3,357
73
—
79,654
(33)
79,621
– stage 2
192
398
211
1,203
—
2,004
(9)
1,995
– stage 3
—
—
—
—
—
—
—
—
– POCI
—
—
—
—
—
—
—
—
Other financial assets measured at amortised
cost
683,231
61,768
26,581
611
217
772,408
(175)
772,233
– stage 1
682,412
61,218
24,532
54
—
768,216
(80)
768,136
– stage 2
819
550
2,049
557
—
3,975
(44)
3,931
– stage 3
—
—
—
—
177
177
(42)
135
– POCI
—
—
—
—
40
40
(9)
31
Loan and other credit-related commitments
400,911
157,339
90,784
9,668
1,081
659,783
(734)
659,049
– stage 1
396,028
143,600
63,592
1,265
—
604,485
(290)
604,195
– stage 2
4,883
13,739
27,192
8,403
—
54,217
(365)
53,852
– stage 3
—
—
—
—
1,080
1,080
(78)
1,002
– POCI
—
—
—
—
1
1
(1)
—
Financial guarantees
6,356
5,194
5,317
1,247
270
18,384
(125)
18,259
– stage 1
6,286
4,431
3,163
210
—
14,090
(37)
14,053
– stage 2
70
763
2,154
1,037
—
4,024
(62)
3,962
– stage 3
—
—
—
—
269
269
(26)
243
– POCI
—
—
—
—
1
1
—
1
At 31 Dec 2020
1,668,047
463,117
382,834
49,772
20,940
2,584,710
(15,566)
2,569,144
Debt instruments at FVOCI 1
– stage 1
367,542
12,585
10,066
—
—
390,193
(88)
390,105
– stage 2
143
93
343
825
—
1,404
(20)
1,384
– stage 3
—
—
—
—
257
257
(23)
234
– POCI
—
—
—
—
49
49
(10)
39
At 31 Dec 2020
367,685
12,678
10,409
825
306
391,903
(141)
391,762
1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss
allowance. As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it
excludes fair value gains and losses.
Credit-i mpaired loans
(Audited)
We determine 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 when a concession has been granted to the borrower
for economic or legal reasons relating to the borrower’s
financial condition; and
•the loan is otherwise considered to be in default. If such
unlikeliness to pay is not identified at an earlier stage, it is
deemed to occur when an exposure is 90 days past due, even
where regulatory rules permit default to be defined based on
180 days past due. Therefore, the definitions of credit impaired
and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit impaired.
Renegotiated loans and forbearance
The following table shows the gross carrying amounts of the
Group’s holdings of renegotiated loans and advances to
customers by industry sector and by stages. Mandatory and
general offer loan modifications that are not borrower-specific, for
example market-wide customer relief programmes, have not been
classified as renegotiated loans. For details on customer relief
schemes, see page 159.
A summary of our current policies and practices for renegotiated loans and
forbearance is set out in ‘Credit risk management’ on page 137.
Risk
158
HSBC Holdings plc Annual Report and Accounts 2021
Renegotiated loans and advances to customers at amortised cost by stage allocation
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
Gross carrying amount
Personal
—
—
2,256
—
2,256
– first lien residential mortgages
—
—
1,547
—
1,547
– other personal lending
—
—
709
—
709
Wholesale
366
559
4,505
253
5,683
– corporate and commercial
355
550
4,491
253
5,649
– non-bank financial institutions
11
9
14
—
34
At 31 Dec 2021
366
559
6,761
253
7,939
Allowance for ECL
Personal
—
—
(400)
—
(400)
– first lien residential mortgages
—
—
(178)
—
(178)
– other personal lending
—
—
(222)
—
(222)
Wholesale
(7)
(24)
(1,282)
(52)
(1,365)
– corporate and commercial
(7)
(24)
(1,274)
(52)
(1,357)
– non-bank financial institutions
—
—
(8)
—
(8)
At 31 Dec 2021
(7)
(24)
(1,682)
(52)
(1,765)
Gross carrying amount
Personal
—
—
2,429
—
2,429
– first lien residential mortgages
—
—
1,692
—
1,692
– other personal lending
—
—
737
—
737
Wholesale
328
989
3,929
239
5,485
– corporate and commercial
324
972
3,903
239
5,438
– non-bank financial institutions
4
17
26
—
47
At 31 Dec 2020
328
989
6,358
239
7,914
Allowance for ECL
Personal
—
—
(452)
—
(452)
– first lien residential mortgages
—
—
(152)
—
(152)
– other personal lending
—
—
(300)
—
(300)
Wholesale
(10)
(36)
(1,276)
(86)
(1,408)
– corporate and commercial
(10)
(36)
(1,263)
(86)
(1,395)
– non-bank financial institutions
—
—
(13)
—
(13)
At 31 Dec 2020
(10)
(36)
(1,728)
(86)
(1,860)
Renegotiated loans and advances to customers by geographical region
Of which:
Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2021
4,119
1,322
954
1,064
480
7,939
3,469
528
At 31 Dec 2020
4,274
745
1,279
1,349
267
7,914
3,483
220
Customer relief programmes
In response to the Covid-19 pandemic, governments and
regulators around the world introduced a number of support
measures for both personal and wholesale customers in market-
wide schemes. The following table presents the number of
personal accounts/wholesale customers and the associated drawn
loan values of customers under these schemes and HSBC-specific
measures for major markets at 31 December 2021. When
schemes expire, accounts and customers and their associated
drawn balances are no longer reported under relief regardless of
their repayment status. In relation to personal lending, the majority
of relief measures, including payment holidays, relate to existing
lending, while in wholesale lending the relief measures comprise
payment holidays, refinancing of existing facilities and new
lending under government-backed schemes.
At 31 December 2021, the gross carrying value of loans to
personal customers under relief was $1.7bn (31 December 2020:
$5.5bn). This comprised $1.0bn in relation to mortgages
(31 December 2020: $4.7bn) and $0.7bn in relation to other
personal lending (31 December 2020: $0.9bn). The decrease in
personal customer relief during the year was driven by customers
exiting relief measures. The gross carrying value of loans to
wholesale customers under relief was $26.3bn (31 December
2020: $35.3bn). We continue to monitor the recoverability of loans
granted under customer relief programmes, including loans to a
small number of customers that were subsequently found to be
ineligible for such relief. The ongoing performance of such loans
remains an area of uncertainty at 31 December 2021.
HSBC Holdings plc Annual Report and Accounts 2021
159
Personal lending
Extant at 31 December 2021
UK
Hong
Kong
US
Other major
markets 1,2
Total
Market-wide schemes
Number of accounts granted mortgage customer relief
000s
—
—
—
8
8
Drawn loan value of accounts granted mortgage customer relief
$m
—
—
—
657
657
Number of accounts granted other personal lending customer relief
000s
—
—
—
34
34
Drawn loan value of accounts granted other personal lending customer relief
$m
—
—
—
613
613
HSBC-specific measures
Number of accounts granted mortgage customer relief
000s
—
—
1
—
1
Drawn loan value of accounts granted mortgage customer relief
$m
—
57
336
3
396
Number of accounts granted other personal lending customer relief
000s
—
—
—
1
1
Drawn loan value of accounts granted other personal lending customer relief
$m
—
34
18
10
62
Total personal lending to major markets under market-wide schemes and
HSBC-specific measures
Number of accounts granted mortgage customer relief
000s
—
—
1
8
9
Drawn loan value of accounts granted mortgage customer relief
$m
—
57
336
660
1,053
Number of accounts granted other personal lending customer relief
000s
—
—
—
35
35
Drawn loan value of accounts granted other personal lending customer relief
$m
—
34
18
623
675
Market-wide schemes and HSBC-specific measures – mortgage relief as a
proportion of total mortgages
%
—
0.1
2.0
0.8
0.3
Market-wide schemes and HSBC-specific measures – other personal lending
relief as a proportion of total other personal lending loans and advances
%
—
0.1
2.3
1.2
0.7
Wholesale lending
Extant at 31 December 2021
UK
Hong
Kong
US
Other major
markets 1
Total
Market-wide schemes
Number of customers under market-wide measures
000s
227
1
1
5
234
Drawn loan value of customers under market-wide schemes
$m
12,468
2,907
262
4,501
20,138
HSBC-specific schemes
Number of customers under HSBC-specific measures
000s
—
5
—
—
5
Drawn loan value of customers under HSBC-specific measures
$m
82
4,611
42
1,420
6,155
Total wholesale lending to major markets under market-wide schemes and
HSBC-specific measures
Number of customers
000s
227
6
1
5
239
Drawn loan value
$m
12,550
7,518
304
5,921
26,293
Market-wide schemes and HSBC-specific measures as a proportion of total
wholesale lending loans and advances
%
9.9
4.1
0.9
2.9
4.8
Personal lending (continued)
Extant at 31 December 2020
UK
Hong Kong
US
Other major
markets 1,2,3
Total
Market-wide schemes
Number of accounts granted mortgage customer relief
000s
6
—
—
5
11
Drawn loan value of accounts granted mortgage customer relief
$m
1,412
—
—
908
2,320
Number of accounts granted other personal lending customer relief
000s
15
—
—
28
43
Drawn loan value of accounts granted other personal lending customer relief
$m
140
—
—
386
526
HSBC-specific measures
Number of accounts granted mortgage customer relief
000s
—
3
2
3
8
Drawn loan value of accounts granted mortgage customer relief
$m
7
1,124
864
360
2,355
Number of accounts granted other personal lending customer relief
000s
—
1
6
18
25
Drawn loan value of accounts granted other personal lending customer relief
$m
—
75
67
182
324
Total personal lending to major markets under market-wide schemes and HSBC-
specific measures
Number of accounts granted mortgage customer relief
000s
6
3
2
8
19
Drawn loan value of accounts granted mortgage customer relief
$m
1,419
1,124
864
1,268
4,675
Number of accounts granted other personal lending customer relief
000s
15
1
6
46
68
Drawn loan value of accounts granted other personal lending customer relief
$m
140
75
67
568
850
Market-wide schemes and HSBC-specific measures – mortgage relief as a proportion
of total mortgages
%
0.9
1.2
4.7
1.6
1.4
Market-wide schemes and HSBC-specific measures – other personal lending relief as
a proportion of total other personal lending loans and advances
%
0.7
0.2
3.1
1.1
0.8
Risk
160
HSBC Holdings plc Annual Report and Accounts 2021
Wholesale lending (continued)
Extant at 31 December 2020
UK
Hong Kong
US
Other major
markets 1
Total
Market-wide schemes
Number of customers under market-wide measures
000s
226
3
3
5
237
Drawn loan value of customers under market-wide schemes
$m
13,517
10,622
1,043
6,017
31,199
HSBC-specific schemes
Number of customers under HSBC-specific measures
000s
—
—
—
—
—
Drawn loan value of customers under HSBC-specific measures
$m
349
—
924
2,869
4,142
Total wholesale lending to major markets under market-wide schemes and HSBC-
specific measures
Number of customers
000s
226
3
3
5
237
Drawn loan value
$m
13,866
10,622
1,967
8,886
35,341
Market-wide schemes and HSBC-specific measures as a proportion of total wholesale
lending loans and advances
%
9.6
5.9
5.2
4.6
6.4
1 Other major markets include Australia, Canada, mainland China, Egypt, France, Germany, India, Indonesia, Malaysia, Mexico, Singapore,
Switzerland, Taiwan and UAE.
2 In Malaysia, personal lending customers are granted an automatic moratorium programme for all eligible retail customers. As a result of further
loosening of eligibility criteria and scope of relief measures, the country is now the major contributor to the figures reported under ‘Other major
markets’. At 31 December 2021, the number of accounts under relief was 39,000 (31 December 2020: 26,000) with an associated drawn balance
of $1,151 m (31 December 2020: $452m).
3 In Mexico, at 31 December 2020, there were 16,000 personal lending accounts under customer relief with an associated drawn balance of
$233m.
The initial granting of customer relief does not automatically
trigger a migration to stage 2 or 3. However, information provided
by payment deferrals is considered in the context of other
reasonable and supportable information. This forms part of the
overall assessment for whether there has been a significant
increase in credit risk and credit impairment to identify loans for
which lifetime ECL is appropriate. An extension in payment
deferral does not automatically result in a migration to stage 2 or
stage 3. The key accounting and credit risk judgement to ascertain
whether a significant increase in credit risk has occurred is
whether the economic effects of the Covid-19 pandemic on the
customer are likely to be temporary over the lifetime of the loan,
and whether they indicate that a concession is being made in
respect of financial difficulty that would be consistent with
stage 3.
Market-wide schemes
The following narrative provides further details on the major
government and regulatory schemes offered in the UK, Hong Kong
and the US.
UK personal lending
Mortgages
Customer relief granted on UK mortgages primarily consisted of
payment holidays or partial payment deferrals.
Relief was offered for an initial period of three months and could
be extended for a further three months in certain circumstances.
No payment was required from the customer during this period
(though with a partial payment deferral the customer had
expressed a desire to make a contribution) and interest continued
to be charged as usual. The customer’s arrears status was not
worsened from utilisation of these schemes. All UK personal
lending schemes expired during 2021.
Other personal lending payment holidays
Customer relief was granted for an initial period of three months
and could be extended for a further three months. The maximum
relief value was up to the due payment amount during the period.
All UK personal lending schemes expired during 2021.
UK wholesale lending
The primary relief granted under government schemes consisted
of the Bounce Back Loan Scheme, Coronavirus Business
Interruption Loan Scheme and Coronavirus Large Business
Interruption Loan Scheme. Since their initial launch, the
application deadline for these schemes was extended to 31 March
2021. The key features of these schemes were as follows:
•The Bounce Back Loan Scheme provided small and medium-
sized enterprises (‘SME’) with loans of up to £50,000 for a
maximum period of six years. Interest was charged at 2.5% and
the government paid the fees and interest for the first 12
months. No capital repayment was required by the customer
for the first 12 months of the scheme. A government guarantee
of 100% was provided under the scheme. Before their first
payment was due customers could extend the term of the loan
to 10 years, move to interest-only repayments for a period of
six months (customers could use this option up to three times)
and/or pause repayments for a period of six months (customers
could use this option once).
•The Coronavirus Business Interruption Loan Scheme provided
SMEs that had a turnover of less than £45m with loans of up to
£5m for a maximum period of six years. Interest was charged
between 3.49% and 3.99% above the UK base rate and no
capital repayment was required by the customer for the first 12
months of the scheme. A government guarantee of up to 80%
was provided under the scheme.
•The Coronavirus Large Business Interruption Loan Scheme
provided medium and large-sized enterprises that had a
turnover in excess of £45m with loans of up to £200m. The
interest rate and tenor of the loan were negotiated on
commercial terms. A government guarantee of 80% was
provided under the scheme.
Until 31 December 2021, the Recovery Loan Scheme, launched on
6 April 2021, provided businesses of any size financial support to
recover from the Covid-19 pandemic with loans of £25,001 to
£10m subject to eligibility and viability assessments. A
government guarantee of 80% was provided under the scheme.
For term loans and asset finance, businesses could borrow for
three months up to six years and for overdrafts and invoice
finance, three months up to three years. The scheme was
extended until 30 June 2022, with the following changes coming
into force from 1 January 2022: the scheme remains open to small
and medium-sized enterprises and the maximum amount of
finance available is £2m per business. A government guarantee of
70% is provided on such loans.
Hong Kong wholesale lending
Pre-approved Principal Payment Holiday Scheme for Corporate
Customers
The above scheme enabled eligible customers to apply for a
payment holiday of six months (or 90 days for trade finance) with
no change to the existing interest rate charge. On 2 September
2020, the Hong Kong Monetary Authority (‘HKMA’) announced
that this scheme had been extended for a further six months to
April 2021 and on 4 March 2021, it was extended for a further six
months (or 90 days for trade finance) to October 2021.
HSBC Holdings plc Annual Report and Accounts 2021
161
Given the persistence of the Covid-19 pandemic around the world
and the severity of the ensuing impact on the global and local
economy, HKMA – together with the Banking Sector SME Lending
Coordination Mechanism – announced on 21 September 2021 that
the Pre-approved Principal Payment Holiday Scheme would be
extended for another six months until April 2022. HKMA and the
coordination mechanism agreed that all principal payments of
loans falling due between November 2021 and April 2022 by
eligible corporate customers would be deferred by another six
months except for repayments of trade loans, which would be
deferred by 90 days.
US wholesale lending
Paycheck Protection Program
The CARES Act created the Paycheck Protection Program (‘PPP’)
loan guarantee programme to provide small businesses with
support to cover payroll and certain other expenses. Loans made
under the PPP were fully guaranteed by the Small Business
Administration, whose guarantee was backed by the full faith and
credit of the US. PPP-covered loans also afforded customers
forgiveness up to the principal amount of the PPP-covered loan,
plus accrued interest, if the loan proceeds were used to retain
workers and maintain payroll or to make certain mortgage
interest, lease and utility payments, and certain other criteria were
satisfied. The Small Business Administration would reimburse PPP
lenders for any amount of a PPP-covered loan that was forgiven,
and PPP lenders would not be liable for any representations made
by PPP borrowers in connection with their requests for loan
forgiveness. Lenders received pre-determined fees for processing
and servicing PPP loans. The schemes have now been closed.
HSBC-specific measures
UK wholesale lending
HSBC offered capital repayment holidays to CMB customers.
Relief was offered on a preferred term of six months. However,
some were granted for three months with the option of an
extension. Interest continued to be paid as usual. Schemes have
now been closed for application.
Hong Kong personal lending
Mortgages
Customer relief granted on Hong Kong mortgages consisted of
deferred principal repayment of up to 12 months. This relief
programme was available to existing HSBC mortgage loan
customers who had a good repayment record during the six
months prior to application. Schemes have now been closed for
application.
Hong Kong wholesale lending
On 20 May 2021, the Group announced a new SME financing
scheme in Hong Kong, with HK$40bn reserved to support SME
customers as the economy started to recover. The scheme has
now been closed for application.
US total personal lending
Customer relief granted on US mortgages and other personal
lending consisted of deferrals of up to 12 months and up to nine
months respectively. Schemes have now been closed for
application.
Wholesale lending
This section provides further details on the regions, countries,
territories and products comprising wholesale loans and advances
to customers and banks. Product granularity is also provided by
stage with geographical data presented for loans and advances to
customers, banks, other credit commitments, financial guarantees
and similar contracts. Additionally, this section provides a
reconciliation of the opening 1 January 2021 to 31 December 2021
closing gross carrying/nominal amounts and the associated
allowance for ECL.
At 31 December 2021, wholesale lending for loans and advances
to banks and customers of $662bn decreased by $11.3bn since
31 December 2020. This included adverse foreign exchange
movements of $10.6bn. Excluding foreign exchange movements,
the total wholesale lending decrease was driven by a $5.2bn
decline in corporate and commercial balances. This was partly
offset by a $3bn increase in loans and advances to banks and a
$1.5bn increase in balances from non-bank financial institutions.
The primary driver of the decline in corporate and commercial
balances was $11.2bn in Europe, notably $12.4bn in the UK and
$1bn in Germany, partly offset by growth of $4.6bn in France.
In MENA and North America, balances declined $1.4bn and
$0.9bn respectively, while they grew in Asia by $8.0bn, notably
$4.3bn in mainland China, $1.6bn in Hong Kong and $1.1bn in
India.
Loan commitments and financial guarantees declined $26.5bn
since 31 December 2020 to $415bn at 31 December 2021,
including a $19.3bn decrease related to unsettled reverse
repurchase agreements. This also included adverse foreign
exchange movements of $12.7bn.
The allowance for ECL attributable to wholesale loans and
advances to banks and customers decreased $1.5bn to $8.3bn at
31 December 2021 from $9.8bn at 31 December 2020. This
included favourable foreign exchange movements of $0.2bn.
Excluding foreign exchange movements, the total decrease in the
wholesale ECL allowance for loans and advances to customers
and banks was driven by a $1.1bn decline in corporate and
commercial allowances. The primary driver of this decrease in
corporate and commercial allowance for ECL was $1.1bn in
Europe, notably $1.1bn in the UK. Additionally, there were
decreases of $0.2bn, $0.2bn and $0.1bn in MENA, North America
and Latin America, respectively. There was an increase of $0.6bn
in Asia, notably $0.4bn in Hong Kong.
The allowance for ECL attributable to loan commitments and
financial guarantees of $0.4bn at 31 December 2021 decreased
from $0.8bn at 31 December 2020.
Risk
162
HSBC Holdings plc Annual Report and Accounts 2021
Total wholesale lending for loans and advances to banks and customers by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Corporate and commercial
400,894
98,911
13,460
274
513,539
(665)
(1,874)
(5,601)
(64)
(8,204)
– agriculture, forestry and fishing
6,510
1,026
362
1
7,899
(10)
(23)
(104)
(1)
(138)
– mining and quarrying
7,167
2,055
447
16
9,685
(17)
(39)
(159)
(12)
(227)
– manufacturing
75,193
16,443
2,019
88
93,743
(110)
(176)
(931)
(31)
(1,248)
– electricity, gas, steam and air-
conditioning supply
15,255
1,285
78
—
16,618
(16)
(21)
(31)
—
(68)
– water supply, sewerage, waste
management and remediation
3,376
468
51
—
3,895
(5)
(4)
(20)
—
(29)
– construction
9,506
3,605
842
1
13,954
(24)
(44)
(439)
(1)
(508)
– wholesale and retail trade, repair of
motor vehicles and motorcycles
79,137
12,802
3,003
2
94,944
(71)
(99)
(1,936)
(1)
(2,107)
– transportation and storage
21,199
7,726
658
9
29,592
(56)
(116)
(191)
—
(363)
– accommodation and food
8,080
14,096
1,199
1
23,376
(67)
(245)
(110)
(1)
(423)
– publishing, audiovisual and
broadcasting
16,417
1,804
222
28
18,471
(37)
(47)
(94)
(6)
(184)
– real estate
93,633
25,154
2,375
98
121,260
(132)
(737)
(775)
—
(1,644)
– professional, scientific and technical
activities
16,160
2,888
637
—
19,685
(26)
(40)
(172)
—
(238)
– administrative and support services
23,186
4,740
719
30
28,675
(40)
(84)
(296)
(11)
(431)
– public administration and defence,
compulsory social security
938
333
—
—
1,271
(5)
(3)
—
—
(8)
– education
1,455
273
65
—
1,793
(4)
(15)
(18)
—
(37)
– health and care
3,743
928
183
—
4,854
(11)
(24)
(37)
—
(72)
– arts, entertainment and recreation
1,620
826
152
—
2,598
(6)
(44)
(42)
—
(92)
– other services
10,123
1,726
448
—
12,297
(26)
(101)
(246)
—
(373)
– activities of households
860
117
—
—
977
—
—
—
—
—
– extra-territorial organisations and
bodies activities
2
—
—
—
2
—
—
—
—
—
– government
7,010
602
—
—
7,612
(2)
(2)
—
—
(4)
– asset-backed securities
324
14
—
—
338
—
(10)
—
—
(10)
Non-bank financial institutions
61,086
3,874
395
—
65,355
(44)
(26)
(40)
—
(110)
Loans and advances to banks
81,636
1,517
—
—
83,153
(14)
(3)
—
—
(17)
At 31 Dec 2021
543,616
104,302
13,855
274
662,047
(723)
(1,903)
(5,641)
(64)
(8,331)
By geography
Europe
154,575
31,871
6,741
30
193,217
(356)
(654)
(1,806)
(9)
(2,825)
– of which: UK
101,029
24,461
5,126
28
130,644
(306)
(518)
(1,060)
(6)
(1,890)
Asia
297,423
53,993
3,997
199
355,612
(182)
(830)
(2,299)
(43)
(3,354)
– of which: Hong Kong
165,437
30,305
1,990
159
197,891
(85)
(650)
(836)
(21)
(1,592)
MENA
26,135
5,295
1,682
22
33,134
(62)
(108)
(1,028)
(11)
(1,209)
North America
53,513
10,397
652
—
64,562
(57)
(215)
(169)
—
(441)
Latin America
11,970
2,746
783
23
15,522
(66)
(96)
(339)
(1)
(502)
At 31 Dec 2021
543,616
104,302
13,855
274
662,047
(723)
(1,903)
(5,641)
(64)
(8,331)
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution 1
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Corporate and commercial
274,775
30,376
829
—
305,980
(130)
(193)
(60)
—
(383)
Financial
105,746
2,889
2
—
108,637
(9)
(9)
(1)
—
(19)
At 31 Dec 2021
380,521
33,265
831
—
414,617
(139)
(202)
(61)
—
(402)
By geography
Europe
189,770
15,585
673
—
206,028
(67)
(76)
(47)
—
(190)
– of which: UK
68,136
8,430
389
—
76,955
(55)
(49)
(28)
—
(132)
Asia
72,179
5,229
20
—
77,428
(35)
(40)
(5)
—
(80)
– of which: Hong Kong
31,314
1,517
10
—
32,841
(11)
(17)
(2)
—
(30)
MENA
6,335
1,017
19
—
7,371
(10)
(18)
(3)
—
(31)
North America
109,851
11,350
91
—
121,292
(24)
(66)
(1)
—
(91)
Latin America
2,386
84
28
—
2,498
(3)
(2)
(5)
—
(10)
At 31 Dec 2021
380,521
33,265
831
—
414,617
(139)
(202)
(61)
—
(402)
1 Included in loans and other credit-related commitments and financial guarantees is $42bn relating to unsettled reverse repurchase agreements,
which once drawn are classified as ‘Reverse repurchase agreements – non-trading’.
HSBC Holdings plc Annual Report and Accounts 2021
163
Total wholesale lending for loans and advances to banks and customers by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Corporate and commercial
387,563
126,287
12,961
277
527,088
(1,101)
(2,444)
(5,837)
(112)
(9,494)
– agriculture, forestry and fishing
6,087
1,026
331
1
7,445
(12)
(45)
(149)
(1)
(207)
– mining and quarrying
7,429
3,705
797
16
11,947
(33)
(112)
(209)
(11)
(365)
– manufacturing
68,179
23,564
2,076
87
93,906
(201)
(442)
(905)
(40)
(1,588)
– electricity, gas, steam and air-
conditioning supply
14,240
1,907
53
—
16,200
(25)
(40)
(8)
—
(73)
– water supply, sewerage, waste
management and remediation
2,874
253
47
—
3,174
(8)
(7)
(22)
—
(37)
– construction
9,368
4,455
773
4
14,600
(42)
(118)
(426)
(4)
(590)
– wholesale and retail trade, repair of
motor vehicles and motorcycles
65,937
21,518
3,196
12
90,663
(174)
(326)
(2,029)
(3)
(2,532)
– transportation and storage
19,510
9,143
769
11
29,433
(90)
(163)
(240)
—
(493)
– accommodation and food
10,616
14,918
536
1
26,071
(76)
(285)
(129)
(1)
(491)
– publishing, audiovisual and
broadcasting
17,019
2,796
131
33
19,979
(45)
(85)
(39)
(20)
(189)
– real estate
102,933
22,186
1,907
1
127,027
(169)
(260)
(738)
—
(1,167)
– professional, scientific and technical
activities
17,162
6,379
498
33
24,072
(56)
(149)
(185)
(8)
(398)
– administrative and support services
17,085
8,361
907
70
26,423
(66)
(153)
(291)
(24)
(534)
– public administration and defence,
compulsory social security
1,530
475
3
—
2,008
(2)
(11)
(1)
—
(14)
– education
1,402
691
29
—
2,122
(12)
(20)
(9)
—
(41)
– health and care
4,049
1,192
261
8
5,510
(21)
(45)
(120)
—
(186)
– arts, entertainment and recreation
1,631
1,570
236
—
3,437
(9)
(62)
(87)
—
(158)
– other services
11,380
1,320
410
—
13,110
(54)
(105)
(249)
—
(408)
– activities of households
660
142
—
—
802
—
(1)
—
—
(1)
– extra-territorial organisations and
bodies activities
10
—
—
—
10
—
—
—
—
—
– government
7,866
671
1
—
8,538
(6)
(2)
(1)
—
(9)
– asset-backed securities
596
15
—
—
611
—
(13)
—
—
(13)
Non-bank financial institutions
52,223
11,834
523
—
64,580
(46)
(119)
(100)
—
(265)
Loans and advances to banks
79,654
2,004
—
—
81,658
(33)
(9)
—
—
(42)
At 31 Dec 2020
519,440
140,125
13,484
277
673,326
(1,180)
(2,572)
(5,937)
(112)
(9,801)
By geography
Europe
156,474
51,708
6,531
109
214,822
(589)
(1,400)
(2,097)
(51)
(4,137)
– of which: UK
104,534
40,454
4,712
53
149,753
(536)
(1,234)
(1,320)
(33)
(3,123)
Asia
279,985
58,159
3,443
106
341,693
(337)
(383)
(2,040)
(43)
(2,803)
– of which: Hong Kong
156,817
39,257
1,637
45
197,756
(162)
(260)
(751)
(23)
(1,196)
MENA
24,753
7,893
1,952
30
34,628
(91)
(216)
(1,205)
(12)
(1,524)
North America
46,852
18,220
913
—
65,985
(77)
(302)
(281)
—
(660)
Latin America
11,376
4,145
645
32
16,198
(86)
(271)
(314)
(6)
(677)
At 31 Dec 2020
519,440
140,125
13,484
277
673,326
(1,180)
(2,572)
(5,937)
(112)
(9,801)
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution 1
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Corporate and commercial
262,598
49,008
1,140
2
312,748
(271)
(392)
(100)
(1)
(764)
Financial
120,768
7,526
55
—
128,349
(17)
(33)
(4)
—
(54)
At 31 Dec 2020
383,366
56,534
1,195
2
441,097
(288)
(425)
(104)
(1)
(818)
By geography
Europe
210,141
28,705
851
2
239,699
(152)
(208)
(83)
(1)
(444)
– of which: UK
81,153
17,048
480
1
98,682
(138)
(176)
(72)
(1)
(387)
Asia
63,586
6,311
20
—
69,917
(73)
(43)
(6)
—
(122)
– of which: Hong Kong
26,502
3,639
4
—
30,145
(24)
(22)
(1)
—
(47)
MENA
4,975
1,609
85
—
6,669
(14)
(44)
(2)
—
(60)
North America
102,399
19,360
198
—
121,957
(39)
(124)
(7)
—
(170)
Latin America
2,265
549
41
—
2,855
(10)
(6)
(6)
—
(22)
At 31 Dec 2020
383,366
56,534
1,195
2
441,097
(288)
(425)
(104)
(1)
(818)
1 Included in loans and other credit-related commitments and financial guarantees is $62bn relating to unsettled reverse repurchase agreements,
which once drawn are classified as ‘Reverse repurchase agreements – non-trading’.
Risk
164
HSBC Holdings plc Annual Report and Accounts 2021
Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
841,105
(1,465)
196,662
(2,998)
14,662
(6,041)
279
(113)
1,052,708
(10,617)
Transfers of financial instruments
19,285
(638)
(23,361)
888
4,076
(250)
—
—
—
—
Net remeasurement of ECL arising
from transfer of stage
—
400
—
(233)
—
(27)
—
—
—
140
Net new and further lending/
repayments
38,224
20
(32,150)
454
(2,501)
764
6
18
3,579
1,256
Change in risk parameters – credit
quality
—
793
—
(234)
—
(1,347)
—
28
—
(760)
Changes to models used for ECL
calculation
—
(15)
—
(33)
—
—
—
—
—
(48)
Assets written off
—
—
—
—
(1,085)
1,085
(7)
7
(1,092)
1,092
Credit-related modifications that
resulted in derecognition
—
—
—
—
(125)
—
—
—
(125)
—
Foreign exchange and other
(16,872)
43
(3,610)
51
(341)
114
(4)
(4)
(20,827)
204
At 31 Dec 2021
881,742
(862)
137,541
(2,105)
14,686
(5,702)
274
(64)
1,034,243
(8,733)
ECL income statement change for
the period
1,198
(46)
(610)
46
588
Recoveries
54
Others
(102)
Total ECL income statement
change for the period
540
As shown in the above table, the allowance for ECL for loans and
advances to customers and banks and relevant loan commitments
and financial guarantees decreased $1,884m during the period
from $10,617m at 31 December 2020 to $8,733m at 31 December
2021.
This decrease was primarily driven by:
•$1,256m relating to volume movements, which included the
ECL allowance associated with new originations, assets
derecognised and further lending/repayments;
•$1,092m of assets written off;
•$140m relating to the net remeasurement impact of stage
transfers; and
•foreign exchange and other movements of $204m.
These were partly offset by:
•$760m relating to underlying credit quality changes, including
the credit quality impact of financial instruments transferring
between stages; and
•$48m of changes to models used for ECL calculation.
The ECL release for the period of $588m presented in the previous
table consisted of $1,256m relating to underlying net book volume
movement and $140m relating to the net remeasurement impact
of stage transfers. This was partly offset by $760m relating to
underlying credit quality changes, including the credit quality
impact of financial instruments transferring between stages and
$48m in changes to models used for ECL calculation.
The net transfer of gross carrying/nominal amounts to stage 1 of
$19,285m reflects the overall improvement in the economic
outlook as the effects of the Covid-19 outbreak subsided. It was
primarily driven by $14,393m in Europe, $8,871m in North
America, $3,674m in Middle East and North Africa, and was partly
offset by a net transfer out of stage 1 of $8,285m in Asia mainly
driven by an increase in Downside scenario weighting for China,
reflecting management’s concern for potential deterioration on
forward looking credit quality.
HSBC Holdings plc Annual Report and Accounts 2021
165
Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2020
925,652
(867)
88,169
(1,103)
9,289
(3,906)
345
(99)
1,023,455
(5,975)
Transfers of financial instruments
(113,217)
(493)
103,413
770
9,804
(277)
—
—
—
—
Net remeasurement of ECL arising
from transfer of stage
—
476
—
(603)
—
(742)
—
—
—
(869)
Net new and further lending/
repayments
10,451
(437)
(2,910)
141
(3,350)
583
(48)
(1)
4,143
286
Changes to risk parameters – credit
quality
—
(261)
—
(2,349)
—
(3,120)
—
(39)
—
(5,769)
Changes to models used for ECL
calculation
—
137
—
303
—
—
—
—
—
440
Assets written off
—
—
—
—
(1,537)
1,537
(30)
30
(1,567)
1,567
Credit-related modifications that
resulted in derecognition
—
—
—
—
(23)
7
—
—
(23)
7
Foreign exchange and other
18,219
(20)
7,990
(157)
479
(123)
12
(4)
26,700
(304)
At 31 Dec 2020
841,105
(1,465)
196,662
(2,998)
14,662
(6,041)
279
(113)
1,052,708
(10,617)
ECL income statement change for the
period
(85)
(2,508)
(3,279)
(40)
(5,912)
Recoveries
46
Others
(59)
Total ECL income statement change
for the period
(5,925)
Wholesale lending – distribution of financial instruments to which the impairment requirements of IFRS 9 are applied by credit quality
Gross carrying/nominal amount
Allowance
for ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
$m
$m
$m
$m
$m
$m
$m
$m
By geography
Europe
48,758
49,254
74,240
14,196
6,769
193,217
(2,825)
190,392
– of which: UK
30,390
37,212
48,694
9,192
5,156
130,644
(1,890)
128,754
Asia
155,072
95,626
96,046
4,670
4,198
355,612
(3,354)
352,258
– of which: Hong Kong
74,440
54,703
63,301
3,297
2,150
197,891
(1,592)
196,299
MENA
12,264
7,004
10,321
1,844
1,701
33,134
(1,209)
31,925
North America
11,683
24,663
22,022
5,543
651
64,562
(441)
64,121
Latin America
993
5,736
5,638
2,349
806
15,522
(502)
15,020
At 31 Dec 2021
228,770
182,283
208,267
28,602
14,125
662,047
(8,331)
653,716
Percentage of total credit quality
34.6%
27.5%
31.5%
4.3%
2.1%
100.0%
By geography
Europe
53,373
55,436
81,049
18,327
6,637
214,822
(4,137)
210,685
– of which: UK
35,050
42,476
55,106
12,357
4,764
149,753
(3,123)
146,630
Asia
141,811
93,350
98,488
4,493
3,551
341,693
(2,803)
338,890
– of which: Hong Kong
72,088
52,601
68,826
2,558
1,683
197,756
(1,196)
196,560
MENA
12,398
7,810
10,990
1,448
1,982
34,628
(1,524)
33,104
North America
11,157
22,973
24,978
5,964
913
65,985
(660)
65,325
Latin America
989
5,355
6,127
3,049
678
16,198
(677)
15,521
At 31 Dec 2020
219,728
184,924
221,632
33,281
13,761
673,326
(9,801)
663,525
Percentage of total credit quality
32.6%
27.5%
32.9%
4.9%
2.0%
100.0%
Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to support
calculation of our minimum credit regulatory capital requirement. The credit quality classifications can be found on page 138.
Risk
166
HSBC Holdings plc Annual Report and Accounts 2021
Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost
Gross carrying amount
Allowance for ECL
Basel one-year PD
range
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
ECL
coverage
Mapped
external rating
%
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
%
Corporate and
commercial
400,894
98,911
13,460
274
513,539
(665)
(1,874)
(5,601)
(64)
(8,204)
1.6
– CRR 1
0.000 to 0.053
40,583
599
—
—
41,182
(7)
(1)
—
—
(8)
—
AA- and above
– CRR 2
0.054 to 0.169
78,794
4,843
—
—
83,637
(26)
(43)
—
—
(69)
0.1
A+ to A-
– CRR 3
0.170 to 0.740
139,739
19,199
—
—
158,938
(165)
(145)
—
—
(310)
0.2
BBB+ to BBB-
– CRR 4
0.741 to 1.927
91,268
23,365
—
—
114,633
(218)
(258)
—
—
(476)
0.4
BB+ to BB-
– CRR 5
1.928 to 4.914
45,850
28,375
—
—
74,225
(185)
(424)
—
—
(609)
0.8
BB- to B
– CRR 6
4.915 to 8.860
3,280
11,197
—
—
14,477
(22)
(242)
—
—
(264)
1.8
B-
– CRR 7
8.861 to 15.000
1,101
4,406
—
—
5,507
(24)
(167)
—
—
(191)
3.5
CCC+
– CRR 8
15.001 to 99.999
279
6,927
—
4
7,210
(18)
(594)
—
—
(612)
8.5
CCC to C
– CRR 9/10
100.000
—
—
13,460
270
13,730
—
—
(5,601)
(64)
(5,665)
41.3
D
Non-bank
financial
institutions
61,086
3,874
395
—
65,355
(44)
(26)
(40)
—
(110)
0.2
– CRR 1
0.000 to 0.053
14,370
122
—
—
14,492
(2)
(1)
—
—
(3)
—
AA- and above
– CRR 2
0.054 to 0.169
16,438
43
—
—
16,481
(5)
—
—
—
(5)
—
A+ to A-
– CRR 3
0.170 to 0.740
18,282
1,026
—
—
19,308
(11)
(4)
—
—
(15)
0.1
BBB+ to BBB-
– CRR 4
0.741 to 1.927
6,835
1,204
—
—
8,039
(15)
(11)
—
—
(26)
0.3
BB+ to BB-
– CRR 5
1.928 to 4.914
5,053
1,297
—
—
6,350
(11)
(4)
—
—
(15)
0.2
BB- to B
– CRR 6
4.915 to 8.860
102
98
—
—
200
—
(5)
—
—
(5)
2.5
B-
– CRR 7
8.861 to 15.000
5
25
—
—
30
—
(1)
—
—
(1)
3.3
CCC+
– CRR 8
15.001 to 99.999
1
59
—
—
60
—
—
—
—
—
—
CCC to C
– CRR 9/10
100.000
—
—
395
—
395
—
—
(40)
—
(40)
10.1
D
Banks
81,636
1,517
—
—
83,153
(14)
(3)
—
—
(17)
—
– CRR 1
0.000 to 0.053
61,275
10
—
—
61,285
(4)
—
—
—
(4)
—
AA- and above
– CRR 2
0.054 to 0.169
11,628
65
—
—
11,693
(3)
—
—
—
(3)
—
A+ to A-
– CRR 3
0.170 to 0.740
3,935
102
—
—
4,037
(2)
—
—
—
(2)
—
BBB+ to BBB-
– CRR 4
0.741 to 1.927
4,232
180
—
—
4,412
(5)
—
—
—
(5)
0.1
BB+ to BB-
– CRR 5
1.928 to 4.914
556
52
—
—
608
—
(1)
—
—
(1)
0.2
BB- to B
– CRR 6
4.915 to 8.860
9
541
—
—
550
—
—
—
—
—
—
B-
– CRR 7
8.861 to 15.000
1
564
—
—
565
—
—
—
—
—
—
CCC+
– CRR 8
15.001 to 99.999
—
3
—
—
3
—
(2)
—
—
(2)
66.7
CCC to C
– CRR 9/10
100.000
—
—
—
—
—
—
—
—
—
—
—
D
At 31 Dec 2021
543,616
104,302
13,855
274
662,047
(723)
(1,903)
(5,641)
(64)
(8,331)
1.3
Corporate and
commercial
387,563
126,287
12,961
277
527,088
(1,101)
(2,444)
(5,837)
(112)
(9,494)
1.8
– CRR 1
0.000 to 0.053
36,047
486
—
—
36,533
(8)
(5)
—
—
(13)
—
AA- and above
– CRR 2
0.054 to 0.169
81,298
3,140
—
—
84,438
(42)
(36)
—
—
(78)
0.1
A+ to A-
– CRR 3
0.170 to 0.740
131,540
27,061
—
—
158,601
(262)
(197)
—
—
(459)
0.3
BBB+ to BBB-
– CRR 4
0.741 to 1.927
91,385
35,376
—
—
126,761
(390)
(375)
—
—
(765)
0.6
BB+ to BB-
– CRR 5
1.928 to 4.914
42,214
34,585
—
—
76,799
(330)
(686)
—
—
(1,016)
1.3
BB- to B
– CRR 6
4.915 to 8.860
3,523
14,560
—
—
18,083
(35)
(476)
—
—
(511)
2.8
B-
– CRR 7
8.861 to 15.000
1,111
7,241
—
—
8,352
(21)
(322)
—
—
(343)
4.1
CCC+
– CRR 8
15.001 to 99.999
445
3,838
—
—
4,283
(13)
(347)
—
—
(360)
8.4
CCC to C
– CRR 9/10
100.000
—
—
12,961
277
13,238
—
—
(5,837)
(112)
(5,949)
44.9
D
Non-bank financial
institutions
52,223
11,834
523
—
64,580
(46)
(119)
(100)
—
(265)
0.4
– CRR 1
0.000 to 0.053
12,234
28
—
—
12,262
(3)
—
—
—
(3)
—
AA- and above
– CRR 2
0.054 to 0.169
15,128
49
—
—
15,177
(5)
(1)
—
—
(6)
—
A+ to A-
– CRR 3
0.170 to 0.740
16,741
4,086
—
—
20,827
(12)
(9)
—
—
(21)
0.1
BBB+ to BBB-
– CRR 4
0.741 to 1.927
4,931
3,917
—
—
8,848
(15)
(27)
—
—
(42)
0.5
BB+ to BB-
– CRR 5
1.928 to 4.914
2,859
2,797
—
—
5,656
(10)
(34)
—
—
(44)
0.8
BB- to B
– CRR 6
4.915 to 8.860
103
505
—
—
608
(1)
(22)
—
—
(23)
3.8
B-
– CRR 7
8.861 to 15.000
87
329
—
—
416
—
(9)
—
—
(9)
2.2
CCC+
– CRR 8
15.001 to 99.999
140
123
—
—
263
—
(17)
—
—
(17)
6.5
CCC to C
– CRR 9/10
100.000
—
—
523
—
523
—
—
(100)
—
(100)
19.1
D
Banks
79,654
2,004
—
—
81,658
(33)
(9)
—
—
(42)
0.1
– CRR 1
0.000 to 0.053
62,291
46
—
—
62,337
(10)
—
—
—
(10)
—
AA- and above
– CRR 2
0.054 to 0.169
8,835
146
—
—
8,981
(7)
—
—
—
(7)
0.1
A+ to A-
– CRR 3
0.170 to 0.740
5,098
398
—
—
5,496
(5)
(2)
—
—
(7)
0.1
BBB+ to BBB-
– CRR 4
0.741 to 1.927
2,558
168
—
—
2,726
(4)
(4)
—
—
(8)
0.3
BB+ to BB-
– CRR 5
1.928 to 4.914
799
43
—
—
842
(1)
(1)
—
—
(2)
0.2
BB- to B
– CRR 6
4.915 to 8.860
71
20
—
—
91
(6)
—
—
—
(6)
6.6
B-
– CRR 7
8.861 to 15.000
2
1
—
—
3
—
—
—
—
—
—
CCC+
– CRR 8
15.001 to 99.999
—
1,182
—
—
1,182
—
(2)
—
—
(2)
0.2
CCC to C
– CRR 9/10
100.000
—
—
—
—
—
—
—
—
—
—
—
D
At 31 Dec 2020
519,440
140,125
13,484
277
673,326
(1,180)
(2,572)
(5,937)
(112)
(9,801)
1.5
HSBC Holdings plc Annual Report and Accounts 2021
167
Commercial real estate
Commercial real estate lending includes the financing of
corporate, institutional and high net worth customers who are
investing primarily in income-producing assets and, to a lesser
extent, in their construction and development. The portfolio is
globally diversified with larger concentrations in Hong Kong,
the UK and the US.
Our global exposure is centred largely on cities with economic,
political or cultural significance. In more developed markets, our
exposure mainly comprises the financing of investment assets, the
redevelopment of existing stock and the augmentation of both
commercial and residential markets to support economic and
population growth. In less developed commercial real estate
markets, our exposures comprise lending for development assets
on relatively short tenors with a particular focus on supporting
larger, better capitalised developers involved in residential
construction or assets supporting economic expansion.
Commercial real estate lending declined $7.5bn, including adverse
foreign exchange movements of $1.2bn, mainly in the UK and, to
a lesser extent, within the US.
Commercial real estate lending
Of which:
Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong Kong
$m
$m
$m
$m
$m
$m
$m
$m
Gross loans and advances
Stage 1
20,317
56,734
781
8,328
1,073
87,233
14,235
42,951
Stage 2
3,505
17,103
569
1,265
218
22,660
2,781
13,300
Stage 3
1,062
543
206
9
249
2,069
905
435
POCI
—
98
—
—
—
98
—
98
At 31 Dec 2021
24,884
74,478
1,556
9,602
1,540
112,060
17,921
56,784
– of which: renegotiated loans
440
251
145
—
—
836
436
170
Allowance for ECL
(450)
(693)
(158)
(26)
(130)
(1,457)
(366)
(604)
Gross loans and advances
Stage 1
22,639
63,276
1,147
7,373
1,269
95,704
16,207
48,735
Stage 2
5,549
11,686
436
4,093
381
22,145
4,299
9,105
Stage 3
1,114
37
250
42
240
1,683
966
18
POCI
1
—
—
—
—
1
—
—
At 31 Dec 2020
29,303
74,999
1,833
11,508
1,890
119,533
21,472
57,858
– of which: renegotiated loans
751
3
201
—
—
955
744
—
Allowance for ECL
(650)
(117)
(190)
(64)
(120)
(1,141)
(575)
(65)
Refinance risk in commercial real estate
Commercial real estate lending tends to require the repayment of
a significant proportion of the principal at maturity. Typically, a
customer will arrange repayment through the acquisition of a new
loan to settle the existing debt. Refinance risk is the risk that a
customer, being unable to repay the debt on maturity, fails to
refinance it at commercial rates. We monitor our commercial real
estate portfolio closely, assessing indicators for signs of potential
issues with refinancing.
Commercial real estate gross loans and advances maturity analysis
Of which:
Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong Kong
$m
$m
$m
$m
$m
$m
$m
$m
On demand, overdrafts or revolving
< 1 year
12,980
26,736
478
5,961
336
46,491
10,546
20,466
1–2 years
4,794
18,192
159
1,098
280
24,523
3,921
14,399
2–5 years
5,352
26,668
631
2,297
559
35,507
2,805
19,562
> 5 years
1,758
2,882
288
246
365
5,539
649
2,357
At 31 Dec 2021
24,884
74,478
1,556
9,602
1,540
112,060
17,921
56,784
On demand, overdrafts or revolving
< 1 year
13,728
25,075
750
5,793
263
45,609
12,131
19,998
1–2 years
6,373
18,396
119
3,112
434
28,434
4,991
13,237
2–5 years
6,241
27,699
668
2,288
927
37,823
3,135
21,694
> 5 years
2,961
3,829
296
315
266
7,667
1,215
2,929
At 31 Dec 2020
29,303
74,999
1,833
11,508
1,890
119,533
21,472
57,858
Risk
168
HSBC Holdings plc Annual Report and Accounts 2021
The following table presents the Group’s total exposure to mainland China commercial real estate at 31 December 2021, by country/
territory and credit quality. Mainland China reported real estate exposures comprise exposures booked in mainland China and offshore
where the ultimate parent and beneficial owner is based in mainland China, and all exposures booked on mainland China balance sheets.
Mainland China commercial real estate
Hong Kong
Mainland China
Rest of the Group
Total
$m
$m
$m
$m
Loans and advances to customers 1
9,903
6,811
410
17,124
Guarantees issued and others 2
1,747
2,376
79
4,202
Total mainland China commercial real estate exposure at 31 Dec 2021
11,650
9,187
489
21,326
Distribution of mainland China commercial real estate exposure by credit
quality
– Strong
3,543
3,864
155
7,562
– Good
2,652
2,354
73
5,079
– Satisfactory
3,383
2,855
106
6,344
– Sub-standard
1,570
12
155
1,737
– Credit impaired
502
102
—
604
At 31 Dec 2021
11,650
9,187
489
21,326
Allowance for ECL
560
49
2
611
1 Amounts represent gross carrying amount.
2 Amounts represent nominal amount.
At 31 December 2021, the Group had no direct credit exposure to
developers in the ‘red’ category of the Chinese government’s
‘three red lines’ framework. The Group’s exposures related to
companies whose primary activities are focused on residential,
commercial and mixed-use real estate activities. Lending is
generally focused on tier 1 and 2 cities.
Booked in Hong Kong are higher risk exposures to a combination
of state and privately owned enterprises. This portfolio had 89% of
exposure booked with a credit quality of ‘satisfactory’ or above,
but had a higher degree of uncertainty due to tightening liquidity
and increased refinancing risks. In addition, offshore exposures
are typically higher risk than onshore exposures. At 31 December
2021, the Group had allowances for ECL of $560m held against
mainland China commercial real estate exposures booked in Hong
Kong. We will continue to monitor the prevailing situation closely.
Collateral and other credit enhancements
(Audited)
Although collateral can be an important mitigant of credit risk, it is
the Group’s practice to lend on the basis of the customer’s ability
to meet their obligations out of cash flow resources rather than
placing primary reliance on collateral and other credit risk
enhancements. Depending on the customer’s standing and the
type of product, facilities may be provided without any collateral
or other credit enhancements. For other lending, a charge over
collateral is obtained and considered in determining the credit
decision and pricing. In the event of default, the Group may utilise
the collateral as a source of repayment.
Depending on its form, collateral can have a significant financial
effect in mitigating our exposure to credit risk. Where there is
sufficient collateral, an expected credit loss is not recognised. This
is the case for reverse repurchase agreements and for certain
loans and advances to customers where the loan to value (‘LTV’) is
very low.
Mitigants may include a charge on borrowers’ specific assets,
such as real estate or financial instruments. Other credit risk
mitigants include short positions in securities and financial assets
held as part of linked insurance/investment contracts where the
risk is predominantly borne by the policyholder. Additionally, risk
may be managed by employing other types of collateral and credit
risk enhancements, such as second charges, other liens and
unsupported guarantees. Guarantees are normally taken from
corporates and export credit agencies. Corporates would normally
provide guarantees as part of a parent/subsidiary relationship and
span a number of credit grades. The export credit agencies will
normally be investment grade.
Certain credit mitigants are used strategically in portfolio
management activities. While single name concentrations arise in
portfolios managed by Global Banking and Corporate Banking, it is
only in Global Banking that their size requires the use of portfolio
level credit mitigants. Across Global Banking, risk limits and
utilisations, maturity profiles and risk quality are monitored and
managed proactively. This process is key to the setting of risk
appetite for these larger, more complex, geographically distributed
customer groups. While the principal form of risk management
continues to be at the point of exposure origination, through the
lending decision-making process, Global Banking also utilises loan
sales and credit default swap (‘CDS’) hedges to manage
concentrations and reduce risk. These transactions are the
responsibility of a dedicated Global Banking portfolio management
team. Hedging activity is carried out within agreed credit
parameters, and is subject to market risk limits and a robust
governance structure. Where applicable, CDSs are entered into
directly with a central clearing house counterparty. Otherwise, the
Group’s exposure to CDS protection providers is diversified among
mainly banking counterparties with strong credit ratings.
CDS mitigants are held at portfolio level and are not included in
the expected credit loss calculations. CDS mitigants are not
reported in the following tables.
Collateral on loans and advances
Collateral held is analysed separately for commercial real estate
and for other corporate, commercial and financial (non-bank)
lending. The following tables include off-balance sheet loan
commitments, primarily undrawn credit lines.
The collateral measured in the following tables consists of
fixed first charges on real estate, and charges over cash and
marketable financial instruments. The values in the tables
represent the expected market value on an open market basis. No
adjustment has been made to the collateral for any expected costs
of recovery. Marketable securities are measured at their fair value.
Other types of collateral such as unsupported guarantees and
floating charges over the assets of a customer’s business are not
measured in the following tables. While such mitigants have value,
often providing rights in insolvency, their assignable value is not
sufficiently certain and they are therefore assigned no value for
disclosure purposes.
The LTV ratios presented are calculated by directly associating
loans and advances with the collateral that individually and
uniquely supports each facility. When collateral assets are shared
by multiple loans and advances, whether specifically or, more
generally, by way of an all monies charge, the collateral value is
pro-rated across the loans and advances protected by the
collateral.
For credit-impaired loans, the collateral values cannot be directly
compared with impairment allowances recognised. The LTV
HSBC Holdings plc Annual Report and Accounts 2021
169
figures use open market values with no adjustments. Impairment
allowances are calculated on a different basis, by considering
other cash flows and adjusting collateral values for costs of
realising collateral as explained further on page 324.
Commercial real estate loans and advances
The value of commercial real estate collateral is determined
by using a combination of external and internal valuations
and physical inspections. For commercial real estate, where the
facility exceeds regulatory threshold requirements, Group policy
requires an independent review of the valuation at least every
three years, or more frequently as the need arises.
In Hong Kong, market practice is typically for lending to major
property companies to be either secured by guarantees or
unsecured. In Europe, facilities of a working capital nature are
generally not secured by a first fixed charge, and are therefore
disclosed as not collateralised.
Wholesale lending – commercial real estate loans and advances including loan commitments by level of collateral for key
countries/territories (by stage)
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Not collateralised
50,603
0.1
7,623
0.4
23,864
—
Fully collateralised
71,769
0.1
13,139
0.2
32,951
—
LTV ratio:
– less than 50%
35,984
0.1
4,142
0.2
22,645
—
– 51% to 75%
26,390
0.1
6,460
0.2
8,082
—
– 76% to 90%
5,284
0.2
1,859
0.2
1,181
—
– 91% to 100%
4,111
0.1
678
—
1,043
0.1
Partially collateralised (A):
5,429
0.1
2,018
0.1
714
—
– collateral value on A
2,942
874
447
Total
127,801
0.1
22,780
0.3
57,529
—
Stage 2
Not collateralised
11,729
4.3
1,970
0.9
7,758
5.9
Fully collateralised
12,741
1.1
1,131
2.3
6,385
0.4
LTV ratio:
– less than 50%
5,759
1.0
605
3.1
3,633
0.3
– 51% to 75%
4,804
1.1
471
1.3
2,389
0.5
– 76% to 90%
757
1.5
43
—
269
0.4
– 91% to 100%
1,421
1.5
12
—
94
—
Partially collateralised (B):
1,783
2.7
366
0.3
172
2.9
– collateral value on B
930
223
70
Total
26,253
2.7
3,467
1.3
14,315
3.4
Stage 3
Not collateralised
828
40.9
407
42.0
198
35.9
Fully collateralised
1,176
22.0
346
5.2
290
11.0
LTV ratio:
– less than 50%
645
19.8
36
2.8
284
10.9
– 51% to 75%
286
9.1
250
5.2
—
—
– 76% to 90%
62
14.5
11
—
2
—
– 91% to 100%
183
52.5
49
8.2
4
25.0
Partially collateralised (C):
265
47.9
204
49.0
—
—
– collateral value on C
149
97
—
Total
2,269
32.0
957
30.2
488
21.1
POCI
Not collateralised
—
—
—
—
—
—
Fully collateralised
98
—
—
—
98
—
LTV ratio:
– less than 50%
98
—
—
—
98
—
– 51% to 75%
—
—
—
—
—
—
– 76% to 90%
—
—
—
—
—
—
– 91% to 100%
—
—
—
—
—
—
Partially collateralised (D):
—
—
—
—
—
—
– collateral value on D
—
—
—
Total
98
—
—
—
98
—
At 31 Dec 2021
156,421
1.0
27,204
1.5
72,430
0.8
Risk
170
HSBC Holdings plc Annual Report and Accounts 2021
Wholesale lending – commercial real estate loans and advances including loan commitments by level of collateral for key
countries/territories (by stage) (continued)
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Not collateralised
55,376
0.1
7,205
0.6
29,422
—
Fully collateralised
71,915
0.2
14,053
0.2
33,386
—
LTV ratio:
– less than 50%
36,408
0.1
4,665
0.3
22,361
—
– 51% to 75%
26,081
0.2
7,031
0.2
9,091
—
– 76% to 90%
5,098
0.3
1,932
0.2
1,093
—
– 91% to 100%
4,328
0.3
425
0.5
841
—
Partially collateralised (A):
5,477
0.2
1,463
0.1
769
—
– collateral value on A
3,486
912
594
Total
132,768
0.1
22,721
0.4
63,577
—
Stage 2
Not collateralised
8,710
1.3
3,337
2.2
1,084
0.1
Fully collateralised
18,383
1.0
2,534
1.6
8,719
0.5
LTV ratio:
– less than 50%
8,544
0.8
1,132
1.5
5,359
0.4
– 51% to 75%
8,097
1.1
1,020
2.0
2,955
0.8
– 76% to 90%
849
1.1
350
0.9
319
0.3
– 91% to 100%
893
1.0
32
3.1
86
—
Partially collateralised (B):
1,260
1.0
713
0.8
196
1.0
– collateral value on B
517
246
147
Total
28,353
1.1
6,584
1.8
9,999
0.5
Stage 3
Not collateralised
1,038
45.3
635
50.7
—
—
Fully collateralised
583
11.5
348
9.5
20
5.0
LTV ratio:
– less than 50%
177
13.6
56
5.4
11
—
– 51% to 75%
161
15.5
128
12.5
3
—
– 76% to 90%
149
6.7
139
5.8
—
—
– 91% to 100%
96
8.3
25
24.0
6
16.7
Partially collateralised (C):
474
45.6
195
27.7
—
—
– collateral value on C
331
120
—
Total
2,095
35.9
1,178
34.7
20
5.0
POCI
Not collateralised
—
—
—
—
—
—
Fully collateralised
1
—
—
—
—
—
LTV ratio:
– less than 50%
1
—
—
—
—
—
– 51% to 75%
—
—
—
—
—
—
– 76% to 90%
—
—
—
—
—
—
– 91% to 100%
—
—
—
—
—
—
Partially collateralised (D):
—
—
—
—
—
—
– collateral value on D
—
—
—
—
—
—
Total
1
—
—
—
—
—
At 31 Dec 2020
163,217
0.8
30,483
2.0
73,596
0.1
HSBC Holdings plc Annual Report and Accounts 2021
171
Wholesale lending – commercial real estate loans and advances including loan commitments by level of collateral for key
countries/territories
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Rated CRR/PD1 to 7
Not collateralised
61,279
0.5
9,586
0.5
30,917
0.6
Fully collateralised
83,456
0.2
14,218
0.2
38,817
0.1
Partially collateralised (A):
7,059
0.5
2,379
0.2
886
0.6
– collateral value on A
3,729
1,092
517
Total
151,794
0.3
26,183
0.3
70,620
0.3
Rated CRR/PD8
Not collateralised
1,053
26.5
7
42.9
705
38.6
Fully collateralised
1,054
3.8
52
38.5
519
2.1
LTV ratio:
– less than 50%
503
4.8
41
41.5
378
0.8
– 51% to 75%
447
3.1
8
25.0
137
5.8
– 76% to 90%
60
1.7
1
—
4
—
– 91% to 100%
44
2.3
2
—
—
—
Partially collateralised (B):
153
15.0
5
20.0
—
—
– collateral value on B
143
5
—
Total
2,260
15.1
64
37.5
1,224
23.1
Rated CRR/PD9 to 10
Not collateralised
828
40.9
407
42.0
198
35.9
Fully collateralised
1,274
20.3
346
5.2
388
8.2
LTV ratio:
– less than 50%
743
17.2
36
2.8
382
8.1
– 51% to 75%
286
9.1
250
5.2
—
—
– 76% to 90%
62
14.5
11
—
2
—
– 91% to 100%
183
52.5
49
8.2
4
25.0
Partially collateralised (C):
265
47.9
204
49.0
—
—
– collateral value on C
149
97
—
Total
2,367
30.6
957
30.2
586
17.6
At 31 Dec 2021
156,421
1.0
27,204
1.5
72,430
0.8
Rated CRR/PD1 to 7
Not collateralised
64,046
0.3
10,527
1.1
30,506
—
Fully collateralised
89,664
0.3
16,483
0.4
41,861
0.1
Partially collateralised (A):
6,728
0.4
2,174
0.3
965
0.2
– collateral value on A
3,994
1,157
741
Total
160,438
0.3
29,184
0.6
73,332
—
Rated CRR/PD8
Not collateralised
40
22.5
15
6.7
—
—
Fully collateralised
634
8.2
104
12.5
244
12.7
LTV ratio:
– less than 50%
282
7.1
15
6.7
102
11.8
– 51% to 75%
321
9.0
75
13.3
138
13.0
– 76% to 90%
14
21.4
5
20.0
4
25.0
– 91% to 100%
17
—
9
—
—
—
Partially collateralised (B):
9
11.1
2
50.0
—
—
– collateral value on B
9
1
—
Total
683
9.1
121
12.4
244
12.7
Rated CRR/PD9 to 10
Not collateralised
1,038
45.3
635
50.7
—
—
Fully collateralised
584
11.5
348
9.5
20
5.0
LTV ratio:
– less than 50%
178
13.5
56
5.4
11
—
– 51% to 75%
161
15.5
128
12.5
3
—
– 76% to 90%
149
6.7
139
5.8
—
—
– 91% to 100%
96
8.3
25
24.0
6
16.7
Partially collateralised (C):
474
45.6
195
27.7
—
—
– collateral value on C
331
120
—
Total
2,096
35.9
1,178
34.7
20
5.0
At 31 Dec 2020
163,217
0.8
30,483
2.0
73,596
0.1
Risk
172
HSBC Holdings plc Annual Report and Accounts 2021
Other corporate, commercial and financial (non-bank) loans
and advances
Other corporate, commercial and financial (non-bank) loans are
analysed separately in the following table, which focuses on the
countries/territories containing the majority of our loans and
advances balances. For financing activities in other corporate and
commercial lending, collateral value is not strongly correlated
to principal repayment performance.
Collateral values are generally refreshed when an obligor’s general
credit performance deteriorates and we have to assess the likely
performance of secondary sources of repayment should it prove
necessary to rely on them.
Accordingly, the following table reports values only for customers
with CRR 8–10, recognising that these loans and advances
generally have valuations that are comparatively recent.
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories (by stage)
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Not collateralised
624,935
0.1
112,188
0.2
111,948
—
Fully collateralised
112,905
0.1
22,971
0.2
45,479
0.1
LTV ratio:
– less than 50%
40,636
0.1
6,512
0.2
16,915
—
– 51% to 75%
38,709
0.1
9,431
0.2
16,533
0.1
– 76% to 90%
13,284
0.1
2,556
0.1
4,920
0.1
– 91% to 100%
20,276
0.1
4,472
—
7,111
0.1
Partially collateralised (A):
64,058
0.1
8,665
0.1
20,358
—
– collateral value on A
30,890
4,826
9,322
Total
801,898
0.1
143,824
0.2
177,785
—
Stage 2
Not collateralised
85,394
1.1
18,562
2.0
8,310
1.1
Fully collateralised
32,019
1.1
8,231
1.3
11,503
0.7
LTV ratio:
– less than 50%
10,892
1.2
3,148
1.5
3,378
0.5
– 51% to 75%
14,281
1.1
4,161
1.2
5,202
0.9
– 76% to 90%
2,752
1.2
687
1.5
1,148
0.9
– 91% to 100%
4,094
0.9
235
1.7
1,775
0.2
Partially collateralised (B):
12,484
1.0
1,824
1.9
1,788
0.4
– collateral value on B
6,675
937
785
Total
129,897
1.1
28,617
1.8
21,601
0.8
Stage 3
Not collateralised
8,122
47.3
2,979
21.6
732
74.7
Fully collateralised
2,278
12.7
1,212
3.4
240
2.1
LTV ratio:
– less than 50%
603
20.9
249
4.8
76
—
– 51% to 75%
1,110
5.0
786
1.4
110
3.6
– 76% to 90%
295
11.5
115
9.6
26
—
– 91% to 100%
270
27.4
62
9.7
28
3.6
Partially collateralised (C):
2,134
38.7
318
35.5
616
28.9
– collateral value on C
1,200
186
358
Total
12,534
39.6
4,509
17.7
1,588
46.0
POCI
Not collateralised
114
36.0
28
21.4
4
—
Fully collateralised
61
34.4
—
—
57
36.8
LTV ratio:
– less than 50%
—
—
—
—
—
—
– 51% to 75%
57
36.8
—
—
57
36.8
– 76% to 90%
—
—
—
—
—
—
– 91% to 100%
4
—
—
—
—
—
Partially collateralised (D):
2
100.0
—
—
—
—
– collateral value on D
2
—
—
Total
177
36.2
28
21.4
61
34.4
At 31 Dec 2021
944,506
0.8
176,978
0.9
201,035
0.5
HSBC Holdings plc Annual Report and Accounts 2021
173
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories (by stage) (continued)
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Not collateralised
617,592
0.2
122,554
0.4
95,061
0.1
Fully collateralised
110,528
0.2
28,232
0.3
40,207
0.1
LTV ratio:
– less than 50%
37,991
0.1
7,367
0.3
14,744
0.1
– 51% to 75%
36,696
0.2
11,891
0.3
13,961
0.2
– 76% to 90%
13,542
0.2
2,624
0.4
6,522
0.1
– 91% to 100%
22,299
0.1
6,350
0.1
4,980
0.1
Partially collateralised (A):
52,892
0.2
6,826
0.5
19,163
0.1
– collateral value on A
25,903
3,524
9,208
Total
781,012
0.2
157,612
0.4
154,431
0.1
Stage 2
Not collateralised
118,959
1.6
37,430
2.6
19,466
0.4
Fully collateralised
37,753
1.3
9,316
2.1
15,044
0.8
LTV ratio:
– less than 50%
11,992
1.3
2,498
1.5
3,920
0.7
– 51% to 75%
16,982
1.6
5,715
2.2
6,657
1.0
– 76% to 90%
3,727
1.2
502
3.2
2,150
0.7
– 91% to 100%
5,052
0.9
601
2.0
2,317
0.3
Partially collateralised (B):
16,829
1.5
3,984
2.7
3,849
0.9
– collateral value on B
9,425
1,714
2,104
Total
173,541
1.5
50,730
2.5
38,359
0.6
Stage 3
Not collateralised
7,852
50.0
2,793
28.5
865
66.0
Fully collateralised
1,939
17.3
585
7.9
342
6.4
LTV ratio:
– less than 50%
637
24.0
151
8.6
83
6.0
– 51% to 75%
526
19.0
182
12.6
128
4.7
– 76% to 90%
294
9.2
211
1.9
49
14.3
– 91% to 100%
482
11.6
41
14.6
82
4.9
Partially collateralised (C):
2,847
35.5
553
23.1
592
26.4
– collateral value on C
1,619
337
322
Total
12,638
41.7
3,931
24.7
1,799
41.6
POCI
Not collateralised
211
39.8
54
63.0
1
—
Fully collateralised
63
41.3
—
—
45
51.1
LTV ratio:
– less than 50%
6
50.0
—
—
—
—
– 51% to 75%
11
9.1
—
—
11
9.1
– 76% to 90%
34
64.7
—
—
34
64.7
– 91% to 100%
12
—
—
—
—
—
Partially collateralised (D):
4
75.0
—
—
—
—
– collateral value on D
4
—
—
Total
278
40.6
54
63.0
46
50.0
At 31 Dec 2020
967,469
1.0
212,327
1.3
194,635
0.6
Risk
174
HSBC Holdings plc Annual Report and Accounts 2021
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Rated CRR/PD8
Not collateralised
4,790
3.9
1,587
3.1
79
30.4
Fully collateralised
1,653
3.9
259
6.6
32
—
LTV ratio:
– less than 50%
803
3.5
113
6.2
2
—
– 51% to 75%
583
3.8
110
8.2
1
—
– 76% to 90%
116
5.2
23
4.3
29
—
– 91% to 100%
151
5.3
13
—
—
—
Partially collateralised (A):
1,253
3.7
138
8.0
11
—
– collateral value on A
921
40
6
Total
7,696
3.9
1,984
3.9
122
20.5
Rated CRR/PD9 to 10
Not collateralised
8,239
47.1
3,007
21.5
736
74.3
Fully collateralised
2,335
13.3
1,212
3.4
297
9.1
LTV ratio:
– less than 50%
604
20.9
249
4.8
75
—
– 51% to 75%
1,166
6.7
786
1.4
168
14.9
– 76% to 90%
295
11.5
115
9.6
26
—
– 91% to 100%
270
27.4
62
9.7
28
3.6
Partially collateralised (B):
2,137
38.7
318
35.5
616
28.9
– collateral value on B
1,203
186
358
Total
12,711
39.5
4,537
17.7
1,649
45.6
At 31 Dec 2021
20,407
26.1
6,521
13.5
1,771
43.8
Rated CRR/PD8
Not collateralised
3,787
7.1
924
8.7
103
25.2
Fully collateralised
1,107
5.2
171
9.4
15
—
LTV ratio:
– less than 50%
269
4.1
29
10.3
1
—
– 51% to 75%
480
6.3
87
6.9
—
—
– 76% to 90%
140
5.0
13
23.1
14
—
– 91% to 100%
218
4.1
42
9.5
—
—
Partially collateralised (A):
493
8.1
174
9.2
27
3.7
– collateral value on A
352
83
13
Total
5,387
6.8
1,269
8.7
145
18.6
Rated CRR/PD9 to 10
Not collateralised
8,062
49.7
2,847
29.1
865
66.0
Fully collateralised
2,003
18.1
585
7.9
388
11.6
LTV ratio:
– less than 50%
644
24.2
151
8.6
84
6.0
– 51% to 75%
538
18.8
182
12.6
139
5.0
– 76% to 90%
327
15.0
211
1.9
83
34.9
– 91% to 100%
494
11.3
41
14.6
82
4.9
Partially collateralised (B):
2,851
35.6
553
23.1
592
26.4
– collateral value on B
1,623
337
322
Total
12,916
41.7
3,985
25.2
1,845
41.8
At 31 Dec 2020
18,303
31.4
5,254
21.2
1,990
40.2
Other credit risk exposures
In addition to collateralised lending, other credit enhancements are
employed and methods used to mitigate credit risk arising from
financial assets. These are summarised below:
•Some securities issued by governments, banks and other
financial institutions benefit from additional credit
enhancements provided by government guarantees
that cover the assets.
•Debt securities issued by banks and financial institutions
include asset-backed securities (‘ABSs’) and similar
instruments, which are supported by underlying pools of
financial assets. Credit risk associated with ABSs is reduced
through the purchase of credit default swap (‘CDS’) protection.
•Trading loans and advances mainly pledged against cash
collateral are posted to satisfy margin requirements. There is
limited credit risk on cash collateral posted since in the event of
default of the counterparty this would be set off against the
related liability. Reverse repos and stock borrowing are by their
nature collateralised.
Collateral accepted as security that the Group is permitted to sell or repledge
under these arrangements is described on page 358 of the financial
statements.
•The Group’s maximum exposure to credit risk includes financial
guarantees and similar contracts granted, as well as loan and
other credit-related commitments. Depending on the terms of
the arrangement, we may use additional credit mitigation if a
guarantee is called upon or a loan commitment is drawn and
subsequently defaults.
For further information on these arrangements, see Note 32 on the financial
statements.
HSBC Holdings plc Annual Report and Accounts 2021
175
Derivatives
We participate in transactions exposing us to counterparty credit
risk. Counterparty credit risk is the risk of financial loss if the
counterparty to a transaction defaults before satisfactorily settling
it. It arises principally from over-the-counter (‘OTC’) derivatives
and securities financing transactions and is calculated in both the
trading and non-trading books. Transactions vary in value by
reference to a market factor such as an interest rate, exchange
rate or asset price.
The counterparty risk from derivative transactions is taken into
account when reporting the fair value of derivative positions. The
adjustment to the fair value is known as the credit valuation
adjustment (‘CVA’).
For an analysis of CVAs, see Note 12 on the financial statements.
The following table reflects by risk type the fair values and gross
notional contract amounts of derivatives cleared through an
exchange, central counterparty or non-central counterparty.
Notional contract amounts and fair values of derivatives
2021
2020
Notional
Fair value
Notional
Fair value
amount
Assets
Liabilities
amount
Assets
Liabilities
$m
$m
$m
$m
$m
$m
Total OTC derivatives
21,964,665
246,108
241,136
22,749,280
372,373
368,010
– total OTC derivatives cleared by central counterparties
10,086,344
59,147
60,686
9,898,260
74,054
75,253
– total OTC derivatives not cleared by central counterparties
11,878,321
186,961
180,450
12,851,020
298,319
292,757
Total exchange traded derivatives
1,359,692
4,152
3,306
1,332,438
4,456
4,094
Gross
23,324,357
250,260
244,442
24,081,718
376,829
372,104
Offset
(53,378)
(53,378)
(69,103)
(69,103)
At 31 Dec
196,882
191,064
307,726
303,001
The purposes for which HSBC uses derivatives are described in Note 15 on
the financial statements.
The International Swaps and Derivatives Association (‘ISDA’)
master agreement is our preferred agreement for documenting
derivatives activity. It is common, and our preferred practice,
for the parties involved in a derivative transaction to execute a
credit support annex (‘CSA’) in conjunction with the ISDA master
agreement. Under a CSA, collateral is passed between the parties
to mitigate the counterparty risk inherent in outstanding positions.
The majority of our CSAs are with financial institutional clients.
We manage the counterparty exposure on our OTC derivative
contracts by using collateral agreements with counterparties and
netting agreements. Currently, we do not actively manage
our general OTC derivative counterparty exposure in the credit
markets, although we may manage individual exposures in certain
circumstances.
We place strict policy restrictions on collateral types and as a
consequence the types of collateral received and pledged are, by
value, highly liquid and of a strong quality, being predominantly
cash.
Where a collateral type is required to be approved outside the
collateral policy, approval is required from a committee of senior
representatives from Markets, Legal and Risk.
See page 378 and Note 30 on the financial statements for details regarding
legally enforceable right of offset in the event of counterparty default and
collateral received in respect of derivatives.
Personal lending
This section presents further disclosures related to personal
lending. It provides details of the regions, countries and products
that are driving the change observed in personal loans and
advances to customers, with the impact of foreign exchange
separately identified. Additionally, Hong Kong and UK mortgage
book LTV data is provided.
This section also provides a reconciliation of the opening
1 January 2021 to 31 December 2021 closing gross carrying/
nominal amounts and associated allowance for ECL. Further
product granularity is also provided by stage, with geographical
data presented for loans and advances to customers, loan and
other credit-related commitments and financial guarantees.
At 31 December 2021, total personal lending for loans and
advances to customers of $478bn increased by $17.5bn compared
with 31 December 2020. This increase included adverse foreign
exchange movements of $6.4bn. Excluding foreign exchange
movements, there was growth of $24.0bn, primarily driven by
$11.4bn in Asia and $10.2bn in Europe. The allowance for ECL
attributable to personal lending, excluding off-balance sheet loan
commitments and guarantees and foreign exchange movements,
decreased $1.5bn to $3.1 bn at 31 December 2021.
Excluding foreign exchange movements, total personal lending
was primarily driven by mortgage growth, which grew by $22.8bn.
Mortgages grew $10.1bn in the UK; $9.9bn in Asia, notably $6.6bn
in Hong Kong and $2.1bn in Australia; and $3.4bn in Canada. This
was partly offset by a decrease of $1.8bn due to domestic mass
market retail banking in the US being reclassified to assets held for
sale. The allowance for ECL, excluding foreign exchange,
attributable to mortgages of $0.7 bn decreased by $0.1bn
compared with 31 December 2020.
The quality of both our Hong Kong and UK mortgage books
remained high, with low levels of impairment allowances. The
average LTV ratio on new mortgage lending in Hong Kong was
62%, compared with an estimated 47% for the overall mortgage
portfolio. The average LTV ratio on new lending in the UK was
67%, compared with an estimated 51% for the overall mortgage
portfolio.
Excluding foreign exchange movements, other personal lending
balances at 31 December 2021 increased by $1.2bn compared
with 31 December 2020, mainly from unsecured personal lending
in Hong Kong (up $1.0bn) and in Latin America (up $0.7bn), as
well as from guaranteed loans in respect of residential property in
France (up $0.8bn). These were offset by a decrease in credit
cards mainly in the US (down $0.9bn).
The allowance for ECL, excluding foreign exchange, attributable to
other personal lending of $2.4bn decreased by $1.5bn compared
with 31 December 2020. Excluding foreign exchange, the
allowance for ECL attributable to credit cards decreased by $0.9bn
while unsecured personal lending decreased by $0.6bn.
Risk
176
HSBC Holdings plc Annual Report and Accounts 2021
Total personal lending for loans and advances to customers at amortised cost by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
By portfolio
First lien residential mortgages
360,686
7,637
3,045
371,368
(128)
(131)
(416)
(675)
– of which: interest only (including offset)
28,506
1,795
255
30,556
(5)
(24)
(81)
(110)
– affordability (including US adjustable rate
mortgages)
13,621
712
452
14,785
(6)
(6)
(5)
(17)
Other personal lending
96,270
8,802
1,897
106,969
(530)
(1,088)
(810)
(2,428)
– second lien residential mortgages
314
44
37
395
(1)
(4)
(9)
(14)
– guaranteed loans in respect of residential
property
20,643
731
236
21,610
(9)
(7)
(42)
(58)
– other personal lending which is secured
36,533
1,096
366
37,995
(21)
(15)
(120)
(156)
– credit cards
18,623
3,897
338
22,858
(246)
(675)
(214)
(1,135)
– other personal lending which is unsecured
18,743
2,820
915
22,478
(240)
(378)
(421)
(1,039)
– motor vehicle finance
1,414
214
5
1,633
(13)
(9)
(4)
(26)
– IPO loans
—
—
—
—
—
—
—
—
At 31 Dec 2021
456,956
16,439
4,942
478,337
(658)
(1,219)
(1,226)
(3,103)
By geography
Europe
212,284
5,639
2,148
220,071
(199)
(499)
(637)
(1,335)
– of which: UK
176,547
4,668
1,488
182,703
(167)
(480)
(399)
(1,046)
Asia
187,391
7,796
1,303
196,490
(158)
(381)
(226)
(765)
– of which: Hong Kong
125,854
4,959
202
131,015
(65)
(231)
(43)
(339)
MENA
4,965
252
202
5,419
(38)
(40)
(94)
(172)
North America
43,489
2,126
1,005
46,620
(43)
(67)
(118)
(228)
Latin America
8,827
626
284
9,737
(220)
(232)
(151)
(603)
At 31 Dec 2021
456,956
16,439
4,942
478,337
(658)
(1,219)
(1,226)
(3,103)
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
Europe
57,109
558
107
57,774
(11)
(1)
—
(12)
– of which: UK
54,704
407
104
55,215
(10)
(1)
—
(11)
Asia
160,248
894
21
161,163
—
—
—
—
– of which: Hong Kong
121,597
292
19
121,908
—
—
—
—
MENA
2,568
30
16
2,614
(5)
—
—
(5)
North America
15,039
251
23
15,313
(15)
(1)
—
(16)
Latin America
3,920
29
2
3,951
(6)
—
—
(6)
At 31 Dec 2021
238,884
1,762
169
240,815
(37)
(2)
—
(39)
Total personal lending for loans and advances to customers at amortised cost by stage distribution (continued)1
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
By portfolio
First lien residential mortgages
336,666
12,233
3,383
352,282
(125)
(188)
(442)
(755)
– of which: interest only (including offset)
29,143
3,074
351
32,568
(9)
(19)
(88)
(116)
– affordability (including US adjustable rate
mortgages)
13,265
2,209
606
16,080
(11)
(11)
(5)
(27)
Other personal lending
93,468
12,831
2,228
108,527
(702)
(2,214)
(1,060)
(3,976)
– second lien residential mortgages
593
100
51
744
(3)
(9)
(10)
(22)
– guaranteed loans in respect of residential
property
21,558
835
159
22,552
(4)
(7)
(32)
(43)
– other personal lending which is secured
36,230
1,357
448
38,035
(13)
(19)
(127)
(159)
– credit cards
17,327
5,292
680
23,299
(386)
(1,281)
(380)
(2,047)
– other personal lending which is unsecured
16,338
5,096
882
22,316
(288)
(888)
(506)
(1,682)
– motor vehicle finance
1,374
151
8
1,533
(8)
(10)
(5)
(23)
– IPO loans
48
—
—
48
—
—
—
—
At 31 Dec 2020
430,134
25,064
5,611
460,809
(827)
(2,402)
(1,502)
(4,731)
By geography
Europe
200,120
11,032
2,511
213,663
(247)
(1,271)
(826)
(2,344)
– of which: UK
163,338
9,476
1,721
174,535
(223)
(1,230)
(545)
(1,998)
Asia
178,175
7,969
1,169
187,313
(234)
(446)
(241)
(921)
– of which: Hong Kong
118,252
5,133
206
123,591
(102)
(237)
(48)
(387)
MENA
4,879
403
251
5,533
(54)
(112)
(152)
(318)
North America
40,387
4,613
1,378
46,378
(93)
(200)
(132)
(425)
Latin America
6,573
1,047
302
7,922
(199)
(373)
(151)
(723)
At 31 Dec 2020
430,134
25,064
5,611
460,809
(827)
(2,402)
(1,502)
(4,731)
1 During the period, the Group has re-presented the other personal lending with additional granularity.
HSBC Holdings plc Annual Report and Accounts 2021
177
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
Europe
56,920
719
96
57,735
(22)
(2)
—
(24)
– of which: UK
54,348
435
92
54,875
(21)
(2)
—
(23)
Asia
156,057
790
11
156,858
—
—
—
—
– of which: Hong Kong
118,529
10
10
118,549
—
—
—
—
MENA
2,935
46
8
2,989
(1)
—
—
(1)
North America
15,835
124
38
15,997
(11)
—
—
(11)
Latin America
3,462
28
1
3,491
(5)
—
—
(5)
At 31 Dec 2020
235,209
1,707
154
237,070
(39)
(2)
—
(41)
Exposure to UK interest-only mortgage loans
The following information is presented for HSBC branded UK
interest-only mortgage loans with balances of $15.2bn. This
excludes offset mortgages in the first direct brand and Private
Bank mortgages.
At the end of 2021, the average LTV ratio in the portfolio was 40%
and 99% of mortgages had an LTV ratio of 75% or less.
Of the interest-only mortgage loans that expired in 2019, 89%
were repaid within 12 months of expiry with a total of 91% being
repaid within 24 months of expiry. For those expiring during 2020,
73% were repaid within 12 months of expiry. The drop in the
amount fully repaid within the 12 months is explained by the
extensions granted as part of the FCA guidance on helping
borrowers with maturing interest-only mortgages during the
pandemic that ended in October 2021. Excluding the extensions,
only $3.9m remains outstanding.
The profile of maturing UK interest-only loans is as follows:
UK interest-only mortgage loans
$m
Expired interest-only mortgage loans
167
Interest-only mortgage loans by maturity
– 2022
267
– 2023
401
– 2024
330
– 2025
420
– 2026–2030
3,288
– post-2030
10,333
At 31 Dec 2021
15,206
Expired interest-only mortgage loans
169
Interest-only mortgage loans by maturity
– 2021
356
– 2022
392
– 2023
500
– 2024
407
– 2025–2029
3,317
– post-2030
9,914
At 31 Dec 2020
15,055
Exposure to offset mortgage in first direct
The offset mortgage in first direct is a flexible way for our
customers to take control of their finances. It works by grouping
together the customer’s mortgage, savings and current accounts
to offset their credit and debit balances against their mortgage
exposure.
At 31 December 2021, exposures were worth a total $7.0bn with
an average LTV ratio of 35% (31 December 2020: $8.6bn exposure
and 37% LTV ratio).
Risk
178
HSBC Holdings plc Annual Report and Accounts 2021
Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
665,346
(866)
26,770
(2,405)
5,762
(1,503)
697,878
(4,774)
Transfers of financial instruments
1,822
(1,154)
(4,502)
1,713
2,680
(559)
—
—
Net remeasurement of ECL arising from transfer of stage
—
825
—
(363)
—
(7)
—
455
Net new and further lending/repayments
39,946
148
(2,877)
533
(1,517)
270
35,552
951
Change in risk parameters – credit quality
—
318
—
(778)
—
(1,007)
—
(1,467)
Changes to models used for ECL calculation
—
(2)
—
—
—
1
—
(1)
Assets written off
—
—
—
—
(1,525)
1,520
(1,525)
1,520
Foreign exchange and other 1
(11,274)
36
(1,190)
79
(289)
59
(12,753)
174
At 31 Dec 2021
695,840
(695)
18,201
(1,221)
5,111
(1,226)
719,152
(3,142)
ECL income statement change for the period
1,289
(608)
(743)
(62)
Recoveries
355
Other
(9)
Total ECL income statement change for the period
284
1 Total includes $3.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale and a corresponding
allowance for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.
As shown in the above table, the allowance for ECL for loans and
advances to customers and relevant loan commitments and
financial guarantees decreased $1,632m during the period from
$4,774m at 31 December 2020 to $3,142m at 31 December 2021.
This decrease was primarily driven by:
•$1,520m of assets written off;
•$951m relating to volume movements, which included the ECL
allowance associated with new originations, assets
derecognised and further lending/repayment;
•$455m relating to the net remeasurement impact of stage
transfers; and
•foreign exchange and other movements of $174m.
These were partly offset by:
•$1,467m relating to underlying credit quality changes, including
the credit quality impact of financial instruments transferring
between stages.
The ECL charge for the period of $62m presented in the above
table consisted of $1,467m relating to underlying credit quality
changes, including the credit quality impact of financial
instruments transferring between stages. This was partly offset by
$951m relating to underlying net book volume movements and
$455m relating to the net remeasurement impact of stage
transfers.
The net transfer of gross carrying/nominal amounts to stage 1 of
$1,822m reflects the overall improvement in the economic outlook
as the effects of the Covid-19 outbreak subsided. It was primarily
driven by $2,854m in Europe and $1,074m in North America, and
was partly offset by a net transfer out of stage 1 of $2,346m in
Asia, mainly driven by management judgemental adjustments
primarily in Hong Kong during 1H21.
Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers
including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2020
635,961
(597)
17,382
(1,338)
5,046
(1,215)
658,389
(3,150)
Transfers of financial instruments
(16,019)
(629)
13,370
1,181
2,649
(552)
—
—
Net remeasurement of ECL arising from transfer of
stage
—
431
—
(555)
—
(8)
—
(132)
Net new and further lending/repayments
30,891
101
(5,407)
408
(677)
150
24,807
659
Change in risk parameters – credit quality
—
(147)
—
(2,025)
—
(1,258)
—
(3,430)
Changes to models used for ECL calculation
—
(3)
—
(9)
—
5
—
(7)
Assets written off
—
—
—
—
(1,409)
1,407
(1,409)
1,407
Foreign exchange and other
14,513
(22)
1,425
(67)
153
(32)
16,091
(121)
At 31 Dec 2020
665,346
(866)
26,770
(2,405)
5,762
(1,503)
697,878
(4,774)
ECL income statement change for the period
382
(2,181)
(1,111)
(2,910)
Recoveries
280
Other
(25)
Total ECL income statement change for the period
(2,655)
HSBC Holdings plc Annual Report and Accounts 2021
179
Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost
Gross carrying amount
Allowance for ECL
PD range 1
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
ECL
coverage
%
$m
$m
$m
$m
$m
$m
$m
$m
%
First lien residential
mortgages
360,686
7,637
3,045
371,368
(128)
(131)
(416)
(675)
0.2
– Band 1
0.000 to 0.250
310,042
451
—
310,493
(30)
(5)
—
(35)
—
– Band 2
0.251 to 0.500
19,741
203
—
19,944
(7)
(2)
—
(9)
—
– Band 3
0.501 to 1.500
25,835
1,936
—
27,771
(79)
(8)
—
(87)
0.3
– Band 4
1.501 to 5.000
4,976
2,657
—
7,633
(12)
(30)
—
(42)
0.6
– Band 5
5.001 to 20.000
88
1,416
—
1,504
—
(35)
—
(35)
2.3
– Band 6
20.001 to 99.999
4
974
—
978
—
(51)
—
(51)
5.2
– Band 7
100.000
—
—
3,045
3,045
—
—
(416)
(416)
13.7
Other personal lending
96,270
8,802
1,897
106,969
(530)
(1,088)
(810)
(2,428)
2.3
– Band 1
0.000 to 0.250
45,049
187
—
45,236
(50)
(13)
—
(63)
0.1
– Band 2
0.251 to 0.500
12,625
605
—
13,230
(27)
(6)
—
(33)
0.2
– Band 3
0.501 to 1.500
22,791
1,518
—
24,309
(102)
(30)
—
(132)
0.5
– Band 4
1.501 to 5.000
13,006
2,360
—
15,366
(213)
(108)
—
(321)
2.1
– Band 5
5.001 to 20.000
2,732
3,257
—
5,989
(138)
(554)
—
(692)
11.6
– Band 6
20.001 to 99.999
67
875
—
942
—
(377)
—
(377)
40.0
– Band 7
100.000
—
—
1,897
1,897
—
—
(810)
(810)
42.7
At 31 Dec 2021
456,956
16,439
4,942
478,337
(658)
(1,219)
(1,226)
(3,103)
0.6
First lien residential
mortgages
336,666
12,233
3,383
352,282
(125)
(188)
(442)
(755)
0.2
– Band 1
0.000 to 0.250
284,252
1,283
—
285,535
(36)
(3)
—
(39)
—
– Band 2
0.251 to 0.500
16,259
302
—
16,561
(9)
(3)
—
(12)
0.1
– Band 3
0.501 to 1.500
27,055
1,755
—
28,810
(64)
(8)
—
(72)
0.2
– Band 4
1.501 to 5.000
8,858
5,134
—
13,992
(15)
(32)
—
(47)
0.3
– Band 5
5.001 to 20.000
238
1,806
—
2,044
(1)
(41)
—
(42)
2.1
– Band 6
20.001 to 99.999
4
1,953
—
1,957
—
(101)
—
(101)
5.2
– Band 7
100.000
—
—
3,383
3,383
—
—
(442)
(442)
13.1
Other personal lending
93,468
12,831
2,228
108,527
(702)
(2,214)
(1,060)
(3,976)
3.7
– Band 1
0.000 to 0.250
41,565
589
—
42,154
(96)
(8)
—
(104)
0.2
– Band 2
0.251 to 0.500
13,053
518
—
13,571
(31)
(63)
—
(94)
0.7
– Band 3
0.501 to 1.500
23,802
1,280
—
25,082
(108)
(37)
—
(145)
0.6
– Band 4
1.501 to 5.000
11,787
2,175
—
13,962
(270)
(112)
—
(382)
2.7
– Band 5
5.001 to 20.000
3,234
5,288
—
8,522
(197)
(821)
—
(1,018)
11.9
– Band 6
20.001 to 99.999
27
2,981
—
3,008
—
(1,173)
—
(1,173)
39.0
– Band 7
100.000
—
—
2,228
2,228
—
—
(1,060)
(1,060)
47.6
At 31 Dec 2020
430,134
25,064
5,611
460,809
(827)
(2,402)
(1,502)
(4,731)
1.0
1 12-month point in time adjusted for multiple economic scenarios.
Risk
180
HSBC Holdings plc Annual Report and Accounts 2021
Collateral on loans and advances
(Audited)
The following table provides a quantification of the value of fixed
charges we hold over specific assets where we have a history
of enforcing, and are able to enforce, collateral in satisfying a debt
in the event of the borrower failing to meet its contractual
obligations, and where the collateral is cash or can be realised by
sale in an established market. The collateral valuation excludes
any adjustments for obtaining and selling the collateral and, in
particular, loans shown as not collateralised or partially
collateralised may also benefit from other forms of credit
mitigants.
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Fully collateralised
377,454
—
168,737
—
98,020
—
LTV ratio:
– less than 50%
190,370
—
81,582
—
61,234
—
– 51% to 60%
64,217
—
28,555
—
12,070
—
– 61% to 70%
51,842
—
25,949
—
4,649
—
– 71% to 80%
46,932
0.1
24,114
—
8,360
—
– 81% to 90%
18,778
0.1
7,899
—
8,420
—
– 91% to 100%
5,315
0.1
638
—
3,287
—
Partially collateralised (A):
682
0.3
358
—
30
—
LTV ratio:
– 101% to 110%
254
0.6
104
—
26
—
– 111% to 120%
98
0.4
60
—
1
—
– greater than 120%
330
0.1
194
—
3
—
– collateral value on A
484
235
28
Total
378,136
—
169,095
—
98,050
—
Stage 2
Fully collateralised
7,710
1.7
2,738
2.1
1,166
—
LTV ratio:
– less than 50%
4,380
1.5
1,846
1.6
905
—
– 51% to 60%
1,317
1.4
397
2.4
106
—
– 61% to 70%
1,016
1.6
282
3.0
34
—
– 71% to 80%
725
2.3
175
4.7
50
—
– 81% to 90%
208
4.3
32
5.6
58
—
– 91% to 100%
64
4.1
6
1.9
13
—
Partially collateralised (B):
24
13.6
3
7.7
—
—
LTV ratio:
– 101% to 110%
7
18.6
1
1.0
—
—
– 111% to 120%
8
16.6
—
—
—
—
– greater than 120%
9
6.7
2
11.1
—
—
– collateral value on B
20
2
—
Total
7,734
1.7
2,741
2.1
1,166
—
Stage 3
Fully collateralised
2,853
11.5
954
14.2
68
0.3
LTV ratio:
– less than 50%
1,490
9.2
635
13.0
48
0.5
– 51% to 60%
443
8.6
129
14.0
10
0.1
– 61% to 70%
371
10.9
79
16.2
2
0.1
– 71% to 80%
256
15.4
67
19.1
3
—
– 81% to 90%
171
20.4
21
25.2
4
—
– 91% to 100%
122
32.2
23
18.6
1
—
Partially collateralised (C):
220
39.6
7
30.8
—
—
LTV ratio:
– 101% to 110%
56
27.5
4
22.3
—
—
– 111% to 120%
29
29.2
—
—
—
—
– greater than 120%
135
46.9
3
45.5
—
—
– collateral value on C
143
6
—
Total
3,073
13.5
961
14.4
68
0.3
At 31 Dec 2021
388,943
0.2
172,797
0.1
99,284
—
HSBC Holdings plc Annual Report and Accounts 2021
181
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(continued)
(Audited)
Of which:
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
Stage 1
Fully collateralised
354,102
—
159,562
—
90,733
—
LTV ratio:
– less than 50%
174,370
—
76,535
—
54,866
—
– 51% to 60%
60,180
—
23,967
—
14,253
—
– 61% to 70%
48,159
—
23,381
—
6,042
—
– 71% to 80%
40,395
0.1
20,846
—
4,288
—
– 81% to 90%
23,339
0.1
12,936
—
6,837
—
– 91% to 100%
7,659
0.1
1,897
0.1
4,447
—
Partially collateralised (A):
973
0.4
289
—
336
—
LTV ratio:
– 101% to 110%
592
0.4
84
—
334
—
– 111% to 120%
101
0.5
45
—
—
—
– greater than 120%
280
0.3
160
—
2
—
– collateral value on A
847
212
328
Total
355,075
—
159,851
—
91,069
—
Stage 2
Fully collateralised
12,252
1.5
4,229
1.4
1,802
—
LTV ratio:
– less than 50%
6,694
1.1
2,442
1.2
1,256
—
– 51% to 60%
2,223
1.1
730
1.3
253
—
– 61% to 70%
1,779
1.6
606
1.3
83
—
– 71% to 80%
987
2.8
244
2.9
111
—
– 81% to 90%
400
4.9
139
3.6
60
—
– 91% to 100%
169
5.7
68
3.3
39
—
Partially collateralised (B):
53
13.6
4
3.3
9
—
LTV ratio:
– 101% to 110%
28
11.9
3
1.5
9
—
– 111% to 120%
9
16.8
—
—
—
—
– greater than 120%
16
14.8
1
8.5
—
—
– collateral value on B
47
4
9
Total
12,305
1.5
4,233
1.4
1,811
—
Stage 3
Fully collateralised
3,083
9.8
1,050
12.3
63
—
LTV ratio:
– less than 50%
1,472
8.0
676
10.9
53
—
– 51% to 60%
505
8.7
144
15.1
6
—
– 61% to 70%
435
9.2
112
12.9
—
—
– 71% to 80%
378
11.5
81
13.7
2
—
– 81% to 90%
195
17.3
28
22.4
2
—
– 91% to 100%
98
24.3
9
17.8
—
—
Partially collateralised (C):
328
42.7
17
22.9
—
—
LTV ratio:
– 101% to 110%
75
30.4
9
16.7
—
—
– 111% to 120%
56
38.8
5
17.6
—
—
– greater than 120%
197
48.5
3
50.3
—
—
– collateral value on C
228
10
1
Total
3,411
13.0
1,067
12.5
63
—
At 31 Dec 2020
370,791
0.2
165,151
0.1
92,943
—
Risk
182
HSBC Holdings plc Annual Report and Accounts 2021
Supplementary information
Wholesale lending – loans and advances to customers at amortised cost by country/territory
Gross carrying amount
Allowance for ECL
Corporate
and
commercial
Of which:
real estate 1
Non-bank
financial
institutions
Total
Corporate
and
commercial
Of which:
real estate 1
Non-bank
financial
institutions
Total
$m
$m
$m
$m
$m
$m
$m
$m
Europe
163,341
23,137
17,818
181,159
(2,770)
(546)
(41)
(2,811)
– UK
115,386
16,233
11,306
126,692
(1,855)
(489)
(32)
(1,887)
– France
34,488
5,520
4,391
38,879
(654)
(47)
(2)
(656)
– Germany
6,746
306
987
7,733
(120)
—
(3)
(123)
– Switzerland
1,188
731
688
1,876
(8)
—
—
(8)
– other
5,533
347
446
5,979
(133)
(10)
(4)
(137)
Asia
263,821
81,453
36,321
300,142
(3,297)
(731)
(44)
(3,341)
– Hong Kong
162,684
62,792
20,182
182,866
(1,585)
(624)
(7)
(1,592)
– Australia
9,937
2,596
717
10,654
(108)
(3)
—
(108)
– India
8,221
1,786
4,003
12,224
(84)
(29)
(8)
(92)
– Indonesia
3,436
86
226
3,662
(246)
(2)
(1)
(247)
– mainland China
33,555
6,811
9,359
42,914
(198)
(41)
(28)
(226)
– Malaysia
7,229
1,741
197
7,426
(172)
(21)
—
(172)
– Singapore
16,401
4,158
782
17,183
(792)
(5)
—
(792)
– Taiwan
6,291
31
47
6,338
—
—
—
—
– other
16,067
1,452
808
16,875
(112)
(6)
—
(112)
Middle East and North Africa (excluding
Saudi Arabia)
21,963
1,555
376
22,339
(1,207)
(158)
(3)
(1,210)
– Egypt
1,788
69
152
1,940
(161)
(7)
—
(161)
– UAE
12,942
1,370
190
13,132
(811)
(149)
—
(811)
– other
7,233
116
34
7,267
(235)
(2)
(3)
(238)
North America
52,577
13,639
10,197
62,774
(427)
(87)
(18)
(445)
– US
27,002
5,895
8,511
35,513
(207)
(64)
(1)
(208)
– Canada
25,048
7,650
1,546
26,594
(198)
(15)
(6)
(204)
– other
527
94
140
667
(22)
(8)
(11)
(33)
Latin America
11,837
1,476
643
12,480
(503)
(122)
(4)
(507)
– Mexico
9,561
1,475
618
10,179
(452)
(122)
(4)
(456)
– other
2,276
1
25
2,301
(51)
—
—
(51)
At 31 Dec 2021
513,539
121,260
65,355
578,894
(8,204)
(1,644)
(110)
(8,314)
Europe
179,104
26,505
22,176
201,280
(3,918)
(632)
(185)
(4,103)
– UK
128,933
18,890
16,165
145,098
(2,958)
(574)
(147)
(3,105)
– France
32,278
5,740
3,557
35,835
(645)
(40)
(26)
(671)
– Germany
8,309
364
1,156
9,465
(125)
—
(3)
(128)
– Switzerland
1,489
576
513
2,002
(14)
—
—
(14)
– other
8,095
935
785
8,880
(176)
(18)
(9)
(185)
Asia
257,942
82,359
31,637
289,579
(2,766)
(162)
(38)
(2,804)
– Hong Kong
162,039
64,216
18,406
180,445
(1,180)
(83)
(15)
(1,195)
– Australia
9,769
1,813
1,348
11,117
(95)
(2)
—
(95)
– India
7,223
1,951
3,075
10,298
(90)
(18)
(4)
(94)
– Indonesia
3,699
81
246
3,945
(229)
(2)
—
(229)
– mainland China
28,443
6,251
7,128
35,571
(187)
(23)
(18)
(205)
– Malaysia
7,228
1,968
123
7,351
(86)
(27)
—
(86)
– Singapore
18,859
4,637
362
19,221
(782)
(2)
—
(782)
– Taiwan
6,115
50
60
6,175
—
—
—
—
– other
14,567
1,392
889
15,456
(117)
(5)
(1)
(118)
Middle East and North Africa (excluding
Saudi Arabia)
24,625
1,839
379
25,004
(1,512)
(187)
(9)
(1,521)
– Egypt
2,162
37
13
2,175
(157)
(7)
(3)
(160)
– UAE
13,485
1,690
170
13,655
(1,019)
(176)
(2)
(1,021)
– other
8,978
112
196
9,174
(336)
(4)
(4)
(340)
North America
53,386
14,491
9,292
62,678
(637)
(73)
(23)
(660)
– US
30,425
7,722
7,708
38,133
(367)
(38)
(3)
(370)
– Canada
22,361
6,645
1,440
23,801
(243)
(27)
(9)
(252)
– other
600
124
144
744
(27)
(8)
(11)
(38)
Latin America
12,031
1,833
1,096
13,127
(661)
(113)
(10)
(671)
– Mexico
10,244
1,832
1,083
11,327
(589)
(113)
(10)
(599)
– other
1,787
1
13
1,800
(72)
—
—
(72)
At 31 Dec 2020
527,088
127,027
64,580
591,668
(9,494)
(1,167)
(265)
(9,759)
1 Real estate lending within this disclosure corresponds solely to the industry of the borrower. Commercial real estate on page 168 includes
borrowers in multiple industries investing in income-producing assets and to a lesser extent, their construction and development.
HSBC Holdings plc Annual Report and Accounts 2021
183
Personal lending – loans and advances to customers at amortised cost by country/territory
Gross carrying amount
Allowance for ECL
First lien
residential
mortgages
Other
personal
Of which:
credit
cards
Total
First lien
residential
mortgages
Other
personal
Of which:
credit
cards
Total
$m
$m
$m
$m
$m
$m
$m
$m
Europe
170,818
49,253
8,624
220,071
(329)
(1,006)
(437)
(1,335)
– UK
163,549
19,154
8,213
182,703
(223)
(823)
(434)
(1,046)
– France 1
3,124
22,908
366
26,032
(38)
(91)
(3)
(129)
– Germany
—
282
—
282
—
—
—
—
– Switzerland
1,367
6,615
—
7,982
—
(75)
—
(75)
– other
2,778
294
45
3,072
(68)
(17)
—
(85)
Asia
149,709
46,781
11,413
196,490
(59)
(706)
(428)
(765)
– Hong Kong
98,019
32,996
8,154
131,015
(1)
(338)
(217)
(339)
– Australia
21,149
504
427
21,653
(5)
(33)
(32)
(38)
– India
981
543
181
1,524
(10)
(30)
(20)
(40)
– Indonesia
76
272
147
348
(1)
(20)
(14)
(21)
– mainland China
10,525
1,103
563
11,628
(4)
(72)
(66)
(76)
– Malaysia
2,532
2,657
791
5,189
(33)
(122)
(34)
(155)
– Singapore
7,811
6,649
367
14,460
—
(40)
(13)
(40)
– Taiwan
5,672
1,188
271
6,860
—
(17)
(5)
(17)
– other
2,944
869
512
3,813
(5)
(34)
(27)
(39)
Middle East and North Africa (excluding Saudi Arabia)
2,262
3,157
761
5,419
(26)
(146)
(60)
(172)
– Egypt
—
368
98
368
—
(3)
(1)
(3)
– UAE
1,924
1,232
417
3,156
(18)
(88)
(39)
(106)
– other
338
1,557
246
1,895
(8)
(55)
(20)
(63)
North America
43,529
3,091
555
46,620
(141)
(87)
(47)
(228)
– US
16,642
799
232
17,441
(12)
(53)
(36)
(65)
– Canada
25,773
2,123
284
27,896
(33)
(27)
(8)
(60)
– other
1,114
169
39
1,283
(96)
(7)
(3)
(103)
Latin America
5,050
4,687
1,505
9,737
(120)
(483)
(163)
(603)
– Mexico
4,882
4,006
1,172
8,888
(119)
(450)
(148)
(569)
– other
168
681
333
849
(1)
(33)
(15)
(34)
At 31 Dec 2021
371,368
106,969
22,858
478,337
(675)
(2,428)
(1,135)
(3,103)
Europe
162,630
51,033
8,471
213,663
(364)
(1,980)
(859)
(2,344)
– UK
154,839
19,696
8,064
174,535
(236)
(1,762)
(852)
(1,998)
– France 1
3,623
23,982
358
27,605
(43)
(120)
(5)
(163)
– Germany
—
368
—
368
—
—
—
—
– Switzerland
1,195
6,641
—
7,836
—
(79)
—
(79)
– other
2,973
346
49
3,319
(85)
(19)
(2)
(104)
Asia
141,581
45,732
11,186
187,313
(80)
(841)
(563)
(921)
– Hong Kong
91,997
31,594
7,573
123,591
—
(387)
(265)
(387)
– Australia
20,320
602
514
20,922
(12)
(47)
(45)
(59)
– India
933
544
215
1,477
(9)
(45)
(34)
(54)
– Indonesia
71
288
167
359
—
(37)
(26)
(37)
– mainland China
9,679
1,155
644
10,834
(6)
(81)
(73)
(87)
– Malaysia
2,797
2,964
841
5,761
(41)
(102)
(35)
(143)
– Singapore
7,394
6,537
375
13,931
—
(55)
(17)
(55)
– Taiwan
5,407
1,069
277
6,476
—
(15)
(5)
(15)
– other
2,983
979
580
3,962
(12)
(72)
(63)
(84)
Middle East and North Africa (excluding Saudi Arabia)
2,192
3,341
863
5,533
(43)
(275)
(142)
(318)
– Egypt
—
360
89
360
—
(8)
(3)
(8)
– UAE
1,841
1,158
432
2,999
(37)
(163)
(92)
(200)
– other
351
1,823
342
2,174
(6)
(104)
(47)
(110)
North America
41,826
4,552
1,373
46,378
(159)
(266)
(193)
(425)
– US
18,430
2,141
1,091
20,571
(26)
(226)
(182)
(252)
– Canada
22,241
2,230
244
24,471
(36)
(31)
(10)
(67)
– other
1,155
181
38
1,336
(97)
(9)
(1)
(106)
Latin America
4,053
3,869
1,406
7,922
(109)
(614)
(290)
(723)
– Mexico
3,901
3,351
1,119
7,252
(107)
(578)
(268)
(685)
– other
152
518
287
670
(2)
(36)
(22)
(38)
At 31 Dec 2020
352,282
108,527
23,299
460,809
(755)
(3,976)
(2,047)
(4,731)
1 Included in other personal lending at 31 December 2021 is $19,972m (31 December 2020: $20,625m) guaranteed by Crédit Logement.
Risk
184
HSBC Holdings plc Annual Report and Accounts 2021
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business
Gross carrying/nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers at amortised cost
918,936
119,224
18,797
274
1,057,231
(1,367)
(3,119)
(6,867)
(64)
(11,417)
– WPB
469,477
17,285
5,211
—
491,973
(664)
(1,247)
(1,276)
—
(3,187)
– CMB
267,517
76,798
11,462
245
356,022
(571)
(1,369)
(4,904)
(53)
(6,897)
– GBM
181,247
25,085
2,124
29
208,485
(132)
(493)
(687)
(11)
(1,323)
– Corporate Centre
695
56
—
—
751
—
(10)
—
—
(10)
Loans and advances to banks at amortised cost
81,636
1,517
—
—
83,153
(14)
(3)
—
—
(17)
– WPB
20,464
481
—
—
20,945
(1)
(1)
—
—
(2)
– CMB
15,269
352
—
—
15,621
(1)
—
—
—
(1)
– GBM
36,875
654
—
—
37,529
(10)
(2)
—
—
(12)
– Corporate Centre
9,028
30
—
—
9,058
(2)
—
—
—
(2)
Other financial assets measured at amortised cost
875,016
4,988
304
43
880,351
(91)
(54)
(42)
(6)
(193)
– WPB
207,335
1,407
175
43
208,960
(51)
(44)
(14)
(6)
(115)
– CMB
163,457
2,370
61
—
165,888
(12)
(8)
(20)
—
(40)
– GBM
409,808
1,204
62
—
411,074
(28)
(2)
(8)
—
(38)
– Corporate Centre
94,416
7
6
—
94,429
—
—
—
—
—
Total gross carrying amount on-balance sheet at
31 Dec 2021
1,875,588
125,729
19,101
317
2,020,735
(1,472)
(3,176)
(6,909)
(70)
(11,627)
Loans and other credit-related commitments
594,473
32,389
775
—
627,637
(165)
(174)
(40)
—
(379)
– WPB
235,722
2,111
153
—
237,986
(37)
(3)
—
—
(40)
– CMB
126,728
17,490
555
—
144,773
(80)
(118)
(37)
—
(235)
– GBM
231,890
12,788
67
—
244,745
(48)
(53)
(3)
—
(104)
– Corporate Centre
133
—
—
—
133
—
—
—
—
—
Financial guarantees
24,932
2,638
225
—
27,795
(11)
(30)
(21)
—
(62)
– WPB
1,295
15
1
—
1,311
—
(1)
—
—
(1)
– CMB
6,105
1,606
126
—
7,837
(7)
(16)
(17)
—
(40)
– GBM
17,531
1,017
98
—
18,646
(4)
(13)
(4)
—
(21)
– Corporate Centre
1
—
—
—
1
—
—
—
—
—
Total nominal amount off-balance sheet at
31 Dec 2021
619,405
35,027
1,000
—
655,432
(176)
(204)
(61)
—
(441)
WPB
143,373
718
—
35
144,126
(20)
(7)
—
(5)
(32)
CMB
86,247
471
—
10
86,728
(11)
(1)
—
(1)
(13)
GBM
111,473
526
—
1
112,000
(13)
(2)
—
—
(15)
Corporate Centre
4,038
311
—
—
4,349
(25)
(11)
—
—
(36)
Debt instruments measured at FVOCI at
31 Dec 2021
345,131
2,026
—
46
347,203
(69)
(21)
—
(6)
(96)
HSBC Holdings plc Annual Report and Accounts 2021
185
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business (continued)
Gross carrying/nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers at amortised cost
869,920
163,185
19,095
277
1,052,477
(1,974)
(4,965)
(7,439)
(112)
(14,490)
– WPB
442,641
25,694
5,753
—
474,088
(854)
(2,458)
(1,590)
—
(4,902)
– CMB
238,517
101,960
10,408
212
351,097
(917)
(2,029)
(4,874)
(96)
(7,916)
– GBM
187,564
35,461
2,934
65
226,024
(203)
(465)
(975)
(16)
(1,659)
– Corporate Centre
1,198
70
—
—
1,268
—
(13)
—
—
(13)
Loans and advances to banks at amortised cost
79,654
2,004
—
—
81,658
(33)
(9)
—
—
(42)
– WPB
16,837
519
—
—
17,356
(2)
(2)
—
—
(4)
– CMB
12,253
222
—
—
12,475
(2)
—
—
—
(2)
– GBM
33,361
1,166
—
—
34,527
(23)
(7)
—
—
(30)
– Corporate Centre
17,203
97
—
—
17,300
(6)
—
—
—
(6)
Other financial assets measured at amortised cost
768,216
3,975
177
40
772,408
(80)
(44)
(42)
(9)
(175)
– WPB
167,053
1,547
50
39
168,689
(41)
(22)
(7)
(9)
(79)
– CMB
111,299
1,716
65
1
113,081
(17)
(19)
(25)
—
(61)
– GBM
391,967
705
56
—
392,728
(22)
(3)
(10)
—
(35)
– Corporate Centre
97,897
7
6
—
97,910
—
—
—
—
—
Total gross carrying amount on-balance sheet at
31 Dec 2020
1,717,790
169,164
19,272
317
1,906,543
(2,087)
(5,018)
(7,481)
(121)
(14,707)
Loans and other credit-related commitments
604,485
54,217
1,080
1
659,783
(290)
(365)
(78)
(1)
(734)
– WPB
232,027
2,591
136
—
234,754
(41)
(2)
—
—
(43)
– CMB
111,800
29,150
779
1
141,730
(157)
(203)
(72)
(1)
(433)
– GBM
260,527
22,476
165
—
283,168
(92)
(160)
(6)
—
(258)
– Corporate Centre
131
—
—
—
131
—
—
—
—
—
Financial guarantees
14,090
4,024
269
1
18,384
(37)
(62)
(26)
—
(125)
– WPB
1,048
23
2
—
1,073
—
—
—
—
—
– CMB
5,556
2,519
146
1
8,222
(19)
(36)
(12)
—
(67)
– GBM
7,482
1,482
121
—
9,085
(17)
(26)
(14)
—
(57)
– Corporate Centre
4
—
—
—
4
(1)
—
—
—
(1)
Total nominal amount off-balance sheet at
31 Dec 2020
618,575
58,241
1,349
2
678,167
(327)
(427)
(104)
(1)
(859)
WPB
159,988
625
154
39
160,806
(27)
(10)
(15)
(8)
(60)
CMB
95,182
313
51
10
95,556
(22)
(3)
(2)
(2)
(29)
GBM
136,909
126
93
—
137,128
(24)
(1)
(3)
—
(28)
Corporate Centre
5,838
389
—
—
6,227
(17)
(6)
(1)
—
(24)
Debt instruments measured at FVOCI at
31 Dec 2020
397,917
1,453
298
49
399,717
(90)
(20)
(21)
(10)
(141)
Risk
186
HSBC Holdings plc Annual Report and Accounts 2021
Loans and advances to customers and banks metrics
Gross
carrying
amount
Of which:
stage 3 and
POCI
Allowance
for ECL
Of which:
stage 3 and
POCI
Change in
ECL
Write-offs
Recoveries
$m
$m
$m
$m
$m
$m
$m
First lien residential mortgages
371,368
3,045
(675)
(416)
—
(70)
31
– second lien residential mortgages
395
37
(14)
(9)
12
(1)
6
– guaranteed loans in respect of residential property
21,610
236
(58)
(42)
(5)
(8)
2
– other personal lending which is secured
37,995
366
(156)
(120)
(11)
(11)
1
– credit cards
22,858
338
(1,135)
(214)
172
(751)
153
– other personal lending which is unsecured
22,478
915
(1,039)
(421)
135
(659)
156
– motor vehicle finance
1,633
5
(26)
(4)
(22)
(20)
6
– IPO loans
—
—
—
—
—
—
—
Other personal lending
106,969
1,897
(2,428)
(810)
281
(1,450)
324
Personal lending
478,337
4,942
(3,103)
(1,226)
281
(1,520)
355
– agriculture, forestry and fishing
7,899
363
(138)
(105)
61
(5)
—
– mining and quarrying
9,685
463
(227)
(171)
72
(57)
(1)
– manufacturing
93,743
2,107
(1,248)
(962)
102
(222)
7
– electricity, gas, steam and air-conditioning supply
16,618
78
(68)
(31)
5
—
—
– water supply, sewerage, waste management and remediation
3,895
51
(29)
(20)
3
(7)
—
– construction
13,954
843
(508)
(440)
(13)
(94)
9
– wholesale and retail trade, repair of motor vehicles and
motorcycles
94,944
3,005
(2,107)
(1,937)
163
(238)
15
– transportation and storage
29,592
667
(363)
(191)
100
(10)
2
– accommodation and food
23,376
1,200
(423)
(111)
12
(17)
6
– publishing, audiovisual and broadcasting
18,471
250
(184)
(100)
(12)
(4)
1
– real estate
121,260
2,473
(1,644)
(775)
(674)
(152)
5
– professional, scientific and technical activities
19,685
637
(238)
(172)
97
(39)
1
– administrative and support services
28,675
749
(431)
(307)
48
(37)
—
– public administration and defence, compulsory social security
1,271
—
(8)
—
6
—
1
– education
1,793
65
(37)
(18)
1
(1)
—
– health and care
4,854
183
(72)
(37)
44
(69)
1
– arts, entertainment and recreation
2,598
152
(92)
(42)
27
(26)
—
– other services
12,297
448
(373)
(246)
(59)
(109)
6
– activities of households
977
—
—
—
—
—
—
– extra-territorial organisations and bodies activities
2
—
—
—
1
—
1
– government
7,612
—
(4)
—
(6)
—
—
– asset-backed securities
338
—
(10)
—
3
—
—
Corporate and commercial
513,539
13,734
(8,204)
(5,665)
(19)
(1,087)
54
Non-bank financial institutions
65,355
395
(110)
(40)
129
(5)
—
Wholesale lending
578,894
14,129
(8,314)
(5,705)
110
(1,092)
54
Loans and advances to customers
1,057,231
19,071
(11,417)
(6,931)
391
(2,612)
409
Loans and advances to banks
83,153
—
(17)
—
22
—
—
At 31 Dec 2021
1,140,384
19,071
(11,434)
(6,931)
413
(2,612)
409
HSBC Holdings plc Annual Report and Accounts 2021
187
Loans and advances to customers and banks metrics (continued)
Gross
carrying
amount
Of which:
stage 3 and
POCI
Allowance for
ECL
Of which:
stage 3 and
POCI
Change in
ECL
Write-offs
Recoveries
$m
$m
$m
$m
$m
$m
$m
First lien residential mortgages
352,282
3,383
(755)
(442)
(259)
(92)
35
– second lien residential mortgages
744
51
(22)
(10)
(5)
—
—
– guaranteed loans in respect of residential property
22,552
159
(43)
(32)
1
(3)
—
– other personal lending which is secured
38,035
448
(159)
(127)
(62)
(5)
1
– credit cards
23,299
680
(2,047)
(380)
(1,194)
(736)
131
– other personal lending which is unsecured
22,316
882
(1,682)
(506)
(1,085)
(543)
108
– motor vehicle finance
1,533
8
(23)
(5)
(18)
(28)
5
– IPO loans
48
—
—
—
—
—
—
Other personal lending
108,527
2,228
(3,976)
(1,060)
(2,363)
(1,315)
245
Personal lending
460,809
5,611
(4,731)
(1,502)
(2,622)
(1,407)
280
– agriculture, forestry and fishing
7,445
332
(207)
(150)
(28)
(3)
—
– mining and quarrying
11,947
813
(365)
(220)
(513)
(311)
—
– manufacturing
93,906
2,163
(1,588)
(945)
(652)
(375)
7
– electricity, gas, steam and air-conditioning supply
16,200
53
(73)
(8)
(7)
(14)
—
– water supply, sewerage, waste management and remediation
3,174
47
(37)
(22)
(8)
—
—
– construction
14,600
777
(590)
(430)
(151)
(135)
13
– wholesale and retail trade, repair of motor vehicles and
motorcycles
90,663
3,208
(2,532)
(2,032)
(1,560)
(280)
11
– transportation and storage
29,433
780
(493)
(240)
(308)
(62)
1
– accommodation and food
26,071
537
(491)
(130)
(365)
(28)
—
– publishing, audiovisual and broadcasting
19,979
164
(189)
(59)
(94)
(2)
—
– real estate
127,027
1,908
(1,167)
(738)
(424)
(47)
4
– professional, scientific and technical activities
24,072
531
(398)
(193)
(219)
(36)
1
– administrative and support services
26,423
977
(534)
(315)
(298)
(61)
—
– public administration and defence, compulsory social security
2,008
3
(14)
(1)
(5)
—
—
– education
2,122
29
(41)
(9)
(26)
(6)
1
– health and care
5,510
269
(186)
(120)
(127)
(2)
1
– arts, entertainment and recreation
3,437
236
(158)
(87)
(170)
(2)
—
– other services
13,110
410
(408)
(249)
(360)
(168)
4
– activities of households
802
—
(1)
—
—
—
—
– extra-territorial organisations and bodies activities
10
—
—
—
1
—
1
– government
8,538
1
(9)
(1)
2
(5)
—
– asset-backed securities
611
—
(13)
—
1
—
—
Corporate and commercial
527,088
13,238
(9,494)
(5,949)
(5,311)
(1,537)
44
Non-bank financial institutions
64,580
523
(265)
(100)
(146)
(30)
2
Wholesale lending
591,668
13,761
(9,759)
(6,049)
(5,457)
(1,567)
46
Loans and advances to customers
1,052,477
19,372
(14,490)
(7,551)
(8,079)
(2,974)
326
Loans and advances to banks
81,658
—
(42)
—
(23)
—
—
At 31 Dec 2020
1,134,135
19,372
(14,532)
(7,551)
(8,102)
(2,974)
326
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC Holdings Asset
and Liability Management Committee. The major risks faced by
HSBC Holdings are credit risk, liquidity risk and market risk (in the
form of interest rate risk and foreign exchange risk).
Credit risk in HSBC Holdings primarily arises from transactions
with Group subsidiaries and its investments in those subsidiaries.
In HSBC Holdings, the maximum exposure to credit risk arises
from two components:
•financial instruments on the balance sheet (see page 315); and
•financial guarantees and similar contracts, where the maximum
exposure is the maximum that we would have to pay if the
guarantees were called upon (see Note 32).
In the case of our derivative balances, we have amounts with a
legally enforceable right of offset in the case of counterparty
default that are not included in the carrying value. These offsets
also include collateral received in cash and other financial assets.
The total offset relating to our derivative balances was $1.6bn at
31 December 2021 (2020: $1.7bn).
The credit quality of loans and advances and financial
investments, both of which consist of intra-Group lending and US
Treasury bills and bonds, is assessed as ‘strong’, with 100% of the
exposure being neither past due nor impaired (2020: 100%). For
further details of credit quality classification, see page 138.
Risk
188
HSBC Holdings plc Annual Report and Accounts 2021
Treasury risk
Page
Overview
189
Treasury risk management
189
Other Group risks
191
Capital risk in 2021
193
Liquidity and funding risk in 2021
196
Structural foreign exchange risk in 2021
199
Interest rate risk in the banking book in 2021
200
Overview
Treasury risk is the risk of having insufficient capital, liquidity or
funding resources to meet financial obligations and satisfy
regulatory requirements, together with the financial risks arising
from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to non-trading book foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources and
risk profiles driven by customer behaviour, management decisions
or the external environment.
Approach and policy
(Audited)
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim to
maintain a strong capital and liquidity base to support the risks
inherent in our business and invest in accordance with our
strategy, meeting both consolidated and local regulatory
requirements at all times.
Our policy is underpinned by our risk management framework, our
internal capital adequacy assessment process (‘ICAAP’) and our
internal liquidity adequacy assessment process (‘ILAAP’). The risk
framework incorporates a number of measures aligned to our
assessment of risks for both internal and regulatory purposes.
These risks include credit, market, operational, pensions, non-
trading book foreign exchange risk, and interest rate risk in the
banking book.
For further details, refer to our Pillar 3 Disclosures at 31 December 2021.
Treasury risk management
Key developments in 2021
•Global Treasury initiated a new flagship programme to deliver a
more resilient, effective and efficient Treasury function over the
next four years with a focus on safeguarding and optimising
financial resources. The programme will aim to deliver
modernised infrastructure and upgraded modelling capabilities
alongside a broad reorganisation of the Global Treasury
function.
•As announced in February 2021, we intend to maintain a
common equity tier 1 (‘CET1’) ratio above 14%, normalising
within our target operating range of 14% to 14.5% by the end
of 2022. For the financial year 2021, w e were at the lower end
of our target dividend payout ratio range of between 40% and
55% of reported earnings per ordinary share (‘EPS’), driven by
ECL releases and higher restructuring costs.
•We continued to build our recovery and resolution capabilities,
including in relation to the Bank of England (‘BoE’) Resolvability
Assessment Framework, which had an overall compliance
deadline of 1 January 2022. We submitted a self-assessment
report on our resolvability to the Prudential Regulation
Authority (‘PRA’) and the BoE on 1 October 2021. This included
an assessment of how we addressed resolvability outcomes
that impact treasury risk, including valuations, and capital,
liquidity and funding capabilities in resolution. We will publish a
summary of our self-assessment report in June 2022. The BoE
will similarly publish a statement relating to the resolvability of
HSBC at the same time.
•The BoE’s Financial Policy Committee (‘FPC’) confirmed its
guidance on the path for the UK countercyclical capital buffer
rate. It has announced that it is increasing the rate from 0% to
1%, effective December 2022 in line with the usual 12‑month
implementation lag. Absent a material change in the outlook for
the UK’s financial stability, the FPC would expect to further
increase the rate to 2% in the second quarter of 2022, which
would take effect 12 months later. The Hong Kong Monetary
Authority (‘HKMA’) maintained the countercyclical capital
buffer rate at 1% for Hong Kong, but it will continue to monitor
credit and economic conditions closely.
•The PRA has confirmed that the capitalisation of structural
foreign exchange risk should align to a Pillar 1 approach. In
response, we adopted this approach from 31 December 2021.
As a result, market risk RWAs increased by $8.4bn, offset by a
reduction in Pillar 2 requirements. In advance of this change,
we undertook incremental hedging transactions to reduce
structural foreign exchange risk and RWAs.
•We revised the approach to calculate the Group liquidity
coverage ratio (‘LCR’) better reflecting the free transferability of
liquidity within the Group, in consideration with currency
convertibility and regulatory intra-Group limits. A risk appetite
has been set against the Group LCR. We first published the
Group LCR as part of our 30 June 2021 disclosures. Based on
the consolidation methodology, the Group LCR was 138.4% at
31 December 2021.
•As part of our continuing focus on enhancing the quality of our
regulatory reporting, we are progressing with a comprehensive
programme to strengthen our global processes, improve
consistency and enhance control standards on various aspects
of regulatory reporting. Further details can be found in the
subsequent sub-section ‘Regulatory reporting processes and
controls’.
•We worked with the fiduciaries of all our pension plans to
ensure the measures taken in response to the Covid-19
pandemic, including remote working for plan providers and
dealing appropriately with affected plan members, were
properly maintained and supported. Our de-risking
programmes continued to provide protection against the
volatility in financial markets that resulted from the pandemic’s
economic impact.
•We created a new team within the Global Treasury function to
be accountable for monitoring and managing the financial risk
and capital implications of the Group’s employee defined
benefit pension plans. This change creates clearer delineation
of the roles and responsibilities of the first and second lines of
defence.
The Group’s CET1 ratio was 15.8% at 31 December 2021 and the
leverage ratio, calculated in accordance with the Capital
Requirements Regulation, was 5.2%. The Group continues to
maintain and plan for the appropriate resources required to
manage its risk and deliver its strategic objectives while
supporting local economies.
All of the Group’s material operating entities were above
regulatory minimum levels of liquidity and funding at 31 December
2021.
For quantitative disclosures on capital ratios, own funds and RWAs, see
pages 193 to 194. For quantitative disclosures on liquidity and funding
metrics, see pages 196 to 197. For quantitative disclosures on interest rate
risk in the banking book, see pages 200 to 201.
Governance and structure
The Global Head of Traded and Treasury Risk Management and
Risk Analytics is the accountable risk steward for all treasury risks.
The Group Treasurer is the risk owner for all treasury risks, with
the exception of pension risk, which is co-owned together with the
Group Head of Performance, Reward and Employee Relations.
HSBC Holdings plc Annual Report and Accounts 2021
189
Capital risk, liquidity risk, interest rate risk in the banking book and
non-trading book foreign exchange risk are the responsibility of
the Group Executive Committee and the Group Risk Committee
(‘GRC’). The Global Treasury function actively manages these risks
on an ongoing basis, supported by the Holdings Asset and Liability
Management Committee (‘ALCO’) and local ALCOs, overseen by
Treasury Risk Management and the Risk Management Meeting
(‘RMM’).
Pension risk is overseen by a network of local and regional
pension risk management meetings. The Global Pensions Risk
Management Meeting provides oversight of all pension plans
sponsored by HSBC globally and is chaired by the accountable risk
steward.
Capital, liquidity and funding risk management
processes
Assessment and risk appetite
Our capital management policy is underpinned by a global capital
management framework and our ICAAP. The framework
incorporates key capital risk appetites including CET1, total
capital, minimum requirements for own funds and eligible
liabilities (‘MREL’), leverage ratio and double leverage. The ICAAP
is an assessment of the Group’s capital position, outlining both
regulatory and internal capital resources and requirements
resulting from HSBC’s business model, strategy, risk profile and
management, performance and planning, risks to capital, and the
implications of stress testing. Our assessment of capital adequacy
is driven by an assessment of risks. These risks include credit,
market, operational, pensions, insurance, structural foreign
exchange, interest rate risk in the banking book and Group risk
driven by credit concentration risk in HSBC UK. Climate risk is also
considered as part of the ICAAP, and we are continuing to develop
our approach. The Group’s ICAAP supports the determination of
the consolidated capital risk appetite and target ratios, as well as
enables the assessment and determination of capital requirements
by regulators. Subsidiaries prepare ICAAPs in line with global
guidance, while considering their local regulatory regimes to
determine their own risk appetites and ratios.
HSBC Holdings is the provider of equity capital and MREL-eligible
debt to its subsidiaries, and also provides them with non-equity
capital where necessary. These investments are funded by HSBC
Holdings’ own equity capital and MREL-eligible debt.
HSBC Holdings seeks to maintain a prudent balance between the
composition of its capital and its investments in subsidiaries,
including management of double leverage. Double leverage
reflects the extent to which equity investments in operating
entities are funded by holding company debt. Where Group capital
requirements are less than the aggregate of operating entity
capital requirements, double leverage can be used to improve
Group capital efficiency provided it is managed appropriately. In
2021, we updated the basis of preparation for the calculation of
double leverage, to better reflect the economics of the risk and
align with the Group accounting view. The Group recognises that
double leverage can give rise to holding company cash flow risk,
and the risk framework reflects the view that the holding company
should be a source of support for its subsidiaries in times of stress.
Double leverage is one of the constraints on managing our capital
position, given the complexity of the Group’s subsidiary structure
and the multiple regulatory regimes under which we operate. As a
matter of long-standing policy, the holding company retains a
substantial holdings capital buffer comprising high-quality liquid
assets (‘HQLA’), which at 31 December 2021 was in excess of
$13bn. The portfolio of HQLA helps to mitigate the risks
associated with double leverage. Further mitigation is provided by
additional tier 1 (‘AT1’) securities issued in excess of the regulatory
requirements of our subsidiaries.
We aim to ensure that management has oversight of our liquidity
and funding risks at Group and entity level by maintaining
comprehensive policies, metrics and controls. We manage
liquidity and funding risk at an operating entity level to make sure
that obligations can be met in the jurisdiction where they fall due,
generally without reliance on other parts of the Group. Operating
entities are required to meet internal minimum requirements and
any applicable regulatory requirements at all times. These
requirements are assessed through the ILAAP, which ensures that
operating entities have robust strategies, policies, processes and
systems for the identification, measurement, management and
monitoring of liquidity risk over an appropriate set of time
horizons, including intra-day. The ILAAP informs the validation of
risk tolerance and the setting of risk appetite. It also assesses the
capability to manage liquidity and funding effectively in each
major entity. These metrics are set and managed locally but are
subject to robust global review and challenge to ensure
consistency of approach and application of the Group’s policies
and controls.
Planning and performance
Capital and risk-weighted asset (‘RWA’) plans form part of the
annual financial resource plan that is approved by the Board.
Capital and RWA forecasts are submitted to the Group Executive
Committee on a monthly basis, and capital and RWAs are
monitored and managed against the plan. The responsibility for
global capital allocation principles rests with the Group Chief
Financial Officer, supported by the Group Capital Management
Meeting. This is a specialist forum addressing capital
management, reporting into Holdings ALCO.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions, and
to ensure that returns on investment meet management’s
objectives. Our strategy is to allocate capital to businesses and
entities to support growth objectives where returns above internal
hurdle levels have been identified and in order to meet their
regulatory and economic capital needs. We evaluate and manage
business returns by using a return on average tangible equity
measure.
Funding and liquidity plans form part of the financial resource plan
that is approved by the Board. The Board-level appetite measures
are the LCR and net stable funding ratio (‘NSFR’), together with an
internal liquidity metric which was introduced in January 2021 to
supplement the LCR and NSFR. In addition, we use a wider set of
measures to manage an appropriate funding and liquidity profile,
including legal entity depositor concentration limits, intra-day
liquidity, forward-looking funding assessments and other key
measures.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be identified
that have the potential to affect our RWAs, capital and/or liquidity
position. Downside and Upside scenarios are assessed against our
management objectives, and mitigating actions are assigned as
necessary. We closely monitor future regulatory changes and
continue to evaluate the impact of these upon our capital and
liquidity requirements. These include the UK’s implementation of
amendments to the Capital Requirements Regulation (‘CRR II’), the
Basel III Reforms, and the regulatory impact from the UK’s
withdrawal from the EU, as well as other regulatory statements
including changes to internal ratings-based (‘IRB’) modelling
requirements.
Regulatory developments
The PRA has confirmed that software assets are deducted in full
from CET1 capital, starting 1 January 2022. This reverses the
beneficial changes to the treatment of software assets that were
implemented as part of the EU’s response to the Covid-19
pandemic. As a result, the CET1 capital ratio will reduce by
approximately 25bps.
Overall, we expect RWAs to increase by around 3% as a result of
changes in regulations during 2022. These include the changes to
the UK’s version of the CRR II, as well as other regulatory
statements including changes to IRB modelling requirements and
the expiry of transitional provisions in relation to the UK’s
withdrawal from the EU. The CRR II changes, including the PRA’s
new rules on NSFR, counterparty credit risk, equity investment in
funds, and leverage ratio, will be reflected in disclosures starting in
the first quarter of 2022.
Risk
190
HSBC Holdings plc Annual Report and Accounts 2021
Further changes will occur with the introduction of the remaining
Basel III Reforms on which the PRA is expected to consult in the
second half of 2022. We currently do not foresee a material net
impact on initial implementation. The RWA output floor under the
Basel III reforms will be subject to a five-year transitional
provision. Any impact from the output floor would be towards the
end of the transition period.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. Notably, the PRA published a Dear
CEO letter addressed to UK regulated banks, which highlighted
areas of concern over the processes firms use to deliver regulatory
returns. Recent sanctions issued by the PRA demonstrate their
intent in this respect. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency,
and enhance controls on various aspects of regulatory reporting.
We have commissioned a number of independent external
reviews, some at the request of our regulators, including one on
our credit risk RWA reporting process, which is currently ongoing.
As a result of these initiatives, there may be an impact on some of
our regulatory ratios, such as the CET1 and LCR.
Stress testing and recovery planning
The Group uses stress testing to evaluate the robustness of plans
and risk portfolios including the impact of ECL, and to meet the
stress testing requirements set by supervisors. Stress testing also
informs the ICAAP and ILAAP and supports recovery planning in
many jurisdictions. It is an important output used to evaluate how
much capital and liquidity the Group requires in setting risk
appetite for capital and liquidity risk. It is also used to re-evaluate
business plans where analysis shows capital, liquidity and/or
returns do not meet their target.
In addition to a range of internal stress tests, we are subject to
supervisory stress testing in many jurisdictions. These include the
programmes of the Bank of England, the US Federal Reserve
Board, the European Banking Authority, the European Central
Bank and the Hong Kong Monetary Authority, as well as stress
tests undertaken in other jurisdictions. The results of regulatory
stress testing and our internal stress tests are used when
assessing our internal capital requirements through the ICAAP.
The outcomes of stress testing exercises carried out by the PRA
and other regulators feed into the setting of regulatory minimum
ratios and buffers.
The Group and subsidiaries have established recovery plans,
which set out potential options management could take in a range
of stress scenarios that could result in a breach of capital or
liquidity buffers. All entities monitor internal and external triggers
that could threaten their capital, liquidity or funding positions.
Entities have established recovery plans providing detailed actions
that management would consider taking in a stress scenario
should their positions deteriorate and threaten to breach risk
appetite and regulatory minimum levels. This is to help ensure that
our capital and liquidity position can be recovered even in an
extreme stress event.
Overall, recovery and resolution plans form part of the integral
framework safeguarding the Group’s financial stability. The Group
is committed to developing its recovery and resolution capabilities
further, including in relation to the BoE’s Resolvability Assessment
Framework.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or in order to hedge positions held with
trading intent. Interest rate risk that can be economically hedged
may be transferred to the Markets Treasury business. Hedging is
generally executed through interest rate derivatives or fixed-rate
government bonds. Any interest rate risk that Markets Treasury
cannot economically hedge is not transferred and will remain
within the global business where the risks originate.
The Global Treasury function uses a number of measures to
monitor and control interest rate risk in the banking book,
including:
•net interest income sensitivity; and
•economic value of equity sensitivity
Net interest income sensitivity
A principal part of our management of non-traded interest rate risk
is to monitor the sensitivity of expected net interest income (‘NII’)
under varying interest rate scenarios (i.e. simulation modelling),
where all other economic variables are held constant. This
monitoring is undertaken at an entity level by local ALCOs, where
entities calculate both one-year and five-year NII sensitivities
across a range of interest rate scenarios.
NII sensitivity figures represent the effect of pro forma movements
in projected yield curves based on a static balance sheet size and
structure. The exception to this is where the size of the balances or
repricing is deemed interest rate sensitive, for example, non-
interest-bearing current account migration and fixed-rate loan
early prepayment. These sensitivity calculations do not incorporate
actions that would be taken by Markets Treasury or in the
business that originates the risk to mitigate the effect of interest
rate movements.
The NII sensitivity calculations assume that interest rates of all
maturities move by the same amount in the ‘up-shock’ scenario.
The sensitivity calculations in the ‘down-shock’ scenarios reflect
no floors to the shocked market rates. However, customer
product-specific interest rate floors are recognised where
applicable.
Economic value of equity sensitivity
Economic value of equity (‘EVE’) represents the present value of
the future banking book cash flows that could be distributed to
equity holders under a managed run-off scenario. This equates to
the current book value of equity plus the present value of future
NII in this scenario. EVE can be used to assess the economic
capital required to support interest rate risk in the banking book.
An EVE sensitivity represents the expected movement in EVE due
to pre-specified interest rate shocks, where all other economic
variables are held constant. Operating entities are required to
monitor EVE sensitivities as a percentage of capital resources.
Further details of HSBC’s risk management of interest rate risk in the banking
book can be found in the Group’s Pillar 3 Disclosures at 31 December 2021.
Other Group risks
Non-trading book foreign exchange exposures
Structural foreign exchange exposures
Structural foreign exchange exposures represent net assets or
capital investments in subsidiaries, branches, joint arrangements
or associates, together with any associated hedges, the functional
currencies of which are currencies other than the US dollar. An
entity’s functional currency is normally that of the primary
economic environment in which the entity operates.
Exchange differences on structural exposures are recognised in
other comprehensive income (‘OCI’). We use the US dollar as our
presentation currency in our consolidated financial statements
because the US dollar and currencies linked to it form the major
currency bloc in which we transact and fund our business.
Therefore, our consolidated balance sheet is affected by exchange
differences between the US dollar and all the non-US dollar
functional currencies of underlying subsidiaries.
Our structural foreign exchange exposures are managed with the
primary objective of ensuring, where practical, that our
consolidated capital ratios and the capital ratios of individual
banking subsidiaries are largely protected from the effect of
changes in exchange rates.
We hedge structural foreign exchange positions where it is capital
efficient to do so, and subject to approved limits. This is achieved
HSBC Holdings plc Annual Report and Accounts 2021
191
through a combination of net investment hedges and economic
hedges. Hedging positions are monitored and rebalanced
periodically to manage RWA or downside risks associated with
HSBC’s foreign currency investments.
For further details of our structural foreign exchange exposures, see page
199.
Transactional foreign exchange exposures
Transactional foreign exchange exposures arise from transactions
in the banking book generating profit and loss or OCI reserves in a
currency other than the reporting currency of the operating entity.
Transactional foreign exchange exposure generated through profit
and loss is periodically transferred to Markets and Securities
Services and managed within limits with the exception of limited
residual foreign exchange exposure arising from timing differences
or for other reasons. Transactional foreign exchange exposure
generated through OCI reserves is managed by the Markets
Treasury business within a limit framework to be agreed in the first
half of 2022.
HSBC Holdings risk management
As a financial services holding company, HSBC Holdings has
limited market risk activities. Its activities predominantly involve
maintaining sufficient capital resources to support the Group’s
diverse activities; allocating these capital resources across the
Group’s businesses; earning dividend and interest income on its
investments in the businesses; payment of operating expenses;
providing dividend payments to its equity shareholders and
interest payments to providers of debt capital; and maintaining a
supply of short-term liquid assets for deployment under
extraordinary circumstances.
The main market risks to which HSBC Holdings is exposed are
banking book interest rate risk and foreign currency risk. Exposure
to these risks arises from short-term cash balances, funding
positions held, loans to subsidiaries, investments in long-term
financial assets, financial liabilities including debt capital issued
and structural foreign exchange hedges. The objective of HSBC
Holdings’ market risk management strategy is to manage volatility
in capital resources, cash flows and distributable reserves that
could be caused by movements in market parameters. Market risk
for HSBC Holdings is monitored by Holdings ALCO in accordance
with its risk appetite statement.
HSBC Holdings uses interest rate swaps and cross-currency
interest rate swaps to manage the interest rate risk and foreign
currency risk arising from its long-term debt issues and forward
foreign exchange contracts to manage its structural foreign
exchange exposures.
For quantitative disclosures on interest rate risk in the banking book, see
pages 200 to 201.
Pension risk management processes
Our global pensions strategy is to move from defined benefit to
defined contribution plans, where local law allows and it is
considered competitive to do so. We will continue to review and
enhance our risk appetite metrics to assist the internal monitoring
of our de-risking programmes.
In defined contribution pension plans, the contributions that HSBC
is required to make are known, while the ultimate pension benefit
will vary, typically with investment returns achieved by investment
choices made by the employee. While the market risk to HSBC of
defined contribution plans is low, the Group is still exposed to
operational and reputational risk.
In defined benefit pension plans, the level of pension benefit is
known. Therefore, the level of contributions required by HSBC will
vary due to a number of risks, including:
•investments delivering a return below that required to provide
the projected plan benefits;
•the prevailing economic environment leading to corporate
failures, thus triggering write-downs in asset values (both
equity and debt);
•a change in either interest rates or inflation expectations,
causing an increase in the value of plan liabilities; and
•plan members living longer than expected (known as longevity
risk).
Pension risk is assessed using an economic capital model that
takes into account potential variations in these factors. The impact
of these variations on both pension assets and pension liabilities is
assessed using a one-in-200-year stress test. Scenario analysis
and other stress tests are also used to support pension risk
management.
To fund the benefits associated with defined benefit plans,
sponsoring Group companies, and in some instances employees,
make regular contributions in accordance with advice from
actuaries and in consultation with the plan’s fiduciaries where
relevant. These contributions are normally set to ensure that there
are sufficient funds to meet the cost of the accruing benefits for
the future service of active members. However, higher
contributions are required when plan assets are considered
insufficient to cover the existing pension liabilities. Contribution
rates are typically revised annually or once every three years,
depending on the plan.
The defined benefit plans invest contributions in a range of
investments designed to limit the risk of assets failing to meet a
plan’s liabilities. Any changes in expected returns from the
investments may also change future contribution requirements. In
pursuit of these long-term objectives, an overall target allocation is
established between asset classes of the defined benefit plan. In
addition, each permitted asset class has its own benchmarks, such
as stock-market or property valuation indices or liability
characteristics. The benchmarks are reviewed at least once every
three to five years and more frequently if required by local
legislation or circumstances. The process generally involves an
extensive asset and liability review.
In addition, some of the Group’s pension plans hold longevity
swap contracts. These arrangements provide long-term protection
to the relevant plans against costs resulting from pensioners or
their dependants living longer than initially expected. The most
sizeable plan to do this is the HSBC Bank (UK) Pension Scheme,
which holds longevity swaps covering approximately 60% of the
plan’s pensioner liabilities.
Risk
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HSBC Holdings plc Annual Report and Accounts 2021
Capital risk in 2021
Capital overview
Capital adequacy metrics
At
31 Dec
31 Dec
2021
2020
Risk-weighted assets (‘RWAs’) ($bn)
Credit risk
680.6
691.9
Counterparty credit risk
35.9
42.8
Market risk
32.9
28.5
Operational risk
88.9
94.3
Total RWAs
838.3
857.5
Capital on a transitional basis ($bn)
Common equity tier 1 (‘CET1’) capital
132.6
136.1
Tier 1 capital
156.3
160.2
Total capital
177.8
184.4
Capital ratios on a transitional basis (%)
Common equity tier 1 ratio
15.8
15.9
Tier 1 ratio
18.6
18.7
Total capital ratio
21.2
21.5
Capital on an end point basis ($bn)
Common equity tier 1 (‘CET1’) capital
132.6
136.1
Tier 1 capital
155.0
158.5
Total capital
167.5
173.2
Capital ratios on an end point basis (%)
Common equity tier 1 ratio
15.8
15.9
Tier 1 ratio
18.5
18.5
Total capital ratio
20.0
20.2
Liquidity coverage ratio (‘LCR’)
Total high-quality liquid assets ($bn)
717.0
677.9
Total net cash outflow ($bn)
518.0
487.3
LCR ratio (%)
138.4
139.1
References to EU regulations and directives (including technical
standards) should, as applicable, be read as references to the UK’s
version of such regulation or directive, as onshored into UK law
under the European Union (Withdrawal) Act 2018, and as may be
subsequently amended under UK law.
Capital figures and ratios in the previous table are calculated in
accordance with the revised Capital Requirements Regulation and
Directive, as implemented (‘CRR II’). The table presents them
under the transitional arrangements in CRR II for capital
instruments and after their expiry, known as the end point. The
end point figures in the table above include the benefit of the
regulatory transitional arrangements in CRR II for IFRS 9, which
are more fully described below. Where applicable, they also reflect
government relief schemes intended to mitigate the impact of the
Covid-19 pandemic.
At 31 December 2021, our common equity tier 1 (‘CET1’) capital
ratio decreased to 15.8% from 15.9% at 31 December 2020.
RWAs decreased due to RWA reductions under the transformation
programme and favourable movements in asset quality. CET1
capital fell due to higher regulatory deductions and fair value
movements net of capital generation.
Own funds
The $3.5 bn fall in CET1 capital was mainly as a result of:
•a $2.9 bn net increase in deductions for excess expected loss,
investment in financial sector entities and defined benefit
pension assets surplus;
•$2.5 bn unfavourable foreign currency translation differences;
and
•a $2.2 bn decrease in fair value through other comprehensive
income reserve.
These decreases were partly offset by capital generation of $3.9 bn
through profits net of share buy-back, foreseeable dividend and
dividends paid.
Our Pillar 2A requirement at 31 December 2021, as per the PRA’s
Individual Capital Requirement based on a point-in-time
assessment, was $22.5b n, equivalent to 2.7% of RWAs, of which
1.5% was required to be met by CET1. With effect from
31 December 2021, structural foreign exchange risk is capitalised
in RWAs under Pillar 1, with a consequent reduction in Pillar 2A.
Going forward, structural foreign exchange risk will be assessed
for Pillar 2A in the same manner as other risks capitalised under
Pillar 1.
Own funds disclosure
(Audited)
At
31 Dec
31 Dec
2021
2020
Ref*
$m
$m
Common equity tier 1 (‘CET1’) capital: instruments and reserves
1
Capital instruments and the related share premium accounts
23,513
23,219
– ordinary shares
23,513
23,219
2
Retained earnings 1
121,059
126,314
3
Accumulated other comprehensive income (and other reserves)
8,273
9,768
5
Minority interests (amount allowed in consolidated CET1)
4,186
4,079
5a
Independently reviewed interim net profits net of any foreseeable charge or dividend
5,887
(252)
6
Common equity tier 1 capital before regulatory adjustments 1
162,918
163,128
28
Total regulatory adjustments to common equity tier 1 1
(30,353)
(27,078)
29
Common equity tier 1 capital
132,565
136,050
36
Additional tier 1 capital before regulatory adjustments
23,787
24,183
43
Total regulatory adjustments to additional tier 1 capital
(60)
(60)
44
Additional tier 1 capital
23,727
24,123
45
Tier 1 capital
156,292
160,173
51
Tier 2 capital before regulatory adjustments
23,018
25,722
57
Total regulatory adjustments to tier 2 capital
(1,524)
(1,472)
58
Tier 2 capital
21,494
24,250
59
Total capital
177,786
184,423
*The references identify the lines prescribed in the European Banking Authority (‘EBA’) template, which are applicable and where there is a value.
1 The figures for 31 December 2020 have been restated to reflect the reclassification of the IFRS 9 transitional adjustment from retained earnings
(within row 6) to ‘Total regulatory adjustments to common equity tier 1’ (row 28).
HSBC Holdings plc Annual Report and Accounts 2021
193
Throughout 2021, we complied with the PRA’s regulatory capital
adequacy requirements, including those relating to stress testing.
Regulatory and other developments
During 2022, we expect our CET1 ratio to be affected by
regulatory developments including:
• the change in the treatment of software assets;
• the implementation of the standardised approach for
counterparty credit risk calculation, which came into effect on
1 January 2022;
•measures to improve the comparability of internal ratings-
based (‘IRB’) models, including the introduction of a minimum
risk weight for performing mortgage portfolios in the UK; and
•the expiry of transitional provisions in relation to the UK’s
withdrawal from the EU.
Based on our capital position at 31 December 2021, we would
expect that the proposed classification of our retail banking
operations in France as being held for sale would reduce our CET1
ratio by around 30bps. Separately, our recent strategic actions are
likely to lead to a fall in our CET1 ratio of around 15bps, of which
we expect approximately half will occur in the first quarter of
2022. These actions include the acquisitions of AXA Singapore,
L&T Investment Management and HSBC Life China, and the exit of
mass market retail banking in the US.
Risk-weighted assets
RWAs by global business
WPB
CMB
GBM
Corporate Centre
Total
$bn
$bn
$bn
$bn
$bn
Credit risk
143.0
305.4
151.8
80.4
680.6
Counterparty credit risk
1.1
0.7
33.5
0.6
35.9
Market risk
1.7
0.9
20.3
10.0
32.9
Operational risk
32.5
25.9
30.6
(0.1)
88.9
At 31 Dec 2021
178.3
332.9
236.2
90.9
838.3
RWAs by geographical region
Europe
Asia
MENA
North
America
Latin
America
Total
$bn
$bn
$bn
$bn
$bn
$bn
Credit risk
193.7
318.1
50.6
90.6
27.6
680.6
Counterparty credit risk
19.4
9.9
1.3
3.3
2.0
35.9
Market risk 1
24.6
25.3
2.3
5.3
1.0
32.9
Operational risk
23.4
43.0
6.0
11.2
5.3
88.9
At 31 Dec 2021
261.1
396.3
60.2
110.4
35.9
838.3
1 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
RWA movement by global business by key driver
Credit risk, counterparty credit risk and operational risk
WPB
CMB
GBM
Corporate
Centre
Market
risk
Total
RWAs
$bn
$bn
$bn
$bn
$bn
$bn
RWAs at 1 Jan 2021
171.2
326.8
242.2
88.8
28.5
857.5
Asset size
5.5
12.5
(12.1)
0.6
(1.8)
4.7
Asset quality
(2.2)
(4.9)
(0.4)
(0.5)
—
(8.0)
Model updates
2.0
(0.4)
—
—
(1.2)
0.4
Methodology and policy
3.4
3.3
(9.8)
(7.3)
7.4
(3.0)
Acquisitions and disposals
(0.4)
—
—
—
—
(0.4)
Foreign exchange movements
(2.9)
(5.3)
(4.0)
(0.7)
—
(12.9)
Total RWA movement
5.4
5.2
(26.3)
(7.9)
4.4
(19.2)
RWAs at 31 Dec 2021
176.6
332.0
215.9
80.9
32.9
838.3
RWA movement by geographical region by key driver
Credit risk, counterparty credit risk and operational risk
Europe
Asia
MENA
North
America
Latin
America
Market risk
Total
RWAs
$bn
$bn
$bn
$bn
$bn
$bn
$bn
RWAs at 1 Jan 2021
260.8
363.3
57.8
113.1
34.0
28.5
857.5
Asset size
(15.9)
17.2
2.3
0.8
2.1
(1.8)
4.7
Asset quality
2.9
(4.9)
(0.5)
(6.2)
0.7
—
(8.0)
Model updates
—
1.7
—
(0.1)
—
(1.2)
0.4
Methodology and policy
(5.5)
(3.2)
0.6
(2.3)
—
7.4
(3.0)
Acquisitions and disposals
—
—
—
(0.4)
—
—
(0.4)
Foreign exchange movements
(5.8)
(3.1)
(2.3)
0.2
(1.9)
—
(12.9)
Total RWA movement
(24.3)
7.7
0.1
(8.0)
0.9
4.4
(19.2)
RWAs at 31 Dec 2021
236.5
371.0
57.9
105.1
34.9
32.9
838.3
Risk-weighted assets (‘RWAs’) fell by $19.2 bn during the year,
including a drop of $12.9 bn due to foreign currency translation
differences. The $6.3 bn decrease (excluding foreign currency
translation differences) resulted from RWA saves and favourable
movements in asset quality, which more than offset increases due
to lending growth and regulatory change. At 31 December 2021,
our cumulative RWA saves as part of our transformation
programme were $104bn, including accelerated reductions of
$9.6bn from 31 December 2019.
Risk
194
HSBC Holdings plc Annual Report and Accounts 2021
Asset size
The $12.5 bn increase in CMB RWAs reflected corporate loan
growth in mainland China, Hong Kong and North America, while
lending in Europe reduced.
WPB RWAs rose by $5.5 bn, primarily due to lending growth in
Asia, largely in the mortgage portfolio. Sovereign exposures drove
the $0.6 bn rise in Corporate Centre RWAs.
The $12.1 bn fall in GBM was mostly due to lower lending,
management initiatives and mark-to-market movements in
Europe, North America and Latin America, partly offset by growth
in Asia.
Market risk RWAs decreased by $1.8 bn, largely as a result of
reduced exposures and risk mitigation actions.
Asset quality
The RWA decreases in CMB, WPB and Corporate Centre were
mostly due to favourable portfolio mix changes in Asia and North
America, and credit migration in Europe and North America.
In GBM, favourable portfolio mix changes in Asia and credit
migration in North America were partly offset by increases in the
UK due to portfolio changes, leading to an overall fall of $0.4 bn.
Model updates
The $2.0 bn increase in WPB was mostly due to changes to our
Australian mortgages model.
This was partly offset by the $1.2 bn reduction in market risk
RWAs, largely from the implementation of an options risk model.
The fall in CMB RWAs was driven by corporate model updates.
Methodology and policy
Changes to Markets Treasury allocation methodologies decreased
RWAs in Corporate Centre and increased RWAs in WPB, CMB and
GBM. However, the increase in GBM was more than offset by
parameter refinements across our major regions.
The $7.4 bn rise in market risk included an $8.4bn increase on our
adoption of a Pillar 1 approach to the capitalisation of structural
foreign exchange risk, following confirmation from the PRA. This
was partly offset by enhancements to foreign exchange risk
calculations under the standardised approach.
Acquisitions and disposals
The sale of a US credit card portfolio led to a $0.4 bn fall in WPB
RWAs.
Leverage ratio 1
At
31 Dec
31 Dec
2021
2020
Ref*
$bn
$bn
20
Tier 1 capital
155.0
158.5
21
Total leverage ratio exposure
2,962.7
2,897.1
%
%
22
Leverage ratio
5.2
5.5
EU-23
Choice of transitional arrangements for the definition of the capital measure
Fully phased-in
Fully phased-in
UK leverage ratio exposure – quarterly average 2
2,545.6
2,555.5
%
%
UK leverage ratio – quarterly average 2
6.0
6.1
UK leverage ratio – quarter end 2
6.2
6.2
*The references identify the lines prescribed in the EBA template.
1 The CRR II regulatory transitional arrangements for IFRS 9 are applied in both leverage ratio calculations.
2 UK leverage ratio denotes the Group’s leverage ratio calculated under the PRA’s UK leverage framework. This measure excludes from the
calculation of exposure qualifying central bank balances and loans under the UK Bounce Back Loan Scheme.
Our leverage ratio calculated in accordance with the Capital
Requirements Regulation was 5.2% at 31 December 2021, down
from 5.5% at 31 December 2020, due to a decrease in tier 1
capital and an increase in leverage exposure, primarily due to
growth in central bank deposits and customer lending, offset by a
decrease in financial investments.
At 31 December 2021, our UK minimum leverage ratio
requirement of 3.25% under the PRA’s UK leverage framework
was supplemented by an additional leverage ratio buffer of 0.7%
and a countercyclical leverage ratio buffer of 0.1%. These
additional buffers translated into capital values of $17.6 bn and
$2.5 bn respectively. We exceeded these leverage requirements.
Regulatory transitional arrangements for IFRS 9
‘Financial Instruments’
We have adopted the regulatory transitional arrangements in
CRR II for IFRS 9, including paragraph four of article 473a. Our
capital and ratios are presented under these arrangements
throughout the tables in this section, including in the end point
figures. Without their application, our CET1 ratio would be 15.7%.
The IFRS 9 regulatory transitional arrangements allow banks to
add back to their capital base a proportion of the impact that
IFRS 9 has upon their loan loss allowances. The impact is defined
as:
•the increase in loan loss allowances on day one of IFRS 9
adoption; and
•any subsequent increase in ECL in the non-credit-impaired
book thereafter.
Any add-back must be tax affected and accompanied by a
recalculation of exposure and RWAs. The impact is calculated
separately for portfolios using the standardised (‘STD’) and internal
ratings-based (‘IRB’) approaches. For IRB portfolios, there is no
add-back to capital unless loan loss allowances exceed regulatory
12-month expected losses.
The EU’s CRR II ‘Quick Fix’ relief package enacted in June 2020
increased from 70% to 100% the relief that banks may take for
loan loss allowances recognised since 1 January 2020 on the
non-credit-impaired book.
In the current period, the add-back to CET1 capital amounted to
$1.0bn under the STD approach with a tax impact of $0.2bn. At
31 December 2020, the add-back to the capital base under the
STD approach was $1.6bn with a tax impact of $0.4bn.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more
transparent by requiring publication of wide-ranging information
on their risks, capital and management. Our Pillar 3 Disclosures at
31 December 2021 is published on our website at www.hsbc.com/
investors.
HSBC Holdings plc Annual Report and Accounts 2021
195
Liquidity and funding risk in 2021
Liquidity metrics
At 31 December 2021, all of the Group’s material operating
entities were above regulatory minimum liquidity and funding
levels.
Each entity maintains sufficient unencumbered liquid assets to
comply with local and regulatory requirements. The liquidity value
of these assets for each entity is shown in the following table
along with the individual LCR levels based on European
Commission Delegated Regulation (EU) 2015/61. This basis may
differ from local LCR measures due to differences in the way non-
EU regulators have implemented the Basel III standards. Each
entity maintains sufficient stable funding relative to the required
stable funding assessed using the NSFR or other appropriate
metrics. From 1 January 2022, we started managing funding risk
based on the PRA’s NSFR rules.
In addition to regulatory metrics, we enhanced our liquidity
framework in 2021 to include an internal liquidity metric, which is
being used to monitor and manage liquidity risk via a low-point
measure across a 270-day horizon, taking into account recovery
capacity.
The Group liquidity and funding position at the end of 2021 is
analysed in the following sections.
Operating entities’ liquidity
At 31 December 2021
LCR
HQLA
Net outflows
NSFR
%
$bn
$bn
%
HSBC UK Bank plc (ring-fenced bank)1
241
163
68
178
HSBC Bank plc (non-ring-fenced bank)2
150
135
90
107
The Hongkong and Shanghai Banking Corporation – Hong Kong branch 3
154
145
94
135
The Hongkong and Shanghai Banking Corporation – Singapore branch 3
179
18
10
145
Hang Seng Bank
169
43
25
144
HSBC Bank China
141
17
12
130
HSBC Bank USA
119
98
83
140
HSBC Continental Europe 4, 5
145
54
37
128
HSBC Bank Middle East Ltd – UAE branch
210
12
6
146
HSBC Canada 4
119
22
18
123
HSBC Mexico
200
9
5
141
At 31 December 2020
HSBC UK Bank plc (ring-fenced bank)1
198
121
61
164
HSBC Bank plc (non-ring-fenced bank)2
136
138
102
124
The Hongkong and Shanghai Banking Corporation – Hong Kong branch 3
195
146
75
146
The Hongkong and Shanghai Banking Corporation – Singapore branch 3
162
16
10
135
Hang Seng Bank
212
50
24
151
HSBC Bank China
232
24
10
158
HSBC Bank USA
130
106
82
130
HSBC Continental Europe 4
143
48
34
130
HSBC Bank Middle East Ltd – UAE branch
280
11
4
164
HSBC Canada 4
165
30
18
136
HSBC Mexico
198
10
5
139
1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc, Marks and Spencer Financial
Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the
application of UK liquidity regulation as agreed with the PRA.
2 HSBC Bank plc includes oversea branches and special purpose entities consolidated by HSBC for financial statements purposes.
3 The Hongkong and Shanghai Banking Corporation – Hong Kong branch and The Hongkong and Shanghai Banking Corporation – Singapore
branch represent the material activities of The Hongkong and Shanghai Banking Corporation Limited. Each branch is monitored and controlled for
liquidity and funding risk purposes as a stand-alone operating entity.
4 HSBC Continental Europe and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively.
HSBC Continental Europe and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.
5 The net stable funding ratio for HSBC Continental Europe is based on the EU’s CRR II rules.
At 31 December 2021, all of the Group’s principal operating
entities were above regulatory minimum levels.
The most significant movements in 2021 are explained below:
•HSBC UK Bank plc retained a strong liquidity position,
reflecting growth in its commercial surplus that was driven by
customer deposits and the drawdown of a central bank term
funding scheme.
•HSBC Bank plc’s liquidity ratio increased to 150%, mainly due
to growth in customer deposits and a decline in loans.
•HSBC Continental Europe maintained a strong liquidity
position, reflecting growth in deposits.
•The Hongkong and Shanghai Banking Corporation – Hong
Kong branch’s liquidity position remained strong, although its
liquidity ratio dropped to 154%, mainly due to growth in equity
holding and loans.
•Hang Seng Bank’s liquidity ratio dropped to 169%, mainly due
to growth in loans.
•HSBC Bank China’s liquidity ratio dropped to 141%, mainly
driven by growth in loans coupled with lower deposits and debt
issuances.
•HSBC Bank Middle East Ltd – UAE branch retained a strong
liquidity position, with a liquidity ratio of 210%.
•HSBC Canada’s liquidity ratio dropped to 119%, mainly driven
by the maturity of the short-term funding raised during the
pandemic and growth in loans.
Risk
196
HSBC Holdings plc Annual Report and Accounts 2021
Consolidated liquidity metrics
Liquidity coverage ratio
At 31 December 2021, the total HQLA held at entity level
amounted to $880bn (31 December 2020: $857bn), an increase of
$23bn. In 2021, we implemented a revised approach to the
application of the requirements under the European Commission
Delegated Regulation (EU) 2015/61. This revised approach was
used to assess the limitations in the transferability of entity
liquidity around the Group and resulted in an adjustment of
$163bn to LCR HQLA and $9bn to LCR inflows. This reflected an
increase in the adjustment of $62bn compared with the approach
used for the disclosure in the Annual Report and Accounts 2020.
The change in methodology was designed to better incorporate
local regulatory restrictions on the transferability of liquidity.
At
31 Dec
30 Jun
31 Dec
2021
2021
2020 1
$bn
$bn
$bn
High-quality liquid assets (in entities)
880
844
857
EC Delegated Act adjustment for transfer
restrictions 2
(172)
(189)
(179)
Group LCR HQLA
717
659
678
Net outflows
518
494
487
Liquidity coverage ratio
138%
134%
139%
1 Group LCR numbers above for 31 December 2020 are based on the
approach used before the methodology was revised.
2 This includes adjustments made to high-quality liquid assets and
inflows in entities to reflect liquidity transfer restrictions
Liquid assets
After the $163bn adjustment, the Group LCR HQLA of $717bn
(31 December 2020: $678bn) was held in a range of asset classes
and currencies. Of these, 97% were eligible as level 1
(31 December 2020: 90%).
The following tables reflect the composition of the liquidity pool by
asset type and currency at 31 December 2021.
Liquidity pool by asset type
Liquidity
pool
Cash
Level 1 1
Level 2 1
$bn
$bn
$bn
$bn
Cash and balance at central bank
390
390
—
—
Central and local government
bonds
302
—
281
21
Regional government public
sector entities
3
—
2
1
International organisation and
multilateral developments banks
9
—
9
—
Covered bonds
4
—
2
2
Other
9
—
8
1
Total at 31 Dec 2021
717
390
302
25
Total at 31 Dec 2020
678
307
301
70
1 As defined in EU regulations, level 1 assets means ‘assets of
extremely high liquidity and credit quality’, and level 2 assets means
‘assets of high liquidity and credit quality’.
Liquidity pool by currency
$
£
€
HK$
Other
Total
$bn
$bn
$bn
$bn
$bn
$bn
Liquidity pool at 31 Dec
2021
189
211
104
56
157
717
Liquidity pool at 31 Dec
2020
218
176
117
74
93
678
Sources of funding
Our primary sources of funding are customer current accounts and
savings deposits payable on demand or at short notice. We issue
secured and unsecured wholesale securities to supplement
customer deposits, meet regulatory obligations and to change the
currency mix, maturity profile or location of our liabilities.
The following ‘Funding sources’ and ‘Funding uses’ tables provide
a view of how our consolidated balance sheet is funded. In
practice, all the principal operating entities are required to manage
liquidity and funding risk on a stand-alone basis.
The tables analyse our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented at a net balancing source or deployment of funds.
Funding sources
(Audited)
2021
2020
$m
$m
Customer accounts
1,710,574
1,642,780
Deposits by banks
101,152
82,080
Repurchase agreements – non-trading
126,670
111,901
Debt securities in issue
78,557
95,492
Cash collateral, margin and settlement accounts
65,452
78,565
Liabilities of disposal groups held for sale
9,005
—
Subordinated liabilities
20,487
21,951
Financial liabilities designated at fair value
145,502
157,439
Liabilities under insurance contracts
112,745
107,191
Trading liabilities
84,904
75,266
– repos
11,004
11,728
– stock lending
2,332
4,597
– other trading liabilities
71,568
58,941
Total equity
206,777
204,995
Other balance sheet liabilities
296,114
406,504
At 31 Dec
2,957,939
2,984,164
Funding uses
(Audited)
2021
2020
$m
$m
Loans and advances to customers
1,045,814
1,037,987
Loans and advances to banks
83,136
81,616
Reverse repurchase agreements – non-trading
241,648
230,628
Cash collateral, margin and settlement accounts
59,884
76,859
Assets held for sale
3,411
299
Trading assets
248,842
231,990
– reverse repos
14,994
13,990
– stock borrowing
8,082
8,286
– other trading assets
225,766
209,714
Financial investments
446,274
490,693
Cash and balances with central banks
403,018
304,481
Other balance sheet assets
425,912
529,611
At 31 Dec
2,957,939
2,984,164
Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations is set
out in the following table.
The balances in the table are not directly comparable with those in
the consolidated balance sheet because the table presents gross
cash flows relating to principal payments and not the balance
sheet carrying value, which includes debt securities and
subordinated liabilities measured at fair value.
HSBC Holdings plc Annual Report and Accounts 2021
197
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not more
than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Debt securities issued
17,602
14,593
9,293
9,249
5,233
25,058
55,388
56,639
193,055
– unsecured CDs and CP
4,586
6,795
4,281
2,837
1,189
947
834
931
22,400
– unsecured senior MTNs
8,542
4,140
2,633
2,078
2,074
14,932
45,063
45,259
124,721
– unsecured senior structured notes
2,090
1,610
1,017
975
1,206
2,996
3,382
8,604
21,880
– secured covered bonds
—
1,137
—
997
—
2,417
1,997
—
6,548
– secured asset-backed commercial paper
956
—
—
—
—
—
—
—
956
– secured ABS
1
133
33
31
193
896
1,696
98
3,081
– others
1,427
778
1,329
2,331
571
2,870
2,416
1,747
13,469
Subordinated liabilities
—
—
11
—
—
417
7,023
21,274
28,725
– subordinated debt securities
—
—
11
—
—
417
7,023
19,427
26,878
– preferred securities
—
—
—
—
—
—
—
1,847
1,847
At 31 Dec 2021
17,602
14,593
9,304
9,249
5,233
25,475
62,411
77,913
221,780
Debt securities issued
18,057
16,848
20,314
15,208
7,561
20,768
49,948
59,911
208,615
– unsecured CDs and CP
4,048
8,440
9,977
6,186
2,945
1,474
1,454
1,546
36,070
– unsecured senior MTNs
9,625
3,363
3,915
4,684
2,005
9,295
35,834
49,209
117,930
– unsecured senior structured notes
2,075
1,539
1,451
1,242
1,241
3,702
4,979
6,765
22,994
– secured covered bonds
—
—
28
—
750
2,514
3,917
—
7,209
– secured asset-backed commercial paper
1,094
—
—
—
—
—
—
—
1,094
– secured ABS
19
119
171
45
41
410
1,865
646
3,316
– others
1,196
3,387
4,772
3,051
579
3,373
1,899
1,745
20,002
Subordinated liabilities
618
—
237
—
12
12
6,081
22,941
29,901
– subordinated debt securities
618
—
237
—
12
12
6,081
21,085
28,045
– preferred securities
—
—
—
—
—
—
—
1,856
1,856
At 31 Dec 2020
18,675
16,848
20,551
15,208
7,573
20,780
56,029
82,852
238,516
Risk
198
HSBC Holdings plc Annual Report and Accounts 2021
Structural foreign exchange risk in 2021
Structural foreign exchange exposures represent net assets or capital investments in subsidiaries, branches, joint arrangements or
associates, together with any associated hedges, the functional currencies of which are currencies other than the US dollar. Exchange
differences on structural exposures are usually recognised in ‘Other comprehensive income’.
Net structural foreign exchange exposures
2021 1
Currency of structural exposure
Net
investment in
foreign
operations
(excl non-
controlling
interest)
Net
investment
hedges
Structural
foreign
exchange
exposures (pre-
economic
hedges)
Economic
hedges –
structural FX
hedges 2
Economic
hedges –
equity
securities
(AT1)3
Net structural
foreign
exchange
exposures
$m
$m
$m
$m
$m
$m
Hong Kong dollars
44,714
(4,992)
39,722
(7,935)
—
31,787
Pounds sterling
47,935
(15,717)
32,218
—
(1,353)
30,865
Chinese renminbi
35,879
—
35,879
(1,255)
—
34,624
Euros
14,671
—
14,671
—
(4,262)
10,409
Canadian dollars
5,147
(1,093)
4,054
—
—
4,054
Indian rupees
5,106
—
5,106
—
—
5,106
Mexican pesos
3,598
—
3,598
—
—
3,598
Saudi riyals
4,115
—
4,115
—
—
4,115
UAE dirhams
4,155
(700)
3,455
(1,985)
—
1,470
Malaysian ringgit
2,713
—
2,713
—
—
2,713
Singapore dollars
2,339
(680)
1,659
—
(1,298)
361
Australian dollars
2,300
—
2,300
—
—
2,300
Taiwanese dollars
2,105
(1,019)
1,086
—
—
1,086
Indonesian rupiah
1,748
—
1,748
—
—
1,748
Swiss francs
1,107
(809)
298
—
—
298
Korean won
1,219
(696)
523
—
—
523
Thai baht
859
—
859
—
—
859
Egyptian pound
1,051
—
1,051
—
—
1,051
Qatari rial
725
—
725
(332)
—
393
Argentinian peso
795
—
795
—
—
795
Others, each less than $700m
5,242
(200)
5,042
(36)
—
5,006
At 31 Dec
187,523
(25,906)
161,617
(11,543)
(6,913)
143,161
2020 1
Hong Kong dollars
47,623
—
47,623
(5,564)
—
42,059
Pounds sterling
46,506
(11,221)
35,285
—
(1,365)
33,920
Chinese renminbi
32,165
—
32,165
(1,191)
—
30,974
Euros
15,672
—
15,672
—
(4,596)
11,076
Canadian dollars
5,123
—
5,123
—
—
5,123
Indian rupees
4,833
—
4,833
—
—
4,833
Mexican pesos
4,139
—
4,139
—
—
4,139
Saudi riyals
3,892
—
3,892
—
—
3,892
UAE dirhams
3,867
—
3,867
(1,985)
—
1,882
Malaysian ringgit
2,771
—
2,771
—
—
2,771
Singapore dollars
2,473
—
2,473
—
(1,324)
1,149
Australian dollars
2,357
—
2,357
—
—
2,357
Taiwanese dollars
2,036
—
2,036
—
—
2,036
Indonesian rupiah
1,726
—
1,726
—
—
1,726
Swiss francs
1,444
—
1,444
—
—
1,444
Korean won
1,368
—
1,368
—
—
1,368
Thai baht
991
—
991
—
—
991
Egyptian pound
889
—
889
—
—
889
Qatari rial
667
—
667
(382)
—
285
Argentinian peso
614
—
614
—
—
614
Others, each less than $700m
5,577
—
5,577
(75)
—
5,502
At 31 Dec
186,733
(11,221)
175,512
(9,197)
(7,285)
159,030
1 Incremental hedging transactions were undertaken in 2021 to reduce structural foreign exchange risk. The disclosure has therefore been
expanded and comparatives re-presented.
2 Represents hedges that do not qualify as net investment hedges for accounting purposes.
3 Represents foreign currency denominated preference share and AT1 instruments. These are accounted for at historical cost under IFRSs and do
not qualify as net investment hedges for accounting purposes. The gain or loss arising from changes in the US dollar value of these instruments is
recognised on redemption in retained earnings.
Shareholders’ equity would decrease by $2,981 m (2020: $2,427 m) if euro and sterling foreign currency exchange rates weakened by 5%
relative to the US dollar.
HSBC Holdings plc Annual Report and Accounts 2021
199
Interest rate risk in the banking book in 2021
Net interest income sensitivity
The following tables set out the assessed impact to a hypothetical
base case projection of our banking book NII under the following
scenarios:
•an immediate shock of 25 basis points (‘bps’) to the current
market-implied path of interest rates across all currencies on
1 January 2022 (effects over one year and five years);
•an immediate shock of 100bps to the current market-implied
path of interest rates across all currencies on 1 January 2022
(effects over one year and five years).
The sensitivities shown represent a hypothetical simulation of the
base case NII, assuming a static balance sheet, no management
actions from the Markets Treasury business and a simplified 50%
pass-on assumption applied for material entities as described
below. This incorporates the effect of interest rate
behaviouralisation, hypothetical managed rate product pricing
assumptions and customer behaviour, including prepayment of
mortgages under the specific interest rate scenarios. The scenarios
represent interest rate shocks to the current market implied path
of rates. The sensitivity calculations exclude pensions, insurance
and investments in subsidiaries.
The NII sensitivity analysis performed in the case of a down-shock
does not include floors to market rates, and it does not include
floors on some wholesale assets and liabilities. However, floors
have been maintained for deposits and loans to customers where
this is contractual or where negative rates would not be applied.
As market and policy rates move, the degree to which these
changes are passed on to customers will vary based on a number
of factors, including the absolute level of market rates, regulatory
and contractual frameworks, and competitive dynamics in
particular markets. Previously we disclosed NII sensitivity using a
range of different pass-on assumptions, varying by currency,
product and market. To aid comparability between markets, we
have simplified the basis of preparation for our disclosure, and
have used a 50% pass-on assumption for major entities on certain
interest bearing deposits. Our pass-through asset assumptions are
largely in line with our contractual agreements or established
market practice, which typically results in a significant portion of
interest rate changes being passed on. Using this basis has
resulted in a modest reduction in interest rate sensitivities in
comparison with the previous basis of preparation. Comparatives
have not been restated.
The one-year and five-year NII sensitivities in the down-shock
scenarios increased at 31 December 2021 at Group level when
compared with 31 December 2020. This was driven by the
changes in the forecasted yield curves and changes in balance
sheet composition. The NII sensitivities are forecasted for the
whole period of one and five years each quarter.
The NII sensitivities shown are hypothetical and based on
simplified scenarios. Immediate interest rate rises of 25bps and
100bps would increase projected NII for the 12 months to
31 December 2022 by $1,309m and $5,414m, respectively.
Conversely, falls of 25bps and 100bps would decrease projected
NII for the 12 months to 31 December 2022 by $1,952m and
$5,761m, respectively.
The sensitivity of NII for 12 months increased by $66m in the plus
100bps parallel shock and increased by $907m in the minus
100bps parallel shock, comparing 31 December 2021 with
31 December 2020. The increase in the sensitivity of NII for 12
months in the plus 100bps parallel shock was mainly driven by
change in market sentiment, reflecting current market
expectations of main policy rates and changes in pass-on
assumptions referred to above.
The change in NII sensitivity for five years is also driven by the
factors above.
The tables do not include Markets Treasury management actions
or changes in Markets and Securities Services net trading income
that may further limit the impact.
For further details on measurement of interest rate risk in the
banking book, see page 191.
NII sensitivity to an instantaneous change in yield curves (12 months) – 1 year NII sensitivity by currency
Currency
$
HK$
£
€
Other
Total
$m
$m
$m
$m
$m
$m
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps parallel
125
265
420
106
393
1,309
-25bps parallel
(257)
(536)
(594)
(170)
(395)
(1,952)
+100bps parallel
458
1,054
1,739
632
1,532
5,414
-100bps parallel
(466)
(1,020)
(2,070)
(595)
(1,610)
(5,761)
Change in Jan 2021 to Dec 2021 (based on balance sheet at 31 December 2020)
+25bps parallel
223
423
555
126
320
1,647
-25bps parallel
(227)
(343)
(548)
(88)
(302)
(1,508)
+100bps parallel
546
1,267
1,811
502
1,222
5,348
-100bps parallel
(565)
(749)
(1,906)
(299)
(1,335)
(4,854)
.
NII sensitivity to an instantaneous change in yield curves (5 years) – Cumulative 5 years NII sensitivity by currency
Currency
$
HK$
£
€
Other
Total
$m
$m
$m
$m
$m
$m
Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)
+25bps parallel
1,026
1,410
3,333
827
2,510
9,106
-25bps parallel
(1,701)
(2,887)
(4,216)
(997)
(2,600)
(12,401)
+100bps parallel
3,922
4,870
13,389
3,919
9,841
35,941
-100bps parallel
(5,060)
(7,052)
(14,893)
(3,571)
(10,481)
(41,057)
Change in Jan 2021 to Dec 2025 (based on balance sheet at 31 December 2020)
+25bps parallel
1,233
1,732
3,718
761
2,128
9,571
-25bps parallel
(1,466)
(1,968)
(3,826)
(605)
(2,094)
(9,959)
+100bps parallel
3,891
6,465
12,571
3,020
8,203
34,149
-100bps parallel
(4,650)
(5,285)
(13,469)
(1,888)
(8,808)
(34,098)
The net interest income sensitivities arising from the scenarios presented in the tables above are not directly comparable. This is due to timing
differences relating to interest rate changes and the repricing of assets and liabilities.
Risk
200
HSBC Holdings plc Annual Report and Accounts 2021
NII sensitivity to an instantaneous change in yield curves (5 years) – NII sensitivity by years
Year 1
Year 2
Year 3
Year 4
Year 5
Total
$m
$m
$m
$m
$m
$m
Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)
+25bps parallel
1,309
1,758
1,896
2,002
2,141
9,106
-25bps parallel
(1,952)
(2,324)
(2,593)
(2,687)
(2,845)
(12,401)
+100bps parallel
5,414
6,738
7,492
7,937
8,359
35,941
-100bps parallel
(5,761)
(7,664)
(8,675)
(9,354)
(9,603)
(41,057)
Change in Jan 2021 to Dec 2025 (based on balance sheet at 31 December 2020)
+25bps parallel
1,647
1,866
1,930
2,028
2,100
9,571
-25bps parallel
(1,508)
(1,986)
(2,307)
(2,045)
(2,113)
(9,959)
+100bps parallel
5,348
6,538
7,083
7,444
7,736
34,149
-100bps parallel
(4,854)
(6,174)
(7,087)
(7,660)
(8,323)
(34,098)
Sensitivity of capital and reserves
Hold-to-collect-and-sell stressed value at risk (‘VaR’) is a
quantification of the potential losses to a 99% confidence level of
the portfolio of high-quality liquid assets held under a hold-to-
collect-and-sell business model in the Markets Treasury business.
The portfolio is accounted for at fair value through other
comprehensive income together with the derivatives held in
designated hedging relationships with these securities. The mark-
to-market of this portfolio therefore has an impact on CET1.
Stressed VaR is quantified based on the worst losses over a one-
year period going back to the beginning of 2007 and the assumed
holding period is 60 days. At the end of 2021, the stressed VaR of
the portfolio was $3.63bn (2020: $2.94bn). The increase was
mainly driven by the extension in the duration of our mortgage-
backed securities exposures in US dollars as well as increases to
the hold-to-collect-and-sell portfolios in US dollars and pounds
sterling, partially offset by a reduction of exposure in a variety of
other currencies.
Alongside our monitoring of the stressed VaR of this portfolio, we
also monitor the sensitivity of reported cash flow hedging reserves
to interest rate movements on a yearly basis by assessing the
expected reduction in valuation of cash flow hedges due to
parallel movements of plus or minus 100bps in all yield curves.
Although we allow rates to go negative in this assessment, we
apply a floor on the shocks in the minus 100bps scenario set at the
lower of either minus 50bps or the central bank deposit rate. Due
to increases in interest rates during 2021, the effect of this flooring
has reduced significantly when compared with 2020.
The following table describes the sensitivity of our cash flow
hedge reported reserves to the stipulated movements in yield
curves at the year end. The sensitivities are indicative and based
on simplified scenarios. These particular exposures form only a
part of our overall interest rate exposure.
Comparing 31 December 2021 with 31 December 2020, the
sensitivity of the cash flow hedging reserve increased by $866m in
the plus 100bps scenario and increased by $1.13bn in the minus
100bps scenario. The increase in both scenarios was mainly driven
by an increase in fixed rate pound sterling hedges transacted in
HSBC UK Bank plc against a change in the interest rate risk
behaviouralisation profile for non-interest-bearing current
accounts. The increase in the down scenario is also driven by the
reduced effect of flooring as interest rates increased over the year.
Sensitivity of cash flow hedging reported reserves to interest rate movements
$m
At 31 Dec 2021
+100 basis point parallel move in all yield curves
(1,531)
As a percentage of total shareholders’ equity
(0.77)%
-100 basis point parallel move in all yield curves
1,537
As a percentage of total shareholders’ equity
0.78%
At 31 Dec 2020
+100 basis point parallel move in all yield curves
(665)
As a percentage of total shareholders’ equity
(0.34)%
-100 basis point parallel move in all yield curves
409
As a percentage of total shareholders’ equity
0.21%
Third-party assets in Markets Treasury
Third-party assets in Markets Treasury increased by 8% compared
with 31 December 2020. The net increase of $57bn is reflective of
higher commercial surpluses during the year, with the increase of
$115bn in ‘Cash and balances at central banks’ and decrease of
$52bn in ‘Financial investments’ being largely attributed to the
reduction of investments in high-quality liquid assets driven by the
change in outlook for interest rate expectations across many
markets, with the resulting cash deployed with central banks.
Third-party assets in Markets Treasury
2021
2020
$m
$m
Cash and balances at central banks
379,106
263,656
Trading assets
329
392
Loans and advances:
– to banks
47,363
34,555
– to customers
371
1,167
Reverse repurchase agreements
47,067
61,693
Financial investments
338,692
391,017
Other
5,451
8,724
At 31 Dec
818,379
761,204
HSBC Holdings plc Annual Report and Accounts 2021
201
Defined benefit pension plans
Market risk arises within our defined benefit pension plans to the
extent that the obligations of the plans are not fully matched by
assets with determinable cash flows.
For details of our defined benefit plans, including asset allocation, see Note 5
on the financial statements, and for pension risk management, see page 192.
.
Additional market risk measures applicable only to the
parent company
HSBC Holdings monitors and manages foreign exchange risk and
interest rate risk. In order to manage interest rate risk, HSBC
Holdings uses the projected sensitivity of its NII to future changes
in yield curves and the interest rate repricing gap tables.
During 2021, HSBC Holdings issued approximately $19.3bn of
debt, replacing $5.6bn of maturing or callable debt and generating
$13.7bn of net new debt. A total $3.1bn of this new debt was left
unhedged and the impact can be observed in the NII sensitivity
tables where the 12 months sensitivity increased compared with
last year.
Foreign exchange risk
HSBC Holdings’ foreign exchange exposures derive almost entirely
from the execution of structural foreign exchange hedges on
behalf of the Group as its business-as-usual foreign exchange
exposures are managed within tight risk limits. At 31 December
2021, HSBC Holdings had forward foreign exchange contracts of
$25.9bn (2020: $11.2bn) to manage the Group’s structural foreign
exchange exposures.
For further details of our structural foreign exchange exposures, see page
199.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over 12-month and five-
year time horizons, reflecting the longer-term perspective on
interest rate risk management appropriate to a financial services
holding company. These sensitivities assume that any issuance
where HSBC Holdings has an option to reimburse at a future call
date is called at this date. The tables below set out the effect on
HSBC Holdings’ future NII based on the following scenarios:
•an immediate shock of 25 basis points (‘bps’) to the current
market-implied path of interest rates across all currencies on
1 January 2022; and
•an immediate shock of 100bps to the current market-implied
path of interest rates across all currencies on 1 January 2022.
The NII sensitivities shown are indicative and based on simplified
scenarios. Immediate interest rate rises of 25bps and 100bps
would increase projected NII for the 12 months to 31 December
2022 by $29m and $113m, respectively. Conversely, falls of 25bps
and 100bps would decrease projected NII for the 12 months to
31 December 2022 by $28m and $109m, respectively.
NII sensitivity to an instantaneous change in yield curves (12 months)
$
HK$
£
€
Other
Total
$m
$m
$m
$m
$m
$m
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps
16
—
8
4
—
29
-25bps
(16)
—
(8)
(4)
—
(28)
+100bps
65
—
31
16
—
113
-100bps
(64)
—
(31)
(14)
—
(109)
Change in Jan 2021 to Dec 2021 (based on balance sheet at 31 December 2020)
+25bps
13
—
8
2
—
23
-25bps
(13)
—
(8)
(3)
—
(23)
+100bps
50
—
33
7
—
91
-100bps
(51)
—
(32)
(13)
—
(95)
NII sensitivity to an instantaneous change in yield curves (5 years)
Year 1
Year 2
Year 3
Year 4
Year 5
Total
$m
$m
$m
$m
$m
$m
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps
29
44
45
38
28
184
-25bps
(28)
(44)
(45)
(38)
(28)
(183)
+100bps
113
177
180
152
112
733
-100bps
(109)
(174)
(174)
(148)
(109)
(715)
Change in Jan 2021 to Dec 2021 (based on balance sheet at 31 December 2020)
—
+25bps
23
40
43
39
31
176
-25bps
(23)
(42)
(46)
(41)
(32)
(184)
+100bps
91
159
171
156
126
702
-100bps
(95)
(169)
(189)
(169)
139
(761)
The figures represent hypothetical movements in NII based on our
projected yield curve scenarios, HSBC Holdings’ current interest
rate risk profile and assumed changes to that profile during the
next five years.
The sensitivities represent our assessment of the change to a
hypothetical base case based on a static balance sheet
assumption, and do not take into account the effect of actions
that could be taken to mitigate this interest rate risk.
Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by HSBC
Holdings is not included within the Group VaR, but is managed on
a repricing gap basis. The following ‘Repricing gap analysis of
HSBC Holdings’ table analyses the full-term structure of interest
rate mismatches within HSBC Holdings’ balance sheet where debt
issuances are reflected based on either the next repricing date if
floating rate or the maturity/call date (whichever is first) if fixed
rate.
Risk
202
HSBC Holdings plc Annual Report and Accounts 2021
Repricing gap analysis of HSBC Holdings
Total
Up to
1 year
From over
1 to 5 years
From over
5 to 10 years
More than
10 years
Non-interest
bearing
$m
$m
$m
$m
$m
$m
Cash at bank and in hand:
– balances with HSBC undertakings
2,590
2,590
Derivatives
2,811
2,811
Loans and advances to HSBC undertakings
76,516
22,545
29,759
20,347
2,000
1,865
Financial investments in HSBC undertakings
26,194
22,917
3,268
9
Investments in subsidiaries
163,211
5,425
8,395
600
148,791
Other assets
1,850
1,850
Total assets
273,172
53,477
41,422
20,947
2,000
155,326
Amounts owed to HSBC undertakings
(111)
(111)
Financial liabilities designated at fair values
(32,418)
(5,925)
(10,801)
(14,942)
(750)
Derivatives
(1,220)
(1,220)
Debt securities in issue
(67,483)
(11,244)
(34,917)
(19,322)
(2,000)
Other liabilities
(4,551)
(4,551)
Subordinated liabilities
(17,059)
(1,131)
(3,705)
(1,780)
(10,443)
Total equity
(150,330)
(2,446)
(11,096)
(8,721)
(128,067)
Total liabilities and equity
(273,172)
(20,746)
(60,519)
(44,765)
(13,193)
(133,949)
Off-balance sheet items attracting interest rate sensitivity
(18,797)
(10,871)
1,434
6,184
308
Net interest rate risk gap at 31 Dec 2021
13,952
(8,226)
(22,384)
(5,009)
21,667
Cumulative interest rate gap
13,952
5,726
(16,658)
(21,667)
Cash at bank and in hand:
– balances with HSBC undertakings
2,913
2,913
—
—
—
—
Derivatives
4,698
—
—
—
—
4,698
Loans and advances to HSBC undertakings
75,696
25,610
22,190
20,398
2,000
5,498
Financial investments in HSBC undertakings
17,485
15,112
2,771
—
—
(398)
Investments in subsidiaries
156,485
5,381
7,660
1,500
—
141,944
Other assets
1,721
257
—
—
—
1,464
Total assets
258,998
49,273
32,621
21,898
2,000
153,206
Amounts owed to HSBC undertakings
(330)
(330)
—
—
—
—
Financial liabilities designated at fair values
(25,664)
(1,827)
(6,533)
(13,535)
(750)
(3,019)
Derivatives
(3,060)
—
—
—
—
(3,060)
Debt securities in issue
(64,029)
(9,932)
(29,026)
(22,063)
(2,000)
(1,008)
Other liabilities
(5,375)
—
—
—
—
(5,375)
Subordinated liabilities
(17,916)
—
(3,839)
(1,780)
(10,463)
(1,834)
Total equity
(142,624)
(1,464)
(11,439)
(9,198)
(120,523)
Total liabilities and equity
(258,998)
(13,553)
(50,837)
(46,576)
(13,213)
(134,819)
Off-balance sheet items attracting interest rate sensitivity
(20,324)
11,562
2,492
6,200
70
Net interest rate risk gap at 31 Dec 2020 1
15,396
(6,654)
(22,186)
(5,013)
18,457
Cumulative interest rate gap
15,396
8,742
(13,444)
(18,457)
—
1 Investments in subsidiaries and equity have been allocated based on call dates for any callable bonds. The prior year figures have been amended
to reflect this.
Market risk
Page
Overview
203
Market risk management
203
Market risk in 2021
204
Trading portfolios
205
Non-trading portfolios
206
Market risk balance sheet linkages
207
Overview
Market risk is the risk of adverse financial impact on trading
activities arising from changes in market parameters such as
interest rates, foreign exchange rates, asset prices, volatilities,
correlations and credit spreads. Exposure to market risk is
separated into two portfolios: trading portfolios and non-trading
portfolios
Market risk management
Key developments in 2021
There were no material changes to our policies and practices for
the management of market risk in 2021.
Governance and structure
The following diagram summarises the main business areas where
trading and non-trading market risks reside, and the market risk
measures used to monitor and limit exposures.
Risk types
Trading risk
Non-trading risk
•Foreign exchange and
commodities
•Interest rates
•Credit spreads
•Equities
•Interest rates 1
•Credit spreads
•Foreign exchange
Global business
GBM
GBM, Global Treasury,
CMB and WPB
Risk measure
Value at risk | Sensitivity
| Stress testing
Value at risk | Sensitivity |
Stress testing
1 The interest rate risk on the fixed-rate securities issued by HSBC
Holdings is not included in the Group value at risk. The management
of this risk is described on page 202.
Where appropriate, we apply similar risk management policies and
measurement techniques to both trading and non-trading
portfolios. Our objective is to manage and control market risk
exposures to optimise return on risk while maintaining a market
profile consistent with our established risk appetite.
Market risk is managed and controlled through limits approved by
the Group Chief Risk and Compliance Officer for HSBC Holdings.
These limits are allocated across business lines and to the Group’s
legal entities. Each major operating entity has an independent
market risk management and control sub-function, which is
HSBC Holdings plc Annual Report and Accounts 2021
203
responsible for measuring, monitoring and reporting market risk
exposures against limits on a daily basis. Each operating entity is
required to assess the market risks arising in its business and to
transfer them either to its local Markets and Securities Services or
Markets Treasury unit for management, or to separate books
managed under the supervision of the local ALCO. The Traded
Risk function enforces the controls around trading in permissible
instruments approved for each site as well as changes that follow
completion of the new product approval process. Traded Risk also
restricts trading in the more complex derivative products to offices
with appropriate levels of product expertise and robust control
systems.
Key risk management processes
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures
while maintaining a market profile consistent with our risk
appetite.
We use a range of tools to monitor and limit market risk exposures
including sensitivity analysis, VaR and stress testing.
Sensitivity analysis
Sensitivity analysis measures the impact of individual market
factor movements on specific instruments or portfolios, including
interest rates, foreign exchange rates and equity prices. We use
sensitivity measures to monitor the market risk positions within
each risk type. Granular sensitivity limits are set for trading desks
with consideration of market liquidity, customer demand and
capital constraints, among other factors.
Value at risk
(Audited)
VaR is a technique for estimating potential losses on risk positions
as a result of movements in market rates and prices over a
specified time horizon and to a given level of confidence. The use
of VaR is integrated into market risk management and calculated
for all trading positions regardless of how we capitalise them. In
addition, we calculate VaR for non-trading portfolios to have a
complete picture of risk. Where we do not calculate VaR explicitly,
we use alternative tools as summarised in the ‘Stress testing’
section below.
Our models are predominantly based on historical simulation that
incorporates the following features:
•historical market rates and prices, which are calculated with
reference to foreign exchange rates, commodity prices, interest
rates, equity prices and the associated volatilities;
•potential market movements that are calculated with reference
to data from the past two years; and
•calculations to a 99% confidence level and using a one-day
holding period.
The models also incorporate the effect of option features on the
underlying exposures. The nature of the VaR models means that
an increase in observed market volatility will lead to an increase in
VaR without any changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR is used with awareness of
its limitations. For example:
•The use of historical data as a proxy for estimating future
market moves may not encompass all potential market events,
particularly those that are extreme in nature.
•The use of a one-day holding period for risk management
purposes of trading and non-trading books assumes that this
short period is sufficient to hedge or liquidate all positions.
•The use of a 99% confidence level by definition does not take
into account losses that might occur beyond this level of
confidence.
•VaR is calculated on the basis of exposures outstanding at the
close of business and therefore does not reflect intra-day
exposures.
Risk not in VaR framework
The risks not in VaR (‘RNIV’) framework captures and capitalises
material market risks that are not adequately covered in the VaR
model.
Risk factors are reviewed on a regular basis and are either
incorporated directly in the VaR models, where possible, or
quantified through either the VaR-based RNIV approach or a stress
test approach within the RNIV framework. While VaR-based RNIVs
are calculated by using historical scenarios, stress-type RNIVs are
estimated on the basis of stress scenarios whose severity is
calibrated to be in line with the capital adequacy requirements.
The outcome of the VaR-based RNIV approach is included in the
overall VaR calculation but excluded from the VaR measure used
for regulatory back-testing. In addition, the stressed VaR measure
also includes risk factors considered in the VaR-based RNIV
approach.
Stress-type RNIVs include a deal contingent derivatives capital
charge to capture risk for these transactions and a de-peg risk
measure to capture risk to pegged and heavily managed
currencies.
Stress testing
Stress testing is an important procedure that is integrated into our
market risk management framework to evaluate the potential
impact on portfolio values of more extreme, although plausible,
events or movements in a set of financial variables. In such
scenarios, losses can be much greater than those predicted by
VaR modelling.
Stress testing is implemented at legal entity, regional and overall
Group levels. A set of scenarios is used consistently across all
regions within the Group. The risk appetite around potential stress
losses for the Group is set and monitored against a referral limit.
Market risk reverse stress tests are designed to identify
vulnerabilities in our portfolios by looking for scenarios that lead to
loss levels considered severe for the relevant portfolio. These
scenarios may be quite local or idiosyncratic in nature, and
complement the systematic top-down stress testing.
Stress testing and reverse stress testing provide senior
management with insights regarding the ‘tail risk’ beyond VaR, for
which our appetite is limited.
Trading portfolios
Trading portfolios comprise positions held for client servicing and
market-making, with the intention of short-term resale and/or to
hedge risks resulting from such positions.
Back-testing
We routinely validate the accuracy of our VaR models by back-
testing the VaR metric against both actual and hypothetical profit
and loss. Hypothetical profit and loss excludes non-modelled items
such as fees, commissions and revenue of intra-day transactions.
The hypothetical profit and loss reflects the profit and loss that
would be realised if positions were held constant from the end of
one trading day to the end of the next. This measure of profit and
loss does not align with how risk is dynamically hedged, and is not
therefore necessarily indicative of the actual performance of the
business.
The number of back-testing exceptions is used to gauge how well
the models are performing. We consider enhanced internal
monitoring of a VaR model if more than five profit exceptions or
more than five loss exceptions occur in a 250-day period.
We back-test our VaR at set levels of our Group entity hierarchy.
Market risk in 2021
Financial markets performed well in 2021. During the first half of
the year, the roll-out of Covid-19 vaccination programmes, as well
as continued monetary and fiscal support, contributed to a gradual
recovery of major economies. Concerns of rising inflationary
pressures were mainly interpreted as transitory. While the path of
monetary policies remained uncertain, central banks continued to
provide liquidity. This supported risk asset valuations, while
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HSBC Holdings plc Annual Report and Accounts 2021
volatility in most asset classes was subdued. In the second half of
2021, amid the emergence of new Covid-19 variants, global
equities reached further record highs, as investors focused on
global economic resilience and strong corporate earnings. Bond
yields followed a downward trend for most of the third quarter of
2021, before reversing in the final weeks of the year, when
markets began pricing in expectations of a faster pace of interest
rate rises in some of the major economies, due to persistently
elevated inflation. Credit markets remained strong, with credit
benchmark indices for investment-grade and high-yield debt close
to pre-pandemic levels.
We continued to manage market risk prudently during 2021.
Sensitivity exposures and VaR remained within appetite as the
business pursued its core market-making activity in support of our
customers. Market risk was managed using a complementary set
of risk measures and limits, including stress and scenario analysis.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR was predominantly generated by the Markets and
Securities Services business.
Trading VaR at 31 December 2021 did not change materially
compared with 31 December 2020 and it remained within a
relatively narrow range for most of 2021. On a consolidated
portfolio basis, larger contributions from credit spread risks and
foreign exchange risks were offset by:
•gains from exposures to equity risks and interest rate risks; and
•reduced equity risks captured in the RNIV framework.
On a stand-alone basis, credit spread risks and interest rate risks
from fixed income market-making activities were the main drivers
of VaR at the end of 2021, with larger contributions compared
with the end of 2020.
The daily levels of total trading VaR during 2021 are set out in the graph below.
Daily VaR (trading portfolios), 99% 1 day ($m)
The Group trading VaR for the year is shown in the table below.
Trading VaR, 99% 1 day 1
(Audited)
Foreign
exchange and
commodity
Interest
rate
Equity
Credit
spread
Portfolio
diversification 2
Total 3
$m
$m
$m
$m
$m
$m
Balance at 31 Dec 2021
9.1
25.9
15.4
24.8
(36.5)
38.8
Average
12.9
33.8
16.7
19.2
(45.5)
37.1
Maximum
31.8
51.7
24.3
29.4
53.8
Minimum
6.7
18.5
12.1
12.2
27.7
Balance at 31 Dec 2020
13.7
20.3
21.5
24.3
(36.4)
43.4
Average
11.0
26.6
27.3
21.6
(38.3)
48.1
Maximum
25.7
43.5
42.0
44.1
69.3
Minimum
5.6
19.1
13.6
12.6
33.6
1 Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.
2 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types – such as interest rate, equity and foreign exchange –
together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A
negative number represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types,
it is not meaningful to calculate a portfolio diversification benefit for these measures.
3 The total VaR is non-additive across risk types due to diversification effects.
HSBC Holdings plc Annual Report and Accounts 2021
205
The table below shows trading VaR at a 99% confidence level
compared with trading VaR at a 95% confidence level at
31 December 2021. This comparison facilitates the benchmarking
of the trading VaR, which can be stated at different confidence
levels, with financial institution peers. The 95% VaR is unaudited.
Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day
Trading VaR,
99% 1 day
Trading VaR,
95% 1 day
$m
$m
Balance at 31 Dec 2021
38.8
21.6
Average
37.1
24.0
Maximum
53.8
30.0
Minimum
27.7
18.9
Balance at 31 Dec 2020
43.4
27.6
Average
48.1
32.7
Maximum
69.3
47.3
Minimum
33.6
22.4
Back-testing
During 2021, the Group experienced two loss back-testing
exceptions against hypothetical profit and loss and two loss back-
testing exceptions against actual profit and loss.
These exceptions comprised:
•a loss back-testing exception against hypothetical profit and
loss in March, mainly driven by the effect of lower volatility in
the equity markets and by the increase in some emerging
markets foreign exchange forward rates volatilities;
•a loss exception against actual profit and loss in September,
attributable to the payment of novation fees under our RWA
optimisation programme; and
•a loss back-testing exception against both hypothetical and
actual profit and loss in late November, due to a number of
relatively small losses spread across credit spread, equity and
interest rates asset classes.
Non-trading portfolios
Non-trading portfolios comprise positions that primarily arise from
the interest rate management of our retail and commercial
banking assets and liabilities, financial investments measured at
fair value through other comprehensive income, debt instruments
measured at amortised cost, and exposures arising from our
insurance operations.
Value at risk of the non-trading portfolios
The VaR for non-trading activity at 31 December 2021 was lower
than at 31 December 2020. The decrease arose mainly from an
increase in the diversification benefit across interest rate and
credit exposures. On a stand-alone basis, interest rate VaR
increased, mainly due to higher levels of market volatility observed
in February 2021, while credit VaR reduced over the year driven by
a reduction in credit spread exposure in the portfolio of non-
trading financial instruments managed by Markets Treasury.
Non-trading VaR includes the interest rate risk in the banking book
transferred to and managed by Markets Treasury and the
exposures generated by the portfolio of high-quality liquid assets
held by Markets Treasury to meet liquidity requirements. The
management of interest rate risk in the banking book is described
further in the ‘Net interest income sensitivity’ section.
The daily levels of total non-trading VaR in 2021 are set out in the
graph below.
Daily VaR (non-trading portfolios), 99% 1 day ($m)
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HSBC Holdings plc Annual Report and Accounts 2021
The Group non-trading VaR for 2021 is shown in the table below.
Non-trading VaR, 99% 1 day
(Audited)
Interest
rate
Credit
spread
Portfolio
diversification 1
Total 2
$m
$m
$m
$m
Balance at 31 Dec 2021
216.4
70.3
(66.3)
220.4
Average
200.7
76.9
(40.3)
237.3
Maximum
248.7
99.3
—
298.8
Minimum
163.3
64.7
—
193.5
Balance at 31 Dec 2020
166.6
87.0
(5.7)
247.8
Average
150.2
82.5
(42.0)
190.7
Maximum
196.4
133.4
—
274.6
Minimum
59.0
44.2
—
79.7
1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types – such as interest rate and credit spreads – together in one
portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number
represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not
meaningful to calculate a portfolio diversification benefit for these measures.
2 The total VaR is non-additive across risk types due to diversification effects.
Non-trading VaR excludes equity risk on securities held at fair
value, non-trading book foreign exchange risk and interest rate
risk on fixed-rate securities issued by HSBC Holdings. HSBC’s
management of market risks in non-trading books is described
further in the Treasury Risk section.
Market risk balance sheet linkages
The following balance sheet lines in the Group’s consolidated
position are subject to market risk:
Trading assets and liabilities
The Group’s trading assets and liabilities are in almost all cases
originated by GBM. These assets and liabilities are treated as
traded risk for the purposes of market risk management, other
than a limited number of exceptions, primarily in Global Banking
where the short-term acquisition and disposal of the assets are
linked to other non-trading-related activities such as loan
origination.
Derivative assets and liabilities
We undertake derivative activity for three primary purposes: to
create risk management solutions for clients, to manage the
portfolio risks arising from client business, and to manage and
hedge our own risks. Most of our derivative exposures arise from
sales and trading activities within GBM. The assets and liabilities
included in trading VaR give rise to a large proportion of the
income included in net income from financial instruments held for
trading or managed on a fair value basis. Adjustments to trading
income such as valuation adjustments are not measured by the
trading VaR model.
For information on the accounting policies applied to financial instruments at
fair value, see Note 1 on the financial statements
Resilience risk
Overview
Resilience risk is the risk that we are unable to provide critical
services to our customers, affiliates and counterparties as a result
of sustained and significant operational disruption. Resilience risk
arises from failures or inadequacies in processes, people, systems
or external events.
Resilience risk management
Key developments in 2021
The Operational and Resilience Risk sub-function provides robust
non-financial risk steward oversight of the management of risk by
the Group businesses, functions and legal entities. It also provides
effective and timely independent challenge. During the year, we
carried out a number of initiatives to strengthen the management
of non-financial risks:
•We developed a more robust understanding of our risk and
control environment, by updating our material risk taxonomy
and control libraries, and refreshing material risk and control
assessments.
•We further strengthened our non-financial risk governance and
senior leadership.
•We created a consolidated view of all risk issues across the
Group, enabling better senior management focus on non-
financial risk, and the ability to identify material control issues
and intervention as required.
•We improved how we provide analysis and reporting of non-
financial risks, with more risk practitioners now having access
to a wider range of management information on their risks and
controls.
•We increased the capability of risk stewards to allow for
effective stewardship to be in place across the Group.
•We strengthened our approach in the comparison of issues
and near misses by implementing a Group-wide harmonised
approach across businesses, functions and regions.
•We enhanced risk management oversight across our most
material change initiatives to support growth in our strategic
transformation.
We prioritise our efforts on material risks and areas undergoing
strategic growth, aligning our location strategy to this need. We
also remotely provide oversight and stewardship, including
support of chief risk officers, in territories where we have no
physical presence.
Governance and structure
The Operational and Resilience Risk target operating model
provides a globally consistent view across resilience risks,
strengthening our risk management oversight while operating
effectively as part of a simplified non-financial risk structure. We
view resilience risk across seven risk types related to: third parties
and supply chains; information, technology and cybersecurity;
payments and manual processing; physical security; business
interruption and contingency risk; building unavailability; and
workplace safety.
A principal senior management meeting for operational and
resilience risk governance is the Non-Financial Risk Management
Board, chaired by the Group Chief Risk and Compliance Officer,
with an escalation path to the Group Risk Management Meeting.
Key risk management processes
Operational resilience is our ability to anticipate, prevent, adapt,
respond to, recover and learn from internal or external disruption,
protecting customers, the markets we operate in and economic
stability. Resilience is determined by assessing whether we are
HSBC Holdings plc Annual Report and Accounts 2021
207
able to continue to provide our most important services, within an
agreed level. We accept we will not be able to prevent all
disruption but we prioritise investment to continually improve the
response and recovery strategies for our most important business
services.
Business operations continuity
Business continuity, in response to the Covid-19 pandemic,
remains in place across a number of locations where the Group
operates, allowing the majority of service level agreements to be
maintained. There were no significant impacts to service delivery
in locations where the Group operates.
Regulatory compliance risk
Overview
Regulatory compliance risk is the risk associated with breaching
our duty to clients and other counterparties, inappropriate market
conduct and breaching related financial services regulatory
standards. Regulatory compliance risk arises from the failure to
observe relevant laws, codes, rules and regulations and can
manifest itself in poor market or customer outcomes and lead to
fines, penalties and reputational damage to our business.
Regulatory compliance risk management
Key developments in 2021
We continued to embed the structural changes made in 2020 to
our wider approach to compliance risk management. The
integration of the Risk and Compliance functions in May 2021 has
brought together two complementary functions, which will
strengthen the regulatory compliance function’s mandate and our
capability to drive the right standards with regard to the conduct
of our business.
In June 2021, we also announced our new purpose-led approach
to conduct. As part of this, we took the opportunity to align and
simplify our approach, making conduct easier to understand and
showing how it relates to and helps fulfil our value: ‘we take
responsibility’.
Governance and structure
Following the integration of the Global Risk and Compliance
functions, the Group Head of Compliance and the Group Head of
Financial Crime – who is also the Group Money Laundering
Reporting Officer – each report to the Group Chief Risk and
Compliance Officer. They also each attend the Risk and
Compliance Executive Committee, the Group RMM and the GRC.
The structure of the Compliance function below this level is
substantively unchanged and the Group Regulatory Conduct
capability and Group Financial Crime capability both continue to
work closely with the regional chief compliance officers and their
respective teams to help them identify and manage regulatory and
financial crime compliance risks across the Group. They also work
together to ensure we achieve good conduct outcomes and
provide enterprise-wide support on the Compliance risk agenda in
collaboration with the Group’s Risk function.
Key risk management processes
The Group Regulatory Conduct capability is responsible for setting
global policies, standards and risk appetite to guide the Group’s
management of regulatory compliance risk. It also devises the
required frameworks and support processes to protect against
regulatory compliance risks. The Group capability provides
oversight, review and challenge to the regional chief compliance
officers and their teams to help them identify, assess and mitigate
regulatory compliance risks, where required. The Group’s
regulatory compliance risk policies are regularly reviewed. Global
policies and procedures require the prompt identification and
escalation of any actual or potential regulatory breaches, and
relevant reportable events are escalated to the Group RMM and
the GRC, as appropriate.
Conduct of business
Our new, simplified conduct approach, which was launched in
2021, guides us to do the right thing and to recognise the real
impact we have for our customers and the financial markets in
which we operate. It complements our purpose and values, setting
outcomes to be achieved for our customers and markets. It
recognises cultural and behavioural drivers of good conduct
outcomes and applies across all risk disciplines, operational
processes and technologies. During 2021:
•We understood and served our customers’ ongoing needs, and
continued to champion a strong conduct and customer-focused
culture. This was demonstrated through the continued
provision of support to our customers facing financial
difficulties as a result of the prolonged impacts of the pandemic
and the resulting uncertainty in trading conditions.
•We began the integration of climate risk into the Group’s risk
management approach to recognise the importance of
strengthened controls and oversight for our related activities.
•We operated resiliently and securely to avoid harm to our
customers and markets by continuing to embed conduct within
our business line processes and through our non-financial and
financial risk steward activities.
•We continued our focus on culture and behaviours as a driver
of good conduct outcomes.
•We placed a particular focus on the importance of well-being
and collaborative working as we continued to adapt to
changing working practices as the pace of change resulting
from the pandemic varied across our markets.
•We continued to emphasise – and worked to create – an
environment in which employees are encouraged and feel safe
to speak up.
•We delivered our latest annual global mandatory training
course on conduct to reinforce the importance of conduct for
all colleagues.
The Board continues to maintain oversight of conduct matters
through the GRC.
Further details can be found under the ‘Our conduct’ section of
www.hsbc.com/our-approach/risk-and-responsibility.
Financial crime risk
Overview
Financial crime risk is the risk of knowingly or unknowingly
helping parties to commit or to further illegal activity through
HSBC, including money laundering, fraud, bribery and corruption,
tax evasion, sanctions breaches, and terrorist and proliferation
financing. Financial crime risk arises from day-to-day banking
operations involving customers, third parties and employees.
Financial crime risk management
Key developments in 2021
We continuously review the effectiveness of our financial crime
risk management framework, which includes consideration of the
complex and dynamic nature of sanctions risk, notably with
respect to the array of new regulations and designations in 2021
and in alignment with our policy, which is to comply with all
applicable sanctions regulations in the jurisdictions in which we
operate.
We also continued to make progress with several key financial
crime risk management initiatives, including:
•We deployed a key component of our intelligence-led, dynamic
risk assessment capabilities for customer account monitoring in
the UK, and undertook important enhancements to our
traditional transaction monitoring systems globally.
•We strengthened our anti-fraud capabilities, notably with
respect to the early identification of first-party lending fraud
and the development of new strategic detection tools.
•We continued the development of leading-edge surveillance
technology and capabilities to identify potential market abuse,
including testing machine learning capabilities to detect
unauthorised trading.
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208
HSBC Holdings plc Annual Report and Accounts 2021
•We invested in the use of AI and advanced analytics techniques
to manage financial crime risk, notably new automated
capabilities in name and transaction screening (for further
details, see page 120).
•We implemented a gifts and entertainment recording and
approval system, which, in combination with an expenses
reconciliation tool, allows us to better manage our gifts and
entertainment risk.
Governance and structure
We have continued to review the effectiveness of our governance
framework to manage financial crime risk. The framework aims to
enable us to comply with the letter and the spirit of applicable
financial crime laws and regulations in the jurisdictions in which
we operate, as well as our own policies, standards, and values
relating to financial crime risks.
In 2021, the Group Risk and Compliance functions were
integrated, allowing us to make better use of a broader range of
perspectives from other risk disciplines.
Key risk management processes
We will not tolerate knowingly conducting business with
individuals or entities believed to be engaged in illicit activity. We
require everybody in HSBC to play their role in maintaining
effective systems and controls to prevent and detect financial
crime. Where we believe we have identified suspected illicit
activity or vulnerabilities in our control framework, we will take
appropriate mitigating action.
We continue to assess the effectiveness of our end-to-end
financial crime risk management framework on an ongoing basis,
and invest in enhancing our operational control capabilities and
technology solutions to deter and detect criminal activity. We have
simplified our framework by streamlining and de-duplicating policy
requirements. We also strengthened our financial crime risk
taxonomy and control libraries and our investigative and
monitoring capabilities through technology deployments. We
developed more targeted metrics, and have also enhanced our
governance and reporting.
We are committed to working in partnership with the wider
industry and the public sector in managing financial crime risk,
protecting the integrity of the financial system and the
communities we serve. We participate in numerous public-private
partnerships and information-sharing initiatives around the world.
In 2021, the UK, the EU, the US and Singapore, were particularly
focused on anti-money laundering (‘AML’) reforms, to which we
provided significant input. We played a key role in the industry
responses to a number of consultation papers focused on the
overall effectiveness of the global AML framework. We were also
active participants in a key pilot undertaken by the Monetary
Authority of Singapore, which establishes a framework to enable
financial institutions to share information with each other when
certain financial crime risk concerns have been identified. We took
part in a number of roundtables organised by the Financial Action
Task Force, supporting its strategic review. We also supported its
work on digitisation and beneficial ownership registers. These
align with our objectives of promoting a public policy and
regulatory environment that embraces the use and harnessing of
technology in building a financial crime framework for the future
to ensure our organisation is more resilient and secure, while
benefiting our customers.
Skilled Person/Independent Consultant
In December 2012, HSBC Holdings entered into a number of
agreements, including an undertaking with the UK Financial
Services Authority (replaced with a Direction issued by the UK
Financial Conduct Authority (‘FCA’) in 2013 and again in 2020), as
well as a cease-and-desist order with the US Federal Reserve
Board (‘FRB’), both of which contained certain forward-looking
AML and sanctions-related obligations. Over the past several
years, HSBC has retained a Skilled Person under section 166 of the
Financial Services and Markets Act and an Independent
Consultant under the FRB cease-and-desist order to produce
periodic assessments of the Group’s AML and sanctions
compliance programme.
The Skilled Person issued its final report in June 2021, which
contained a number of limited recommendations. Following
publication of the report, the FCA determined that no further
Skilled Person work is required. The Group Risk Committee will
continue to retain oversight of matters relating to AML, sanctions,
terrorist financing and proliferation financing. Separately, the
Independent Consultant carried out its eighth annual review for
the FRB and, in November 2021, issued its report, which
contained a limited number of recommendations.
Model risk
Overview
Model risk is the risk of inappropriate or incorrect business
decisions arising from the use of models that have been
inadequately designed, implemented or used, or from models that
do not perform in line with expectations and predictions.
Model risk arises in both financial and non-financial contexts
whenever business decision making includes reliance on models.
Key developments in 2021
In 2021, we continued to make improvements in our model risk
management processes amid regulatory changes in model
requirements.
Initiatives during the year included:
•In response to regulatory capital charges, we redeveloped,
validated and submitted to the PRA our models for the internal
ratings-based (‘IRB’) approach for credit risk, internal model
method (‘IMM’) for counterparty credit risk and internal model
approach (‘IMA’) for market risk. These new models have been
built to enhanced standards using improved data as a result of
investment in processes and systems.
•We redeveloped and validated models impacted by changes to
alternative rate setting mechanisms due to the Ibor transition.
•We made further enhancements to our control framework for
our Sarbanes-Oxley models to address the control weaknesses
that emerged as a result of significant increases in adjustments
and overlays that were applied to compensate for the impact of
the Covid-19 pandemic on models. We also introduced a
requirement for the model risk stewards to approve material
models prior to use.
•Our businesses and functions were more involved in the
development and management of models, and hiring
colleagues who had strong model risk skills. They also put an
enhanced focus on key model risk drivers such as data quality
and model methodology.
•Our model owners in businesses and functions fully embedded
the requirements included in the model risk policy and
standards introduced in 2020.
•We delivered a suite of training on model risk to front-line
teams to improve their awareness of model risk and their
adherence to the governance framework.
•We rolled out new model risk appetite measures, which are
more forward looking and will help our businesses and
functions manage model risk more effectively.
•We continued the transformation of the Model Risk
Management team, with changes to the model validation
processes, including new systems and processes. Key senior
hires were made during the year to lead the business areas and
regions to strengthen oversight and expertise within the
function. We also made changes to the model inventory system
to provide businesses and functions with improved
functionality and more detailed information related to model
risk.
•We initiated a programme of development related to climate
risk and models using advanced analytics and machine
learning, which have become critical areas of focus that will
HSBC Holdings plc Annual Report and Accounts 2021
209
grow in importance in 2022 and beyond. We also added
qualified specialist skills to the model risk teams to manage the
increased model risk in these areas.
Governance and structure
The new governance structure implemented in 2020 is fully
operational. Model Risk Governance committees at the Group,
business and functional levels provide oversight of model risk. The
committees include senior leaders from the three global
businesses and the Global Risk and Compliance function, and
focus on model-related concerns and are supported by key model
risk metrics. The Group-level Model Risk Committee is chaired by
the Group Chief Risk and Compliance Officer and the heads of key
businesses participate in those meetings.
Key risk management processes
We use a variety of modelling approaches, including regression,
simulation, sampling, machine learning and judgemental
scorecards for a range of business applications. These activities
include customer selection, product pricing, financial crime
transaction monitoring, creditworthiness evaluation and financial
reporting. Global responsibility for managing model risk is
delegated from the RMM to the Group Model Risk Committee,
which is chaired by the Group Chief Risk and Compliance Officer.
This committee regularly reviews our model risk management
policies and procedures, and requires the first line of defence to
demonstrate comprehensive and effective controls based on a
library of model risk controls provided by Model Risk
Management.
Model Risk Management also reports on model risk to senior
management on a regular basis through the use of the risk map,
risk appetite metrics and top and emerging risks.
We regularly review the effectiveness of these processes,
including the model oversight committee structure, to help ensure
appropriate understanding and ownership of model risk is
embedded in the businesses and functions.
Insurance manufacturing operations risk
Page
Overview
210
Insurance manufacturing operations risk management
210
Insurance manufacturing operations risk in 2021
212
Measurement
212
Key risk types
214
– Market risk
214
– Credit risk
215
– Liquidity risk
215
– Insurance underwriting risk
216
Overview
The key risks for our insurance manufacturing operations are
market risks, in particular interest rate and equity, credit risks and
insurance underwriting and operational risks. These have a direct
impact on the financial results and capital positions of the
insurance operations. Liquidity risk, while significant in other parts
of the Group, is relatively minor for our insurance operations.
HSBC’s insurance business
We sell insurance products worldwide through a range of
channels including our branches, direct channels and third-party
distributors. The majority of sales are through an integrated
bancassurance model that provides insurance products principally
for customers with whom we have a banking relationship.
The insurance contracts we sell relate to the underlying needs of
our customers, which we can identify from our point-of-sale
contacts and customer knowledge. For the products we
manufacture, the majority of sales are savings, universal life and
protection contracts.
We choose to manufacture these insurance products in HSBC
subsidiaries based on an assessment of operational scale and risk
appetite. Manufacturing insurance allows us to retain the risks and
rewards associated with writing insurance contracts by keeping
part of the underwriting profit and investment income within the
Group.
We have life insurance manufacturing subsidiaries in eight
markets, which are Hong Kong, Singapore, mainland China,
France, the UK, Malta, Mexico and Argentina. We also have a life
insurance manufacturing associate in India.
Where we do not have the risk appetite or operational scale to be
an effective insurance manufacturer, we engage with a small
number of leading external insurance companies in order to
provide insurance products to our customers through our banking
network and direct channels. These arrangements are generally
structured with our exclusive strategic partners and earn the
Group a combination of commissions, fees and a share of profits.
We distribute insurance products in all of our geographical
regions.
This section focuses only on the risks relating to the insurance
products we manufacture.
Insurance manufacturing operations risk
management
Key developments in 2021
The insurance manufacturing subsidiaries follow the Group’s risk
management framework. In addition, there are specific policies
and practices relating to the risk management of insurance
contracts. There were no material changes to the policies and
practices over 2021, although enhancements were made to the
product pricing and profitability framework to allow for the
transition to IFRS 17.
Governance and structure
(Audited)
Insurance manufacturing risks are managed to a defined risk
appetite, which is aligned to the Group’s risk appetite and risk
management framework, including its three lines of defence
model. For details of the Group’s governance framework, see
page 122. The Global Insurance Risk Management Meeting
oversees the control framework globally and is accountable to the
WPB Risk Management Meeting on risk matters relating to the
insurance business.
The monitoring of the risks within our insurance operations is
carried out by Insurance Risk teams. The Group’s risk stewardship
functions support the Insurance Risk teams in their respective
areas of expertise.
Stress and scenario testing
(Audited)
Stress testing forms a key part of the risk management framework
for the insurance business. We participate in local and Group-wide
regulatory stress tests, as well as internally developed stress and
scenario tests, including Group internal stress test exercises.
The results of these stress tests and the adequacy of management
action plans to mitigate these risks are considered in the Group’s
ICAAP and the entities’ regulatory Own Risk and Solvency
Assessments (‘ORSAs’).
Key risk management processes
Market risk
(Audited)
All our insurance manufacturing subsidiaries have market risk
mandates and limits that specify the investment instruments in
which they are permitted to invest and the maximum quantum of
market risk that they may retain. They manage market risk by
using, among others, some or all of the techniques listed below,
depending on the nature of the contracts written:
•We are able to adjust bonus rates to manage the liabilities to
policyholders for products with discretionary participating
features (‘DPF’). The effect is that a significant portion of the
market risk is borne by the policyholder.
•We use asset and liability matching where asset portfolios are
structured to support projected liability cash flows. The Group
Risk
210
HSBC Holdings plc Annual Report and Accounts 2021
manages its assets using an approach that considers asset
quality, diversification, cash flow matching, liquidity, volatility
and target investment return. We use models to assess the
effect of a range of future scenarios on the values of financial
assets and associated liabilities, and ALCOs employ the
outcomes in determining how best to structure asset holdings
to support liabilities.
•We use derivatives to protect against adverse market
movements.
•We design new products to mitigate market risk, such as
changing the investment return sharing portion between
policyholders and the shareholder.
•We exit, to the extent possible, investment portfolios whose
risk is considered unacceptable.
Credit risk
(Audited)
Our insurance manufacturing subsidiaries also have credit risk
mandates and limits within which they are permitted to operate,
which consider the credit risk exposure, quality and performance
of their investment portfolios. Our assessment of the
creditworthiness of issuers and counterparties is based primarily
upon internationally recognised credit ratings and other publicly
available information.
Stress testing is performed on investment credit exposures using
credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk.
These include a credit report containing a watch-list of
investments with current credit concerns, primarily investments
that may be at risk of future impairment or where high
concentrations to counterparties are present in the investment
portfolio. Sensitivities to credit spread risk are assessed and
monitored regularly.
Capital and liquidity risk
(Audited)
Capital risk for our insurance manufacturing subsidiaries is
assessed in the Group’s ICAAP based on their financial capacity to
support the risks to which they are exposed. Capital adequacy is
assessed on both the Group’s economic capital basis, and the
relevant local insurance regulatory basis. The Group’s economic
capital basis is largely aligned to European Solvency II regulations,
other than in Hong Kong where this is based on the emerging
Hong Kong risk based capital regulations.
Risk appetite buffers are set to ensure that the operations are able
to remain solvent on both bases, allowing for business-as-usual
volatility and extreme but plausible stress events.
Liquidity risk is managed by cash flow matching and maintaining
sufficient cash resources, investing in high credit-quality
investments with deep and liquid markets, monitoring investment
concentrations and restricting them where appropriate, and
establishing committed contingency borrowing facilities.
Insurance manufacturing subsidiaries complete quarterly liquidity
risk reports and an annual review of the liquidity risks to which
they are exposed.
Insurance underwriting risk
Our insurance manufacturing subsidiaries primarily use the
following frameworks and processes to manage and mitigate
insurance underwriting risks:
•a formal approval process for launching new products or
making changes to products;
•a product pricing and profitability framework, which requires
initial and ongoing assessment of the adequacy of premiums
charged on new insurance contracts to meet the risks
associated with them;
•a framework for customer underwriting;
•reinsurance, which cedes risks above our appetite thresholds to
a third-party reinsurer thereby limiting our exposure; and
•oversight of expense and reserve risks by entity Actuarial
Control Committees.
HSBC Holdings plc Annual Report and Accounts 2021
211
Insurance manufacturing operations risk in 2021
Measurement
The following tables show the composition of assets and liabilities by contract type and by geographical region.
Balance sheet of insurance manufacturing subsidiaries by type of contract 1
(Audited)
With
DPF
Unit-linked
Other
contracts 2
Shareholder
assets and
liabilities
Total
$m
$m
$m
$m
$m
Financial assets
88,969
8,881
19,856
9,951
127,657
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
30,669
8,605
3,581
1,827
44,682
– derivatives
129
1
15
2
147
– financial investments at amortised cost
42,001
61
14,622
4,909
61,593
– financial investments at fair value through other comprehensive income
10,858
—
459
1,951
13,268
– other financial assets 3
5,312
214
1,179
1,262
7,967
Reinsurance assets
2,180
72
1,666
3
3,921
PVIF 4
—
—
—
9,453
9,453
Other assets and investment properties
2,558
1
206
820
3,585
Total assets
93,707
8,954
21,728
20,227
144,616
Liabilities under investment contracts designated at fair value
—
2,297
3,641
—
5,938
Liabilities under insurance contracts
89,492
6,558
16,757
—
112,807
Deferred tax 5
179
9
24
1,418
1,630
Other liabilities
—
—
—
7,269
7,269
Total liabilities
89,671
8,864
20,422
8,687
127,644
Total equity
—
—
—
16,972
16,972
Total liabilities and equity at 31 Dec 2021
89,671
8,864
20,422
25,659
144,616
Financial assets
84,478
8,802
18,932
8,915
121,127
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
26,002
8,558
3,508
1,485
39,553
– derivatives
262
3
13
3
281
– financial investments at amortised cost
39,891
30
13,984
4,521
58,426
– financial investments at fair value through other comprehensive income
12,531
—
459
1,931
14,921
– other financial assets 3
5,792
211
968
975
7,946
Reinsurance assets
2,256
65
1,447
2
3,770
PVIF 4
—
—
—
9,435
9,435
Other assets and investment properties
2,628
1
227
721
3,577
Total assets
89,362
8,868
20,606
19,073
137,909
Liabilities under investment contracts designated at fair value
—
2,285
4,100
—
6,385
Liabilities under insurance contracts
84,931
6,503
15,827
—
107,261
Deferred tax 5
145
5
25
1,400
1,575
Other liabilities
—
—
—
7,244
7,244
Total liabilities
85,076
8,793
19,952
8,644
122,465
Total equity
—
—
—
15,444
15,444
Total liabilities and equity at 31 Dec 2020
85,076
8,793
19,952
24,088
137,909
1 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance
operations.
2‘Other contracts’ includes term insurance, credit life insurance, universal life insurance and investment contracts not included in the ‘Unit-linked’
or ‘With DPF’ columns.
3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
4 Present value of in-force long-term insurance business.
5‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
Risk
212
HSBC Holdings plc Annual Report and Accounts 2021
Balance sheet of insurance manufacturing subsidiaries by geographical region 1,2
(Audited)
Europe
Asia
Latin
America
Total
$m
$m
$m
$m
Financial assets
34,264
92,535
858
127,657
– financial assets designated and otherwise mandatorily measured at fair value through profit or loss
19,030
25,248
404
44,682
– derivatives
65
82
—
147
– financial investments – at amortised cost
1,161
60,389
43
61,593
– financial investments – at fair value through other comprehensive income
12,073
817
378
13,268
– other financial assets 3
1,935
5,999
33
7,967
Reinsurance assets
213
3,703
5
3,921
PVIF 4
1,098
8,177
178
9,453
Other assets and investment properties
1,091
2,431
63
3,585
Total assets
36,666
106,846
1,104
144,616
Liabilities under investment contracts designated at fair value
1,396
4,542
—
5,938
Liabilities under insurance contracts
30,131
81,840
836
112,807
Deferred tax 5
250
1,357
23
1,630
Other liabilities
2,711
4,523
35
7,269
Total liabilities
34,488
92,262
894
127,644
Total equity
2,178
14,584
210
16,972
Total liabilities and equity at 31 Dec 2021
36,666
106,846
1,104
144,616
Financial assets
34,768
85,259
1,100
121,127
– financial assets designated and otherwise mandatorily measured at fair value through profit or loss
17,184
22,099
270
39,553
– derivatives
107
174
—
281
– financial investments – at amortised cost
531
57,420
475
58,426
– financial investments – at fair value through other comprehensive income
13,894
706
321
14,921
– other financial assets 3
3,052
4,860
34
7,946
Reinsurance assets
245
3,521
4
3,770
PVIF 4
884
8,390
161
9,435
Other assets and investment properties
1,189
2,332
56
3,577
Total assets
37,086
99,502
1,321
137,909
Liabilities under investment contracts designated at fair value
1,288
5,097
—
6,385
Liabilities under insurance contracts
31,153
74,994
1,114
107,261
Deferred tax 5
204
1,348
23
1,575
Other liabilities
2,426
4,800
18
7,244
Total liabilities
35,071
86,239
1,155
122,465
Total equity
2,015
13,263
166
15,444
Total liabilities and equity at 31 Dec 2020
37,086
99,502
1,321
137,909
1 HSBC has no insurance manufacturing subsidiaries in the Middle East and North Africa or North America.
2 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance
operations.
3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
4 Present value of in-force long-term insurance business.
5‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
HSBC Holdings plc Annual Report and Accounts 2021
213
Key risk types
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting
HSBC’s capital or profit. Market factors include interest rates,
equity and growth assets and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are contracts with
discretionary participating features (‘DPF’). These products
typically include some form of capital guarantee or guaranteed
return on the sums invested by the policyholders, to which
discretionary bonuses are added if allowed by the overall
performance of the funds. These funds are primarily invested in
fixed interest, with a proportion allocated to other asset classes to
provide customers with the potential for enhanced returns.
DPF products expose HSBC to the risk of variation in asset returns,
which will impact our participation in the investment performance.
In addition, in some scenarios the asset returns can become
insufficient to cover the policyholders’ financial guarantees, in
which case the shortfall has to be met by HSBC. Amounts are held
against the cost of such guarantees, calculated by stochastic
modelling.
The cost of such guarantees is accounted for as a deduction from
the present value of in-force ('PVIF') asset, unless the cost of such
guarantees is already explicitly allowed for within the insurance
contract liabilities.
The following table shows the total reserve held for the cost of
guarantees, the range of investment returns on assets supporting
these products and the implied investment return that would
enable the business to meet the guarantees.
The cost of guarantees decreased to $938m (2020: $1,105m)
primarily due to the increase in swap rates and positive equity
performance in France and Hong Kong.
For unit-linked contracts, market risk is substantially borne by the
policyholder, but some market risk exposure typically remains, as
fees earned are related to the market value of the linked assets.
Financial return guarantees
(Audited)
2021
2020
Investment
returns implied
by guarantee
Long-term
investment
returns on
relevant
portfolios
Cost of
guarantees
Investment
returns implied
by guarantee
Long-term
investment
returns on
relevant
portfolios
Cost of
guarantees
%
%
$m
%
%
$m
Capital
0.0
0.7–3.2
220
0.0
0.7–3.2
277
Nominal annual return
0.1–1.9
2.3–3.6
423
0.1–1.9
2.3–3.6
515
Nominal annual return
2.0-3.9
2.0–4.5
183
2.0–3.9
2.0–4.5
180
Nominal annual return
4.0–5.0
2.0–4.2
112
4.0–5.0
2.0–4.2
133
At 31 Dec
938
1,105
Sensitivities
Changes in financial market factors, from the economic
assumptions in place at the start of the year, had a positive impact
on reported profit before tax of $516m (2020: $102m). The
following table illustrates the effects of selected interest rate,
equity price and foreign exchange rate scenarios on our profit for
the year and the total equity of our insurance manufacturing
subsidiaries.
Where appropriate, the effects of the sensitivity tests on profit
after tax and equity incorporate the impact of the stress on the
PVIF.
Due in part to the impact of the cost of guarantees and hedging
strategies, which may be in place, the relationship between the
profit and total equity and the risk factors is non-linear, particularly
in a low interest-rate environment. Therefore, the results disclosed
should not be extrapolated to measure sensitivities to different
levels of stress. For the same reason, the impact of the stress is
not necessarily symmetrical on the upside and downside. The
sensitivities are stated before allowance for management actions,
which may mitigate the effect of changes in the market
environment. The sensitivities presented allow for adverse
changes in policyholder behaviour that may arise in response to
changes in market rates. The differences between the impacts on
profit after tax and equity are driven by the changes in value of the
bonds measured at fair value through other comprehensive
income, which are only accounted for in equity.
Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors
(Audited)
2021
2020
Effect on
profit after tax
Effect on
total equity
Effect on
profit after tax
Effect on
total equity
$m
$m
$m
$m
+100 basis point parallel shift in yield curves
(2)
(142)
(67)
(188)
-100 basis point parallel shift in yield curves
(154)
(9)
(68)
58
10% increase in equity prices
369
369
332
332
10% decrease in equity prices
(377)
(377)
(338)
(338)
10% increase in US dollar exchange rate compared with all currencies
80
80
84
84
10% decrease in US dollar exchange rate compared with all currencies
(80)
(80)
(84)
(84)
Risk
214
HSBC Holdings plc Annual Report and Accounts 2021
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet their obligation under a contract. It arises in two main
areas for our insurance manufacturers:
•risk associated with credit spread volatility and default by debt
security counterparties after investing premiums to generate a
return for policyholders and shareholders; and
•risk of default by reinsurance counterparties and non-
reimbursement for claims made after ceding insurance risk.
The amounts outstanding at the balance sheet date in respect
of these items are shown in the table on page 212.
The credit quality of the reinsurers’ share of liabilities under
insurance contracts is assessed as ‘satisfactory’ or higher (as
defined on page 138), with 100% of the exposure being neither
past due nor impaired (2020: 100%).
Credit risk on assets supporting unit-linked liabilities is
predominantly borne by the policyholder. Therefore, our exposure
is primarily related to liabilities under non-linked insurance and
investment contracts and shareholders’ funds. The credit quality of
insurance financial assets is included in the table on page 155.
The risk associated with credit spread volatility is to a large extent
mitigated by holding debt securities to maturity, and sharing a
degree of credit spread experience with policyholders.
L iquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though
solvent, either does not have sufficient financial resources
available to meet its obligations when they fall due, or can secure
them only at excessive cost.
The following table shows the expected undiscounted cash flows
for insurance liabilities at 31 December 2021. The liquidity risk
exposure is wholly borne by the policyholder in the case of unit-
linked business and is shared with the policyholder for non-linked
insurance.
The profile of the expected maturity of insurance contracts at
31 December 2021 remained comparable with 2020.
The remaining contractual maturity of investment contract
liabilities is included in Note 29 on page 373.
Expected maturity of insurance contract liabilities
(Audited)
Expected cash flows (undiscounted)
Within 1 year
1–5 years
5–15 years
Over 15 years
Total
$m
$m
$m
$m
$m
Unit-linked
1,346
2,605
3,159
2,293
9,403
With DPF and Other contracts
8,803
31,334
51,891
94,168
186,196
At 31 Dec 2021
10,149
33,939
55,050
96,461
195,599
Unit-linked
1,407
3,097
2,976
2,099
9,579
With DPF and Other contracts
8,427
30,156
51,383
75,839
165,805
At 31 Dec 2020
9,834
33,253
54,359
77,938
175,384
HSBC Holdings plc Annual Report and Accounts 2021
215
Insurance underwriting risk
Description and exposure
Insurance underwriting risk is the risk of loss through adverse
experience, in either timing or amount, of insurance underwriting
parameters (non-economic assumptions). These parameters
include mortality, morbidity, longevity, lapse and expense rates.
The principal risk we face is that, over time, the cost of the
contract, including claims and benefits, may exceed the total
amount of premiums and investment income received.
The tables on pages 212 and 213 analyse our life insurance risk
exposures by type of contract and by geographical region.
The insurance risk profile and related exposures remain largely
consistent with those observed at 31 December 2020.
Sensitivities
(Audited)
The following table shows the sensitivity of profit and total equity
to reasonably possible changes in non-economic assumptions
across all our insurance manufacturing subsidiaries.
Mortality and morbidity risk is typically associated with life
insurance contracts. The effect on profit of an increase in mortality
or morbidity depends on the type of business being written.
Sensitivity to lapse rates depends on the type of contracts
being written. For a portfolio of term assurance, an increase in
lapse rates typically has a negative effect on profit due to the loss
of future income on the lapsed policies. However, some contract
lapses have a positive effect on profit due to the existence of
policy surrender charges. We are most sensitive to a change in
lapse rates on unit-linked and universal life contracts.
Expense rate risk is the exposure to a change in the allocated cost
of administering insurance contracts. To the extent that increased
expenses cannot be passed on to policyholders, an increase in
expense rates will have a negative effect on our profits. This risk is
generally greatest for our smaller entities.
Sensitivity analysis
(Audited)
2021
2020
$m
$m
Effect on profit after tax and total equity at 31 Dec
Effect on profit after tax and total equity at 10% increase in mortality and/or morbidity rates
(112)
(93)
Effect on profit after tax and total equity at 10% decrease in mortality and/or morbidity rates
115
98
Effect on profit after tax and total equity at 10% increase in lapse rates
(115)
(111)
Effect on profit after tax and total equity at 10% decrease in lapse rates
129
128
Effect on profit after tax and total equity at 10% increase in expense rates
(108)
(117)
Effect on profit after tax and total equity at 10% decrease in expense rates
107
115
Risk
216
HSBC Holdings plc Annual Report and Accounts 2021
Corporate governance report
The corporate governance report gives details of our Board of
Directors, senior management, and Board committees. It outlines
key aspects of our approach to corporate governance, including
internal control.
It also includes the Directors’ remuneration report, which
explains our policies on remuneration.
Page
Group Chairman's governance statement
218
The Board
220
Senior management
224
How we are governed
227
Board activities during 2021
232
Board and committee effectiveness, performance and accountability
234
Board committees
237
Directors' remuneration report
254
Share capital and other related disclosures
287
Internal control
291
Employees
293
Statement of compliance
295
Directors' responsibility statement
296
We have a comprehensive range of policies and systems in place designed to help ensure that the Group is
well managed, with effective oversight and control.
HSBC Holdings plc Annual Report and Accounts 2021
217
Group Chairman's governance statement
The Board and its committees continued to operate well in a
challenging environment, and focused on enhancing governance
practices.
"Following the launch of the Group’s refreshed purpose, strategy
and values in March, we introduced a 'culture moment' at the
beginning of each Board meeting."
Dear Shareholder
The global health crisis continued into 2021 as a result of the
Covid-19 pandemic. Despite promising developments in relation to
the efficacy of vaccines in combating the virus, there remained
significant restrictions across our markets. It was therefore
important that our governance framework and practices remained
flexible to ensure that the Board could effectively discharge its
duties.
While the Board and its committees have operated well in a virtual
environment, it was unfortunate that we were again unable to
come together physically as a Board. It has been two years since
the full Board was last together in person for a Board meeting,
with five new Directors appointed in that time. I hope to hold in-
person meetings as soon as it is safe to do so, particularly in our
largest markets of Hong Kong and the UK.
We continued our focus on enhancing our governance practices
throughout the year, with key decisions and areas of focus set out
in further detail below.
Board changes
A key aspect of my role as Group Chairman is ensuring that
collectively the Board has the skills, knowledge and experience it
requires. The Nomination & Corporate Governance Committee
retained a keen focus on succession planning during the year. For
further details on its work, see page 237. We are currently in the
process of completing a search for new non-executive Directors to
join our Board, with knowledge and experience of banking and
Asia a priority. The Committee is actively progressing this search
and will provide an update in due course.
There were a number of changes to the Board during 2021, with
Laura Cha, Heidi Miller and Henri de Castries retiring following our
2021 Annual General Meeting ('AGM') in May, and Rachel Duan
and Dame Carolyn Fairbairn appointed with effect from 1
September.
We also recently announced that, in line with our succession
planning and having each served on the Board for six years, Irene
Lee and Pauline van der Meer Mohr would step down from the
Board at the conclusion of our 2022 AGM in April. Irene’s existing
roles on our subsidiary boards in Asia are not impacted by her
retirement from the Holdings Board. On behalf of the Board, I wish
to thank Irene and Pauline for their outstanding dedication and the
enormous contributions they have made to the success of HSBC
during their time on the Board. We wish them both well in their
future endeavours.
Purpose, strategy and values
Following the launch of the Group’s refreshed purpose, strategy
and values in March, we introduced a 'culture moment' at the
beginning of each Board meeting. These discussions have allowed
Board members to share their insights on the culture of the Group,
and have raised awareness of employee and stakeholder
perspectives in the Boardroom. This has supported the Board in
helping to create greater alignment between culture and strategy,
and in driving a tone from the top focused on the Group’s purpose
of opening up a world of opportunity.
Technology governance
Digitise at scale is one of our four strategic pillars and reflects the
increasingly important role that technology plays in delivering for
our customers. It is therefore critical that our governance helps
enable the Board to effectively shape and oversee progress
against our technology strategy. As such, we took the decision to
establish the Technology Governance Working Group at the
beginning of 2021 to determine the most effective approach for
the Board to discharge its responsibilities in relation to technology
strategy and oversight.
The Co-Chairs of the Technology Governance Working Group
presented to the Board in January 2022 on their work during 2021.
In light of the significant role that technology will continue to play
in the Group's strategy, it was recommended that the Technology
Governance Working Group continues to meet throughout 2022.
The Board agreed to continue with the Technology Governance
Working Group in its current format through 2022, but with the
scope extended to include a focus on business execution of the
technology strategy. This will allow for a better understanding of
the progress, challenges involved in implementing the strategy
and the impact on key stakeholders.
Environmental, social and governance
The Board recognises the growing importance of ESG and
oversees the ESG agenda. It was a significant year for the Group in
its efforts to support the transition to net zero – a key pillar of our
overall Group strategy – with the passing of our climate resolution
at our 2021 AGM and the publication of our thermal coal phase-
out policy, being two of the most notable achievements. Given its
significance, the Board has decided to retain responsibility for
development and oversight of our ESG strategy directly, rather
than establishing a specific Board-level committee and we will
include a dedicated item on our agenda for ESG matters. Within
their existing responsibilities, the Group Risk Committee, Group
Audit Committee and Group Remuneration Committee will also
continue to have specific roles to play in overseeing and
supporting the delivery of our ESG objectives.
At the management level, we have asked our team to further
enhance ESG governance, with the introduction of an ESG
Committee, co-chaired by our Group Chief Sustainability Officer,
Celine Herweijer, and our Group Company Secretary and Chief
Governance Officer, Aileen Taylor. This committee will regularly
report to the Board on progress against our ESG ambitions,
climate strategy and related commitments. In February 2022, the
Board also approved the proposal to develop and implement a
sustainability target operating model for the Group. The new
operating model will help ensure that our businesses have the
technical expertise, specialist resources and training to equip and
support them in assisting our clients in their transition to net zero.
For further information on our climate ambition and progress
against our transition to net zero strategic pillar, see page 45.
Board evaluation
We again conducted a review of the effectiveness of the Board
and Board committees, which helps to support the continuous
improvement of the operation of our key governance practices.
Following two successive externally facilitated evaluations, we
took the decision that the 2021 evaluations should be facilitated
internally. The process was led by our Group Company Secretary
and Chief Governance Officer and involved the completion of
online surveys tailored for each Board and committee,
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HSBC Holdings plc Annual Report and Accounts 2021
complemented by individual interviews with Directors and
attendees.
Further details on the progress made against the 2020 findings, as
well as the findings and recommendations from the 2021 review,
can be found on page 235 and in each of the respective
committee reports on pages 237 to 267.
Subsidiary governance
Subsidiary governance remained a key priority, as it has been
since my appointment as Group Chairman, and we continued to
build strong connectivity with our principal subsidiaries. In 2021,
we sought to enhance the standard and consistency of
governance across the Group, with the launch of our refreshed
subsidiary accountability framework. The refreshed framework
makes clear the Group's expectations of subsidiaries in relation to
their governance approach and board practices through
overarching principles and detailed provisions.
A key aspect of the framework is focused on the composition of
our subsidiary boards, with our most significant subsidiaries
required to submit their succession plans to the Nomination &
Corporate Governance Committee through the course of the year.
This provided clarity on plans to refresh and enhance the calibre
and diversity of boards across the Group. Further details are set
out in the Nomination & Corporate Governance Committee report
on page 237.
Given the continued uncertainty externally, we looked to
strengthen the connectivity between the Group and principal
subsidiaries during the year through virtual forums held between
the Board and committee chairs and our counterparts at
subsidiary level. We further supplemented this connectivity with
the introduction of a virtual Non-Executive Director Summit, which
saw all subsidiary non-executive directors invited to come together
to discuss areas of common interest. This was a valuable
opportunity to share and discuss material topics, including
strategy, risk, data, culture, diversity, climate and technology.
Following the success of the summit, we have taken the decision
to make these sessions a part of our annual governance calendar.
Workforce engagement
Various opportunities for members of the Board to engage with
employees have been provided during 2021, including through
partnerships with our employee resource groups and sessions
with members of our global graduate programme. The Board
greatly values the opportunity to engage with employees from
across the business and markets, and of different backgrounds
and seniority. We will continue to prioritise this, along with
interaction with all our key stakeholders, during 2022.
For further details on the arrangements we have in place to
facilitate workforce engagement, see page 233.
2021 Annual General Meeting
The pandemic has continued to pose many challenges for the
Group, as it does for many of our stakeholders. However, the
Group has benefited significantly from the speed at which digital
tools have been adopted since the beginning of the pandemic.
This has also been true of our AGM, where I was delighted to host
our first hybrid AGM, which enabled shareholders globally to
attend virtually, or in person. The use of technology enabled a
broader range of shareholders to attend and participate than had
been the case pre-pandemic.
Further details of our plans for the 2022 AGM, which will be a
hybrid meeting again, will be provided when our Notice of AGM is
published on 25 March 2022.
Looking ahead
Despite the concerns of the Covid-19 pandemic, I am hopeful that
the success of vaccine roll-out will allow us to safely resume in-
person engagement with each other and all stakeholders in the
near future.
On behalf of myself and the Board, many thanks for your
continued commitment and support.
Mark E Tucker
Group Chairman
22 February 202 2
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219
The Board
The Board aims to promote the Group’s long-term
success, deliver sustainable value to shareholders
and promote a culture of openness and debate.
Chairman and executive Directors
Mark E Tucker (64) 4C
Group Chairman
Appointed to the Board: September 2017
Group Chairman since: October 2017
Skills and experience: With over 35 years of experience in
financial services in Asia, Africa, the US and the UK, including 25
years based in Hong Kong, Mark has a deep understanding of the
industry and markets in which we operate.
Career: Mark was most recently Group Chief Executive and
President of AIA Group Limited (‘AIA’), having joined in July 2010.
Prior to AIA he was Group Chief Executive of Prudential plc. He
served on Prudential's Board for nearly 10 years.
Mark previously served as non-executive Director of the Court of
the Bank of England and as an independent non-executive Director
of Goldman Sachs Group.
Other appointments:
•Chair of TheCityUK
•Non-executive Chairman of Discovery Limited
•Supporting Chair of Chapter Zero
•Member of the UK Investment Council
•Co-Chair of the B20 Finance and Infrastructure Task Force
(Indonesia 2022)
•Director, Peterson Institute for International Economics
•Director, Institute of International Finance
•International Adviser to the Hong Kong Academy of Finance
•Asia Society Board of Trustees
Noel Quinn (60)
Group Chief Executive
Appointed to the Board: August 2019
Group Chief Executive since: March 2020
Skills and experience: Having qualified as an accountant in
1987, Noel has more than 30 years of banking and financial
services experience, both in the UK and Asia.
Career: Noel was formally named Group Chief Executive in March
2020, having held the role on an interim basis since August 2019.
He has held various roles across HSBC, or its constituent
companies, since 1987.
Prior to becoming Group Chief Executive, Noel was most recently
CEO, Global Commercial Banking. He has also served as Regional
Head of Commercial Banking for Asia-Pacific; Head of Commercial
Banking UK; Head of Commercial Finance Europe; and Group
Director of Strategy and Development at HSBC Insurance Services
North America.
Other appointments:
•Chair of the Financial Services Task Force of HRH The Prince of
Wales’ Sustainable Market Initiative
•Member of the Principals Group of the Glasgow Financial
Alliance for Net Zero
•Member of the World Economic Forum’s International Business
Council
Ewen Stevenson (55)
Group Chief Financial Officer
Appointed to the Board: January 2019
Skills and experience: Ewen has over 25 years of experience in
the banking industry as an adviser and executive to major banks
and large financial institutions. In addition to his existing
leadership responsibilities for Group Finance, Ewen assumed
responsibility for the oversight of the Group's transformation
programme in February 2021 and the Group’s corporate
development activities in April 2021.
Career: Ewen was Chief Financial Officer at the Royal Bank of
Scotland Group plc from 2014 to 2018. Before this, Ewen spent 25
years with Credit Suisse, where his last role was co-Head of the
EMEA Investment Banking Division and co-Head of the Global
Financial Institutions Group.
Other appointments:
•Director of The Hongkong and Shanghai Banking Corporation
Limited
Board committee membership key
C. Committee Chair
1.Group Audit Committee
2.Group Risk Committee
3.Group Remuneration Committee
4.Nomination & Corporate Governance Committee
For full biographical details of our Board members, see
www.hsbc.com/who-we-are/leadership-and-governance.
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HSBC Holdings plc Annual Report and Accounts 2021
Independent non-executive Directors
Rachel Duan (51) 3,4
Independent non-executive Director
Appointed to the Board: September 2021
Skills and experience: Rachel is a business leader with
exceptional international experience in the US, Japan, mainland
China and Hong Kong.
Career: Rachel spent 24 years at General Electric (‘GE’), most
recently as Senior Vice President of GE, and President and Chief
Executive Officer of GE’s Global Markets, where she was
responsible for driving GE’s growth in Asia-Pacific, the Middle
East, Africa, Latin America, and Russia and the Commonwealth of
Independent States. She has also previously served as President
and Chief Executive Officer of GE Advanced Materials China and
then of the Asia-Pacific, President and CEO of GE Healthcare
China, and President and CEO of GE China.
Other appointments:
•Independent Director of Sanofi S.A.
•Independent Director of AXA S.A.
•Independent Director of the Adecco Group
Dame Carolyn Fairbairn (61) 2,3,4
Independent non-executive Director
Appointed to the Board: September 2021
Skills and experience: Carolyn has significant experience
across the media, government and finance sectors.
Career: An economist by training, Carolyn has served as a
Partner at McKinsey & Company, Director-General of the
Confederation of British Industry, and Group Development and
Strategy Director at ITV plc. She has extensive board experience,
having previously served as non-executive Director of Lloyds
Banking Group plc, the Vitec Group plc and Capita plc. She has
also served as a non-executive Director of the UK Competition and
Markets Authority and the Financial Services Authority.
Other appointments:
•Non-executive Director of BAE Systems plc
James Forese (58) 1,3,4
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: James has over 30 years of
international business and management experience in the finance
industry.
Career: James formerly served as President of Citigroup. He
began his career in securities trading with Salomon Brothers, one
of Citigroup’s predecessor companies, in 1985. In addition to his
most recent role as President, he was Chief Executive Officer of
Citigroup’s Institutional Clients Group. He has also been Chief
Executive of its Securities and Banking division and head of its
Global Markets business.
Other appointments:
•Chair of HSBC North America Holdings Inc
•Non-executive Chairman of Global Bamboo Technologies
•Trustee of Colby College
Steven Guggenheimer (56) 2,4
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: Steven brings extensive insight into
technologies ranging from artificial intelligence to Cloud
computing, through his experience advising businesses on digital
transformation.
Career: Steven has more than 25 years of experience at
Microsoft, where he held a variety of senior leadership roles.
These included: Corporate Vice President, Artificial Intelligence
and Independent Software Vendor Engagement; Corporate Vice
President, Chief Evangelist; and Corporate Vice President, Original
Equipment Manufacturer.
Other appointments:
•Non-executive Director of Forrit Technologies Limited
•Independent Director of Software Acquisition Group
•Adviser to Tensility Venture Partners LLC
•Advisory Board Member of 5G Open Innovation Lab
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221
Irene Lee (68) 4
Independent non-executive Director
Appointed to the Board: July 2015
Skills and experience: Irene has more than 40 years of
experience in the finance industry, having worked in the UK, the
US and Australia.
Career: Irene held senior investment banking and fund
management roles at Citibank, the Commonwealth Bank of
Australia and SealCorp Holdings Limited. She has served as a
member of the Advisory Council for J.P. Morgan Australia, a
member of the Australian Government Takeovers Panel and as a
non-executive Director of QBE Insurance Group Limited, Keybridge
Capital Limited, ING Bank (Australia) Limited, Noble Group
Limited, CLP Holdings Limited and Cathay Pacific Airways Limited.
Other appointments:
•Chair of Hang Seng Bank Limited
•Non-executive Director of the Hongkong and Shanghai Banking
Corporation Limited
•Executive Chair of Hysan Development Company Limited
•Member of the Exchange Fund Advisory Committee of the
Hong Kong Monetary Authority
Dr José Antonio Meade Kuribreña (52) 2,3,4
Independent non-executive Director
Appointed to the Board: March 2019
Skills and experience: José has extensive experience in public
administration, banking, financial policy and foreign affairs.
Career: José has held Cabinet-level positions in the federal
government of Mexico, including as Secretary of Finance and
Public Credit, Secretary of Social Development, Secretary of
Foreign Affairs and Secretary of Energy. Prior to his appointment
to the Cabinet, he served as Undersecretary and as Chief of Staff
in the Ministry of Finance and Public Credit. José is also a former
Director General of Banking and Savings at the Ministry of Finance
and Public Credit, and served as Chief Executive Officer of the
National Bank for Rural Credit.
Other appointments:
•Non-executive Director of Alfa S.A.B. de C.V.
•Non-executive Director of Grupo Comercial Chedraui, S.A.B. de
C.V.
•Board member of The Global Center on Adaptation
•Member of the Independent Task Force on Creative Climate
Action
•Member of the UNICEF Mexico Advisory Board
Eileen Murray (63) 2,4
Independent non-executive Director
Appointed to the Board: July 2020
Skills and experience: Eileen has extensive knowledge in
financial technology and corporate strategy from a career
spanning more than 40 years.
Career: Eileen most recently served as co-Chief Executive Officer
of Bridgewater Associates, LP. Before this, she was Chief
Executive Officer for Investment Risk Management LLC, and
President and co-Chief Executive Officer of Duff Capital Advisors.
Eileen started her professional career at Morgan Stanley, having
held positions including Controller, Treasurer, and Global Head of
Technology and Operations, as well as Chief Operating Officer for
its Institutional Securities Group. At Credit Suisse, she was Head
of Global Technology, Operations and Product Control.
Other appointments:
•Chair of the Financial Industry Regulatory Authority
•Non-executive Director of Guardian Life Insurance Company of
America
•Adviser of Invisible Urban Charging
•Adviser of ConsenSys, Aquarion Company
David Nish (61) 1C,2,4
Independent non-executive Director
Appointed to the Board: May 2016
Senior Independent non-executive Director since: February 2020
Skills and experience: David has international experience in
financial services, corporate governance, financial accounting, and
strategic and operational transformation.
Career: David served as Group Chief Executive Officer of
Standard Life plc between 2010 and 2015, having joined the
company in 2006 as Group Finance Director. He is also a former
Group Finance Director of Scottish Power plc and was a partner at
Price Waterhouse. David has also previously served as a non-
executive Director of HDFC Life (India), Northern Foods plc,
London Stock Exchange Group plc, the UK Green Investment Bank
plc and Zurich Insurance Group.
Other appointments:
•Non-executive Director of Vodafone Group plc
•Honorary Professor of Dundee University Business School
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Jackson Tai (71) 1,2C,4
Independent non-executive Director
Appointed to the Board: September 2016
Skills and experience: Jackson has held senior operating and
governance roles across Asia, North America and Europe.
Career: Jackson was Vice Chairman and Chief Executive Officer
of DBS Group and DBS Bank Ltd., having served as Chief Financial
Officer and then as President and Chief Operating Officer. He
worked for 25 years with J.P. Morgan & Co. Incorporated, holding
roles as Chairman of Asia-Pacific Management Committee and
Head of Japan Capital Markets. Other former appointments
included non-executive Director of Canada Pension Plan
Investment Board, Royal Philips N.V., Bank of China Limited,
Singapore Airlines, NYSE Euronext, ING Groep N.V., CapitaLand
Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. He also served as
Vice Chairman of Islamic Bank of Asia.
Other appointments:
•Non-executive Director of Eli Lilly and Company
•Non-executive Director of MasterCard Incorporated
Pauline van der Meer Mohr (62) 1,3C,4
Independent non-executive Director
Appointed to the Board: September 2015
Skills and experience: Pauline has extensive legal, corporate
governance and human resources experience across a number of
different sectors.
Career: Pauline served on the Supervisory Board of ASML
Holding N.V. between 2009 and 2018. She was also Deputy Chair
of the Supervisory Board of Royal DSM N.V. from 2018 to 2021,
while also chairing its Sustainability Committee. Pauline was
formerly President of Erasmus University Rotterdam, a member of
the Dutch Banking Code Monitoring Commission, and a Senior
Vice President and Head of Group Human Resources Director at
ABN AMRO Bank N.V. and TNT N.V. She also held various
executive roles at the Royal Dutch Shell Group. Pauline also
chaired the Group’s former Conduct and Values Committee.
Other appointments:
•Chair of the Dutch Corporate Governance Code Monitoring
Committee
•Chair of the Supervisory Board of EY Netherlands LLP
•Member of the Selection and Nomination Committee of the
Supreme Court of the Netherlands
•Member of the Capital Markets Committee of the Dutch
Authority for Financial Markets
•Non-executive Director of Viatris, Inc.
•Chair of the ASM International NV Supervisory Board
Aileen Taylor (49)
Group Company Secretary and Chief Governance
Officer
Appointed: November 2019
Skills and experience: Aileen is a solicitor with significant
governance and regulatory experience across various roles in the
banking industry. She is a member of the European Corporate
Governance Council, the GC100 and the Financial Conduct
Authority's Listing Authority Advisory Panel.
Career: Prior to joining HSBC, Aileen spent 19 years at the Royal
Bank of Scotland Group, holding various legal, risk and
compliance roles. She was appointed Group Secretary in 2010 and
subsequently Chief Governance Officer and Board Counsel.
Former Directors who served for part of the year
Heidi Miller
Heidi Miller retired from the Board on 28 May 2021.
Henri de Castries
Henri de Castries retired from the Board on 28 May 2021.
Laura Cha, GBM
Laura Cha, GBM retired from the Board on 28 May 2021.
For full biographical details of our Board members, see
www.hsbc.com/who-we-are/leadership-and-governance.
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223
Senior management
Senior management, which includes the Group
Executive Committee, supports the Group Chief
Executive in the day-to-day management of the
business and the implementation of strategy.
Elaine Arden, 53
Group Chief Human Resources Officer
Elaine joined HSBC as Group Chief Human Resources Officer in
June 2017. Prior to joining HSBC, she was Group Human
Resources Director at Royal Bank of Scotland Group for six years.
She has held a number of human resources and employee
relations roles in financial services, including Clydesdale Bank and
Direct Line Group. Elaine is a member of the Chartered Institute of
Personnel and Development, and a fellow of the Chartered
Institute of Banking in Scotland.
Chira Barua, 48
Global Head of Strategy
Chira joined HSBC in May 2020 as Global Head of Strategy and
was appointed to the Group Executive Committee in April 2021.
Before joining HSBC, he was a partner at McKinsey & Company in
its financial services practice and a managing director at Sanford
C. Bernstein between 2011 and 2017. Earlier in his career, Chira
held a number of strategy, management and operational roles at
Standard Chartered and Citigroup in India.
Colin Bell, 54
Chief Executive Officer, HSBC Bank plc and HSBC Europe
Colin joined HSBC in July 2016 and was appointed Chief Executive
Officer, HSBC Bank plc and HSBC Europe in February 2021. He
previously held the role of Group Chief Compliance Officer. Before
HSBC, Colin worked at UBS as Global Head of Compliance and
Operational Risk Control. He served for 16 years in the British
Army, having held a variety of command and staff positions,
including within operational tours of Iraq and Northern Ireland, the
Ministry of Defence and NATO.
Jonathan Calvert-Davies, 53
Group Head of Internal Audit
Jonathan is a standing attendee of the Group Executive
Committee, having joined HSBC as Group Head of Internal Audit
in October 2019. He has 30 years of experience providing
assurance, audit and advisory services to the banking and
securities industries in the UK, the US and Europe. Jonathan's
previous roles included leading KPMG UK’s financial services
internal audit services practice and PwC's UK internal audit
services practice. He has also served as interim Group Head of
Internal Audit at the Royal Bank of Scotland Group.
Georges Elhedery, 47
Co-Chief Executive Officer, Global Banking and Markets
Georges joined HSBC in 2005 and was appointed co-Chief
Executive Officer of Global Banking and Markets in March 2020.
He is also head of the Markets and Securities Services division of
the business, with responsibility for its strategic direction in more
than 55 countries and territories. Georges previously served as
Head of Global Markets; Chief Executive Officer for HSBC, Middle
East, North Africa and Turkey; Head of Global Banking and
Markets, MENA; and Regional Head of Global Markets, MENA.
Georges will be on sabbatical leave between March and
September 2022.
Greg Guyett, 58
Co-Chief Executive Officer, Global Banking and Markets
Greg joined HSBC in October 2018 as Head of Global Banking and
became co-Chief Executive Officer of Global Banking and Markets
in March 2020. Greg will assume sole responsibility of the
business while Georges Elhedery is on sabbatical leave between
March and September 2022. Before joining HSBC, he was
President and Chief Operating Officer of East West Bank. Greg
began his career as an investment banker at J.P. Morgan, where
positions included: Chief Executive Officer for Greater China; Chief
Executive Officer, Global Corporate Bank; Head of Investment
Banking for Asia-Pacific; and Co-Head of Banking Asia-Pacific.
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Dr Celine Herweijer, 44
Group Chief Sustainability Officer
Celine joined HSBC as Group Chief Sustainability Officer in July
2021, and is responsible for the Group’s sustainability agenda
including its ambition to transition to net zero. She previously
worked as a partner at PwC for over a decade, where she held
global leadership roles including acting as its global innovation
and sustainability leader. Before joining PwC, Celine worked as
Director of Climate Change and Consulting for Risk Management
Solutions. She is a World Economic Forum Young Global Leader, a
co-chair of the We Mean Business Coalition, a PhD climate
scientist and a NASA fellow by training.
John Hinshaw, 51
Group Chief Operating Officer
John became Group Chief Operating Officer in February 2020,
having joined HSBC in December 2019. He has an extensive
background in transforming organisations across a range of
industries. Most recently, John served as Executive Vice President
of Hewlett Packard and Hewlett Packard Enterprise, where he
managed technology and operations and was Chief Customer
Officer. He also held senior roles at Boeing and Verizon and served
on the Board of Directors of BNY Mellon, DocuSign and the US
National Academy Foundation.
Bob Hoyt, 57
Group Chief Legal Officer
Bob joined HSBC as Group Chief Legal Officer in January 2021. He
was most recently Group General Counsel at Barclays from 2013
to 2020. Prior to that he was General Counsel and Chief
Regulatory Affairs Officer for The PNC Financial Services Group.
Bob has served as General Counsel and senior policy adviser to
the US Department of the Treasury under Secretary Paulson, and
as Special Assistant and Associate Counsel to the White House
under President George W. Bush.
Steve John, 48
Group Chief Communications Officer
Steve was appointed as Group Chief Communications Officer in
December 2019 and appointed to the Group Executive Committee
in April 2021. He has a wealth of senior communications, public
policy and leadership experience acquired across a number of
multinational and charitable organisations. Prior to joining HSBC,
Steve was a partner and Global Director of Communications at
McKinsey & Company from 2014 to 2019. He has also held roles
with Bupa as Global Director of Communications and PepsiCo as
Director of Corporate Affairs for their UK and Ireland franchises.
Pam Kaur, 58
Group Chief Risk and Compliance Officer
Pam was appointed Group Chief Risk and Compliance Officer in
July 2021, having held the role of Group Risk Officer since January
2020. She joined HSBC in 2013 and was previously Group Head of
Internal Audit, Head of Wholesale Market and Credit Risk, and
Chair of the enterprise-wide non-financial risk forum. Pam has also
held a variety of audit and compliance roles in the banking
industry, including with Deutsche Bank, Royal Bank of Scotland
Group, Lloyds TSB and Citigroup. She serves as a non-executive
Director of Centrica plc.
David Liao, 49
Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking
Corporation Limited
David was appointed co-Chief Executive Officer of the Asia-Pacific
region in June 2021. He is a Director of the Hongkong and
Shanghai Banking Corporation Limited, Bank of Communications
Co., Limited, Hang Seng Bank Limited and HSBC Global Asset
Management Limited. David joined HSBC in 1997, with previous
roles including: Head of Global Banking Coverage for Asia-Pacific;
President and Chief Executive at HSBC China; Head of Global
Banking and Markets at HSBC China; and Treasurer and Head of
Global Markets at HSBC China.
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225
Nuno Matos, 54
Chief Executive Officer, Wealth and Personal Banking
Nuno joined HSBC in 2015 and was appointed Chief Executive
Officer of Wealth and Personal Banking in February 2021. He is a
Director of HSBC Global Asset Management Limited. He was
previously the Chief Executive Officer of HSBC Bank plc and HSBC
Europe, a role he held from March 2020. Nuno has also served as
Chief Executive Officer of HSBC Mexico, and as regional head of
Retail Banking and Wealth Management in Latin America. Before
joining HSBC, he held senior positions at Santander Group.
Stephen Moss, 55
Regional Chief Executive Officer – Middle East. North Africa and Turkey
Stephen was appointed Regional Chief Executive Officer for the
Middle East, North Africa and Turkey in April 2021. He has held a
series of roles since joining HSBC in 1992, including as Chief of
Staff to the Group Chief Executive and overseeing the Group’s
mergers and acquisitions, and strategy and planning activities.
Stephen is a Director of The Saudi British Bank, HSBC Bank
Middle East Limited, HSBC Middle East Holdings B.V, HSBC Bank
Egypt S.A.E and HSBC Saudi Arabia.
Barry O'Byrne, 46
Chief Executive Officer, Global Commercial Banking
Barry joined HSBC in April 2017 and was appointed Chief
Executive Officer of Global Commercial Banking in February 2020,
having served in the role on an interim basis since August 2019.
He was previously Chief Operating Officer for Global Commercial
Banking. Before joining HSBC, Barry worked at GE Capital for 19
years in a number of senior leadership roles, including as Chief
Executive Officer and Chief Operating Officer for GE Capital
International.
Michael Roberts, 61
Chief Executive Officer, HSBC USA and Americas
Michael was appointed Chief Executive Officer for HSBC USA and
the Americas with oversight responsibility for Canada and Latin
America in April 2021. He joined HSBC in October 2019 and is a
Director of HSBC Bank Canada; executive Director, President and
Chief Executive Officer of HSBC North America Holdings Inc.; and
Chairman of HSBC Bank USA, N.A. and HSBC USA Inc.
Previously, Michael spent 33 years at Citigroup in a number of
senior leadership roles, most recently as Global Head of Corporate
Banking and Capital Management and Chief Lending Officer.
Surendra Rosha, 53
Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking
Corporation Limited
Surendra was appointed co-Chief Executive Officer of the Asia-
Pacific region in June 2021. He is a Director of The Hongkong and
Shanghai Banking Corporation Limited and HSBC Bank Australia
Limited. Surendra joined HSBC in 1991 and has held several senior
positions within Global Banking and Markets, including as Head of
Global Markets in Indonesia and Head of Institutional Sales, Asia-
Pacific. He was Chief Executive for HSBC India and Head of
HSBC’s financial institutions group for Asia-Pacific.
John David Stuart (known as Ian Stuart), 58
Chief Executive Officer, HSBC UK Bank plc
Ian has been Chief Executive Officer of HSBC UK Bank plc since
April 2017 and has worked in financial services for over four
decades. He joined HSBC as Head of Commercial Banking Europe
in 2014, having previously led the corporate and business banking
businesses at Barclays and NatWest. He started his career at Bank
of Scotland. Ian is a business ambassador for Meningitis Now and
a member of the Economic Crime Strategic Board.
Additional members of the Group Executive Committee
Noel Quinn
Ewen Stevenson
Aileen Taylor
Biographies are provided on pages 220 and 223.
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How we are governed
We are committed to high standards of corporate governance. The
Group has a comprehensive range of policies and procedures in
place designed to help ensure that it is well managed, with
effective oversight and controls. We comply with the UK
Corporate Governance Code and the applicable requirements of
the Hong Kong Corporate Governance Code.
Board’s role, Directors’ responsibilities and
meeting attendance
The Board, led by the Group Chairman, is responsible among other
matters for:
•promoting the Group’s long-term success and delivering
sustainable value to shareholders;
•establishing and approving the Group’s strategy and objectives,
and monitoring the alignment of the Group’s purpose, strategy
and values with the desired culture;
•setting the Group’s risk appetite and monitoring the Group’s
risk profile;
•approving and monitoring capital and operating plans for
achieving strategic objectives;
•approving material transactions;
•approving the appointment of Directors, including Board roles;
and
•reviewing the Group's overall corporate governance
arrangements.
The Board's terms of reference are available on our website at
www.hsbc.com/who-we-are/leadership-and-governance/board-
responsibilities. The Board's powers are subject to relevant laws,
regulations and HSBC’s articles of association.
The role of the independent non-executive Directors is to support
the development of proposals on strategy, hold management to
account and ensure the executive Directors are discharging their
responsibilities properly, while creating the right culture to
encourage constructive challenge. Further details on the
independence of the Board and the value independence brings can
be found in the Nomination & Corporate Governance Committee
report. Non-executive Directors also review the performance of
management in meeting agreed goals and objectives. The Group
Chairman meets with the non-executive Directors without the
executive Directors in attendance after Board meetings and
otherwise, as necessary.
The roles of Group Chairman and Group Chief Executive are
separate. There is a clear division of responsibilities between the
leadership of the Board by the Group Chairman, and the executive
responsibility for day-to-day management of HSBC’s business,
which is undertaken by the Group Chief Executive.
The majority of Board members are independent non-executive
Directors. At 31 December 2021, the Board comprised the Group
Chairman, 10 non-executive Directors, and two executive
Directors who are the Group Chief Executive and the Group Chief
Financial Officer. Two non-executive Directors will not stand for
re-election at the AGM in April 2022.
For further details of the Board’s career background, skills,
experience and external appointments, see pages 220 to 223.
Operation of the Board
The Board is ordinarily scheduled to meet at least seven times a
year. In 2021, the Board held 12 meetings. For further details on
attendance at those meetings, see page 228. The Board agenda is
agreed by the Group Chairman, working with both the Group Chief
Executive and the Group Company Secretary and Chief
Governance Officer. For more information, see 'Board activities
during 2021' on page 232.
The Group Company Secretary and Chief Governance Officer, the
Group Chief Risk and Compliance Officer, the Group Chief Legal
Officer and the non-executive Chairman of The Hongkong and
Shanghai Banking Corporation Limited are all regular attendees at
Board meetings. Other senior executives attend Board meetings as
required.
In addition to formal Board meetings, the Board Oversight Sub-
Group, established by the Group Chairman in 2020, meets in
advance of each Board meeting. Such meetings are an informal
mechanism for a smaller group of Board members and
management to discuss emerging issues and upcoming Board
matters. Standing attendees comprise the Group Chairman, the
Chair of the Group Audit Committee (who is also the Senior
Independent Director), the Chair of the Group Risk Committee, the
Group Chief Executive, the Group Chief Financial Officer, the
Group Chief Risk and Compliance Officer, and the Group Company
Secretary and Chief Governance Officer. Other non-executive
Directors and management are invited on a rotational basis,
depending on the subject to be discussed. The forum is not
decision making but provides regular opportunities for Board
members to communicate with senior management to deepen
their understanding of, and provide input into, key issues facing
the Group. For further details on how the Board engages with the
wider workforce, see page 233.
Board governance enhancements due to Covid-19
The Board continued many of the governance changes
introduced in 2020 in response to the Covid-19 pandemic,
including meeting online during 2021. The Board was kept
informed of the continuing challenges and priorities of the
management team as part of the formal executive reporting
received at these meetings. The following practices continued:
•The Group Chairman prepared a weekly Board update note.
•The Group Chief Risk and Compliance Officer produced a
weekly Board report on risk matters, including in relation to the
Covid-19 pandemic, as well as market highlights, industry
events and results.
•Immunologists and pandemic experts updated the Board on
emerging issues.
•The Group Chairman's Forum was held monthly. It was
attended by Board committee chairs, as well as chairs of
principal subsidiaries.
Technology governance
A Technology Governance Working Group was established in
2021, initially for a period of 12 months, to provide
recommendations to enhance the Board's oversight of
technology strategy, governance and emerging risks, and to
enhance connectivity with the principal subsidiaries. Given their
industry expertise and experience, the working group is jointly
chaired by Eileen Murray and Steven Guggenheimer. Its
members include Group Risk Committee chair Jackson Tai and
other non-executive Directors representing each of our US, UK,
European and Asian principal subsidiaries. Key technology and
business stakeholders have attended the working group to
provide insights on technology and information security issues
across the Group. The working group has met formally eight
times since its inception, and has held additional ad hoc sessions
on priority strategic topics including data and cybersecurity. The
Technology Governance Working Group's recommendations
were presented to the Board in January 2022 when it was
decided that the working group will remain an informal
committee of the Board. For further details on the future of the
working group, see the Group Chairman's governance statement
on page 218.
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227
Board engagement with shareholders
In 2021, the Group Chairman, Senior Independent Director and
other non-executive Directors, often with the Group Company
Secretary and Chief Governance Officer, engaged with a number
of our large institutional investors in 15 meetings. The Group
Chief Executive and the Group Chief Financial Officer attended
over 30 meetings with investors in 2021. Key topics included our
financial performance, climate policies and progress in relation
to the climate resolution passed at the 2021 AGM. Other topics
discussed with investors included geopolitical tensions, primarily
relating to Hong Kong, mainland China, the US and the UK, as
well as Board composition, changes to the Group Executive
Committee, and the impact of the Covid-19 pandemic on the
Group, its employees, customers and communities.
The Group Remuneration Committee Chair met with
representatives from key investors and proxy advisory firms
numerous times during the fourth quarter of 2021, in preparation
for its discussion and decision making on the 2021 executive
Directors' performance outcomes and the renewal of the 2022
Directors' remuneration policy.
Board roles, responsibilities and meeting attendance
The table below sets out the Board members' respective roles, responsibilities and attendance at Board meetings and the AGM in 2021.
For a full description of responsibilities, see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Roles
Board
attendance
in 2021
Responsibilities
Group Chairman
Mark E Tucker 1,2
12/12
•Provides effective leadership of the Board and promotes the highest standards of corporate governance
practices.
•Leads the Board in providing strong strategic oversight and setting the Board’s agenda, culture and
values.
•Leads the Board in challenging management’s thinking and proposals, and fosters open and
constructive debate among Directors.
•Maintains external relationships with key stakeholders and communicates investors' views to the Board.
•Organises periodic monitoring and evaluation, including externally facilitated evaluation, of the
performance of the Board, its committees and individual Directors.
Executive Director
Group Chief Executive
Noel Quinn 2
12/12
•Leads and directs the implementation of the Group’s business strategy, embedding the organisation’s
culture and values.
•Leads the Group Executive Committee with responsibility for the day-to-day operations of the Group,
under authority delegated to him from the Board.
•Maintains relationships with key internal and external stakeholders including the Group Chairman, the
Board, regulators, governments and investors.
Executive Director
Chief Financial Officer
Ewen Stevenson 2
12/12
•Supports the Group Chief Executive in developing and implementing the Group strategy and
recommends the annual budget and long-term strategic and financial plan.
•Leads the Finance function and is responsible for effective financial reporting, including the
effectiveness of the processes and controls, to ensure the financial control framework is robust and fit
for purpose.
•Maintains relationships with key stakeholders including shareholders.
Non-executive Directors
Senior Independent
Director
David Nish 2,3
12/12
•Supports the Group Chairman, acting as intermediary for non-executive Directors when necessary.
•Leads the non-executive Directors in the oversight of the Group Chairman, supporting the clear division
of responsibility between the Group Chairman and the Group Chief Executive.
•Listens to shareholders' views if they have concerns that cannot be resolved through the normal
channels.
Laura Cha 2,3,4
6/6
•Develop and approve the Group strategy.
•Challenge and oversee the performance of management.
•Approve the Group’s risk appetite and review risk profile and performance.
Henri de Castries 2,3,4,6
5/6
Rachel Duan 3,5
4/4
Dame Carolyn Fairbairn 3,5
4/4
James Forese 2,3
12/12
Steven Guggenheimer 2,3
12/12
Irene Lee 2,3
12/12
Dr José Antonio Meade
Kuribreña 2,3
12/12
Heidi Miller 2,3,4
6/6
Eileen Murray 2,3.6
9/12
Jackson Tai 2,3
12/12
Pauline van der Meer Mohr 2,3
12/12
Group Company Secretary
and Chief Governance
Officer
Aileen Taylor
•Maintains strong and consistent governance practices at Board level and throughout the Group.
•Supports the Group Chairman in ensuring effective functioning of the Board and its committees, and
transparent engagement between senior management and non-executive Directors.
•Facilitates induction and professional development of non-executive Directors.
•Advises and supports the Board and management in ensuring effective end-to-end governance and
decision making across the Group.
1 The non-executive Group Chairman was considered to be independent on appointment.
2 Attended the AGM on 28 May 2021.
3 Independent non-executive Director. All of the non-executive Directors are considered to be independent of HSBC. There are no relationships or
circumstances that are likely to affect any individual non-executive Director’s judgement. All non-executive Directors have confirmed their
independence during the year.
4 Heidi Miller, Laura Cha and Henri de Castries retired from the Board on 28 May 2021.
5 Rachel Duan and Dame Carolyn Fairbairn joined the Board effective 1 September 2021.
6 Henri de Castries was unable to attend one Board meeting due to a conflict of interest. Eileen Murray was unable to attend meetings in the last
few months of 2021 due to personal health reasons, but was kept informed of Board and relevant committee matters. She was fully briefed ahead
of her return to regular meeting attendance in January 2022. Eileen continues to have sufficient time to dedicate to her role with HSBC.
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Board induction and training
The Group Company Secretary and Chief Governance Officer
works with the Group Chairman to oversee appropriate induction
and ongoing training programmes for the Board. On appointment,
new Board members are provided with tailored and
comprehensive induction programmes to fit with their individual
experiences and needs, including the process for dealing with
conflicts.
The induction programme is delivered through formal briefings
and introductory sessions with Board members, senior
management, legal counsel, auditors, tax advisers and regulators,
as appropriate. Topics covered include, but are not limited to:
purpose and values; culture and leadership; governance and
stakeholder management; Directors' legal and regulatory duties;
recovery and resolution risk; anti-money laundering and anti-
bribery; technical and business briefings; and strategy.
An early focus on induction allows a new Board member to
contribute meaningfully from appointment. The structure of the
induction supports good information flows within the Board and
its committees, as well as between senior management and non-
executive Directors, providing a clear understanding of our culture
and way of operating.
During 2021 we welcomed two new non-executive Directors,
Rachel Duan and Dame Carolyn Fairbairn, to our Board. We gave
careful consideration to creating relevant and bespoke induction
programmes for each of the new non-executive Directors,
particularly given their differing geographical locations and the
continuing Covid-19-related challenges for meetings in person. For
illustrations of the typical induction modules, see the 'Directors'
induction and ongoing development in 2021' table on the
following page.
Non-executive Directors continued to engage with each other
through virtual meetings amid continuing Covid-19-related travel
restrictions. We continue to plan and look forward to opportunities
to facilitate safe and comprehensive person-to-person
engagement, both in and out of Board meetings. These
opportunities provide invaluable insight and understanding of our
business, customers, culture and people.
Directors undertook routine training during 2021. They also
participated in 'deep dive' sessions into specific areas of the
Group’s strategic priorities, risk appetite and approach to
managing certain risks. These training sessions included external
consultants who provided insights into geopolitical matters,
macroeconomics and investor sentiments. Other topics of focus
included: operations and technology strategy; the resolvability
assessment framework; and climate change and sustainability.
Non-executive Directors also discussed individual development
areas with the Group Chairman during performance reviews and in
conversations with the Group Company Secretary and Chief
Governance Officer. The Group Company Secretary and Chief
Governance Officer makes appropriate arrangements for any
additional training needs identified using internal resources, or
otherwise, at HSBC’s expense.
Members of Board committees receive relevant training as
appropriate. Directors may take independent professional advice
at HSBC’s expense.
Board Directors who serve on principal subsidiary boards also
receive training relevant to those boards. Opportunities exist for
the principal subsidiary and principal subsidiary committee chairs
to share their understanding in specific areas with the Board
Directors. During 2021, the Group Chairman hosted a Non-
Executive Director Summit where 200 independent non-executive
directors from the Group's subsidiaries attended a virtual session
along with Board Directors. They received updates and training on
Group-wide matters including climate change, technology, culture
and the launch of the newly developed Non-Executive Director
Handbook. Following its success, further Non-Executive Director
Summits will take place during 2022.
Q&A with Rachel Duan
Q: What is your impression and experience of the onboarding
process for HSBC?
From the very start of the process I was impressed at the level of
attention given to my induction programme. Care was taken to tailor
my meetings and the information provided so that it was relevant for
me and thereby ensured a smooth, efficient and thoughtful process.
Q: How have you managed to get insight into the wider Group
governance?
Before my joining date I was afforded many opportunities to meet
colleagues, both virtually and physically. Shortly after joining, I visited
our Hong Kong office to meet, among others, Peter Wong, non-
executive chairman of The Hongkong and Shanghai Banking
Corporation Limited. This gave me the chance to gain insight into
governance matters in Asia. In July 2021, I was invited to attend the
Non-Executive Director Summit, which was a great introduction into
the Group's and its subsidiaries' governance matters. These
engagements highlighted key areas of focus for HSBC and provided
clear insight into the Group's way of working.
Q: How prepared did you feel for the first Board meeting in
September?
My tailored engagements and bespoke briefings started shortly after
the announcement of my intention to join the HSBC Board in March,
all of which helped me get my arms around this complex
organisation and made me feel included and ready to execute my role
in the boardroom with ease.
Q&A with Dame Carolyn Fairbairn
Q: How have you got an understanding of the Board's focus on
culture?
The culture at HSBC is thoughtful and inclusive. I could see from the
carefully planned induction meetings which were arranged well
ahead of my joining. I have been introduced to two employee
resource groups: Ability, the disability and mental health network,
and Embrace, an ethnicity network, and value the opportunity to
support them. Also, the Board opens every meeting with a ‘culture
moment’, which really demonstrates how it connects closely with the
corporate values, and openly expresses how these are observed.
Q: What has been your experience of preparing for membership of
the Group Remuneration Committee and the Group Risk Committee?
Before I joined, I engaged closely with the committees' chairs, as well
as senior management, to understand their priorities, including a new
remuneration policy for the 2022 AGM and the climate agenda. I
remain actively engaged with the members to ensure a smooth
transition onto these committees.
Q: Did your attendance at the 2021 AGM give you a better
understanding of the Group's business?
Attending the 2021 AGM, ahead of my official appointment to the
Board, enabled me to witness HSBC’s first hybrid meeting with
shareholders. I was pleased to see that the company’s planning
enabled as many shareholders as possible to participate in this
annual event, despite the persistent Covid-19 pandemic challenges,
demonstrating HSBC's inclusive culture. The questions from
shareholders were insightful and gave me a good sense of what was
top of investors’ minds and how the company was responding to
such concerns, particularly on the climate agenda.
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229
Directors’ induction and ongoing development in 2021
Director
Induction 1
Strategy and
business
briefings 2
Risk and
control 3
Corporate
governance, ESG
and other
reporting
matters 4
Board and global
mandatory
training 5
Chair and
subsidiary non-
executive
Director forums 6
Rachel Duan
l
l
l
l
l
l
Dame Carolyn Fairbairn
l
l
l
l
l
l
James Forese
ô
l
l
l
l
l
Steven Guggenheimer
ô
l
l
l
l
l
Irene Lee
ô
l
l
l
l
l
José Antonio Meade Kuribreña
ô
l
l
l
l
l
Eileen Murray
ô
l
l
l
l
l
David Nish
ô
l
l
l
l
l
Noel Quinn
ô
l
l
l
l
l
Ewen Stevenson
ô
l
l
l
l
l
Jackson Tai
ô
l
l
l
l
l
Mark Tucker
ô
l
l
l
l
l
Pauline van der Meer Mohr
ô
l
l
l
l
l
1 The induction programme was delivered through formal briefings and introductory sessions with Board members, senior management, legal
counsel, auditors, tax advisers and regulators, as appropriate. Topics covered included, but were not limited to: purpose and values; culture and
leadership; governance and stakeholder management; Directors’ legal and regulatory duties; recovery and resolution risk; anti-money laundering
and anti-bribery; technical and business briefings; and strategy.
2 Directors participated in business strategy, market development and business briefings, which are global, regional and/or market-specific.
Examples of specific sessions held in 2021 included: 'US strategy: restructuring of the operating model' and 'Climate change: becoming net zero
by 2050'.
3 Directors received risk and control training. Examples of specific sessions held in 2021 included: 'Stress testing' and 'ICAAP/ILAAP'.
4 All Directors received training on topics such as: 'Resolvability assessment framework', 'Climate and sustainable finance' and 'IFRS 17'.
5 Global mandatory training, issued to all Directors, mirrored training undertaken by all employees, including senior management. This included:
management of risk under the enterprise risk management framework, with a focus on operational risk; cybersecurity risk; health, safety and well-
being; data privacy and the protection of data of our customers and colleagues; combating financial crime, including understanding money
laundering, sanctions, fraud and bribery and corruption risks; and our values and conduct, including workplace harassment and speaking up.
6 Chairman's Forum, Remuneration Committee Chairs' Forum and the Non-Executive Director Summit.
Board committees and working groups
The Board delegates oversight of certain audit, risk, remuneration,
nomination and governance matters to its committees. Each
standing Board committee is chaired by a non-executive Board
member and has a remit to cover specific topics in accordance
with their respective terms of reference. Only independent non-
executive Directors are members of Board committees. Details of
the work carried out by each of the Board committees can be
found in the respective committee reports from page 237.
In addition to the Board committees, working groups are
established to enhance Board governance. The Technology
Governance Working Group was first convened in March 2021 to
enhance the Board's oversight of technology strategy, governance
and emerging risks, and to enhance connectivity with the principal
subsidiaries. The working group will continue in 2022 but will
remain a working group, not a formal committee of the Board. For
further details, see page 227.
The Board Oversight Sub-Group is also part of the group operating
rhythm ahead of Board meetings. As described on page 227, this
group offers the Board and senior management an informal forum
to discuss key matters before they are considered by the Board.
In addition, the Chairman’s Committee is convened to provide
flexibility for the Board to consider ad hoc Board and routine
matters between scheduled Board meetings. All Board members
are invited to attend all Chairman's Committees.
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Relationship between Board and senior management
The Board delegates day-to-day management of the business and
implementation of strategy to the Group Chief Executive. The
Group Chief Executive is supported in his management of the
Group by recommendations and advice from the Group Executive
Committee ('GEC'), an executive forum comprising members of
senior management that include chief executive officers of the
global businesses, regional chief executive officers and functional
heads.
The Directors are encouraged to have contact with management
at all levels, and have full access to all relevant information. Non-
executive Directors are encouraged to visit local business
operations and meet local management when they attend off-site
Board meetings and when travelling for other reasons but only
when it is safe to do so. While there were limited physical
opportunities for Board members to meet in 2021, there were
several virtual meetings with senior executives including induction
meetings and subject matter 'deep dives', as well as regular
working meetings.
Connectivity between management and the Board is further
facilitated through informal discussion held as required on an ad
hoc basis, and as part of the Board Oversight Sub-Group
meetings.
Executive governance
The Group’s executive governance is underpinned by the Group
operating rhythm, which helps facilitate end-to-end governance
between senior leadership and the Board, and sets out the Board
and executive engagement schedule.
The Group operating rhythm is characterised by three pillars:
•The GEC normally meets every week to discuss current and
emerging issues.
•On a monthly basis, the GEC reviews the performance of
global businesses, principal geographical areas and legal
entities. These performance reviews are supplemented by
operating unit performance review meetings between the
Group Chief Financial Officer and each of the chief executive
officers of the global businesses, principal geographical areas
and legal entities on an individual basis. The Group Chief
Executive and Group Risk and Compliance Officer have
standing invitations to these meetings.
•The GEC holds a strategy and governance meeting two weeks
in advance of each Board meeting.
Separate committees have been established to provide specialist
oversight for matters delegated to the Group Chief Executive and
senior management, in keeping with their responsibilities under
the Senior Managers and Certification Regime. Some of these
committees are dedicated sub-committees of the GEC, including
the new ESG Committee, the Transformation Oversight Executive
Committee and the Acquisitions and Disposals Committee, and
all committees together support and facilitate collective decision
taking and individual accountabilities. These committees support
the Group Chief Executive and GEC members in areas such as
capital and liquidity, risk management, disclosure and financial
reporting, restructuring and investment considerations,
transformation programmes, ESG matters and talent and
development.
In addition to our regional company secretaries supporting our
principal subsidiaries, we have corporate governance officers
supporting our global businesses and our larger global functions
to assist in effective end-to-end governance, consistency and
connectivity.
Subsidiary governance
Certain subsidiaries are formally designated as principal
subsidiaries by approval of the Board. In addition to their
obligations under their respective local laws and regulation,
principal subsidiaries have an important role in supporting
effective and high standards of governance across the Group.
The designated principal subsidiaries are:
Principal subsidiary
Oversight responsibility
The Hongkong and Shanghai
Banking Corporation Limited
Asia-Pacific
HSBC Bank plc
Europe, Bermuda (excluding
Switzerland and UK ring-fenced
activities)
HSBC UK Bank plc
UK ring-fenced bank and its
subsidiaries
HSBC Middle East Holdings BV
Middle East and North Africa
HSBC North America Holdings Inc.
US
HSBC Latin America Holdings (UK)
Limited
Mexico and Latin America
HSBC Bank Canada
Canada
In general, principal subsidiaries are responsible for overseeing the
implementation of the subsidiary accountability framework for
Group companies in the region for which they are responsible. The
subsidiary accountability framework, approved in 2020, and
refreshed by the Board in 2021, set out to improve
communications and connectivity between the Group and its
subsidiaries. It is subject to regular review and is occasionally
updated to improve how the respective roles of principal
subsidiaries and other subsidiaries are articulated. This helps to
provide the Group with a shared understanding and a consistent
approach towards its strategic objectives, culture and values and
furthers the efforts to streamline and align corporate governance.
The Group Chairman interacts regularly with the chairs of the
principal subsidiaries, including through the Chairman’s Forum,
which brings together the chairs of the principal subsidiaries, the
chairs of the Group's audit, risk and remuneration committees and
the Group Chief Executive to discuss Group-wide and regional
matters. The Group Chairman hosted 11 Chairman’s Forums in
2021, which were also attended by relevant executive
management, to cover sessions on strategy, financial performance
and investor sentiment, geopolitics, culture, employee
engagement, diversity and inclusion, technology and data, group
recovery planning, corporate governance and implementation of
the updated subsidiary accountability framework. The Non-
Executive Director Summit, hosted by the Group Chairman, was
also an effective subsidiary directors' engagement event. For
further details, see page 229.
The chairs of the principal subsidiaries’ committees are invited to
attend the relevant forums to raise and discuss current and future
global issues, including regulatory priorities in each of the regions.
While the Audit and Risk Committee Chairs' Forums did not take
place in 2021, the chairs of the Group Audit Committee and Group
Risk Committee continued to have regular dialogue with the
respective committees of the principal subsidiaries to ensure an
awareness and coordinated approach to key issues. The annual
Remuneration Committee Chairs' Forum took place in October,
and provided the principal subsidiary chairs with an opportunity to
discuss performance, key considerations and positioning in
advance of the pay review process. A follow-up forum was held in
early December to provide transparency around pay outcomes and
allocation, with feedback from the discussion used to shape the
final pay proposals, which were considered and approved by the
Group Remuneration Committee.
Board members attend principal subsidiary meetings as guests
from time to time. Similarly, principal subsidiary directors are
invited to attend committee meetings at Group level, where
relevant, and in particular, when the Prudential Regulation
Authority ('PRA') is in attendance. The chairs of the principal
subsidiary risk committees are regular attendees at the Group Risk
Committee.
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231
Board activities during 2021
During 2021, the Board was focused on HSBC's strategic direction
and overseeing performance and risk. It considered performance
against financial and other strategic objectives, key business
challenges, emerging risks, business development, investor
relations and the Group’s relationships with its stakeholders. The
end-to-end governance framework facilitated discussion on
strategy and performance by each of the global businesses and
across the principal geographical areas, which enabled the Board
to support executive management with its delivery of the Group’s
strategy.
The Board's key areas of focus in 2021 are set out by theme
below.
Strategy and business performance
Since the Group announced a new strategic focus and associated
transformation programme in February 2020, it has set out to
reshape underperforming businesses, simplify the organisation
and reduce costs. The strategy aims to increase returns for
investors, create capacity for future investment and build a
sustainable platform for growth.
The Board, which held a dedicated strategy session in May 2021,
assessed the delivery of strategic achievements throughout the
year through both the perspectives of the global businesses and
the regions. The Board took a holistic view by reviewing
management’s strategic alignment to, and outcomes against,
HSBC's four strategic pillars of: focus on our strengths, digitise at
scale, energise for growth and transition to net zero.
Environmental, social and governance
In 2020, the Group announced its new climate ambition to align
financed emissions to net zero by 2050 and become net zero for
its own operations and supply chain by 2030. The Group aims to
achieve this by supporting clients on the road to a net zero carbon
economy and a focus on sustainable finance opportunities. In
2021, the Board considered more climate matters at its meetings,
including participating in four climate 'deep-dives' and approving
the climate-related resolution for the 2021 AGM. For further details
on how the Board is meeting its climate agenda ambitions, see
'Board decision making and engagement with stakeholders' on
page 21 and the ESG review on page 43.
The Board has also considered other sustainability matters,
including human rights, a new thermal coal phase-out policy, the
operating model for sustainability and the methodology for
climate-aligned financing.
The Board received regular reports on the continuing challenges
presented by the ongoing Covid-19 pandemic, which supported
the Group’s responses and measures to mitigate the effects,
including, providing medical aid and assistance to our colleagues
in India and other regions.
The Board takes overall responsibility for ESG strategy, overseeing
executive management in developing the approach, execution and
associated reporting. It has enhanced its oversight of ESG matters,
with a dedicated agenda item on this topic introduced for 2022.
Management has also enhanced its governance model with the
introduction of a new ESG Committee and supporting forums,
which will support senior management in the delivery of the
Group’s ESG strategy, key policies and material commitments by
providing holistic oversight over – and management and
coordination of – ESG commitments and activities.
Financial decisions
The Board approved key financial decisions throughout the year
and approved the Annual Report and Accounts 2020, the Interim
Report 2021 and the first quarter and the third quarter Earnings
Releases.
At the start of 2021, the Board approved the 2021 annual financial
resourcing plan and in December 2021 approved the financial
resourcing plan for 2022. The Board monitored the Group's
performance against the approved 2021 financial resourcing plan,
as well as the plans of each of the global businesses. The Board
also approved the renewal of the debt issuance programme, and
as announced on 26 October 2021 the buy-back programme.
Following the decision in 2020 to cancel the fourth interim
dividend for 2019, on 23 February 2021, we announced that after
considering the requirements set out in the PRA's temporary
approach to shareholder distributions for 2020, an interim dividend
for 2020 of $0.15 per ordinary share would be paid in cash on
29 April 2021. On 2 August 2021, we announced an interim
dividend of $0.07 for the 2021 half-year paid in cash on
30 September 2021. For further details of dividend payments, see
page 397 and 'Board decision making and engagement with
stakeholders' on page 21.
The Board has adopted a policy designed to provide sustainable
dividends going forward. For the financial year 2021, we are at the
lower end of our target dividend payout ratio range of between
40% and 55% of reported earnings per ordinary share (‘EPS’),
driven by ECL releases and higher restructuring costs. The
dividend policy has the flexibility to adjust EPS for non-cash
significant items such as goodwill or intangible impairments. The
Board believes this payout ratio approach will allow for a good
level of income to shareholders and a progressive dividend,
assuming good levels of economic and earnings growth.
Risk, regulatory and legal considerations
The Board, advised by the Group Risk Committee, promotes a
strong risk governance culture that shapes the Group’s risk
appetite and supports the maintenance of a strong risk
management framework, giving consideration to the
measurement, evaluation, acceptance and management of risks,
including emerging risks.
The Board considered the Group’s approach to risk including its
regulatory obligations. A number of key frameworks, control
documents, core processes and legal responsibilities were also
reviewed and approved as required. These included:
•the Group's risk appetite framework and risk appetite
statement;
•the individual liquidity adequacy assessment process;
•the individual capital adequacy assessment process;
•the Group’s obligations under the Modern Slavery Act and
approval of the Modern Slavery and Human Trafficking
Statement;
•stress testing and capabilities required to meet the PRA’s
resolvability assessment framework;
•the revised terms of reference for the Board and Board
committees; and
•delegations of authority.
The Board also reviewed and monitored the implications of
geopolitical developments during the year including US-China
relations and the impacts to trade following the UK's departure
from the EU.
Technology
Throughout the year, the Board received regular updates on
technology from the Group Chief Operating Officer, including
updates on the refreshed technology strategy and restructuring of
the technology leadership function.
In early 2021, the Technology Governance Working Group was
established to oversee and enhance the Group's governance of
technology. For further details on this group’s work and the future
of the Board’s oversight of technology governance, see page 227.
People and culture
The Board continued to spend time discussing people and culture-
related topics. To set the right cultural tone, since March 2021,
each Board meeting has begun with a Director or regular attendee
describing a 'cultural moment' he or she had experienced,
including observations of behaviours within the Group aligned to
the purpose and values. Once a year the chairs from each of the
Report of the Directors | Corporate governance report
232
HSBC Holdings plc Annual Report and Accounts 2021
principal subsidiaries present to the Chairman's Forum on their
respective board engagement activities and learnings, including
cultural insights. Twice a year the Group Chief Human Resources
Officer attends the Board to provide insights into the Group’s
employee Snapshot survey results measuring employee sentiment,
talent plans, progress on the embedding of the new purpose and
values, and the measurement of culture. This reporting includes a
culture insights report, which allows the Board to monitor culture
through receipt of data on culture perceptions and using the
indicators of behaviours/sentiment and business outcomes/people
data. These presentations help enable the Board to monitor and
assess the organisation's culture.
Board engagement with management and the wider workforce
continued to remain a strong area of attention.
Governance
The Board continued to oversee the governance, smooth operation
and oversight of the Group and its principal and material
subsidiaries. Following a review of subsidiary governance, the
Board oversaw the implementation of the review findings, with the
support of the Nomination & Corporate Governance Committee.
The Board also supported new governance initiatives to encourage
simplification and promote effective decision making in the
business. Such initiatives included the refinement of Board and
committee papers, and a review to reduce unnecessary committee
meetings to free management time and encourage individual
accountability and decision taking.
Succession planning was considered at the Nomination &
Corporate Governance Committee. During the year, Laura Cha,
Henri de Castries and Heidi Miller retired as independent non-
executive Directors. The Board appointed Rachel Duan and Dame
Carolyn Fairbairn as independent non-executive Directors who
joined the Board in September 2021. The Board, supported by the
Nomination & Corporate Governance Committee, will continue to
review the skills and experience of the Board as a whole to ensure
that it comprises the relevant skills, diversity, experiences and
competencies to discharge its responsibilities effectively.
For further details on the review, subsequent actions and changes
to the Board, see the Nomination & Corporate Governance
Committee report on page 237.
The Board monitored its compliance with the UK Corporate
Governance Code, the Hong Kong Corporate Governance Code
and the Companies Act 2006 throughout the year.
Workforce engagement
The Board continued to place great emphasis on the importance
of engagement with the workforce, including colleagues affected
by the continued impact of the Covid-19 pandemic and the
return to offices in the UK and elsewhere. The Board also
considered the impact of the launch of our new purpose and
values and the ongoing transformation activity, including the
announcement of the disposal of our retail businesses in the US
and France.
In accordance with the UK Corporate Governance Code, the
Board reaffirmed that it continued to believe that the 'alternative
arrangements' approach remained most appropriate for the
Group in engaging and understanding the views of the
workforce. The programme of engagement covered a variety of
interaction styles: more bespoke sessions with smaller groups;
formal presentations; Q&A opportunities; and other sessions to
facilitate engagement across a breadth of experience,
geographical spread and seniority. This variety of engagements
enabled open dialogue and two-way discussions between
Directors and employees. These sessions allowed the Board to
gain valuable insight on employee perspectives, which in turn
informed their deliberations and decision making at Board and
committee meetings. The Board receives updates on how the
Group engages with stakeholders, including the workforce, by
way of the Group Chief Executive's Board report and the Group
Chairman's weekly Board note. In addition, the Board's agenda
regularly includes non-executive Director workforce and other
stakeholder engagement updates. These help to inform the
Board of employee initiatives and sentiment and allow the Board
to plan for future engagement activities. For further details of
how the Board considered the views of employees and other
stakeholders, see the 'Board decision making and engaging with
stakeholders' on page 21.
The flexibility of this approach allowed all Board members the
opportunity for direct engagement – albeit often virtually during
2021 – with a broad cross-section of the workforce, spanning
global businesses, functions and geographies. It also gave
insights provided by management through our employee
listening tools and surveys. The Board received formal updates
from the Group Chief Executive and the Group Chief Human
Resources Officer on employee views and sentiment. These
include results of employee engagement surveys, benchmarked
data, and additional surveys to understand well-being throughout
the Covid-19 pandemic. The Chairman’s Forum meetings also
discussed employee feedback from the Group's subsidiaries.
Specific engagement between the Board and the wider
workforce included meetings and events with:
•representatives of the employee resource groups and each of
the non-executive Directors who have been partnered to
support the designated groups: Ability, Balance, Embrace,
Faith, Generations, Nurture, Pride, and Communities;
•the Nurture employee resource group, which hosted online
events on domestic abuse and working fathers, during which
non-executive Directors discussed with a small group of
employees how the Group had supported them during such
challenging times and how the Board could promote further
initiatives;
•first and second year members of the HSBC graduate
scheme, who discussed their experiences of hybrid working
and HSBC's culture, purpose and values;
•US executive management, who held succession and
emerging talent sessions, and who also discussed our net
zero ambitions, career pathways, and the delivery of our
strategy; and
•African heritage employee resource group leaders, who held a
roundtable event to discuss inclusivity at work.
HSBC Holdings plc Annual Report and Accounts 2021
233
Board activities in 2021
Main topic
Sub-topic
Meetings at which topics were discussed 1
Jan
Feb
Mar
Apr
May
Jun
Jul
Sep
Nov
Dec
Strategy
Group strategy
ô
ô
ô
ô
l
ô
ô
ô
ô
l
Regional strategy/global business strategy
l
l
ô
l
l
l
l
l
ô
ô
Environmental, social, governance
ô
ô
ô
ô
l
ô
ô
l
l
l
Business and
financial
performance
Region/global business
l
l
ô
l
l
ô
l
l
ô
l
Financial performance
l
l
ô
l
l
ô
l
l
ô
l
Financial
Results and accounts
l
l
ô
ô
ô
ô
ô
ô
ô
ô
Dividends
l
l
ô
ô
ô
ô
ô
ô
ô
ô
Group financial resource planning
l
ô
ô
l
ô
ô
ô
ô
ô
l
Risk
Risk function
l
l
ô
l
l
ô
l
ô
ô
l
Risk appetite
l
ô
ô
ô
ô
ô
l
l
ô
l
Capital and liquidity adequacy
l
ô
l
l
ô
ô
ô
ô
ô
ô
Regulatory
Regulatory and legal matters 2
ô
l
l
l
l
l
l
l
ô
l
Regulatory matters with regulators in attendance 3
ô
ô
ô
ô
ô
ô
l
l
ô
ô
External
External insights
ô
l
ô
l
ô
ô
l
ô
ô
l
Technology
Strategic and operational
l
ô
ô
ô
ô
ô
l
ô
l
l
People and
culture
Purpose, values and engagement
l
l
ô
l
ô
ô
ô
l
ô
ô
Governance
Subsidiary governance framework
ô
l
ô
ô
ô
ô
ô
ô
ô
ô
Policies and terms of reference
l
ô
ô
l
ô
l
l
ô
ô
ô
Board/committee effectiveness
l
ô
ô
ô
ô
ô
ô
ô
ô
ô
Appointment and succession
l
l
l
ô
l
l
l
ô
ô
ô
AGM and resolutions
l
l
ô
l
l
ô
ô
ô
ô
ô
1 No formal Board meetings were held during August and October 2021.
2 Includes resolvability assessment framework, modern slavery and human trafficking, statement of business principles and code of conduct,
regional updates and listing renewals.
3 Meetings attended by members of the Financial Conduct Authority, Prudential Regulation Authority, Monetary Authority of Singapore, Hong Kong
Monetary Authority.
Board and committee effectiveness,
performance and accountability
The Board and its committees are committed to regular,
independent evaluation of their effectiveness at least once every
three years.
In 2020, the Nomination & Corporate Governance Committee
invited Dr Tracy Long of Boardroom Review Limited to support the
Board with its annual evaluation and to conduct a follow-up
review on the Board's progress against the findings and
recommendations from her 2019 report.
In 2021, the Nomination & Corporate Governance Committee
approved the conducting of an internal evaluation of the Board
and its committees, with the assistance of an externally facilitated
questionnaire system managed by Lintstock, an independent
service provider with no other connection to the Group or any
individual Director. The questions were designed by the Group
Company Secretary and Chief Governance Officer and included
some of the themes addressed by Dr Long's previous reviews,
namely: leadership, shared perspective, culture, end-to-end
governance and future thinking. A summary of the effectiveness
reviews of the Board and the Board committees can be found on
page 235 and in the respective committee reports on pages 237 to
267.
To gather qualitative feedback the Group Company Secretary and
Chief Governance Officer, together with the Deputy Group
Secretary, conducted one-to-one interviews with all questionnaire
respondents, including all the Board Directors, regular attendees
of the relevant meetings and key advisers. The Group Chairman
and committee chairs also participated in additional discussion
following the consolidation of feedback in respect of the individual
committees.
In general, there were consistent findings across the Board and
committee reviews. These included: a desire to be more forward
looking; more discussion of contextual matters such as economic,
social, and geopolitical issues; maintaining a supportive and
challenging relationship between the Board, its committees and
senior management; providing clear governance for our
subsidiaries; and a more consistent approach in leading and living
the Group purpose and values.
At its January 2022 meeting, the Board considered the findings
and noted the following areas of focus: in person Board and
committee meetings; succession planning; diversity in Board
composition including the need for more Asian and banking
experience; prioritising digital opportunities; and more Board
meeting time dedicated to customers.
The Group Chairman led a discussion at which the Board agreed
the actions and priorities to be implemented, which will be
monitored and addressed on an ongoing basis. Similar discussions
were carried out by each of the committee chairs in their
respective January meetings. Progress against these actions will
be included in the Annual Report and Accounts 2022.
During 2021, a review of the Group Chairman’s performance was
led by the Senior Independent Director in consultation with the
other independent non-executive Directors, management and key
stakeholders. Non-executive Directors also undergo regular
individual reviews with the Group Chairman. These reviews
confirmed that the performance of the Group Chairman and each
Director was effective and that each had met their time
commitments during the year.
The review of executive Directors’ performance, which helps
determine the level of variable pay they receive each year, is
contained in the Directors’ remuneration report on page 268.
Report of the Directors | Corporate governance report
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HSBC Holdings plc Annual Report and Accounts 2021
Summary of 2020 Board effectiveness recommendations and actions:
Recommendation from the evaluation
Progress against recommendations
Leadership
•Continue to focus on Board succession
planning, building on the progress made
during 2020 to facilitate and manage
succession for Board and committee
positions, cognisant of diversity in all
aspects and making full use of external
advisers and skills matrix analysis.
•Embed executive succession so that it
translates into a stronger, more diversified
talent pool for future senior leadership.
Significant time has been allocated at Nomination & Corporate Governance
Committee meetings to discuss these items. An additional session was held in
March to discuss Board and committee composition, and senior executive changes.
Discussions have included succession candidates at the layer below the GEC, and
plans to simplify the senior grade structure at managing director level and above.
Progress reports for the Asia talent programme were submitted to Nomination &
Corporate Governance Committee meetings, with the first received at the May
meeting.
Shared
perspective
•Optimise use of Board information to
enhance testing of the effectiveness of the
strategic and business plans with reference
to the evolving external factors and
competitive landscape across its key
markets.
The Board operating rhythm continues to be effective. Positive feedback from non-
executive and executive Directors confirmed that the Board Oversight Sub-Group is
valuable for all stakeholders.
We have made use of the expertise and experience of our non-executive Directors
by rotating attendance at our Board Oversight Sub-Group meetings, according to
the topic to be discussed.
Regular feedback is sought from members of the GEC and the Board to ensure that
the Board operating rhythm continues to support the Group's decision making.
Culture
•Continue to review and determine the
culture and key behaviours required to
support the delivery of the revised strategy
with a clear focus on pace and execution.
The Board Oversight Sub-Group meetings supported both the executive Directors
and the Board to take strategic decisions in a timely manner, and ensure effective
use of time in Board meetings. The enhanced strategy was announced alongside the
2021 interim results, including the Group's proposed disposal of the US retail
banking franchise.
Cadence of reporting to the Board in support of its oversight of culture was agreed.
This takes place twice per year alongside updates on workforce engagement. The
Board has adopted a 'culture moment' at the beginning of each meeting.
Future thinking
•Maintain and evolve good quality papers
and presentations to the Board to continue
providing insight and supporting informed
decision making
The Group’s new Board paper template and guidance on the most effective writing
approach has now been implemented across the Board and committee meetings.
We also provided presenter and chair training to members of the Group Executive
and wider management.
HSBC Holdings plc Annual Report and Accounts 2021
235
Summary of 2021 Board effectiveness recommendations and actions
Findings from the evaluation
Recommendations for action
Composition and
Board dynamics
•The Board's overall skills and capability, and
diversity and inclusion representation, could
be improved, particularly with Asian
background and banking experience.
•Significant collective knowledge of existing
chairs who are all extremely able and active
in their roles must be considered as part of
succession planning.
•Strong relationships exist among Board
members and senior management with the
Board providing appropriate challenge and
support as necessary.
•The Board Oversight Sub-Group has been a
useful forum for Directors and senior
management to hold discussions in
advance of Board meetings.
•There is a strong desire to return to in-
person meetings. The Group Chairman was
complimented on his management of
meetings and Board communication
throughout the pandemic.
•Increased engagement outside of formal
meetings with executives and employees to
aid focused, informed and efficient
discussion in formal meetings was
welcomed.
The Board will support the Nomination & Corporate Governance Committee’s focus
on identifying and securing additional Board members, reflecting on the
membership of the committees, and with a particular focus on Hong Kong,
mainland China and south-east Asian representation, as well as banking expertise
and diversity. In addition, through the Nomination & Corporate Governance
Committee, the Board should consider the tenure of the Chairs of the Board, the
Group Audit Committee and the Group Risk Committee to ensure there is well
planned succession so as not to lose their collective knowledge and experience
within too short a space of time.
The Board will explore different approaches to in-person meetings during 2022 to
allow members to meet face to face in different locations, and to continue to
facilitate communication between the Board and management.
The Board will support an appropriate level of employee and customer engagement
outside formal meetings while ensuring both receive adequate time on the Board
agenda.
Meetings,
priorities and
materials
•Board meetings were efficiently and
effectively managed, in terms of the
logistics and support, as well as the quality
of materials which had improved during the
year as a result of the introduction of the
new templates. Continuation of that
improvement would help the effort to
reduce length, improve timelines and drive
clarity.
•The Board should build on foundational
work to date to provide greater clarity on
climate matters, and more broadly ESG
issues.
•The Board should increase its focus on
understanding of – and attention to –
customers, and also digital opportunities
and threats.
•Strategic oversight was highly regarded
overall, with a request for the development
of Board materials to more easily track
progress of the strategic priorities. Attention
to execution, prioritisation, capability and
capacity were recurring themes.
Senior management will clearly articulate progress against strategic objectives in
Board materials, particularly in relation to relevant strategic levers and prioritisation.
The forward agenda planner will capture the key areas of future focus, particularly
ESG, digital and customer issues.
The improvement in style and content of Board and committee papers will continue
in 2022 with the Corporate Governance and Secretariat facilitating management’s
commitment to improving information to the Board.
A 2022 Board meeting will include digital opportunities and threats as an agenda
item.
Risk
•The Board oversaw risk matters as part of
its dedicated sessions but suggested more
focus on emerging risks and consideration
of 'what keeps management awake at
night' with forward-looking discussion and
debate at Board meetings in addition to at
the Group Risk Committee.
The Board will hold two forward-looking strategic risk discussions per year focused
on emerging areas of threat and/or opportunity, to ensure that the Board is
considering how to maximise growth opportunities and appropriate mitigants.
Principal
subsidiaries
•The Board should continue to evolve good
quality papers and presentations at
meetings to continue providing insight, and
support for, informed decision making.
Through the subsidiary accountability framework, the Board will continue to monitor
progress of governance of principal subsidiaries and maintain subsidiary director
interactions through the annual virtual Non-Executive Director Summit.
Committee
connectivity and
collaboration
•The Board should look to improve
coordination between Board committees
and the Technology Governance Working
Group to ensure minimal overlap in content
and optimal coverage of relevant matters,
and ensure appropriate reporting to the
Board for discussion.
The Board will undertake a review of the Board committees’ and Technology
Governance Working Group's terms of reference, with particular reference to
technology, transformation, data, cyber-related matters and ESG matters. In each
case, the Board will ensure that there is clarity as to the remit and responsibilities of
each committee and the Technology Governance Working Group, with a view to
reducing any duplication and ensuring optimal coverage of relevant matters.
Enhanced planning will be implemented across Board and committee agendas to
improve rhythm of topics for discussion by the Board.
Report of the Directors | Corporate governance report
236
HSBC Holdings plc Annual Report and Accounts 2021
Board committees
Nomination & Corporate Governance Committee
"The Committee has overseen another year of significant activity,
with a number of changes to the Board and senior executive team,
as well as to our subsidiary governance practices."
D ear Shareholder
I am pleased to present the Nomination & Corporate Governance
Committee report, which provides an overview of the work of the
Committee and its activities during the year.
The Committee has overseen another year of significant activity,
with a number of changes to the Board and senior executive team,
as well as to our subsidiary governance practices.
Executive development and succession has continued to be a
priority for the Committee, with various joiners approved
throughout the year, improving the capability and depth of our
senior leadership team. This included the approval of a new senior
leadership structure with an expanded Group Executive
Committee and a new General Manager cohort with enterprise-
wide responsibilities. The Committee has supported the
establishment of a flagship development programme for senior
executives and the first HSBC Bank Director Programme, which
aims to prepare senior talent for roles on subsidiary boards.
Significant progress has also been made in enhancing our
subsidiary governance practices over recent years, with further
improvements made during 2021. In accordance with the
recommendation arising from the subsidiary governance review
undertaken in 2020, we implemented a refreshed subsidiary
accountability framework, which now applies to all HSBC
subsidiaries on a proportionate basis and provides greater clarity
on the Group’s expectations of subsidiary boards. A key element
of this has been succession planning for our principal and material
subsidiary boards, with the Committee overseeing all succession
plans and considering requests for exceptions from the
requirements of the framework.
As we look ahead to the remainder of 2022, the Committee will
continue to play an important role in overseeing our work in
improving the standards of corporate governance across HSBC
and achieving our ambition of world class governance.
Mark E Tucker
Chair
Nomination & Corporate Governance Committee
22 February 2022
Membership
Member since
Meeting attendance in
2021
Mark Tucker (Chair)
Oct 2017
8/8
Laura Cha 1
May 2014
4/4
Henri de Castries 1
Apr 2018
4/4
Rachel Duan 2
Sep 2021
2/2
Dame Carolyn Fairbairn 2
Sep 2021
2/2
James Forese
May 2020
8/8
Steven Guggenheimer
May 2020
8/8
Irene Lee
Apr 2018
8/8
José Antonio Meade
Kuribreña
Apr 2019
8/8
Eileen Murray 3
Jul 2020
7/8
Heidi Miller 1
Apr 2018
4/4
David Nish
Apr 2018
8/8
Jackson Tai
Apr 2018
8/8
Pauline van der Meer Mohr
Apr 2016
8/8
1 Laura Cha, Henri de Castries and Heidi Miller stepped down from the
Board following the conclusion of the AGM on 28 May 2021.
2 Rachel Duan and Dame Carolyn Fairbairn were appointed to the
Board on 1 September 2021.
3 Eileen Murray was unable to attend the December committee
meeting for personal health reasons.
Key responsibilities
The Committee’s key responsibilities include:
•leading the process for identifying and nominating candidates
for appointment to the Board and its committees;
•overseeing succession planning and development for the Group
Executive Committee and other senior executives; and
•overseeing and monitoring the corporate governance
framework of the Group and ensuring that this is consistent
with best practice.
Committee governance
The Group Chief Executive, Group Chief Human Resources Officer
and Group Company Secretary and Chief Governance Officer
routinely attended Nomination & Corporate Governance
Committee meetings.
Russell Reynolds Associates, which supported the Committee and
the management team in relation to Board and senior executive
succession planning, regularly attended meetings during the year.
It has no other connection with the Group or members of the
Board.
The Group Company Secretary and Chief Governance Officer
ensured that the Committee fulfilled its governance
responsibilities, considering input from various stakeholders when
finalising meeting agendas and tracking progress on actions and
Committee priorities.
Board composition and succession
The main focus of the Committee during 2021 was on succession
planning for the Board and committees. The Committee keeps the
composition of the Board and its committees under constant
review and continually strives to ensure that the membership, both
individually and collectively, has the skills, knowledge and
experience necessary to oversee, challenge and support
management in the achievement of the Group’s strategic and
business objectives.
There were a number of retirements from the Board during the
year, with Henri de Castries, Laura Cha and Heidi Miller retiring at
the conclusion of the 2021 AGM. In addition, since the year-end,
we announced that Irene Lee and Pauline van der Meer Mohr
would retire from the Board at the conclusion of the 2022 AGM.
The Committee is actively considering Pauline’s successor as
Chair of the Group Remuneration Committee and will provide an
update in due course.
The Committee considered both the short-term and long-term
succession needs to identify candidates for immediate
HSBC Holdings plc Annual Report and Accounts 2021
237
appointment, and to develop a pipeline for potential future
appointments. This will ensure that the longer-term shape of the
Board is well aligned to our purpose, strategy and values, and
provides relevant skills, experience and knowledge of our priority
markets.
In late 2020, the Committee engaged Russell Reynolds Associates
to conduct a thorough and robust search to identify prospective
candidates for appointment to the Board. This identified a number
of potential candidates who met our agreed search criteria, which
reflected prior feedback from stakeholders including investors,
regulators and the management team. This was initially reviewed
by the Group Chairman, with potential candidates presented and
discussed by the Committee at various meetings during 2021.
Following consideration by the Committee, and meetings between
various members of the Committee and priority candidates to
understand their interest and capacity, the Board approved the
appointments of Rachel Duan and Dame Carolyn Fairbairn with
effect from 1 September 2021.
A search for additional non-executive Director candidates, which
looks to enhance the Board’s collective knowledge and experience
of banking and Asia in particular, was initiated during 2021. The
search will also look to further enhance diversity on the Board in
line with its diversity and inclusion policy. The Committee’s search
was again supported by Russell Reynolds. The Committee is
actively progressing this search and will provide an update in due
course.
Board diversity
The Board recognises the importance of gender, social and ethnic
diversity, and the strengths this brings to Board effectiveness.
There was a significant focus on diversity at Board and senior
executive levels in 2021, with consultations issued by our UK
regulators and the UK Listing Authority. We are well positioned
against the proposals outlined in those consultations and, in line
with the Board diversity and inclusion policy, remain committed to
increasing diversity at Board and senior levels to ensure we reflect
the markets and societies we serve. The policy, which was
updated in 2021 to incorporate new targets on female
representation, details our approach to achieving our diversity
ambitions, and helps to ensure that diversity and inclusion factors
are taken into account in succession planning. The revised Board
diversity and inclusion policy is available at www.hsbc.com/who-
we-are/leadership-and-governance/board-responsibilities.
At the end of 2021, we had a 38% female Board representation,
with five female Board members out of 13. Our aspirational female
representative target is at least 40% by the end of 2023, aligned to
the recommendation in the final Hampton-Alexander Review. We
continue to exceed the Parker Review target of at least one
Director from an ethnic minority background by 2021, with four
members of our Board self-identifying in line with the ethnicity/
ethnic definition set by Parker. Given the global and international
nature of HSBC, including our strong presence and heritage in
Asia, the Committee expects the composition of the Board to
exceed the current Parker Review recommendations. In line with
our purpose and values, the Board believes that a diverse and
inclusive Board, reflective of the communities we serve, is key to
effective decision making and to developing a sustainable and
successful business for HSBC.
Further details on activities to improve diversity across senior
management and the wider workforce, together with
representation statistics, can be found on page 72.
Independence
Independence is a critical component of good corporate
governance, and is a principle that is applied consistently at both
Holdings and subsidiary level. The Committee has delegated
authority from the Board in relation to the assessment of the
independence of non-executive Directors. In accordance with the
UK and Hong Kong Corporate Governance Codes, the Committee
has reviewed and confirmed that all non-executive Directors who
have submitted themselves for election and re-election at the AGM
are considered to be independent. This conclusion was reached
after consideration of all relevant circumstances that are likely to
impair, or could appear to impair, independence.
Senior executive succession and development
The Group Executive Committee underwent a period of significant
change during 2021 and engaged Russell Reynolds to identify the
best talent for roles on the committee. The changes included the
addition of three new roles, as well as the appointments of new
Co-Chief Executives for our Asia-Pacific region. These
appointments recognised the leadership and capabilities that the
Group requires to deliver our strategic commitments.
Succession plans for the Group Executive Committee members
were approved at the Nomination & Corporate Governance
Committee meeting in December. These reflected continued
efforts to support the development and progression of diverse
talent and promote the long-term success of the Group.
The Committee also discussed progress under the Asia talent
programme, which aims to support the development of potential
future leaders from the Group’s key region. The initiative exceeded
the target of appointing the top talent from the region into stretch
roles as part of their development. As part of succession plans, we
also identified at least one credible successor of Asia heritage for
the region's key roles. Other regions across the Group have begun
work to replicate the success in Asia, with updates on their efforts
to be provided to the Committee during 2022.
Committee evaluation
The annual review of the effectiveness of the Committee was
internally facilitated in 2021. The review concluded that the
Committee continued to operate effectively, with a number of
positive aspects of the Committee’s operation and practices
highlighted. Areas for improvement that were identified included
the Committee’s succession planning practices, and the need to
review the support and guidance provided in relation to executive
succession activity, including the expectations of leaders in
relation to succession preparedness. The Committee discussed the
outcomes of the evaluation in January 2022, and endorsed the
findings and actions to be taken. The outcomes of the evaluation
have been reported to the Board and the Committee will track
progress on the recommendations through the year.
Subsidiary governance
The importance of robust, effective and proportionate governance
at all levels of the Group is critical, with the 2020 subsidiary
governance review of principal subsidiaries identifying a number
of areas of good practice and areas where further improvement
would be beneficial.
One of the recommended areas for improvement was a refresh of
the existing subsidiary governance policy, and the subsidiary
accountability framework, to provide greater clarity and guidance
on the Group’s expectations of various subsidiaries. The refreshed
framework, which included additional principles, underpinned by
provisions and detailed guidance, took effect from 1 April 2021.
Subsidiary board composition and ensuring effective succession
planning practices were key objectives of the refreshed
framework. The subsidiary governance review also recommended
that guidance should be developed and enhanced with additional
provisions to support effective board composition and succession
planning. It also expected that boards should use a skills matrix. In
connection with the revised expectations, all principal and material
subsidiaries submitted their succession plans for the Committee’s
review. The Committee approved a number of required exceptions
from strict compliance with the framework to manage transition
for a limited period, and to reflect varying market practices, laws
and regulations across our markets.
As part of efforts to make greater use of the skills, expertise and
experience among our senior employees for roles on subsidiary
boards, the Committee approved the development of the HSBC
Bank Director Programme. This programme seeks to equip our
internal talent with the appropriate skills and knowledge required
to serve on a HSBC subsidiary board. The initiative was developed
following consultation with our principal subsidiary chairs, who
Report of the Directors | Corporate governance report
238
HSBC Holdings plc Annual Report and Accounts 2021
supported the greater use of an internal talent pool on subsidiary
boards, where permitted by applicable laws and regulations.
Business governance review
Following the success of the 2020 review, an equivalent review of
the executive governance practices across our three global
businesses, Wealth and Personal Banking, Commercial Banking
and Global Banking and Markets, was conducted during the fourth
quarter of 2021. This work had the strong support of the Group
Executive Committee, and involved desktop reviews, meeting
observations and interviews.
Overall, the review concluded that the governance of the three
global businesses operated effectively, and had improved as a
result of governance simplification initiatives sponsored by the
Group Executive Committee. The main opportunities for
improvement related to further simplification of governance
structures. In particular, the role of the global business governance
forums within regions and countries will be considered to avoid
duplication by ensuring that their roles and responsibilities are
clear and distinct.
The findings and recommendations from the review were
discussed and endorsed by the Committee in January 2022, with
oversight of the actions and next steps to be overseen by the
respective global business executive committees and the Group
Executive Committee.
Matters considered during 2021
Jan
Feb
Mar
Apr
May
Jul
Sep
Dec
Board composition and succession
Board composition, including succession planning
and skills matrices
l
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l
l
Approval of diversity and inclusion policy
ô
ô
ô
ô
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Executive talent and development
Senior executive succession
l
l
l
l
l
l
l
ô
Approval of executive succession plans
ô
ô
ô
ô
ô
ô
ô
l
Talent programmes
ô
l
ô
ô
l
l
ô
ô
Governance
Board and committee evaluation
ô
ô
ô
l
ô
ô
l
l
Subsidiary governance
l
ô
ô
ô
ô
l
l
l
Subsidiary and executive appointments
l
l
ô
l
l
l
l
l
HSBC Holdings plc Annual Report and Accounts 2021
239
Group Audit Committee
"In 2021, the Group Audit Committee carried out significant
development in our internal financial controls and regulatory
reporting processes to meet a number of challenges."
Dear Shareholder
The Group Audit Committee (‘GAC’) had a busy agenda in 2021.
We carried out significant development in our internal financial
controls and regulatory reporting processes to help meet the
challenges of organisational transformation, the continued impact
of the Covid-19 pandemic, a changing regulatory landscape and
the growing demand for better and more ESG and climate
reporting.
To ensure alignment of priorities and understand local challenges,
I attended a number of principal subsidiary audit committee
meetings. These were supplemented with regular communications
that we cascade through the Group, informal meetings with audit
committee chairs and a breakout session on key areas for focus at
the Non-Executive Director Summit in July 2021.
I regularly met the whistleblowing team to discuss material
whistleblowing cases and the effectiveness of whistleblowing
arrangements. The GAC spent significant time considering
enhancements to whistleblowing arrangements, management's
responses to internal audit findings and the thematic and cultural
insights that could be used to improve the speak-up culture.
The Committee received regular updates from the Group Chief
Financial Officer and the Group Head of Internal Audit on
functional transformation, its impact on the control environment
and the capacity and capabilities of the functions. The Committee
also invited the Global Finance Executive Committee for a private
session, and I attended a session of the Global Internal Audit
Executive Committee to discuss key topics and themes from a
management perspective.
Recognising the importance of providing enhanced trust in
reporting to all stakeholders, the Committee provided a detailed
response to the UK Government's consultation paper on
‘Restoring Trust in Audit and Corporate Governance’.
The Committee implemented all the actions from the 2020
evaluation. The 2021 review determined that the GAC continued to
operate effectively.
Eileen Murray stepped down as a member at the 2021 AGM. The
Committee continues to have a wide range of financial services
experience and I would like to thank all the GAC members and
management for their diligent contributions and support to the
work of the Committee during the year.
David Nish
Chair, Group Audit Committee, 22 February 2022
Membership
Member since
Meeting attendance
in 2021 1
David Nish (Chair)
May 2016
11/11
James Forese 2
May 2020
10/11
Eileen Murray 3
Jul 2020
5/6
Jackson Tai
Dec 2018
11/11
Pauline van der Meer Mohr 4
Apr 2020
10/11
1 These included two joint meetings with the Group Risk Committee.
2 James Forese was unable to attend one meeting due to extreme
weather conditions disrupting air travel.
3 Eileen Murray was unable to attend one meeting due to personal
circumstances and stepped down from the Group Audit Committee
on 28 May 2021.
4 Pauline van der Meer Mohr was unable to attend one meeting due to
personal circumstances and another due to a prior commitment.
Key responsibilities
The Committee’s key responsibilities include:
•monitoring and assessing the integrity of the financial
statements, formal announcements and regulatory information
in relation to the Group's financial performance, as well as
significant accounting judgements;
•reviewing the effectiveness of, and ensuring that management
has appropriate internal controls over, financial reporting;
•reviewing and monitoring the relationship with the external
auditor and overseeing its appointment, tenure, rotation,
remuneration, independence and engagement for non-audit
services;
•overseeing the Group’s policies, procedures and arrangements
for capturing and responding to whistleblower concerns and
ensuring they are operating effectively; and
•overseeing the work of Global Internal Audit and monitoring
and assessing the effectiveness, performance, resourcing,
independence and standing of the function.
Committee governance
The Committee keeps the Board informed and advises on matters
concerning the Group's financial reporting requirements to ensure
that the Board has exercised oversight of the work carried out by
management, Global Internal Audit and the external auditor.
Committee meetings usually take place a couple of days before
Board meetings to allow the Committee to report its findings and
recommendations in a timely and orderly manner. This is done
through the Chair who comments on matters of particular
relevance. The Board also receives copies of the Committee
agenda and minutes of meetings.
The Group Chief Executive, Group Chief Financial Officer, Group
Head of Finance, Global Financial Controller, Group Head of
Internal Audit, Group Chief Risk and Compliance Officer, Group
Company Secretary and Chief Governance Officer and other
members of senior management routinely attended meetings of
the GAC. The external auditor attended all meetings.
The Chair held regular meetings with management, Global Internal
Audit and the external auditor to discuss agenda planning and
specific issues as they arose during the year outside the formal
Committee process. The Committee also regularly met separately
with the internal and external auditors and other senior
management to discuss matters in private.
The Committee Secretary regularly met with the Chair to ensure
the Committee fulfilled its governance responsibilities, and to
consider input from stakeholders when finalising meeting
agendas, tracking progress on actions and Committee priorities.
Report of the Directors | Corporate governance report
240
HSBC Holdings plc Annual Report and Accounts 2021
Matters considered during 2021
Jan
Feb
Mar
Apr
Jun
Jul
Sep
Oct
Nov
Dec
Reporting
Financial reporting matters including:
–review of financial statements, ensuring that disclosures are fair, balanced and
understandable
–significant accounting judgements
–going concern assumptions and viability statement
–supplementary regulatory information
l
l
ô
l
l
l
l
l
l
l
ESG and climate reporting
l
l
ô
ô
ô
l
ô
l
l
l
Regulatory reporting-related matters
l
l
l
l
l
l
l
ô
ô
l
Certificates from principal subsidiary audit committees
ô
l
ô
ô
ô
l
ô
ô
ô
ô
Control environment
Control enhancement programmes
l
l
l
l
l
l
l
l
ô
ô
Group transformation
l
ô
ô
ô
l
ô
l
l
ô
l
Review of deficiencies and effectiveness of internal financial controls
l
l
ô
l
l
l
l
l
ô
l
Internal audit
Reports from Global Internal Audit
l
l
ô
l
ô
l
ô
l
ô
l
Annual audit plan, independence and effectiveness
l
ô
ô
l
ô
l
ô
ô
ô
l
External audit
Reports from external audit, including external audit plan
l
l
ô
l
l
l
l
l
ô
l
Appointment, remuneration, non-audit services and effectiveness
l
l
ô
l
l
ô
ô
l
ô
ô
Compliance
Accounting standards and critical accounting policies
l
l
ô
ô
ô
ô
ô
ô
ô
l
Corporate governance codes and listing rules
ô
l
ô
ô
ô
l
ô
ô
ô
ô
Whistleblowing
Whistleblowing arrangements and effectiveness
ô
l
ô
ô
l
ô
ô
ô
ô
l
Compliance with regulatory requirements
The Board has confirmed that each member of the Committee is
independent according to the criteria from the US Securities and
Exchange Commission, and the Committee continues to have
competence relevant to the sector in which the Group operates.
The Board has determined that David Nish and Jackson Tai are
‘financial experts’ for the purposes of section 407 of the Sarbanes-
Oxley Act and have recent and relevant financial experience for
the purposes of the UK and Hong Kong Corporate Governance
Codes.
The GAC Chair had regular meetings with the regulators, including
the UK’s PRA and the Financial Conduct Authority ('FCA'). These
included trilateral meetings involving the Group’s external auditor
PwC.
The Committee assessed the adequacy of resources of the
accounting and financial reporting function. It also monitored the
legal and regulatory environment relevant to its responsibilities.
How the Committee discharged its
responsibilities
Connectivity with principal subsidiary audit committees
The Committee maintains a close working relationship with the
principal subsidiary audit committees through formal and informal
channels.
On a half-year basis, principal subsidiary audit committees provide
certifications to the GAC regarding the preparation of their
financial statements, adherence to Group policies and escalation
of any issues that require the attention of the GAC. Recognising
the additional focus on prudential regulatory reporting, the GAC
sought additional information via these certifications regarding the
governance, review and assurance activities undertaken by the
principal subsidiary audit committees in relation to prudential
regulatory reporting.
The GAC Chair regularly met with the chairs of the principal
subsidiary audit committees, and attended meetings to enable
close links and deeper understanding on judgements around key
issues. Certain chairs and audit committee members from the
principal subsidiary audit committees were also invited to attend
meetings of the GAC on relevant topics.
At the Non-Executive Director Summit, the GAC Chair engaged
with a number of subsidiary non-executive Directors in a breakout
session to discuss key focus areas, including regulatory reporting,
ESG and climate reporting and whistleblowing arrangements.
Regular post-meeting communications to principal subsidiary
audit chairs were supplemented with informal quarterly catch-ups
with a group of the audit committee chairs. These provided
opportunities for the discussion of key matters impacting
subsidiaries and the Group in between formal meetings.
Internal controls
In 2021, the GAC devoted significant time in overseeing
management’s approach to enabling a sustainable transformation
of the control environment that supports financial, prudential
regulatory and other regulatory reporting to meet the evolving
expectations of regulators and other stakeholders. The programme
will drive end-to-end organisational alignment so that principles
and control standards can be designed to deliver a more
integrated, standardised and automated control environment. The
Committee received regular updates on the mobilisation of the
programme workstreams, resourcing and engagement throughout
the Group and with regulators. The oversight and implementation
of the programme and its component parts will be a key focus for
the Committee in 2022.
The Committee received regular updates and confirmations that
management had taken, or was taking, the necessary actions to
remediate any failings or weaknesses identified through the
operation of the Group’s framework of controls. For further details
on how the Board reviewed the effectiveness of key aspects of
internal control, see page 291.
As required by the Sarbanes-Oxley Act, the GAC received updates
on the Group's work on section 404 compliance and the Group's
broader financial control environment during the year. This was to
assess the effectiveness of the internal control system for financial
reporting and any developments affecting it. Based on this work,
the GAC recommended that the Board support the assessment of
the internal controls over financial reporting.
Financial reporting
The Committee is responsible for reviewing the Group’s financial
reporting during the year, including the Annual Report and
Accounts, Interim Report, quarterly earnings releases, analyst
presentations and, where material, Pillar 3 disclosures and other
items arising from the review of the Group Disclosure Committee.
As part of its review, the GAC:
•evaluated management’s application of critical accounting
policies and material areas in which significant accounting
judgements were applied;
HSBC Holdings plc Annual Report and Accounts 2021
241
•focused on compliance with disclosure requirements to ensure
these were consistent, appropriate and acceptable under the
relevant financial and governance reporting requirements;
•provided advice to the Board on the form and basis underlying
the long-term viability statement; and
•gave careful consideration to the key performance metrics
related to strategic priorities and ensured that the performance
and outlook statements were fair, balanced and reflected the
risks and uncertainties appropriately.
In conjunction with the Group Risk Committee (‘GRC’), the GAC
considered the current position of the Group, along with the
emerging and principal risks, and carried out a robust assessment
of the Group’s prospects, before making a recommendation to the
Board on the Group’s long-term viability statement. The GAC also
undertook a detailed review before recommending to the Board
that the Group continues to adopt the going concern basis in
preparing the annual and interim financial statements. Further
details can be found on page 41.
Fair, balanced and understandable
Following review and challenge of the disclosures, the Committee
recommended to the Board that the financial statements, taken as
a whole, were fair, balanced and understandable. The financial
statements provided the shareholders with the necessary
information to assess the Group’s position and performance,
business model, strategy and risks facing the business, including
in relation to the increasingly important ESG considerations.
The Committee reviewed the draft Annual Report and Accounts
2021 and results announcements to enable input and comment. It
was supported by the work of the Group Disclosure Committee,
which also reviewed and assessed the Annual Report and
Accounts 2021 and investor communications.
This work enabled the GAC to provide positive assurance to the
Board to assist them in making the statement required in
compliance with the 2018 UK Corporate Governance Code.
ESG and climate reporting
During the year, the GAC reviewed the strategy, scope and status
of ESG and climate reporting, including the climate change
resolution and scenario analysis disclosure. Management updates
were also informed by an HSBC-specific stakeholder feedback
survey, which highlighted the appetite for more detailed ESG
disclosures on climate metrics, emissions targets and plans on
how these would be achieved. The Committee considered the
operational, disclosure and litigation risks, which could arise from
making further external commitments related to ESG and climate
reporting.
The development of methodologies, tools and data to support our
ESG strategy remained a key challenge. The GAC discussed
management plans to enhance and assure internal and external
ESG data sourcing across the Group to develop a common ESG
data inventory. The Committee considered the approach to
subsidiary reporting, in particular the availability of granular data
to support the Group subsidiaries in fulfilling their mandatory
disclosure requirements.
Management updated the Committee on the verification and
assurance framework to ensure that ESG and climate disclosures
were materially accurate, consistent, fair and balanced. The GAC
discussed the roles and work of the three lines of defence as part
of this framework, as well as proposals for PwC to perform further
limited assurance over specific ESG-related metrics.
The Committee oversaw and challenged management on the
proposals to further expand the ESG review section of the Annual
Report and Accounts to incorporate additional disclosures. These
include the integration of TCFD disclosures, which were previously
published in a stand-alone supplement, and net zero disclosures in
relation to the special shareholder resolution on climate change.
The GAC and the GRC held a joint meeting to review the progress
made to deliver on the commitment – under the climate change
special resolution – to publish a policy to phase out the financing
of coal-fired power and thermal coal mining. The committees
discussed the positions taken, and the risks associated with the
policy, as well as the methodology for capturing and reporting the
emissions data across the financing portfolio.
Regulatory reporting
The GAC focused on what improvements were required to
regulatory reporting processes and controls, which were operating
outside the Board’s risk tolerance. The Committee continued to
focus heavily on the quality and reliability of regulatory reporting
to strengthen the end-to-end processes to meet regulatory
expectations. It also challenged management on the scope of the
regulatory reporting enhancement programmes. This was in
response to findings from HSBC-specific external reviews and
other regulatory pronouncements including the PRA's ‘Dear CEO’
letter on thematic findings on the reliability of regulatory reporting
across the industry. The Committee Chair invited certain principal
subsidiary audit committee members to GAC meetings to
participate in discussions to ensure alignment and understanding
of key issues and ongoing regulatory engagement.
Management discussed root cause themes, remediation of known
issues and areas of increased risk identified from the risk-based
read-across exercise. The Committee considered the near-term
actions being taken by management, as well as the strategic
remediation plan, including the costs, resources and time for
implementation. It also challenged management on the delivery
risks and the dependency on other ongoing programmes.
Management also highlighted potential impacts on some of the
Group's regulatory ratios, such as CET1 and LCR, and adjustments
required to external disclosures.
UK audit reform
The Committee spent significant time in reviewing a UK
Government consultation paper – from the Department of
Business, Energy and Industrial Strategy – on ‘Restoring Trust in
Audit and Corporate Governance’. The GAC oversaw the
development of the direct HSBC response to the consultation, as
well as management’s engagement across a number of industry
bodies to understand wider views.
In addition, the Committee discussed the management activities
being undertaken in preparation for future stages of the
consultation. The GAC took steps to review its audit and
assurance policy and expand assurance in certain areas,
particularly regulatory reporting and ESG. The Committee also
considered the impact on the future audit tender strategy, and will
be looking to tender in advance of the 10-year rotation point. The
Committee has proactively started engagement with the Big Four
and challenger audit firms, as part of its preparations.
The Committee will continue to monitor outcomes and next steps
arising from the UK Government’s consultation.
External auditor
The GAC has the primary responsibility for overseeing the
relationship with the Group’s external auditor, PwC.
PwC completed its seventh audit, providing robust challenge to
management and sound independent advice to the Committee on
specific financial reporting judgements and the control
environment. The senior audit partner is Scott Berryman who has
been in the role since 2019. The Committee reviewed the external
auditor’s approach and strategy for the annual audit and also
received regular updates on the audit, including observations on
the control environment. Key audit matters discussed with PwC
are set out in its report on page 298.
External audit plan
The GAC reviewed the PwC external audit approach, including the
materiality, risk assessment and scope of the audit. The
Committee invited a number of the principal subsidiary audit
partners to discuss their priorities as part of the review of the
external audit plan.
PwC highlighted the changes being made to their approach to
enhance the quality and effectiveness of the audit. Changes for the
2022 audit included more auditing being performed centrally
Report of the Directors | Corporate governance report
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HSBC Holdings plc Annual Report and Accounts 2021
across legal entities and the increased use of technology solutions,
some of which are aligned to technology change and
transformation activities across HSBC.
Effectiveness of external audit process
The GAC assessed the effectiveness of PwC as the Group's
external auditor, using a questionnaire that focused on the overall
audit process, its effectiveness and the quality of output. PwC
highlighted the actions being taken in response to the HSBC
effectiveness review, including the development of audit quality
indicators, which would provide a balanced scorecard and
transparent reporting to the GAC. These focused on the following
areas:
•findings from inspections across the Group on PwC as a firm;
•the hours of audit work delivered by senior PwC audit team
members, the extent of specialist and expert involvement,
delivery against agreed timetable and milestones and the use of
technology;
•any new control deficiencies in Sarbanes-Oxley locations,
proportion of management identified deficiencies and delivery
of audit deliverables to agreed timelines; and
•outcomes and scores from annual audit surveys, independent
senior partner reviews and prior period errors.
The GAC will continue to receive regular updates from PwC and
management on the progress of the external audit plan and PwC
performance across the audit quality indicators.
The GAC monitored the policy on hiring employees or former
employees of the external auditor, and there were no breaches of
the policy highlighted during the year. The external auditor
attended all Committee meetings and the GAC Chair maintains
regular contact with the senior audit partner and his team
throughout the year.
Independence and objectivity
The Committee assessed any potential threats to independence
that were self-identified or reported by PwC. The GAC considered
PwC to be independent and PwC, in accordance with professional
ethical standards and applicable rules and regulations, provided
the GAC with written confirmation of its independence for the
duration of 2021.
The Committee confirms it has complied with the provisions of the
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 for the financial
statements. The Committee acknowledges the provisions
contained in the 2018 UK Corporate Governance Code in respect
of audit tendering. In conformance with these requirements, HSBC
will be required to tender for the audit for the 2025 financial year
end and beyond, having appointed PwC from 1 January 2015.
The Committee believed it would not be appropriate to re-tender in
2021 as a change in auditor would have a significant impact on
the organisation, including on the Global Finance function and
would increase operational risk. In 2021, the Committee's priority
was to monitor closely the ongoing industry developments and
proposals on reform of the UK external audit market and the
impact this may have on any tender process. As a result, the
Committee has commenced planning for the next tender process
in advance of the 10-year re-tender period, likely to take place no
later than early 2023.
The Committee has recommended to the Board that PwC should
be reappointed as auditor. Resolutions concerning the
reappointment of PwC and its audit fee for 2022 will be proposed
to shareholders at the 2022 AGM.
Non-audit services
The Committee is responsible for setting, reviewing and
monitoring the appropriateness of the provision of non-audit
services by the external auditor. It also applies the Group’s policy
on the award of non-audit services to the external auditor. The
non-audit services are carried out in accordance with the external
auditor independence policy to ensure that services do not create
a conflict of interest. All non-audit services are either approved by
the GAC, or by Group Finance when acting within delegated limits
and criteria set by the GAC.
During the period, it was identified that PwC provided an
impermissible training service via a publicly available seminar in
respect of the implementation of a new Indonesian IT security
regulation. The attendees at this seminar included six members of
staff from HSBC Indonesia. The HSBC staff who attended the
course were not from the Finance function and were not in roles
relevant to the audit. In addition, HSBC Indonesia is not within the
scope of the Group audit. In light of the nature and scope of the
original service and the mitigating factors mentioned above, we do
not believe that the provision of the service has affected PwC’s
professional judgement or integrity in respect of the audit of the
Group. Mitigating actions have been implemented by both PwC
and HSBC to reinforce the controls around the provision of non-
audit services by PwC, including additional independence training
and improved communication between relevant parties.
The non-audit services carried out by PwC included 69
engagements approved during the year where the fees were over
$100,000 but less than $1m. Global Finance, as a delegate of GAC,
considered that it was in the best interests of the Group to use
PwC for these services because they were:
•audit-related engagements that were largely carried out by
members of the audit engagement team, with the work closely
related to the work performed in the audit;
•engagements covered under other assurance services that
require obtaining appropriate audit evidence to express a
conclusion designed to enhance the degree of confidence of
the intended users other than the responsible party about the
subject matter information; or
•other permitted services to advisory attestation reports on
internal controls of a service organisation primarily prepared for
and used by third-party end users.
Ten engagements during the year were approved where the fees
exceeded $1m. These were mainly engagements required by the
regulator and incremental fees related to previously approved
engagements, including the provision of services by PwC relating
to the Section 166 Financial Services and Markets Act 2000 Skilled
Person report. The PRA instructed a Section 166 review of HSBC's
credit risk RWAs as reported at 31 December 2020 and agreed for
PwC to provide a reasonable assurance opinion on the accuracy of
the regulatory reporting at that date. One new engagement
outside the scope of the pre-approved services related to
preliminary advanced audit procedures for the adoption of IFRS 17
in 2023.
2021
2020
Auditors‘ remuneration
$m
$m
Total fees payable
129.4
130.2
Fees for non-audit services
41.3
37.3
Global Internal Audit
The primary role of the Global Internal Audit function is to help the
Board and management protect the assets, reputation and
sustainability of the Group. Global Internal Audit does this by
providing independent and objective assurance on the design and
operating effectiveness of the Group’s governance, risk
management and control framework and processes, prioritising
the greatest areas of risk.
The independence of Global Internal Audit from day-to-day line
management responsibility is critical to its ability to deliver
objective audit coverage by maintaining an independent and
objective stance. Global Internal Audit is free from interference by
any element in the organisation, including on matters of audit
selection, scope, procedures, frequency, timing, or internal audit
report content. Global Internal Audit adheres to The Institute of
Internal Auditors' mandatory guidance.
The Group Head of Internal Audit reports to the Chair of the GAC
and there are frequent and regular meetings held between them.
Results of audit work, together with an assessment of the Group’s
HSBC Holdings plc Annual Report and Accounts 2021
243
overall governance, risk management and control framework and
processes are reported regularly to the GAC, GRC and local audit
and risk committees, as appropriate. This reporting highlights key
themes identified through audit activity, and the output from
continuous monitoring. This includes business and regulatory
developments and an independent view of emerging and horizon
risk, together with details of audit coverage and any required
changes to the annual audit plan.
Audit coverage is achieved using a combination of business and
functional audits of processes and controls, risk management
frameworks and major change initiatives, as well as regulatory
audits, investigations and special reviews. In addition to the
ongoing importance of regulatory-focused work, key risk theme
categories for 2021 audit coverage were strategy, governance and
culture, financial crime, conduct and compliance, financial
resilience and operational resilience. In 2021, Global Internal Audit
increased coverage on the Group’s transformation programme and
performed project audit activity for selected complex and high-
priority business cases. Global Internal Audit also continued its
'real-time audit' approach, notably to cover areas of strategic
importance. 'Real-time audits' provide real-time, independent
ongoing observations to management, with issues being raised for
significant observations that are not addressed in a timely manner.
In addition, in 2021, Global Internal Audit implemented its revised
'culture audit' approach which assesses the impact of culture in
supporting or inhibiting sustainable performance against strategic
aspirations and managing risk within risk appetite. The approach
combines internal audit and behavioural science principles, which
align to regulator culture assessments and industry best practice.
Executive management is responsible for ensuring that issues
raised by the Global Internal Audit function are addressed within
an appropriate and agreed timetable. Confirmation to this effect
must be provided to Global Internal Audit, which validates closure
on a risk basis.
Consistent with previous years, the 2022 audit planning process
includes assessing the inherent risks and strength of the control
environment across the audit entities representing the Group.
Results of this assessment are combined with a top-down analysis
of risk themes by risk category to ensure that themes identified are
addressed in the annual plan. Risk theme categories for the 2022
audit work continue to be strategy, governance and culture,
financial crime, conduct and compliance, financial resilience and
operational resilience. In 2022, a quarterly assessment of key risk
themes will form the basis of thematic reporting and plan updates
and will ultimately drive the 2023 planning process. The annual
audit plan and material plan updates made in response to changes
in the Group’s structure and risk profile are approved by the GAC.
Based on regular internal audit reporting to the GAC, private
sessions with the Group Head of Internal Audit, the Global
Professional Practices annual assessment and quarterly quality
assurance updates, the GAC is satisfied with the effectiveness of
the Global Internal Audit function and the appropriateness of its
resources.
Global Internal Audit maintains a close working relationship with
HSBC’s external auditor, PwC. The external auditor is kept
informed of Global Internal Audit’s activities and results, and is
afforded free access to all internal audit reports and supporting
records.
Principal activities and significant issues
considered during 2021
Collaborative oversight by GAC and GRC
The GAC and GRC worked closely to ensure there were
procedures to manage risk and oversee the internal control
framework. They also worked together to ensure any common
areas of responsibility were addressed appropriately with inter-
committee communication or joint discussions with the Chairs.
The Chairs are members of both committees and engage on the
agendas of each other’s committees to further enhance
connectivity, coordination and flow of information.
Areas of joint focus for the GAC and GRC during 2021 were:
Sustainable control environment
As discussed in the ‘Internal controls’ section of this report, the
GAC oversaw management’s approach to create a sustainable
transformation of the control environment. The programme, and
its impact on the internal control environment as a whole, was
also discussed by the GRC.
In conjunction with the GRC, the GAC monitored the remediation
of significant deficiencies and weaknesses in controls raised by
management and the external auditor. The GAC will continue to
monitor the progress of remediation as well as efforts to integrate
requirements of the Sarbanes-Oxley Act with the operational risk
framework as part of the sustainable control environment
programme. The committees will also continue to monitor the
regulatory reporting enhancements programmes to bring
regulatory reporting processes within the risk appetite.
In 2021, the GAC and GRC Chairs worked closely with the Group
Chief Risk and Compliance Officer and the Group Head of Internal
Audit to:
•ensure that risks and issues highlighted at the GAC from audit
reports were appropriately captured and reported as part of the
wider internal controls discussion at the GRC; and
•coordinate the approach and oversight required for the
remediation of very high risk and high risk issues identified by
Global Internal Audit, as well as the establishment of a single
repository of issues across HSBC.
The GAC and the GRC also held a joint meeting to consider data
strategy and data management. Further details can be found in the
GRC report on page 250.
Financial reporting
In addition to the GRC’s overall review of the Group’s risk appetite
and risk management framework, the GAC gave particular focus
to risk measures impacting financial reporting. This included the
review of the financial reporting, tax and pension risk appetite
statements. The GAC and the GRC also considered how the
approach to financial reporting risk appetite could be evolved to
drive a reduction in the exposure to this risk over the medium term
and provide better visibility to financial and prudential regulatory
reporting separately.
The committees worked collaboratively in reviewing ESG and
climate risks, as well as the financial and regulatory reporting
impacts. For further details, see the 'ESG and climate reporting’
section of this report on page 80.
Given the continued impact from the Covid-19 pandemic, the GAC
and the GRC reviewed the risks arising from models used for the
estimation of expected credit losses under IFRS 9. The committees
challenged the underlying economic scenarios, additional
scenarios added by management and the reasonableness of the
weightings applied to each scenario in order to understand the
impact on the financial statements.
Whistleblowing and speak-up culture
An important part of HSBC's values is ensuring that colleagues
have the confidence to speak up when they observe unlawful or
unethical behaviour. HSBC provides a variety of channels for
colleagues to raise concerns, including through the Group’s
whistleblowing channel, HSBC Confidential (see page 87 for
further information). The GAC is responsible for the oversight of
the effectiveness of the Group’s whistleblowing arrangements.
The Group Head of Compliance provides periodic reporting to the
GAC on the efficacy of the whistleblowing arrangements,
providing an assessment of controls and detailing the results of
internal audit assessments. The Committee is also briefed on
culture and conduct risks and associated management actions
arising from whistleblowing cases. The Chair of the GAC acts as
the Group’s whistleblowers’ champion, with responsibility for
ensuring and overseeing the integrity, independence and
effectiveness of HSBC’s policies and procedures on
whistleblowing and the protection of whistleblowers. The Chair
met with the Group Head of Conduct, Policy and Whistleblowing
Report of the Directors | Corporate governance report
244
HSBC Holdings plc Annual Report and Accounts 2021
throughout the year for briefings on material whistleblowing cases
and assessments of the whistleblowing arrangements.
The Committee has requested updates on a number of key areas
during 2021, including: enhancements made to the Group’s
whistleblowing arrangements following an external benchmarking
assessment in December 2020; completion of actions arising from
Global Internal Audit reviews; and details of key emerging conduct
themes across the arrangements. During 2022, the Committee will
be provided with updates on how whistleblowing arrangements
are actively supporting our purpose and values, and conduct
approach.
Financial and
regulatory
reporting
Key financial metrics and strategic priorities
The GAC considered the key judgements in relation
to external reporting to track the key financial
metrics and strategic priorities and to review the
forecast performance and outlook.
In exercising its oversight, the Committee assessed management's assurance and
preparation of external financial reporting disclosures. The Committee was
particularly focused on the ongoing Covid-19-related uncertainty and how
management addressed and reflected the impact of the pandemic in external
reporting and disclosures. The Committee reviewed the draft external reporting
disclosures and provided feedback and challenge on the top sensitive disclosures,
including key financial metrics and strategic priorities to ensure HSBC was
consistent and transparent in its messaging.
Environmental, social and governance (‘ESG’)
reporting
The Committee considered management's efforts to
enhance ESG disclosures and associated
verification and assurance activities. The GAC
reviewed the 2021 ESG disclosure approach in line
with our external commitments.
In relation to our climate change resolution, particular attention was given to the
disclosure of the financed emissions. The Committee reviewed the ESG reporting
strategy, including the broadening of ESG coverage in the Annual Report and
Accounts and management’s approach on integrated reporting, which will be
further informed by feedback from external stakeholders.
Regulatory reporting assurance programme
The GAC monitored the progress of the regulatory
reporting assurance programme to enhance the
Group’s regulatory reporting, impact on the control
environment and oversee regulatory reviews and
engagement.
The Committee reflected on the continued focus on the quality and reliability of
regulatory reporting by the PRA and other regulators globally. The GAC reviewed
management’s efforts to strengthen and simplify the end-to-end operating model,
including commissioning independent external reviews of various aspects of
regulatory reporting. The Committee discussed and provided management’s
engagement plans with the Group’s regulators, including any potential impacts on
some of our regulatory ratios such as CET1 and LCR. We continue to keep the
PRA and other relevant regulators informed of our progress.
Significant
accounting
judgements
Expected credit losses
The measurement of expected credit losses involves
significant judgements, particularly under current
economic conditions. Despite a general recovery in
economic conditions in 2021, there remains an
elevated degree of uncertainty over ECL estimation
under current conditions, due to macroeconomic,
political and epidemiological uncertainties.
The GAC reviewed the economic scenarios for the key countries in which the
Group operates, and challenged management's judgements as to the weightings
assigned to these scenarios. The GAC also challenged management's approach to
making management adjustments to account for the uncertainty in outcomes
arising from Covid-19 and China commercial real estate,, including the rationale
for such adjustments, the controls underpinning the adjustment processes, and
under what conditions such adjustments could be reduced or removed. The GAC
also challenged management on the overall levels of ECL across portfolios,
including looking at historical performances of portfolios and peer group
comparisons.
Goodwill, other non-financial assets and
investment in subsidiaries impairment
During the year, management tested for impairment
goodwill, other non-financial assets and
investments in subsidiaries. Key judgements in this
area relate to long-term growth rates, discount
factors and what cash flows to include for each
cash-generating unit tested, both in terms of
compliance with the accounting standards and
reasonableness of the forecast. During the year, the
Group recognised $0.6bn impairment in relation to
goodwill and an impairment reversal of $3.1bn in
investments in subsidiaries.
The GAC received reports on management's approach to goodwill, other non-
financial assets and investments in subsidiaries impairment testing and
challenged the approach and methodologies used,with a key focus on the
cashflows included within the forecasts and the discount rates used. The GAC
also challenged management's key judgements and considered the
reasonableness of the outcomes as a sense check against the business forecasts
and strategic objectives of HSBC.
Associates (Bank of Communications Co.,
Limited)
During the year, management performed the
impairment review of HSBC’s investment in Bank of
Communications Co., Ltd (‘BoCom’). The
impairment reviews are complex and require
significant judgements, such as projected future
cash flows, discount rate, and regulatory capital
assumptions.
The GAC reviewed the judgements in relation to the impairment review of HSBC’s
investment in BoCom, including the sensitivity of the results to estimates and key
assumptions such as projected future cash flows and regulatory capital
assumptions. Additionally, the GAC reviewed the model’s sensitivity to long-term
assumptions including the continued appropriateness of the discount rates. The
GAC also challenged management to review all aspects of its approach to
accounting for BoCom to ensure the approach remains the most appropriate in
terms of accounting judgements including compliance with the relevant
accounting requirements.
Legal proceedings and regulatory matters
Management has used judgement in relation to the
recognition and measurement of provisions, as well
as the existence of contingent liabilities for legal
and regulatory matters, including, for example, an
FCA investigation into HSBC Bank’s and HSBC UK
Bank’s compliance with the UK money laundering
regulations and financial crime systems and
controls requirements.
The GAC received reports from management on the legal proceedings and
regulatory matters that highlight the accounting judgements for matters where
these are required. The matters requiring significant judgements were highlighted.
The GAC has reviewed these reports and agrees with the conclusions reached by
management.
Principal activities and significant issues considered during 2021
Areas of focus
Key issues
Conclusions and actions
HSBC Holdings plc Annual Report and Accounts 2021
245
Significant
accounting
judgements
Valuation of defined benefit pension
obligations
The valuation of defined benefit pension obligations
involves highly judgemental inputs and
assumptions, of which the most sensitive are the
discount rate, pension payments and deferred
pensions, inflation rate and changes in mortality.
The GAC has considered the effect of changes in key assumptions on the HSBC
UK Bank plc section of the HSBC Bank (UK) Pensions Scheme, which is the
principal plan of HSBC Group.
Valuation of financial instruments
Due to the ongoing volatile market conditions in
2021, management continuously refined its
approach to valuing the Group’s investment
portfolio. In addition, as losses were incurred on the
novation of certain derivative portfolios,
management considered whether fair value
adjustments were required under the fair value
framework. Management’s analysis provided
insufficient evidence to support the introduction of
these adjustments in line with IFRSs.
The GAC considered the key valuation metrics and judgements involved in the
determination of the fair value of financial instruments. The GAC considered the
valuation control framework, valuation metrics, significant year-end judgements
and emerging valuation topics and agrees with the judgements applied by
management.
Long-term viability and going concern
statement
The GAC has considered a wide range of
information relating to present and future
projections of profitability, cash flows, capital
requirements and capital resources. These
considerations include stressed scenarios that
reflect the increasing uncertainty that the global
Covid-19 pandemic continues to have on HSBC’s
operations, as well as considering potential impacts
from other top and emerging risks, and the related
impact on profitability, capital and liquidity.
In accordance with the UK and Hong Kong Corporate Governance Codes, the
Directors carried out a robust assessment of the principal risks of the Group and
parent company. The GAC considered the statement to be made by the Directors
and concluded that the Group and parent company will be able to continue in
operation and meet liabilities as they fall due, and that it is appropriate that the
long-term viability statement covers a period of three years.
Tax-related judgements
HSBC has recognised deferred tax assets to the
extent that they are recoverable through expected
future taxable profits. Significant judgement
continues to be exercised in assessing the
probability and sufficiency of future taxable profits,
future reversals of existing taxable temporary
differences and ongoing tax planning strategies.
The GAC considered the recoverability of deferred tax assets, in particular in the
US, France and the UK. The GAC also considered management’s judgements
relating to tax positions in respect of which the appropriate tax treatment is
uncertain, open to interpretation or has been challenged by the tax authority.
Impact of acquisitions and disposals
In 2021, HSBC engaged in a number of business
acquisition and disposal activities, notably in the
US, France, Singapore and India. There are a
number of accounting impacts that need to be
considered, including the timing of recognition of
assets held-for-sale, gains or losses, and the
measurement of assets and liabilities on acquisition
or disposal.
The GAC considered the impacts of the planned exits of the French and US retail
banking businesses and the timing of the accounting recognition of these
transactions. The GAC also considered the financial and accounting impacts of
other acquisitions and disposals.
Principal activities and significant issues considered during 2021 (continued)
Areas of focus
Key issues
Conclusions and actions
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246
HSBC Holdings plc Annual Report and Accounts 2021
Group
transformation
Transformation and sustainable control
environment
The GAC will oversee the impact on the risk and
control environment from the Group transformation
programme.
The Committee received regular updates on the Group transformation programme
– and the broader change framework – to review the impact on the risk and
control environment and to oversee progress of the transformation programme. In
these updates, the Committee monitored the progress of the programme, and
focused on the implementation of the new change framework and the
management of the entire change portfolio. This oversight helped the Committee
to understand the key improvements being made to the management of the
change portfolio, and progress on the implementation.
Management’s updates were supplemented by significant focus and assurance
work from Global Internal Audit where a dedicated team continuously monitored
and reviewed the Group transformation programme. This included carrying out a
number of targeted audit reviews, in addition to audits of significant programmes.
These reviews focused on key elements of change management.
Global Finance transformation
The Committee reviewed the proposals for the
Global Finance organisational design, the migration
to Cloud and the impact on financial controls.
The Committee has oversight for the adequacy of resources and expertise, as well
as succession planning for the Global Finance function. During 2021, the
Committee dedicated significant time to the review and progress of the multi-year
Global Finance transformation programme, with the overall objectives being to
improve the control environment and customer outcomes and to make use of
technology to increase overall efficiency. In particular, the Committee discussed
the challenges to Global Finance operations, including financial reporting, from
the Covid-19 pandemic and sought assurance that controls were in place to
maintain standards and quality.
The Committee has received regular status updates on the progress of the Global
Finance transformation, the outcomes achieved to date and challenges
encountered. The Committee has continued to dedicate significant time to the
review of the progress of the programme.
A key objective of the programme is to improve the Group’s control environment
and a particular focus of the Committee has been the interaction of the Global
Finance transformation programme and the programmes to enhance the Group’s
regulatory reporting control environment. The Committee has also considered the
dependencies that key regulatory change programmes, such as the Basel III
Reform programme, have on the Global Finance transformation. In addition, the
Committee has specifically sought to understand the impact of new requirements
and programme re-planning on the delivery and timing of programme outcomes.
Sessions have been held with individual Committee members to support a more
detailed understanding of the programme risks and challenges.
The results of Global Internal Audit reviews of the programme have been
considered by the Committee and there have been frequent discussions with
Global Internal Audit on its assessment of the progress and risks of the
programme.
The Group Chief Financial Officer had private sessions with the Committee to
share his perspectives on the progress of the Global Finance transformation and
where additional focus was required.
Regulatory
change
IFRS 17 'Insurance Contracts'
The Committee will oversee the transition to IFRS
17 and consider the wider strategic implications of
the change on the insurance business.
Earlier in 2021, management provided an update on the potential impact of IFRS
17 on HSBC’s reported numbers in the financial statements, and conducted a
walk-through of the relevant disclosure requirements applicable to HSBC,
including an introduction to GAAP and potential non-GAAP metrics to support
investor communications during and after the transitional period. In response to
questions from GAC members, including from the Chair, relating to the overall
financial management of the insurance business, a separate session was
organised with the Chair of the GAC on 16 June 2021. The meeting covered
different aspects of insurance financial management, with a particular focus on
interest rate management and business strategy. Since then, HSBC released
further information on the impact of IFRS 17 on HSBC’s reported numbers, as part
of the third quarter 2021 earnings release statement, as well as providing a
briefing to analysts on IFRS 17. Feedback from analysts so far has been positive,
particularly given HSBC was the first to provide high-level indicative impact based
on planning assumptions. In December 2021, management provided an update
on the disclosure of performance metrics on adoption of IFRS 17, including its
current intention to continue to provide Value of New Business and embedded
value metrics for comparability.
Basel III Reform
The GAC considered the implementation of the
Basel III Reform and the impact on the capital
requirements and RWA assurance. This was
considered in the context of the strategy and
structure of the balance sheet.
The Committee received an update on the progress and impact of the Basel III
Reform programme on the Group. Management discussed the uncertainty over
the final definition of the rules and the actions taken to ensure sufficient flexibility
to make changes and mitigate risks from legislation being finalised at a later date.
The discussion highlighted the dependencies of the Basel III Reform programme
with other Group transformation programmes, in particular the dependency on
adoption of the Finance on the Cloud solution and the impact on data delivery and
storage.
The Committee reviewed and challenged management on the findings from an
audit on the programme structure, governance and the significant cost increase
year on year. Management explained the actions being taken in response to the
audit findings and the reasons for the increase in costs, which included delays to
implementation dates caused by the Covid-19 pandemic.
Principal activities and significant issues considered during 2021 (continued)
Areas of focus
Key issues
Conclusions and actions
HSBC Holdings plc Annual Report and Accounts 2021
247
Regulatory
change
Interest rate benchmark replacement
The financial reporting risks of interest rate
benchmark transition include the potential for
volatility arising from financial instruments
valuation, contract modification and hedge
accounting. The transitions involve significant
operational complexity for financial institutions, and
industry approaches to transition continue to
develop.
The GAC noted management’s early adoption of ‘Interest Rate Benchmark Reform
– Phase 2’ amendments to IFRSs in relation to benchmark reform, including the
disclosures necessary to support adoption of the reliefs.
The Committee considered the risks and financial reporting impacts arising from
the Ibor transition. Management discussed actions being taken to mitigate the
risks, which included new product development and a client outreach
programme, to ensure we were ready to migrate and able to explain the changes
and outcomes arising from the transition to clients. Management advised about
the operational challenges, such as the updates to current systems and processes
that were required to support the accounting for the Ibor transition, and our
external dependency on market and client readiness. In particular, management
drew attention to the potentially material impact on hedge accounting
programmes from the Ibor transition and the substantial costs and risks involved
in the redocumentation of hedges.
The Committee discussed the approach being taken across the industry with
management and PwC, and potential impacts on the control environment relevant
to financial reporting from the Ibor transition.
Principal activities and significant issues considered during 2021 (continued)
Areas of focus
Key issues
Conclusions and actions
Committee evaluation and effectiveness
The annual review of the effectiveness of the Board committees,
including the GAC, was conducted internally in 2021. Led by the
Group Company Secretary and Chief Governance Officer, the
review concluded that the GAC continued to operate effectively.
Management of meetings and reporting to the Board on
discussions, in particular, were rated highly.
The review also made certain recommendations for continual
improvement. The GAC was recommended to review the
composition of the GAC to broaden the skillset, ensure clarity in
roles and improve the coordination between the GAC and other
Board committees and working groups relating to technology and
ESG. Succession planning was also highlighted as a priority. The
Committee considered the outcomes of the evaluation and
accepts the findings. The evaluation outcomes were reported to
the Board and the Committee will track progress against the
recommendations during 2022.
Focus of future activities
At the beginning of each year, the Committee discusses its key
priorities for the year ahead. In 2022, the Committee will continue
to focus strongly on the remediation of controls, particularly those
supporting regulatory reporting. The Committee will continue to
monitor the execution of the Group's transformation programme
and its impact on the risk and control environment. It will also
monitor the interdependencies between the transformation
programme and the implementation of large-scale regulatory
change programmes, such as the Basel III reforms, the Ibor
transition and IFRS 17 'Insurance Contracts'. A key priority will be
to further embed ESG and climate-related disclosures to meet
increasing expectations of stakeholders, in particular the
implementation of robust processes and controls to support these
disclosures. The Committee will focus on the audit tender strategy
in preparation for the next re-tender, and will consider the impact
of potential changes to the UK external audit market on HSBC's
approach to audit and assurance.
Report of the Directors | Corporate governance report
248
HSBC Holdings plc Annual Report and Accounts 2021
Group Risk Committee
"The GRC provided oversight on the management of Covid-19-
related financial risks, including the Group's release of expected
credit loss reserves in response to the improving macroeconomic
conditions."
Dear Shareholder
I am pleased to present the Group Risk Committee (‘GRC’) report.
The year commenced with a challenging risk outlook due to
increasing Covid-19 infections and lockdowns across markets. The
outlook began to stabilise by the second quarter, with the roll-out
of global vaccine programmes, and the GRC monitored the impact
of new strains, including the Omicron variant.
Against this backdrop, the GRC provided oversight on the
management of Covid-19-related financial risks, including the
Group’s release of expected credit loss reserves in response to the
improving macroeconomic conditions. The Committee worked
closely with the Group Chief Risk and Compliance Officer in
strengthening the Group’s risk management framework to be even
more forward looking, granular and risk connected. The GRC
continued its oversight of people and operational challenges
presented by the pandemic and market conditions.
Throughout the year, the GRC played a central role in reviewing
and challenging management on the Group’s regulatory
submissions and programmes, including the Bank of England's
requirements for the resolvability assessment framework. The GRC
had primary non-executive responsibility for reviewing the
outcomes of regulatory stress tests, including the Bank of
England's biennial exploratory scenario on the financial risk from
climate risk, and the 2021 solvency stress test. The GRC reviewed
and challenged the Group’s thermal coal phase-out policy and
approach to climate-aligned finance in a joint meeting with the
GAC. The Committee continued its oversight of the Group’s
preparations to meet the PRA’s requirements on operational
resilience.
The GRC continued to strengthen its composition, skills and
experience to ensure that it remains well positioned to promote
proactive risk governance. On 1 September 2021, we welcomed
Dame Carolyn Fairbairn, a seasoned macroeconomic and political
environment expert. Heidi Miller and Pauline van der Meer Mohr
left the GRC on 28 May 2021. I extended our gratitude to each for
their valued commitments and support to the GRC.
The GRC convened 11 formal meetings, two of which were joint
meetings with the GAC, and 13 education and special meetings to
review and challenge some of our most important responsibilities.
Jackson Tai
Chair
Group Risk Committee
22 February 2022
Membership
Member since
Meeting attendance
in 2021 1
Jackson Tai (Chair)
Sep 2016
11/11
Dame Carolyn Fairbairn 2
Sep 2021
3/3
Steven Guggenheimer
May 2020
11/11
José Antonio Meade Kuribreña
May 2019
11/11
Heidi Miller 3
Sep 2014
6/6
Eileen Murray 4
Jul 2020
9/11
David Nish 5
Feb 2020
10/11
Pauline van der Meer Mohr 6
Apr 2018
5/6
1 These included two joint meetings with the Group Audit Committee.
2 Dame Carolyn Fairbairn joined the GRC on 1 September 2021.
3 Heidi Miller stepped down from the GRC on 28 May 2021.
4 Eileen Murray was unable to attend two meetings due to personal
circumstances.
5 David Nish was unable to attend one meeting due to a prior
commitment.
6 Pauline van der Meer Mohr was unable to attend one meeting due to
personal circumstances, and stepped down from the GRC on 28 May
2021.
Key responsibilities
The GRC has overall non-executive responsibility for the oversight
of risk-related matters and the risks impacting the Group. The
GRC’s key responsibilities are:
•overseeing and advising the Board on all risk-related matters,
including financial risks, non-financial risks and the
effectiveness of the Group’s conduct framework;
•advising the Board on risk appetite-related matters, and key
regulatory submissions;
•reviewing the effectiveness of the Group’s enterprise risk
management framework and internal controls systems (other
than internal financial controls overseen by the GAC); and
•reviewing and challenging the Group's stress testing exercises.
Committee governance
The Group Chief Risk and Compliance Officer, Group Chief
Financial Officer, Group Chief Operating Officer, Group Company
Secretary and Chief Governance Officer, Group Chief Legal Officer,
Group Head of Internal Audit, Group Head of Finance and Group
Head of Risk Strategy are standing attendees and regularly attend
GRC meetings to contribute their subject matter expertise and
insight. The Chair and members of the GRC also hold private
meetings with the Group Chief Risk and Compliance Officer, the
Group Head of Internal Audit and external auditor, PwC, following
scheduled GRC meetings.
The participation of our senior business leaders, including the
Group Chief Executive who attended 9 GRC meetings in 2021,
reaffirmed the ownership and accountability of risks in the first line
of defence and strengthened our holistic three lines of defence
review of our most pressing risks.
The Chair meets regularly with the Group Chief Risk and
Compliance Officer to discuss priorities, track progress on key
actions and plan GRC meeting agendas. The Chair also has regular
meetings with members of senior management to discuss specific
risk matters that arise during the year outside formal meetings.
The Chair meets regularly with the GRC Secretary and other
members of the Corporate Governance and Secretariat to ensure
the GRC meets its governance responsibilities, and to consider
input from stakeholders when finalising meeting agendas, tracking
progress on actions and GRC priorities. A summary of coverage is
set out in the 'Matters considered during 2021' table on page 250.
HSBC Holdings plc Annual Report and Accounts 2021
249
Matters considered during 2021
Jan
Feb
Mar
Apr
May
Jun
Jul
Sep
Nov
Dec
Financial risk
l
l
l
l
l
l
l
l
ô
l
Credit risk
l
l
l
l
l
ô
l
l
ô
l
Climate risk
ô
ô
l
l
ô
ô
l
l
l
l
IT and operational risk including outsourcing,
third-party risk management, cyber risk
l
l
l
l
l
ô
l
l
ô
l
Model risk
l
ô
ô
l
l
ô
ô
ô
ô
ô
People and conduct risk
ô
ô
l
ô
l
ô
ô
l
ô
l
Risk appetite
l
l
ô
ô
ô
ô
l
l
ô
l
Financial crime risk
l
l
l
l
l
ô
l
l
ô
l
Regulatory compliance
l
l
ô
l
l
ô
l
l
ô
l
Legal risk
l
l
ô
l
ô
ô
l
ô
ô
l
How the Committee discharged its
responsibilities
Activities outside formal meetings
The GRC held a number of meetings outside its regular schedule
to facilitate more effective oversight of the risks impacting the
Group. In particular, Directors’ education meetings and GRC
Chair’s preview meetings strengthened the understanding of more
technical topics and promoted constructive challenge. Areas
covered included stress testing, ICAAP and ILAAP preparations, as
well as recovery and resolution planning. Further details on these
sessions are included in the 'Principal activities and significant
issues considered during 2021' table starting on page 251.
Connectivity with principal subsidiary risk committees
During 2021 the GRC continued to actively engage with principal
subsidiary risk committees through the scheduled participation of
principal subsidiary risk committee chairs at GRC meetings, and
through two connectivity meetings with the principal subsidiary
risk committee chairs. This participation and connectivity
promoted the sharing of information and best practices between
the GRC and principal subsidiary risk committees.
The GRC also received reports on the key risks facing particular
principal subsidiaries at its regular meetings and continued to
review certifications from the principal subsidiary risk committees.
The certifications confirmed that the principal subsidiary risk
committees had challenged management on the quality of the
information provided, reviewed the actions proposed by
management to address any emerging issues and that the risk
management and internal control systems have been operating
effectively.
The principal subsidiary risk committee chairs have attended
regular GRC meetings, education meetings and special review
meetings. The engagement facilitated the GRC’s holistic review of
regulatory submissions including stress tests, the Group recovery
plan and the resolution self-assessment. The interactions furthered
the GRC’s understanding of the risk profile of the principal
subsidiaries, leading to more comprehensive review and challenge
by the GRC.
Collaborative oversight by the GRC and the GAC
The GRC collaborated with the GAC to address any areas of
significant overlap and to oversee risk more comprehensively,
through inter-committee communication and joint meetings. The
GRC and GAC Chairs are members of both committees to
strengthen connectivity and the flow of information between the
committees.
Joint meetings with the GAC
The GRC and the GAC convened a meeting on data strategy and
data management in April 2021, with the attendance and support
of the Group Chief Executive and the chief executive officers of the
three global businesses. The committees reviewed the Group’s
data strategy and the work required to embed its data policies,
define its technology landscape and build a data-led culture. The
committees challenged the first and second lines of defence on
how they are pursuing a data-driven strategy across four key areas
for the Group. In the process the committees reviewed the
regulatory landscape in relation to the Group's use of data, and the
roles of the first and second lines of defence as co-owners of the
management of data risk. The committees also reviewed the
Group's approach to harnessing and using data to better unlock
value for our customers.
The GRC and the GAC convened a joint meeting in November
2021 to review HSBC's thermal coal phase-out policy and the
Group's approach to climate-aligned finance. The committees
reviewed the progress made to deliver on the commitment to
publish a policy to phase out the financing of coal-fired power and
thermal coal mining by 2030 in EU/OECD markets, and by 2040 in
other markets. The committees recommended the thermal coal
phase-out policy and the approach to climate-aligned finance to
the Board for approval.
Sustainable control environment
The GRC continued to review and challenge the Group’s internal
controls to improve the control environment. The GRC reviewed
entity level controls, which form the basis of HSBC’s control
environment, as well as the results and remediation plans of a self-
assessment performed by entity level control owners. At the
request of the GRC Chair, with support of the GAC Chair, the GRC
received an update on the thematic analysis and remediation plans
for any overdue very high risk and high risk issues identified by
Global Internal Audit.
Financial risk
During 2021, the GRC and the GAC reviewed and challenged the
Group’s risk appetite and risk management framework relating to
financial risk. In the process the committees discussed risk
tolerance for financial reporting risk and financial reporting and tax
risk, as well as improvement and remediation plans to enhance the
broad regulatory reporting control environment.
Collaborative oversight by the GRC and the Technology
Governance Working Group
The GRC worked closely with the Technology Governance
Working Group to ensure appropriate alignment in the review,
discussion, challenge and conclusions on technology risk-related
matters. The GRC organised a technology-specific session with the
working group in advance of the broader discussion at the joint
GRC and GAC meeting on data strategy and data management.
This ensured that the GRC benefited from the working group’s
expertise and challenge in advance of the GRC and GAC
discussion. The GRC also arranged for the Technology Governance
Working Group Co-Chairs to lead discussions on data, models and
infrastructure at the GRC climate biennial exploratory scenario pre-
meetings.
Coordination and collaboration between the GRC and the
Technology Working Group is supported by cross-membership.
The GRC Chair is a member of the Technology Working Group and
the Co-Chairs of the Technology Working Group are members of
the GRC.
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HSBC Holdings plc Annual Report and Accounts 2021
Risk appetite
The Group risk appetite statement defines the
Group’s risk appetite and tolerance thresholds and
forms the basis of the first and second lines of
defence’s management of risks, the Group's
capacity and capabilities to support customers,
and the pursuit of strategic goals.
The GRC maintained oversight of changes to the Group’s risk appetite statements,
which in turn provided the basis for the Committee’s regular interactive review of
financial and non-financial management information at each GRC meeting. The GRC
continued to promote the development of more granular risk appetite statements
that are more forward looking and risk responsive. The Committee continued to
strengthen the linkage between risk appetite statements with the Group’s corporate
strategy, stress testing, annual operating plan, as well as the Group's move towards
stronger, sustainably higher returns for stakeholders, so that it may serve customers
well. In January 2021, the GRC recommended the Group’s climate risk appetite
statement to the Board for approval. It also recommended significant changes to the
Group’s risk appetite statement, including in the areas of liquidity risk, wholesale
credit risk metrics, climate risk, model risk, resilience risk, financial crime risk and
regulatory compliance.
Geopolitical
developments
and risks
Geopolitical developments and risks continue to
present significant challenges for the Group’s
customer franchise and for the resilience of our
operations.
The GRC continued to monitor global geopolitical risks that could impact the
Group’s strategy, business performance or operations, including trade tensions
between the US and China and the related regulatory and reputational risks for
operations globally.
Managing
through the
Covid-19
pandemic
Managing operational risk and counterparty credit
risk to enable the Group’s support of our
customers, communities and the local economy
throughout the Covid-19 pandemic.
The GRC continued to review the economic uncertainty stemming from the Covid-19
pandemic and the impact to the Group’s own risk management and exposures,
including those related to credit risk and models. The Committee received updates
on the progress of economic recovery and how the Group continued to support
customers and sustain operational resilience during the pandemic. The GRC closely
monitored Covid-19-related lending and financial support packages, including
forbearance and other support to customers following the closure of government
lending schemes.
Operational
resilience
Management’s operational resilience programme
defines the Group’s policies and practices to
strengthen its ability to protect customers. The
programme identifies priority business services
and their readiness to serve customers in the
event of unforeseen disruptions in key markets.
The GRC continued its oversight of the Group’s operational resilience programme
with a focus on 2021 and 2022 regulatory commitments to the PRA. The GRC
reviewed and challenged the remediation plans for identified gaps, relevant controls,
and the business ownership model and its supporting infrastructure. The GRC
worked with management, including the Group Chief Control Officer to ensure
ownership and the delivery of resilience outcomes is embedded with business and
function leaders in the first line of defence. The Committee encouraged early
adoption of operational resilience learnings across key markets and business, as well
as the effective management of third-party risk.
Technology
resilience
including
cybersecurity
and Cloud
strategy
Technology resilience is the risk of unmanaged
disruption to any IT system within HSBC, as a
result of malicious acts, accidental actions or poor
IT practice or IT system failure.
The GRC reviewed reports on the state of the Group’s technology risk profile, as well
as reports on cybersecurity. The GRC also maintained a strong focus on
understanding the Group’s data risk landscape and its data strategy and data
management programme.
The GRC convened a joint meeting with the Group Audit Committee in April to
review and challenge the data strategy and data management programme, which
had the strong support of the Group Chief Executive and the chief executives of the
global businesses. The committees agreed that the Group’s data strategy and data
management programme should be elevated to the highest level of prominence
within the Group. Further details on the joint meeting are included in the 'Joint
meetings with the GAC' section on page 250.
People, conduct
and culture
The Group promotes a culture that is effective in
managing risk and leads to fair conduct
outcomes. It seeks to actively manage the risk of
not having the right people with the right skills
doing the right thing, including risks associated
with employment practices and relations.
The GRC monitored people risk and employee conduct, with support from the Group
Chief Human Resources Officer and Group Chief Risk and Compliance Officer. The
Committee considered people risk issues, including those arising from the impact of
Covid-19, the link between remuneration and talent retention and acquisition, and
reviewed workplace harassment data and insights. The GRC reviewed and
challenged the alignment of risk and reward, and the impact of risk and compliance
objectives on the Group’s variable pay pool.
The GRC reviewed the Group’s new conduct approach, which was refreshed in
2021, to reflect prevailing regulatory and industry standards and to align with the
Group’s new purpose and values. The GRC monitored progress in remediating the
market conduct issues underlying the 2017 Federal Reserve Bank Consent Order
(which remains in force) arising from its investigation into HSBC’s historical foreign
exchange activities, and to ensure the reforms are effective and sustainable in the
long term.
Financial crime
risk
The Group is committed to closely monitoring and
managing the risk of knowingly or unknowingly
helping parties to commit or to further potentially
illegal activity, including both internal and external
fraud
The GRC continued to review the Group’s approach to managing its financial crime
risk across a number of important areas. These included the Group’s progress in
enhancing its transaction monitoring framework, the use of next generation
technology, the fraud landscape (particularly against heightened Covid-19
conditions), the Group’s fraud risk profile and the nature and scale of insider risk and
the strategies for managing such risk.
The GRC also maintained oversight of the ever-changing and increasingly complex
international sanctions landscape in which the Group and its customers operate, as
well as the Group’s approach to managing its compliance with sanctions regimes
globally.
Principal activities and significant issues considered during 2021
Areas of focus
Key issues
Conclusions and actions
HSBC Holdings plc Annual Report and Accounts 2021
251
Capital and
liquidity risk
including ICAAP
and ILAAP
The GRC oversees the Group’s management of its
financial risk.
The GRC reviewed the Group’s ongoing capital and liquidity management activities,
including early warning indicators, scenario stress testing and the Group’s capital
and liquidity adequacy.
The GRC conducted its annual review, challenge and recommendation of the Group
ICAAP and ILAAP to the Board for approval. GRC members received both an
education session and previewed the ICAAP and ILAAP submissions in depth, with
input from the principal subsidiary risk committee chairs. In the process the
Committee evaluated the Group’s capital and liquidity strategies, capabilities
including progress on the Group liquidity remediation programme and internal
liquidity metric.
Credit risk
HSBC faces risk from the possibility of losses
resulting from the failure of a counterparty to
meet its agreed obligations to pay the Group
The Committee reviewed updates from management on the strategy and approach
to manage credit risk and credit risk capabilities. The Committee reviewed forward
economic scenarios and received quarterly updates on the Group’s expected credit
losses and provisions, loan impairment charges and the credit risk arising from the
wholesale portfolio and mortgage books. The GRC also reviewed the potential
impact for the Group from external and secondary market events and recommended
a management-led comprehensive review of the learnings and actions to be taken to
drive a stronger credit risk culture.
Climate risk
Successful delivery of our climate ambition will be
determined by our ability to measure and manage
all components of climate risk.
The GRC remained focused on climate risk, reviewed quarterly reports on climate
risk management, and maintained oversight over delivery plans to ensure the Group
develops robust climate risk management capabilities. The GRC reviewed the
Group's approach to climate risk appetite.
The GRC approved the Group’s climate biennial exploratory scenario stress test
submission to the PRA. In preparation, the GRC reviewed the scenario and convened
an education session. The GRC challenged management on the results of the
submission during three preparatory meetings on the key risks of climate change.
During the sessions the GRC reviewed the engagement with clients, their transition
plans and the importance of advancing risk appetite and management actions; the
challenges in relation to data, modelling and infrastructure support; and the impact
of climate change on our physical risks including through our residential and
corporate real estate mortgage books. The GRC also reviewed new business and
lending opportunities for our Wealth and Personal Banking business to support
customers.
The GRC and the GAC convened a joint meeting in November to review HSBC's
thermal coal phase-out policy and the Group's approach to climate-aligned finance
and recommended the thermal coal phase-out policy and approach to climate-
aligned finance to the Board for approval. Further details on the joint meeting are
included in the 'Joint meetings with the GAC' section on page 250.
Model risk
HSBC faces risk from the inappropriate or
incorrect business decisions arising from the use
of models that have been inadequately designed,
implemented or used, or from models that do not
perform in line with expectations and predictions.
The GRC continued to receive ongoing updates on the Group’s progress in
managing model risk through the Group Chief Risk and Compliance Officer’s Group
risk profile report and from the second line of defence. In January 2021, the
Committee received an update on a number of material post-model adjustments to
the Group’s wholesale portfolio, and on alternative modelling concepts being
considered to recalibrate the idiosyncratic economic effects of the pandemic not
captured by models. The update to the Committee in May 2021 reported on model
risk deliverables against external review findings, improvements to enhance first line
of defence engagement in the model lifecycle, and progress made to transform the
model risk management function and implementation of new global model risk
policy and standards.
Stress testing
HSBC performs internal and regulatory stress
tests to measure the Group’s resilience and
performance against stress.
The GRC reviewed and approved the outcomes of the initial submission of the
impairments and RWA impact to the Bank of England's solvency stress test in April
2021 and subsequently the final outcomes of the 2021 solvency stress test scenarios
in May 2021. In advance of the review, the Committee convened a preview meeting
with the principal subsidiary risk committee chairs to review the solvency stress test
submissions and the key learnings for the principal subsidiaries, including early
identification of adjustments that might strengthen resilience in advance of a stress
event. The Committee also undertook significant review and challenge of the
Group’s 2021 GRC climate biennial exploratory analysis and approved the
submissions to the PRA.
The GRC undertook a technical review of the 2021 Group internal stress test
outcomes at a GRC Chair’s preview meeting, which was followed by formal review
and approval at the January 2021 GRC meeting. In the lead-up to the 2022 financial
resource plan, the GRC reviewed and endorsed the economic scenarios
underpinning the financial resource plan and Group internal stress test in July 2021.
The GRC subsequently reviewed, challenged and approved the final Group internal
stress test results in December 2021.
The GRC also reviewed the implications of the results of the Federal Reserve’s
Comprehensive Capital Analysis and Review severely adverse scenario stress test
resubmission in relation to HSBC North America Holdings, and considered action
being progressed by management in response.
Principal activities and significant issues considered during 2021 (continued)
Areas of focus
Key issues
Conclusions and actions
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252
HSBC Holdings plc Annual Report and Accounts 2021
Recovery and
resolvability
HSBC is required to show how its resolution
strategy could be carried out in an orderly way,
including identification of any risks to successful
resolution.
The GRC continued its oversight of the Group’s progress in understanding its
capabilities against the Bank of England’s requirements for recovery and
resolvability. The GRC reviewed and challenged the governance pathway for the
2021 Group recovery plan, including review of the recovery indicator framework and
a special session to consider the key messages, the recovery playbook and strategic
management actions. In advance of review by the Committee the GRC Chair met
with senior management to consider the Group recovery plan, including principal
subsidiary risk committee components.
The GRC was also heavily involved in the governance of the resolvability assessment
framework, with updates on the valuation in resolution requirements, and the
Group’s resolvability self-assessment and resolvability assessment framework
testing approach. The GRC reviewed and recommended the resolvability assessment
framework self-assessment to the Board for approval. The Board meeting was
preceded by four Board sub-Group preview meetings jointly sponsored by the GRC
and GAC Chairs to examine the Group’s submission.
Principal activities and significant issues considered during 2021 (continued)
Areas of focus
Key issues
Conclusions and actions
Committee evaluation
During 2021, the GRC implemented the recommendations of the
internal committee evaluation conducted by the Group Company
Secretary and Chief Governance Officer in November 2020. This
included strengthening the focus of meeting agendas, and further
increasing the GRC’s engagement with the Risk and Compliance
functions and principal subsidiary risk committee chairs.
Continuing the commitment to regular evaluation, the Group
Company Secretary and Chief Governance Officer performed an
annual review of the effectiveness of the GRC in December 2021.
The evaluation concluded that the GRC continued to operate
effectively and in line with regulatory requirements, and identified
enhancements, including a review of GRC composition, to help
strengthen the GRC's ability to effectively review and challenge
the Group's risk profile. Other recommendations included:
strengthening the focus of agendas with an ongoing emphasis on
emerging risks; continued enhancement to papers and
presentations; optimising the use of member time spent outside of
formal governance; and even stronger coordination of the roles of
the Board committees. As with the GAC, succession planning will
also remain a priority. The outcomes of the evaluation have been
reported to the Board, and the GRC will track the progress in
implementing recommendations during 2022.
Focus of future activities
The GRC’s focus for 2022 will include the following activities. It
will:
•oversee the continued strengthening of the Group's risk
appetite and risk management framework;
•continue to review the Group’s work to enhance its credit risk
capabilities and culture;
•continue to oversee financial crime and fraud;
•oversee the delivery against climate change commitments and
enhancing climate risk capabilities;
•continue the oversight of the delivery of technology-related
programmes including the adoption of Cloud platforms, and
enhancement of the Group’s IT systems/platform; and
•oversee key regulatory actions, including the implementation of
the Group’s operational resilience strategy on a global basis,
recovery and resolution, and stress testing submissions and
capabilities.
HSBC Holdings plc Annual Report and Accounts 2021
253
Directors’ remuneration report
Page
Committee Chair's statement
254
Directors' remuneration policy
257
Annual report on Directors' remuneration
268
Our approach to workforce remuneration
278
Additional regulatory remuneration disclosures
284
All disclosures in the Directors’ remuneration report are unaudited
unless otherwise stated. Disclosures marked as audited should be
considered audited in the context of financial statements taken as
a whole.
'The remuneration outcomes for 2021 reflect the improvement in the
Group's financial performance, our strong cost controls and execution of
our strategy at pace.'
Dear shareholder
I am pleased to present our 2021 Directors’ remuneration report
on behalf of the members of the Group Remuneration Committee.
During 2021 the Group's financial performance improved against a
backdrop of continuing challenging circumstances, including the
emergence of new Covid-19 variants and ongoing low interest
rates. We continued to execute our strategy at pace. The decisions
the Committee has taken reflect the improvement in the Group's
performance and progress towards its strategic targets. I have
summarised our decisions in this statement.
At the 2022 Annual General Meeting ('AGM'), we will be seeking
shareholder approval for a renewed Directors' remuneration
policy. Our current policy received 97% of votes cast in favour at
our 2019 AGM and its implementation received strong support
with more than 96% of votes cast in favour in both 2020 and 2021.
The Committee reviewed the remuneration policy, considering
carefully whether it provides a fair and competitive remuneration
opportunity to incentivise long-term performance. We also noted
that the UK regulatory requirements currently restrict us from
using a structure with a greater focus on variable pay and lower
fixed pay.
Based on this review, engagement with our largest shareholders,
and the premise that the policy, within our regulatory framework,
supports the execution of our strategy, we have decided to roll
forward our current policy with no changes to the fixed or variable
pay structure and approach.
Membership
Member since
Meeting attendance in
2021
Pauline van der Meer Mohr (Chair)
Jan 2016
6/6
Rachel Duan
Sept 2021
2/2
Dame Carolyn Fairbairn
Sept 2021
2/2
James Forese
May 2020
6/6
José Antonio Meade Kuribreña
May 2021
4/4
Henri de Castries 1
May 2017
2/3
Irene Lee 1
Apr 2018
3/3
David Nish 1
May 2017
2/2
1 David Nish stepped down from the Committee on 23 February 2021;
Henri de Castries and Irene Lee stepped down from the Committee
on 28 May 2021.
Performance in 2021
Financial performance
The Group's financial performance improved in 2021 and all
regions were profitable. Reported profit before tax of $18.9 bn was
up $10.1 bn from 2020. Adjusted profit before tax of $21.9 bn was
up $9.6 bn, with net ECL releases more than offsetting the impact
of lower revenue, which reflected continuing external pressures
during 2021. We continued to demonstrate strong cost control.
Despite inflationary pressures and continued investment in
technology, our adjusted costs were $32.1 bn. Our return on
tangible equity ('RoTE') improved from 3.1% in 2020 to 8.3%. We
also achieved a $104 bn RWA reduction in legacy assets and low-
return areas and we have now achieved 95% of the $110bn
reduction targeted by the end of 2022. We were able to restart our
dividend payments to shareholders and we remain well placed to
fund growth and step up capital returns.
Workforce pay
Support for our colleagues
The well-being of our people remained a critical focus, specifically
as the operating environment continued to be challenging for
many colleagues and their families. The pandemic, which remains
a presence in all of our lives, continued to impact our customers,
colleagues and communities and we have continued to provide
support to our colleagues.
While we have sustained our employee engagement scores, which
remain above pre-pandemic levels, we are monitoring carefully the
well-being of our people. Our survey results showed that overall
well-being has remained stable with 82% of our colleagues
reporting positive mental health. We are moving to a hybrid
working model wherever possible, giving people the flexibility to
work in a way that balances the needs of our customers, their
teams and their personal preferences.
To help people to develop skills for the changing world around us,
we launched Future Skills in September 2021, supporting
colleagues to explore new personal, digital, data and sustainability
skills through a series of learning activities and events.
Group variable pay pool
2021 was characterised by a sharp economic rebound and an
extraordinarily competitive labour market. Our financial
performance was strong, and it is critical for our long-term
performance that we continue to attract and retain the talent
necessary to deliver our strategic priorities. As a Committee, we
reflected on this throughout the year, and particularly when we
reviewed and agreed the Group variable pay pool of $3,495 m, a
year-on-year increase of 31%.
In deciding the Group variable pay pool, we reviewed performance
against financial and non-financial metrics set out in the Group risk
framework, including conduct. We took into account the
improvement in the Group's financial performance with adjusted
profit before tax up 79%, our strong capital position, the
reinstatement of dividends and the capital return to shareholders
through the up to $2 bn buy-back announced in October 2021.
Subsequently, the Group has announced that it intends to initiate a
further up to $1bn share buy-back, to commence after the existing
Report of the Directors | Corporate governance report
254
HSBC Holdings plc Annual Report and Accounts 2021
buy-back has concluded. We also took into account the operating
environment and the challenges created by a very competitive
market for talent manifesting through higher than normal
voluntary attrition rates.
The pool was determined in line with our countercyclical funding
methodology, whereby variable pay as a percentage of profits
generally reduces as performance increase. In 2020, the variable
pay pool was reduced by 20% when the adjusted profit before tax
was down 45% to recognise the need to remain competitive in
retaining talent even in challenging circumstances. In 2021, our
countercyclical approach meant that while the adjusted profit
before tax was up 79%, the pool increased by 31%.
As part of the year-end pay review, the Committee considered the
remuneration outcomes. Overall, total compensation across all our
businesses was up relative to 2020. For our junior colleagues, the
increase is slightly lower, as their outcomes last year were broadly
stable in order to protect their outcomes against material year-on-
year volatility. Outcomes correlated well with performance and
behaviours, with the largest increase in variable pay for those who
performed most strongly and who acted as role models for our
values. Fixed pay increases were targeted towards junior
colleagues to help address the impact of rising inflation in many of
our locations. The outcomes were in line with our pay principles
and the approach decided by the Committee for 2021.
Key remuneration decisions for Directors
Executive Directors' annual performance assessment
The financial measures in the executive Directors’ 2021 scorecards
were growing revenue in Asia, meeting the Group's adjusted cost
target and our strategic priority of reducing RWAs in legacy assets
and low-return areas. Strategic performance measures were
customer satisfaction, employee engagement and diversity and
personal objectives aligned with delivery of our strategy.
Overall, the Committee considered the executive Directors
delivered a strong performance. The adjusted cost performance
was above the minimum set for the year. As noted earlier, strong
performance in RWA reduction, with 95% of our end-2022 target
already achieved, led to a maximum payout against the RWA
performance metrics. We did not meet the target for revenue
growth in Asia, primarily due to the impact of low interest rates on
certain business lines.
We also made good progress on strategic measures, by improving
customer satisfaction, maintaining the high level of employee
engagement from 2020, exceeding our gender representation
target in senior leadership roles and executing our strategy at pace
(see page 268 for details).
Executive Directors' annual incentive scorecard
outcome
This resulted in an overall annual incentive outcome of 57.30% for
Noel Quinn and 60.43% for Ewen Stevenson (further details are
provided on page 262). These are slightly below the 2020
scorecard outcomes and results in an annual incentive award of
£1.59 m for Noel Quinn (2020: £1.60 m before voluntarily waiver of
cash bonus) and £0.98 m for Ewen Stevenson (2020: £0.90 m
before voluntary waiver of cash bonus).
Long-term incentive ('LTI') for executive Directors
Noel Quinn and Ewen Stevenson will receive LTI awards of
£4.13 m and £2.41 m respectively, in respect of their performance
for 2021 and subject to a three-year forward-looking performance
period from 1 January 2022 to 31 December 2024. The Committee
decided to retain the RoTE, relative total shareholder return ('TSR'),
capital reallocation to Asia and transition to net zero measures in
the LTI scorecard given their strong alignment with the Group’s
strategy. Details of the measures and targets are set out on page
271.
Executive Directors' fixed pay for 2022
We have increased the base salary of our executive Directors by
3.5%, effective from 1 March 2022. The Committee considered the
increase was necessary to ensure that the total remuneration
opportunity of our executive Directors does not fall further behind
desired levels based on the size, complexity and international peer
group of the Group. This was discussed with shareholders during
our engagement with them on the new Directors' remuneration
policy. The increase is in line with the average salary increase for
our wider workforce.
New Directors' remuneration policy
We are proposing to roll forward our current remuneration policy
for shareholder approval at the 2022 AGM. During the year, we
undertook a review of the policy based on the key principles that it
should be easy to understand, align reward with stakeholder
interests, incentivise long-term performance, be competitive and
meet expectations of investors and regulators.
As part of the review, the Committee considered whether the
current policy provides a remuneration opportunity that is
appropriate given the size and complexity of the Group's
operations and is commensurate with its aim of fairly
remunerating executives for delivering its strategic priorities. The
review clearly demonstrated that over time, HSBC’s overall
remuneration opportunity has fallen significantly behind desired
levels to reflect the calibre of the executives and positioning
against international peers. The Committee also noted that the UK
regulatory requirements currently restrict us from using a
remuneration structure with a greater focus on variable pay for
performance, which is typically used by our international peers.
We engaged with our shareholders to take into account their
views on our policy and remuneration structure. As ever, we found
engagement with our shareholders to be very helpful and we were
pleased with the level of feedback and support received. Noting
the strong support from shareholders for our current policy and on
the basis that it supports the execution of our strategy within our
regulatory framework, we are proposing to roll forward our current
policy for shareholders’ approval at the 2022 AGM. We will keep
the issue on appropriate positioning of our executive Directors'
total remuneration opportunity under review for the duration of the
policy. Further details of the remuneration policy and how each
element supports the Group’s strategy are set out on page 257.
On behalf of the Committee I would like to thank our shareholders
for their engagement and feedback. The Committee looks forward
to maintaining an open and transparent dialogue in 2022.
Our annual report on remuneration
The section on Directors' remuneration policy provides an
overview of our remuneration policy for our Directors, for which
we are seeking shareholder approval at the 2022 AGM.
In the annual report section, we provide details of decisions made
for executive Directors in respect of their 2021 remuneration for
which, along with this statement, we will seek shareholder
approval with an advisory vote at the 2022 AGM.
We also provide details of our remuneration framework for our
Group colleagues. In the additional remuneration disclosure
section of this report, we provide other related disclosures.
As Chair of the Committee, I hope you will support our
remuneration policy and the 2021 Directors' remuneration report.
Finally, as announced in January, I will step down as Chair of this
Committee and from the Board at the conclusion of the 2022
AGM. An update on my successor will be announced in due
course.
Pauline van der Meer Mohr
Chair
Group Remuneration Committee
22 February 2022
HSBC Holdings plc Annual Report and Accounts 2021
255
Summary 2021 remuneration outcomes for executive Directors
An overview of the 2021 remuneration outcomes and the release profile of remuneration for executive Directors is set out below. Further
details are available on page 268.
Noel Quinn
Total remuneration (£000)
Ewen Stevenson
Total remuneration (£000)
Annual incentive outcome
Shareholding (% of salary)1
1 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment. Noel Quinn and Ewen
Stevenson were appointed on 5 August 2019 and 1 January 2019 respectively.
Illustration of release profile
The following chart provides an illustrative release profile of the remuneration awarded for executive Directors in respect of 2021.
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
u
Salary and
benefits
•Received during 2021.
u
u
Fixed pay
allowance
•Released in five equal annual instalments starting
from March 2022.
u
u
u
u
u
Annual
incentive
•Paid 50% in cash and 50% in immediately vested
shares subject to a retention period of one year.
•Subject to clawback provisions for seven years
from grant, which may be extended to 10 years in
the event of an ongoing internal/regulatory
investigation.
Perform
-ance
period
Retained
shares
u
u
u
u
Clawback
u
Long-term
incentive
•Award granted taking into consideration
performance over the prior year and subject to
three-year forward-looking performance
conditions.
•Subject to performance outcome, awards will vest
in five equal annual instalments starting from the
third anniversary of the grant date.
•On vesting, shares are subject to a retention
period of one year.
•Unvested awards subject to malus provisions.
•Subject to clawback provisions for seven years
from grant, which may be extended to 10 years in
the event of an ongoing internal/regulatory
investigation.
Performance
period
Vesting period
u
u
u
u
u
u
u
Retention period
u
u
u
u
u
Malus
u
Clawback
u
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Directors’ remuneration policy
This section sets outs the Directors' remuneration policy proposed
for shareholders' approval at the AGM on 29 April 2022. We have
made no changes to the remuneration structure or to the
maximum opportunity payable for each element of remuneration
and are seeking to roll forward our current policy. Minor changes
have been made to provide the Committee with sufficient
flexibility to implement the policy as intended over its term.
Subject to receiving shareholder approval, the policy is intended to
apply immediately for three years to the end of the AGM in 2025,
although we may seek shareholders' approval for a new policy
during the period depending on regulatory developments, changes
to our strategy or competitive pressures.
Remuneration policy – key principles
The Committee is responsible for reviewing and recommending to
the Board the Directors' remuneration policy to be put forward for
approval by shareholders.
The guiding principles that form the basis of our review of the
remuneration policy for Directors are as follows:
•The rationale and operation of the policy should be easy to
understand and transparent.
•There should be a strong alignment between reward and the
interests of our stakeholders, including shareholders,
customers and employees.
•The policy should maintain a focus on long-term performance.
•The total compensation package should be competitive to
ensure we can retain and attract talent to deliver our strategic
priorities.
•The structure should meet the expectations of investors and
our regulators.
Setting the policy
The Committee undertook a detailed review of the Group's
remuneration policy during 2021 to assess whether it continues to
be appropriate based on the size and complexity of its operations,
investor feedback, best practice and market developments. Input
was received from the Group Chairman and management while
ensuring that conflicts of interest were suitably mitigated. Input
was also provided by the Committee’s appointed independent
advisers throughout the process.
As highlighted in the 2020 Directors' remuneration report, the
Committee – while conscious of external sentiment – planned to
focus the review on whether overall remuneration levels remain
appropriate and support the delivery of our strategic priorities.
The Committee has become increasingly concerned that, over
time, the remuneration opportunity of our executive Directors has
fallen behind desired levels to reflect their calibre and positioning
against our international peers. This is supported by benchmarked
data for comparable roles in organisations similar in size,
geographical presence and with whom we compete for talent.
The Committee noted that UK regulatory requirements restrict us
from using a remuneration structure with a greater focus on
variable pay for performance, which is typically used by our
international peers. Our preference would be to use such a
structure to improve the total compensation opportunity of our
executive Directors. This view was supported by a number of our
shareholders, who also expressed a preference for a structure with
lower fixed pay and higher variable pay opportunity, but
understood that UK regulatory rules impact our ability to use such
a structure.
The Committee also noted that our current policy and its
implementation have received strong support from shareholders
over the last few years. This was reaffirmed during our
engagement with shareholders on the new policy.
Based on the review and taking into account the feedback
received during our discussions with shareholders, we are
proposing to roll forward our current policy for shareholders’
approval at the 2022 AGM. We will keep the issues on appropriate
positioning of our executive Directors' total remuneration
opportunity under review throughout the duration of the policy.
Other matters considered as part of policy review
We also reviewed the remuneration structure, fixed and variable
pay mix, the deferral and post-vesting retention periods and our
shareholding guidelines to ensure there is strong alignment
between reward and interests of our stakeholders. We also
considered whether a formal post-employment shareholding
policy should be introduced. For this purpose, the Committee took
into consideration the following features of our existing policy:
•Shares delivered to executive Directors as part of the fixed pay
allowance ('FPA') have a five-year retention period, which
continues to apply following a departure of an executive
Director.
•Shares delivered as part of an annual incentive award are
subject to a one-year retention period, which continues to apply
following a departure of an executive Director.
•LTI awards have a seven-year vesting period with a one-year
post-vesting retention period, which is not accelerated on
departure. The weighted average holding period of an LTI
award within HSBC is therefore six years, in excess of the five-
year holding period typically implemented by FTSE-listed
companies. When an executive Director ceases employment, if
they are treated as a good leaver under our policy, any LTI
awards granted will continue to be released over a period of up
to eight years, subject to the outcome of performance
conditions.
Reflecting on the above, and the in-employment shareholding
requirement of up to 400% of salary for executive Directors, we
agreed our existing policy structure achieves the objective of
ensuring there is ongoing alignment of executive Directors'
interests with shareholder experience post-cessation of their
employment. We discussed this with major shareholders during
our consultation on the new policy.
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Remuneration policy – executive Directors
Fixed pay
Elements
Details
Base salary
To attract, retain and develop key talent by being market competitive and rewarding ongoing contribution to role.
Operation
The base salary for an executive Director is designed to reflect the individual’s role, experience and responsibility.
Base salaries are normally benchmarked on an annual basis against relevant comparator groups and may be reviewed more
frequently at the discretion of the Committee. The Committee reviews and approves changes, taking into consideration factors
such as scope of the role, local requirements, employee increases and market competitiveness.
Maximum opportunity
In normal circumstances, the base salary for the current executive Directors will not increase by more than 15% above the level
at the start of the policy period in total for the duration of this policy. The Committee may determine larger increases in
exceptional circumstances, such as a change in responsibility, where the overall remuneration opportunity has been set lower
than the market and when it is justified based on skills, experience and performance in the role.
Fixed pay allowance
(‘FPA’)
To deliver a level of fixed pay required to reflect the role, skills and experience of the executive Directors and to maintain a
competitive total remuneration package for executive Directors.
Operation
FPAs are non-pensionable and will normally be granted in three instalments of immediately vested shares per year, or at any
other frequency that the Committee deems appropriate.
Shares equivalent to the net number of shares delivered (after those sold to cover any income tax and social security) will be
subject to a retention period and normally released on a pro-rata basis over five years, starting from the March immediately
following the end of the financial year in respect of which the shares are granted.
Dividends will be paid on the vested shares held during the retention period.
The Committee retains the discretion to amend the retention period and/or pay the FPA in cash if required to do so to meet any
regulatory requirements or for any other reason the Committee deems appropriate.
Maximum opportunity
FPAs are determined based on the role, skills and responsibility of each individual and taking into account factors such as
market competitiveness of the total remuneration opportunity and other elements of remuneration set out in this policy.
Other than in exceptional circumstances, the FPA for the duration of this policy will be capped at 150% of base salary levels at
the start of this policy.
Cash in lieu of pension
To help executive Directors build retirement savings
Operation
Directors receive a cash allowance in lieu of a pension entitlement.
Maximum opportunity
The maximum opportunity will be aligned with the maximum contribution rate that HSBC could make for the majority of
employees in the relevant jurisdiction. This is currently set at 10% of base salary in line with the maximum contribution rate, as
a percentage of salary, that HSBC could make for a majority of employees who are defined contribution members of the HSBC
Bank (UK) pension scheme in the UK.
Benefits and all employee share plans
Elements
Details
Benefits
To provide support for physical, mental and financial health in accordance with local market practice.
Operation
Benefits take account of local market practice and include, but are not restricted to:
•taxable benefits (gross value before payment of tax) including provision of medical insurance, accommodation, car, club
membership, independent legal advice in relation to a matter arising out of the performance of employment duties for HSBC,
tax return assistance or preparation, and travel assistance (including any associated tax due, where applicable); and
•non-taxable benefits including the provision of a health assessment, life assurance and other insurance coverage.
The Group Chief Executive is also eligible to be provided with accommodation and car benefits in Hong Kong. Any tax and/or
social security due on these benefits will be paid by HSBC.
Additional benefits may also be provided when an executive is relocated or spends a substantial proportion of their time in more
than one jurisdiction for business needs, or in such other circumstances as the Committee may determine in its discretion. Such
benefits could include, but are not restricted to, airfare, accommodation, shipment, storage, utilities, and any tax and social
security that may be due in respect of such benefits.
Maximum opportunity
The maximum opportunity is determined by the nature of the benefit provided. The benefit amount will be disclosed in the single
figure of remuneration table for the relevant year.
All employee share
plans
To promote share ownership by all employees.
Operation
Executive Directors are entitled to participate in all employee share plans, such as the HSBC Sharesave, on the same basis as all
other employees.
Under the Sharesave, executive Directors can make monthly savings over a period of three or five years towards the grant of an
option over HSBC shares. The option price can be at a discount, currently up to 20%, on the share price at the time that the option
is granted.
Maximum opportunity
The maximum number of options is determined by the maximum savings limit set by HM Revenue and Customs. This is currently
£500 per month.
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Variable pay
Adhering to the values-aligned behaviours is a prerequisite to be considered for any variable pay. Executive Directors receive a
performance and behaviour rating that is considered by the Committee in determining the variable pay awards.
Elements
Details
Annual incentive
To drive and reward performance against annual financial and non-financial objectives that are consistent with the strategy and
align to shareholder interests.
Operation
Annual incentive awards are discretionary and can be delivered in any combination of cash and shares under the HSBC Share Plan
2011 (‘HSBC Share Plan’). Shares will not represent less than 50% of any award and are normally immediately vested.
On vesting, shares equivalent to the net number of shares that vested (after those sold to cover any income tax and social security
payable) must be held for a retention period up to one year, or such other period as required by regulators.
The awards will be subject to clawback (i.e. repayment or recoupment of paid/vested awards) on or after vesting for a period of
seven years from the date of award. This may be extended to 10 years in the event of an ongoing internal/regulatory investigation
at the end of the seven-year period. Details of the clawback provision are set out in the following section on LTI awards.
The Committee retains the discretion to:
•apply a longer retention period;
•increase the proportion of the award to be delivered in shares; and
•defer the vesting of a portion of the awards, subject to such conditions that the Committee may determine at its discretion
(which may include continued employment). The deferred awards will be subject to malus (i.e. reduction and/or cancellation of
unvested awards) provisions during any applicable deferral period.
Any deferred shares may be entitled to dividend equivalents during the vesting period, which will be paid on vesting. Where
awards do not receive dividend equivalents during the vesting period (to meet regulatory requirements), the number of shares to
be awarded will be determined using a share price discounted for the expected dividend yield.
Any deferred cash award may be entitled to notional returns during the deferral period, or any appropriate adjustment to reflect
such notional returns, as determined by the Committee.
The Committee may adjust and amend awards in accordance with the relevant plan rules.
Maximum opportunity
The maximum opportunity for the annual incentive award, in respect of a financial year, is up to 215% of base salary.
Performance metrics
Performance is measured against an annual scorecard, based on targets set for financial and non-financial measures. The
scorecards may vary by individual.
Measures with financial targets will generally have a weighting of 60% for the Group Chief Executive and 50% for the Group Chief
Financial Officer. The Committee will review the scorecard annually and may vary the measures, weighting and targets each year.
The overall payout of the annual incentive could be between 0% (for below threshold performance) and 100% of the maximum.
At threshold level of performance set in the scorecard for each measure, 25% of the award opportunity for that measure will pay
out. An achievement of maximum performance set in the scorecard means a payout of 100% of the award. The Committee
exercises its judgement to determine performance achieved and awards at the end of the performance period, which in normal
circumstances will be one financial year, to ensure that the outcome is fair in the context of overall Group and individual
performance. The Committee can adjust the payout based on the outcome of the performance measures, if it considers that the
payout determined does not appropriately reflect the overall position and performance of the Group for the relevant performance
period.
The scorecard outcome may also be subject to a risk and compliance modifier and/or a capital underpin under which the
Committee will have the discretion to adjust down the overall scorecard outcome, taking into account performance against those
factors.
The Committee has the discretion to:
•change the overall weighting of the financial and non-financial measures;
•vary the measures and their respective weightings within each category. The specific performance measures will be disclosed
in the ‘annual report on remuneration’ for the relevant year; and
•make adjustments to performance targets, measures, weighting and/or outcomes in exceptional circumstances. This may be to
reflect significant one-off items that occur during the measurement period and/or where the Committee determines that original
measures, targets or conditions are no longer appropriate or that amendment is required so that the measures, targets or
conditions achieve their original purpose. Full and clear disclosure of any such adjustments will be made in the 'annual report
on remuneration' for the relevant year, subject to commercial confidentiality.
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259
Elements
Details
Long-term
incentives (‘LTI’)
To incentivise sustainable long-term performance and alignment with shareholder interests.
Operation
LTI awards are discretionary and are granted if the Committee considers that there has been satisfactory performance over the
prior year. The awards are granted as rights to receive shares under the HSBC Share Plan, normally subject to a forward-looking
three-year performance period from the start of the financial year in which the awards are granted.
At the end of the performance period, the performance outcome will be used to assess the percentage of the awards that will vest.
These shares will then normally vest in five equal instalments, with the first vesting on or around the third anniversary of the grant
date and the last instalment vesting on or around the seventh anniversary of the grant date, in accordance with the UK's Prudential
Regulation Authority's ('PRA') remuneration rules.
On each vesting, shares equivalent to the net number of shares that vested (after those sold to cover any income tax and social
security payable) must be held for a retention period up to one year (or such other period as required by regulators).
Awards are subject to malus provisions prior to vesting. The awards will also be subject to clawback on or after vesting for a period
of seven years from the date of award. This may be extended to 10 years in the event of an ongoing internal/regulatory
investigation at the end of the seven-year period. Details of the malus and clawback provisions are set out in the bottom section of
this table.
Awards may be entitled to dividend equivalents during the vesting period, which will be paid on vesting. Where awards do not
receive dividend equivalents during the vesting period (to meet regulatory requirements), the number of shares to be awarded will
be determined using a share price discounted for the expected dividend yield.
The Committee may adjust or amend awards in accordance with the rules of the HSBC Share Plan.
Maximum opportunity
The maximum opportunity for the LTI award, in respect of a financial year, is up to 320% of base salary.
Performance metrics
The Committee will take into consideration prior performance when assessing the value of the LTI grant. Forward-looking
performance is measured against a long-term scorecard. Financial measures will generally have a weighting of 60% or more.
For each measure, the Committee will determine the extent of achievement based on actual performance against the target set and
other relevant factors that the Committee considers appropriate to take account of in order to better reflect the Group's underlying
performance. The overall payout level could be between 0% (for below threshold performance) and 100% of the maximum.
At threshold level of performance set in the scorecard for each measure, 25% of the award opportunity for that measure will vest.
100% of the award will vest for achieving the maximum level of performance set for each measure. Where performance achieved
is between the threshold, target and maximum level of performance set in the scorecard, the number of awards that will vest will
be determined on a straight-line basis.
The Committee can adjust the LTI payout based on the outcome of the performance measures, if it considers that the payout
determined does not appropriately reflect the overall position and performance of the Group during the performance period.
The scorecard outcome may also be subject to a risk and compliance modifier and/or a capital underpin under which the
Committee will have the discretion to adjust down the overall scorecard outcome, taking into account performance against those
factors. Performance targets will normally be set annually for each three-year cycle. The Committee has the discretion to:
•change the overall weighting of the financial and non-financial measures;
•vary the measures and their respective weightings within each category. The specific performance measures will be disclosed in
the ‘annual report on remuneration’ for the relevant year;
•vary the risk and compliance and/or any underpin measures; and
•make adjustments to performance targets, measures, weighting and/or outcomes in exceptional circumstances. This may be to
reflect significant one-off items that occur during the measurement period and/or where the Committee determines that original
measures, targets or conditions are no longer appropriate or that an amendment is required so that the measures, targets or
conditions achieve their original purpose. Revised targets/measures will be, in the opinion of the Committee, no less difficult to
satisfy had they been set at the same time as the original targets. Full and clear disclosure of any such adjustments will be made
within the 'annual report on remuneration' for the relevant year, subject to commercial confidentiality.
Malus and clawback
(applicable to both
annual incentive and
LTI)
The Committee has the discretion to operate malus and clawback provisions.
Malus can be applied to unvested awards in circumstances including:
•detrimental conduct, including conduct that brings the business into disrepute;
•past performance being materially worse than originally reported;
•restatement, correction or amendment of any financial statements; and
•improper or inadequate risk management.
Clawback can be applied to vested or paid awards for a period of seven years from the grant date. This may be extended to 10
years in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be applied in
circumstances including:
•participation in, or responsibility for, conduct that results in significant losses;
•failing to meet appropriate standards and propriety;
•reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a
contract of employment;
•a material failure of risk management suffered by HSBC or a business unit in the context of Group risk management standards,
policies and procedures; and
•any other circumstances required by local regulatory obligations to which any member of the HSBC Group or its subsidiary is
subject.
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Other
Elements
Details
Shareholding guidelines
To ensure appropriate alignment with the interest of our shareholders.
Operation
Executive Directors are expected to satisfy the following shareholding requirement as a percentage of base salary within five
years from the date of their appointment:
•Group Chief Executive: 400%
•Group Chief Financial Officer: 300%
For this purpose, unvested shares which are not subject to forward-looking performance conditions (on a net of tax basis)
will count towards the shareholding requirement. HSBC operates an anti-hedging policy under which individuals are not
permitted to enter into any personal hedging strategies in relation to HSBC shares subject to a vesting and/or retention
period.
Maximum opportunity
Not applicable.
The Committee reserves the right to make any remuneration
payments and payments for loss of office, notwithstanding that
they are not in line with the policy set out above, where the terms
of the payment were agreed:
•before the policy set out above or any previous policy came
into effect;
•at a time where a previous policy, approved by shareholders,
was in place provided the payment is in line with the terms of
that policy; or
•at a time when the relevant individual was not a Director of the
Group and the payment was not in consideration for the
individual becoming a Director of the Group.
For these purposes, payments include the Committee satisfying
awards of variable remuneration. This means making payments in
line with the terms that were agreed at the time the award was
granted.
In addition to the specific discretions expressly set out in the
policy, the incentive plans include a number of operational
discretions available to the Committee, including:
•the right to grant awards in the form of conditional share
awards or options (including nil-cost options);
•the right to amend a performance condition in accordance with
its terms, or if anything happens that causes the Committee to
consider it appropriate to do so;
•the right to settle the award in cash, based on the relevant
share price, or shares as appropriate; and
•the right to adjust the award on a variation of share capital or
other corporate event that affects the current or future value of
the award, or alternatively, the right to vest the award early in
such circumstances.
Choice of performance measures and targets
The performance measures selected for the annual incentive and
LTI awards will be set on an annual basis by the Committee,
taking into account the Group’s strategic priorities and any
feedback received from our shareholders. The following table sets
out the performance measures we currently consider for inclusion
in our scorecards. The Committee retains the discretion to choose
other measures that are considered to be appropriate for achieving
our strategic priorities and meeting any regulatory expectation.
The targets for the performance measures will be set taking into
account a number of factors, including the targets set in our
financial and resource plan, our strategic priorities, shareholder
expectations, the economic environment and risk appetite.
Performance measures
Measures and
modifier/
underpin
Example measures for annual incentive scorecard
Example measures for LTI
scorecard
Rationale
Financial
measures
•Adjusted profit before tax
•Operating profit
•RoTE
•Revenue growth
•Volume growth
•Adjusted costs
•RoTE
•Total shareholder
return
•Underpin to maintain a
minimum CET1 ratio
Measures are selected to
incentivise the achievement
of our financial targets as
set out in our strategic
priorities and financial and
resource plan.
Strategic
measures
•Customer satisfaction
•Employee engagement
•Succession planning and diversity
•Carbon reduction and sustainable finance
•Reduce carbon
emissions
•Sustainable finance
•Capital reallocation to
areas of strategic focus
Measures are selected to
support the delivery of our
strategic priorities.
Risk and
compliance
measures,
modifier and/
or underpin
•Sustained delivery of global conduct outcomes
•Effective financial crime risk management
•Effective management of material operational risks in support of strategic
priorities
•Risk metrics to identify when business activities are outside of tolerance level
for a significant period of time
•Failures in risk management that have resulted in significant customer
detriment, reputational damage and/or regulatory censure.
•CET1 level
•Modifier linked to risk
and compliance
performance
Measures are chosen to
ensure a high level of
accountability of risk and
conduct, to promote an
effective risk management
environment and to embed
a robust governance
system.
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Approach to recruitment remuneration –
executive Directors
On the recruitment or appointment of a new executive Director,
the Committee would adhere to the following principles:
•Remuneration packages should be in line with the approved
policy for executive Directors.
•Remuneration packages must meet any applicable local
regulatory requirements.
•Where necessary, compensation may be provided in respect of
forfeiture of awards from an existing employer (for example,
buy-out awards).
Outlined in the following table are all components that would be
considered for inclusion in the remuneration package of a new
executive Director appointment and, for each, the approach that
would be adopted.
In the case of an internal appointment, any existing commitments
will be honoured and any variable element awarded in respect of
the prior role will be allowed to be paid out according to its
existing terms.
Components of remuneration package of a new executive Director
Component
Approach taken to each component of remuneration
Fixed pay
The base salary and FPA will reflect the individual’s role, experience and responsibility, and will be set in the context of market practice.
The maximum cash in lieu of pension allowance will be no more than the maximum contribution, as a percentage of salary, that can be
made for the majority of employees in the relevant jurisdiction.
Benefits
Benefits to be provided will be dependent on circumstances while in line with Group policy and the remuneration policy table, including
the global mobility policy (where applicable) and local regulations.
Variable pay
awards
New appointments will be eligible to be considered for variable pay awards consisting of an annual incentive and/or LTI award (or any
other element which the Committee considers appropriate given the particular circumstances but not exceeding the maximum level of
variable remuneration set out below).
For the year in which the individual commences providing services as an executive Director, the Committee retains the discretion to
determine the proportion of variable pay to be deferred, the deferral and retention period, whether any performance and/or continued
employment conditions should be applied, and the period over which such performance should be assessed. In exercising this discretion,
the Committee will take into account the circumstances in which the individual is appointed (for example, if it is promotion of an internal
candidate or an external appointment), expectation of shareholders and any regulatory requirements.
Total variable pay awarded for the year in which the individual is newly appointed as an executive Director will be limited to 535% of
base salary. This limit excludes buy-out awards and is in line with the aggregate maximum variable pay opportunity set out in the
remuneration policy table.
Guaranteed bonuses are only permitted by exception and in very rare and limited circumstances (for example, where the individual loses
a variable pay opportunity with the previous employer as a result of joining HSBC and such an award is considered essential to attract
and hire the candidate). If such an award is provided then, in line with the PRA remuneration rules, it will be limited to the first year of
service, subject to the Group deferral policy and performance requirements.
Buy-out
The Committee may make an award to buy out remuneration terms forfeited on resignation from the previous employer.
The Group buy-out policy is in line with the PRA remuneration rules, which state that both the terms and amount of any replacement
awards will not be more generous than the award forfeited on departure from the former employer.
In considering buy-out levels and conditions, the Committee will take into account the type of award, performance measures and
likelihood of performance conditions being met in setting the quantum of the buy-out. Buy-out awards will match the terms of forfeited
awards with the previous employer as closely as possible, subject to proof of forfeiture and other relevant documentation. Where the
vesting time is fewer than 90 days, cash or deferred cash may be awarded for administrative purposes.
Where appropriate, the Committee retains the discretion to utilise the provisions provided in the UK Listing Rules for the purpose of
making buy-out awards.
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Policy on payments for loss of office – executive
Directors
The following table sets out the basis on which payments on loss
of office may be made. Other than as set out in the table, there are
no further obligations that could give rise to remuneration
payments or payments for loss of office:
Payments on loss of office
Component of remuneration
Approach taken
Fixed pay and benefits
Executive Directors may be entitled to payments in lieu of:
•notice, which may consist of base salary, FPA, cash in lieu of pension allowance, pension entitlements and other
contractual benefits, or an amount in lieu of; and/or
•accrued but untaken holiday entitlement.
Payments may be made in instalments or a lump sum, and may be subject to mitigation, and subject to applicable tax
and social security deductions.
Annual incentive and
LTI
In exceptional circumstances, as determined by the Committee, an executive Director may be eligible for the grant of
annual and/or long-term incentives under the HSBC Share Plan, taking into account the time worked in the
performance year and based on the individual’s contribution.
Unvested awards
All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not deemed a
good leaver. An executive Director may be considered a good leaver, under the HSBC Share Plan, if their employment
ceases in specified circumstances, which include:
•ill heath, injury or disability, as established to the satisfaction of the Committee;
•retirement with the agreement and approval of the Committee;
•the employee's employer ceasing to be a member of the Group;
•redundancy with the agreement and approval of the Committee; or
•any other reason at the discretion of the Committee.
If an executive Director is considered a good leaver, unvested awards will normally continue to vest in line with the
applicable vesting dates, subject to performance conditions, the share plan rules, and malus and clawback provisions.
Unless the Committee determined otherwise, awards made subject to forward-looking performance conditions,
including LTI awards, will normally be subject to time pro-rating for time in employment during the performance period.
In the event of death, unvested awards will vest and will be released to the executive Director’s estate as soon as
practicable.
In respect of outstanding unvested awards, the Committee may determine that good leaver status is contingent upon
the Committee being satisfied that the executive has no current or future intention at the date of leaving HSBC of being
employed by any competitor financial services firm. The Committee determines the list of competitor firms from time to
time, and the length of time for which this restriction applies. If the Committee becomes aware of any evidence to the
contrary before vesting, the award will lapse.
Post-departure benefits
Executive Directors can be provided certain benefits for up to a maximum of seven years from date of departure for
those who depart under good leaver provisions under the HSBC Share Plan, in accordance with the terms of the policy.
Benefits may include, but are not limited to, medical coverage, tax return preparation assistance and legal expenses.
Other
Where an executive Director has been relocated as part of their employment, the Committee retains the discretion to
pay the repatriation costs. This may include, but is not restricted to, airfare, accommodation, shipment, storage,
utilities, and any tax and social security that may be due in respect of such benefits.
Except in the case of gross misconduct or resignation, an executive Director may also receive retirement gifts.
Legal claims
The Committee retains the discretion to make payments (including professional and outplacement fees) in connection
with an executive Director’s cessation of office or employment. This may include payments that are made in good faith
in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of
settlement of any claim arising in connection with the cessation of that executive Director’s office or employment.
Change of control
In the event of a change of control, outstanding awards will be treated in line with the provisions set out in the
respective plan rules.
Other directorships
Executive Directors may accept appointments as non-executive
Directors of companies that are not part of HSBC if so authorised
by either the Board or the Nomination & Corporate Governance
Committee.
When considering a request to accept a non-executive
appointment, the Board or the Nomination & Corporate
Governance Committee will take into account, among other
things, the expected time commitment associated with the
proposed appointment.
The time commitment for external appointments is also routinely
reviewed to ensure that it will not compromise the Director's
commitment to HSBC. Any remuneration receivable in respect of
an external appointment of an executive Director is normally paid
to the Group unless otherwise approved by the Nomination &
Corporate Governance Committee or the Board.
HSBC Holdings plc Annual Report and Accounts 2021
263
Remuneration scenarios
The following charts show how the total value of remuneration
and its composition would vary under different performance
scenarios for executive Directors under the proposed policy, which
will be effective from the date of the 2022 AGM, subject to
shareholders’ approval. Benefits in the charts below represents
value of regular benefits as per the 2021 single figure table of
remuneration. Additional benefits may arise but will always be
provided in line with the shareholder approved policy.
The charts set out:
•the minimum level of remuneration receivable under the policy
for each performance year;
•the remuneration level for achieving target level of performance
(which assumes 50% of maximum variable pay opportunity is
realised); and
•the maximum level of remuneration (which assumes 100% of
the variable pay opportunity is realised), as well as the
maximum value assuming a 50% increase in share price for LTI
awards.
The charts have been prepared using 2022 salaries and, therefore,
the annual incentive and LTI opportunities have been computed as
percentages of 2022 salaries.
Group Chief Executive (£000)
Fixed pay
Benefits
Annual incentive
LTI
£12,621
£10,483
51%
41%
£6,909
5%
31%
27%
23%
£3,336
21%
95%
46%
2%
30%
2%
25%
1%
Proposed policy
Proposed policy
Proposed policy
Proposed policy with 50% share price increase
Minimum
Target
Maximum
Group Chief Financial Officer (£000)
Fixed pay
Benefits
Annual incentive
LTI
£7,401
£6,155
50%
40%
£4,071
2%
30%
27%
23%
£1,987
21%
98%
48%
1%
32%
1%
26%
1%
Proposed policy
Proposed policy
Proposed policy
Proposed policy with 50% share price increase
Minimum
Target
Maximum
Service contracts
The service contracts of executive Directors do not have a fixed
term. The notice periods of executive Directors are set at the
discretion of the Committee, taking into account market practice,
governance considerations, and the skills and experience of the
particular candidate at that time.
Service agreements for each executive Director are available for
inspection at HSBC Holdings’ registered office. Consistent with
the best interests of the Group, the Committee will seek to
minimise termination payments. Directors may be eligible for a
payment in relation to statutory rights.
Contract date (rolling)
Notice period
(Director and HSBC)
Noel Quinn
18 March 2020
12 months
Ewen Stevenson
1 December 2018
12 months
Report of the Directors | Corporate governance report
264
HSBC Holdings plc Annual Report and Accounts 2021
Remuneration policy – non-executive Directors
The Nomination & Corporate Governance Committee has reviewed
and revised the time commitments required for all non-executive
Directors as the Board supports HSBC through its ambitious
agenda of governance reform, growth and organisational
development in an environment of increasing regulatory, political
and organisational complexity.
The following table sets out the framework that will be used to
determine the fees for non-executive Directors during the term of
this policy.
Elements and link to strategy
Operation
Maximum opportunity
Fees
To reflect the time
commitment and
responsibilities of a non-
executive Director of HSBC
Holdings.
The policy for non-executive Directors is to pay:
•base fees;
•further fees for additional Board duties, including but not limited to
chairmanship, membership of a committee, or acting as the Senior
Independent Director and/or Deputy Chairman; and
•travel allowances.
Fees are paid in cash. The Board retains the discretion to pay in shares rather
than cash where appropriate.
The non-executive Group Chairman will be paid a fixed annual fee for all
Board responsibilities based on their experience and the time commitments
expected for the role, together with such other benefits as the Group
Remuneration Committee may in its absolute discretion determine.
A newly appointed non-executive Director would be paid in line with the
policy on a time-apportioned basis in the first year as necessary. No sign-on
payments are offered to non-executive Directors.
The Board (excluding the non-executive Directors) has discretion to approve
changes to the fees. The Board may also introduce any new component of
fees for non-executive Directors, subject to the principles, parameters and
other requirements set out in this remuneration policy.
Certain non-executive Directors may be entitled to receive fees for their
services as directors of subsidiary companies of HSBC Holdings plc. Such
additional remuneration is determined by the Board of Directors of each
relevant subsidiary within a framework set by the Committee.
The Board will normally review the amount
of each component of fees periodically to
assess whether, individually and in
aggregate, they remain competitive and
appropriate in light of changes in roles,
responsibilities and/or time commitment of
the non-executive Directors, and to ensure
that individuals of the appropriate calibre are
retained or appointed.
Other than in exceptional circumstances,
during the term of this policy, fees will not
increase by more than 20% above the 2022
levels.
Travel allowances are set at an appropriate
level, taking into account the time
requirement for non-executive Directors to
travel to overseas meetings.
Any new fees, allowance or component part
(for example, for a new committee) would be
set and then subject to a maximum of 20%
increase for the duration of the policy,
subject to the exceptional circumstances
referred to above.
Expenses/benefits
Any taxable or other expenses incurred in performing their role are
reimbursed, as well as any related tax cost on such reimbursement.
Non-executive Directors may on occasion receive reimbursement for costs
incurred in relation to the provision of professional advice. These payments, if
made, are taxable benefits to the non-executive Directors and the tax arising
is paid by the Group on the Directors’ behalf.
Not applicable
Shareholding guidelines
To ensure appropriate
alignment with the interests
of our shareholders.
Non-executive Directors, individually or with their connected persons, are
expected to satisfy a shareholding guideline of 15,000 shares within five years
from their appointment.
The Committee reviews compliance with the guidelines annually. The
Committee has full discretion in determining any consequences in cases of
non-compliance.
Not applicable
Service contracts
Non-executive Directors are appointed for fixed terms not
exceeding three years, which may be renewed subject to their re-
election by shareholders at AGMs. Non-executive Directors do not
have service contracts, but are bound by letters of appointment
issued for and on behalf of HSBC Holdings, which are available for
inspection at HSBC Holdings’ registered office. There are no
obligations in the non-executive Directors’ letters of appointment
that could give rise to remuneration payments or payments for
loss of office.
Policy on payments on loss of office – non-
executive Directors
There are no obligations in the non-executive Directors’ letters of
appointment that could give rise to remuneration payments or
payments for loss of office.
Non-executive Directors are entitled to notice under their letter of
appointment. Non-executive Directors' current terms of
appointment will expire as follows:
2022 AGM
2023 AGM
2024 AGM
José Antonio Meade Kuribreña
David Nish
Mark Tucker
Rachel Duan 1
Jackson Tai
James Forese
Dame Carolyn Fairbairn 1
Steven Guggenheimer
Eileen Murray
1 Rachel Duan and Dame Carolyn Fairbairn were appointed following
the 2021 AGM and therefore their initial three-year appointment
terms are subject to approval of their election by shareholders at the
2022 AGM. Their initial three-year term of appointment will end at
the conclusion of the 2025 AGM, subject to annual re-election by
shareholders' at the relevant AGMs.
Remuneration arrangements for colleagues
Our remuneration arrangements for our colleagues, including the
executive Directors, are driven by the Group reward strategy. The
Committee reviews the Group reward strategy to ensure it
continues to support HSBC's overall ability to attract, retain,
develop and motivate the best people, who are aligned to HSBC’s
values and committed to maintaining a long-term career within the
Group. Full details of our remuneration framework for our
colleagues are disclosed on page 279.
Our executive Directors' remuneration policy aligns with our
remuneration policy for our colleagues as follows:
•Externally sourced market data is used to help guide pay
decisions for colleagues, including executive Directors.
•The base salary increases for executive Directors take into
consideration base salary increases of colleagues across the
Group, and relevant market conditions.
•The cash in lieu of pension allowance for executive Directors
will not exceed the maximum contribution (as a percentage of
salary) that can be made for the majority of colleagues in the
relevant jurisdiction.
•All colleagues are eligible to be considered for an annual
incentive award based on their performance and behaviour
ratings. The variable pay for all colleagues, including executive
Directors, is funded from a Group variable pay pool that is
determined by reference to Group performance. Colleagues
who receive a variable pay award above a certain level have a
portion of their award deferred over a period of three to seven
years.
HSBC Holdings plc Annual Report and Accounts 2021
265
•LTI awards are considered for senior management, given their
ability to influence directly the long-term performance.
The Board gathers views from our colleagues through a number of
engagement channels. Our management engages with colleagues,
either on a Group-wide basis or in the context of smaller focus
groups, to solicit feedback generally on a wide range of matters,
including pay. Our annual survey on pay seeks the views of all
colleagues on their performance and pay outcomes. The
Committee reviews the outcomes of the survey and determines
the key remuneration priorities for the forthcoming year. Many of
our colleagues are also shareholders and therefore have the
opportunity to vote on the policy at the 2022 AGM.
As part of our annual calendar, the Committee Chair also hosts a
forum attended by the chairs of our principal subsidiaries boards
and remuneration committees. This event allows the Committee to
understand local market factors and feedback gathered from
employees, within the regions where we operate, on pay and
performance matters. This helps both management and the
Committee to determine the prioritisation of pay budgets, and
allows the Committee to ensure that funding is directed to the
areas of need in support of the Group’s strategic ambitions.
In 2022, the Committee has requested that a detailed review of the
reward strategy be conducted to reflect the changes in the
Group’s strategy, and our employee value proposition as a result
of the Covid-19 pandemic, as well as to ensure that we are well
positioned versus developments in the market, both within
financial services and more broadly. This will include engagement
with colleagues to ensure their feedback on the various elements
of our reward strategy can be taken into account as part of the
Committee’s decision making. An update will be provided as part
of next year’s Directors’ remuneration report.
The table below details how the Group Remuneration Committee
addresses the principles set out in the UK Corporate Governance
Code in respect of the Directors' remuneration policy.
Provision
Approach
Clarity
•The Committee regularly engages and consults with key shareholders to take into account
shareholder feedback and to ensure there is transparency on our policy and its implementation.
•Details of our remuneration practices and our remuneration policy for Directors are published and
available to all our employees.
Remuneration arrangements should be
transparent and promote effective engagement
with shareholders and the workforce.
Simplicity
•Our Directors' remuneration policy has been designed so that it is easy to understand and
transparent, while complying with the provisions set out in the UK Corporate Governance Code and
the remuneration rules of the UK's PRA and FCA, as well as meeting the expectations of our
shareholders. The objective of each remuneration element is explained and the amount paid in
respect of each element of pay is clearly set out.
Remuneration structures should avoid complexity
and their rationale and operation should be easy
to understand.
Risk
•In line with regulatory requirements, our remuneration practices promote sound and effective risk
management while supporting our business objectives (see page 281).
•The Group Chief Risk and Compliance Officer attends Committee meetings and updates the
Committee on the overall risk profile of the Group. The Committee also seeks inputs from the Group
Risk Committee when making remuneration decisions.
•Risk and conduct considerations are taken into account in setting the variable pay pool, from which
any executive Director variable pay is funded.
•Executive Directors' annual incentive and LTI scorecards include a mix of financial and non-financial
measures. Financial measures in the scorecards are subject to a CET1 capital underpin to ensure
CET1 capital remains within risk tolerance levels while achieving financial targets. In addition, the
overall scorecard outcome is subject to a risk and compliance modifier.
•The deferred portion of any awards granted to executive Directors is subject to a seven-year deferral
period during which our malus policy can be applied. All variable pay awards that have vested are
subject to our clawback policy for a period of up to seven years from the award date (extending to
10 years where an investigation is ongoing).
Remuneration structures should identify and
mitigate against reputational and other risks from
excessive rewards, as well as behavioural risks
that can arise from target-based incentive plans.
Predictability
•The charts set out on page 264 show how the total value of remuneration and its composition vary
under different performance scenarios for executive Directors.
The range of possible values of rewards to
individual Directors and any other limits or
discretions should be identified and explained at
the time of approving the policy.
Proportionality
•The annual incentive and LTI scorecards reward achievement of our financial and resource plan
targets, as well as long-term financial and shareholder value creation targets.
•The Committee retains the discretion to adjust the annual incentive and LTI payout based on the
outcome of the relevant scorecards, if it considers that the payout determined does not
appropriately reflect the overall position and performance of the Group during the performance
period.
The link between individual awards, the delivery
of strategy and the long-term performance of the
Group should be clear and outcomes should not
reward poor performance.
Alignment with culture
•In order for any annual incentive award to be made, each executive Director must achieve a required
behaviour rating.
•Annual incentive and LTI scorecards contain non-financial measures linked to our wider social
obligations. These include measures related to reducing the environmental impact of our operations,
improving customer satisfaction, diversity and employee engagement.
•Each year senior employees participate in a 360 degree survey, which gathers feedback on values-
aligned behaviours from peers, direct reports, skip level reports and managers.
Incentive schemes should drive behaviours
consistent with the Group's purpose, values and
strategy.
Report of the Directors | Corporate governance report
266
HSBC Holdings plc Annual Report and Accounts 2021
Group Remuneration Committee
The Group Remuneration Committee is responsible for setting the
overarching principles, parameters and governance of the Group's
remuneration framework for our colleagues, and the remuneration
of executive Directors, the Group Chairman and other senior
Group colleagues. The Committee regularly reviews the framework
to ensure it supports the Group's purpose, values, culture and
strategy, as well as promoting sound risk management. The
Committee also reviews the framework to satisfy itself that it
complies with the regulatory requirements of multiple
jurisdictions.
All members of the Committee are independent non-executive
Directors of HSBC Holdings. No Directors are involved in deciding
their own remuneration. A copy of the Committee’s terms of
reference can be found on our website at www.hsbc.com/our-
approach/corporate-governance/board-committees.
The Committee met six times during 2021. Rachel Duan, Dame
Carolyn Fairbairn and José Antonio Meade Kuribreña were
appointed as members of the Committee during 2021. David Nish,
Henri de Castries and Irene Lee stepped down as members of the
Committee during 2021. The following is a summary of the
Committee’s key activities during 2021.
Matters considered during 2021
Jan
Feb
May
Jul
Sep
Dec
Remuneration framework and governance
Group variable pay pool, workforce performance and pay matters, gender pay gap report, and employee surveys
l
ô
l
l
l
l
Directors' remuneration policy design
ô
ô
l
l
l
l
Executive Director remuneration policy implementation, scorecards and pay proposals
l
l
l
ô
l
l
Remuneration for other senior executives of the Group
l
l
l
l
l
l
Directors’ remuneration report
l
l
ô
ô
ô
l
Regulatory, risk and governance
Information on material risk and audit events, and performance and remuneration impacts for individuals involved
l
ô
l
l
l
l
Regulatory updates, including approach and outcomes for the identification of Material Risk Takers
l
l
l
l
l
l
Governance matters
l
l
l
l
l
l
Principal subsidiaries
Matters from subsidiary committees
l
l
l
l
l
l
Advisers
The Committee received input and advice from different advisers
on specific topics during 2021. Deloitte LLP’s engagement with
the Committee was extended during 2021. Deloitte provided
benchmarking data on remuneration policy matters and
independent advice to the Committee. Deloitte also provided tax
compliance and other advisory services to the Group. Deloitte is a
founding member of the Remuneration Consultants Group and
voluntarily operates under the code of conduct in relation to
executive remuneration consulting in the UK.
The Committee also received advice from Willis Towers Watson
on market data and remuneration trends. Willis Towers Watson
was appointed by management after considering invited proposals
from similar consultancy firms. It provides actuarial support to
Global Finance and benchmarking data and services related to
benefits administration for our Group employees. The Committee
was satisfied the advice provided by Deloitte and Willis Towers
Watson was objective and independent in 2021.
For 2021, total fees of £176,550 and £35,060 were incurred in
relation to remuneration advice provided by Deloitte and Willis
Towers Watson, respectively. This was based on pre-agreed fees
and a time-and-materials basis.
Attendees and interaction with other Board
committees
During the year, Noel Quinn as the Group Chief Executive provided
regular briefings to the Committee. In addition, the Committee
engaged with and received updates from the following:
•Mark Tucker, Group Chairman;
•Elaine Arden, Group Chief Human Resources Officer;
•Jenny Craik, Group Head of Performance Management,
Reward and Employee Relations;
•Alexander Lowen, Former Group Head of Performance
Management and Reward;
•Pam Kaur, Group Chief Risk and Compliance Officer;
•Colin Bell, former Group Chief Compliance Officer;
•Bob Hoyt, Group Chief Legal Officer;
•Shawn Chen, Group General Counsel for Litigation and
Regulatory Enforcement; and
•Aileen Taylor, Group Company Secretary and Chief Governance
Officer.
The Committee also received feedback and input from the Group
Risk Committee and Group Audit Committee on risk, conduct and
compliance-related matters relevant to remuneration.
Committee effectiveness
The annual review of the effectiveness of the Committee was
internally facilitated for 2021. The review concluded that the
Committee continued to operate effectively, with a number of
positive aspects of the Committee’s operation and practices
highlighted. Areas identified for focus during 2022 included:
•The Committee needs to receive suitable and relevant data and
insight to support its discussion and decision making on pay,
including for the wider workforce.
•It should facilitate the right level of preparation for its members.
•The Committee should consider how best the Committee’s
advisers and other external consultants could add value and
insights on developing market context and stakeholder views to
its discussions.
The Committee discussed the outcomes of the evaluation in
January 2022, and endorsed the findings and actions to be taken.
The outcomes of the evaluation have been reported to the Board
and the Committee will track progress on the recommendations
through the year.
Voting results from Annual General Meeting
The table below shows the voting results from our last AGM.
2021 Annual General Meeting voting results
For
Against
Withheld
Remuneration report
(votes cast)
97.30%
2.70%
––
8,898,898,415
246,557,676
12,404,292
Remuneration policy
(2019) (votes cast)
97.36%
2.64%
––
9,525,856,097
258,383,075
47,468,297
HSBC Holdings plc Annual Report and Accounts 2021
267
Annual report on Directors' remuneration
This section sets out how our approved Directors’ remuneration
policy was implemented during 2021.
Determining executive Directors’ incentive
outcomes
(Audited)
The maximum 2021 annual incentive opportunity for our two
executive Directors, Noel Quinn and Ewen Stevenson, was set at
215% of salary.
In order for any annual incentive award to be made, each
executive Director must achieve a minimum values-aligned
behaviour rating. For 2021, both executive Directors met this
requirement.
The level of award is determined by applying the outcome of their
annual incentive scorecard to the maximum opportunity. The
scorecard measures, weighting and targets were determined at
the start of the financial year taking into account the Group's plan
for 2021 and the Group's strategic priorities and commitments.
The financial targets were set at the start of the financial year
when there was significant uncertainty and challenging
circumstances, including the emergence of new Covid-19 variants
and ongoing low interest rates. For strategic measures, the
performance assessment involved considering performance
against targets set in line with our commitments, such as
employee diversity, survey results for employee experience and
customer satisfaction measures, as well as an assessment of the
progress made and momentum generated to achieve our strategic
priorities.
The Group's financial performance improved in 2021. In particular,
the Committee noted:
•reported profit before tax was $18.9bn, which represented an
increase of 115% compared with 2020 and an increase of 42%
compared with 2019;
•strong cost controls were demonstrated, despite inflationary
pressures and continued investment in technology, with
adjusted costs at $32.15bn;
•RoTE was 8.3%; and
•there was a more positive shareholder experience, including
share price performance and shareholder returns through
dividends and capital returns.
As set out in the scorecard assessment table below, while cost
performance was towards the lower end of the target range, it
was broadly in line with the Group’s revised adjusted cost
guidance of $32b n, reflecting increases in technology investment
and inflationary pressures. Adjusted revenue in Asia was down,
due mainly to the impact of interest rate cuts. However, wealth
and trade revenues grew, while loans and advances increased by
$33b n for the year, indicating that demand remains high. We
made strong progress towards our core objective of reducing
RWAs in low-return franchises, achieving $104 bn by the end of
2021 and more than 95% of our cumulative target for the end of
2022. We also made good progress on strategic measures, by
improving customer satisfaction, maintaining the high level of
employee engagement from 2020 and exceeding our gender
representation target in senior leadership roles.
Overall, this level of performance resulted in a payout of 57.30% of
the maximum for Noel Quinn and 60.43% for Ewen Stevenson.
The annual incentive scorecard is subject to a risk and compliance
modifier, which provides the Committee with the discretion to
adjust down the overall scorecard outcome, taking into account
information such as any risk metrics being outside of tolerance for
a significant period of time and any risk management failures that
have resulted in significant customer detriment, reputational
damage and/or regulatory censure. Taking into account the
Group's performance against the risk metrics, inputs from the
Group Risk Committee and overall performance of the executive
Directors, the Committee determined that the application of the
risk modifier was not required for 2021.
The Committee also reviewed these outcomes in the context of a
number of internal and external considerations to determine
whether it should exercise its discretion to reduce the formulaic
outcome. The Committee determined that the 2021 formulaic
outcome appropriately rewards the executive Directors for their
performance within the context of Group's financial performance
and overall stakeholder experience.
Annual incentive assessment
Noel Quinn
Ewen Stevenson
Minimum
(25%
payout)
Maximum
(100%
payout)
Performance
Weighting
(%)
Assessment
(%)
Outcome
(%)
Weighting
(%)
Assessment
(%)
Outcome
(%)
Adjusted cost ($bn)
32.27
31.47
32.15
20.00
36.25
7.25
20.00
36.25
7.25
Revenue growth in Asia (%)
0.44%
0.89%
-5.96%
20.00
—
—
15.00
—
—
RWA reduction in legacy assets/low-
return areas ($bn)1
38.35
42.40
43.00
20.00
100.00
20.00
15.00
100.00
15.00
Customer satisfaction
See following section for
non-financial performance
commentary
15.00
67.00
10.05
15.00
67.00
10.05
Employee experience
15.00
75.00
11.25
15.00
75.00
11.25
Personal objectives
10.00
87.50
8.75
20.00
84.40
16.88
Total
100.00
57.30
100.00
60.43
Maximum annual incentive
opportunity (£000)
£2,776
£1,619
Annual incentive outcome
(£000)
£1,590
£978
1 As set out in our February 2020 business update, one of our objectives has been to reduce RWAs in low-return franchises and redeploy capital in
areas of faster growth and higher returns, with a target of achieving a $100b n reduction in RWAs by the end of 2022. This target was
subsequently amended during 2021, following a change to the methodology of capturing RWA saves. Following this amendment in methodology,
the Committee adjusted the original target range of $28.35b n to $32.4b n and increased it to $38.35bn to $42.40bn.
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HSBC Holdings plc Annual Report and Accounts 2021
Non-financial performance
Shared objectives for Noel Quinn and Ewen Stevenson
Objectives
Weighting
Assessment
Performance
Customer
satisfaction
Maintain and
improve net
promoter score
('NPS') in the UK
and Hong Kong
15%
67%
•In Wealth and Personal Banking, our NPS ranking in Hong Kong remained in third place, and in the
UK our NPS increased and our overall rank improved by one place (assessed at 65%).
•In Commercial Banking, our overall NPS ranking was fourth in Hong Kong, and we ranked in the top
three among our large corporate customers. In the UK, overall we declined one rank position in 2021.
We continued to have a top placed NPS ranking for mid-market enterprises, and we maintained our
NPS ranks for large corporates and small business banking clients, while our ranking fell for business
banking customers (assessed at 57%).
•For Global Banking and Markets, we improved our overall NPS ranking in Asia from third to first place,
and our rank improved by one place in Europe among priority clients (assessed at 80%).
Employee
experience
Improve
engagement,
diversity and
inclusion
15%
75%
Employee engagement (assessed at 100%)
•We met our stretch target to sustain last year’s historically strong employee engagement score of
72%. The result is four points above the global financial services benchmark and five points above
2019 levels.
•The index comprises three areas: willingness to recommend HSBC as a great place to work, feeling
proud to work for HSBC, and feeling valued by HSBC.
•Commentary from our survey suggests that focus on employee well-being, flexible work
arrangements and our response to the Covid-19 pandemic have had a strong positive impact on
employee engagement.
Gender representation in leadership roles (assessed at 100%)
•At the end of 2021, we had 31.7% of our senior leadership roles held by female colleagues, exceeding
our target of 31.0% for the year and on track to achieving our new goal of 35.0% by 2025.
•This has been achieved through a focus on the hiring, retention and career development of female
colleagues.
Black employees' representation in leadership roles (assessed at 100%)
•The number of Black heritage employees in senior leadership increased by 17.5%.
•We are reliant on our colleagues’ choice to self-identify or not, noting that we have made good
progress on this ethnicity data with 78.1% of UK colleagues and 95.2% of US colleagues having self-
identified. This improvement has enabled a much clearer picture of where to focus attention and we
are using it as part of progress check-ins with executives.
Engagement among colleagues identifying as part of an ethnic minority and who identify as
having a disability (assessed at 0%)
•At a global level, we have not closed the gap in employee engagement scores between ethnic
minority and non-ethnic-minority colleagues, or between colleagues with disabilities versus those who
do not have a disability.
•While delivering meaningful change will take time, we are deepening our understanding of where
differences arise – in particular looking at how engagement is shaped by the way diverse groups are
represented differently across our businesses, geographies and job types.
•We have also introduced an inclusion index to help understand the sentiment of all colleagues,
including diverse groups. This includes questions related to a sense of belonging, speak-up, trust,
career, fair treatment and self-expression.
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269
Personal objectives for Noel Quinn and Ewen Stevenson
Objectives
Weighting
Assessment
Performance
Noel Quinn
•Launch of refreshed
purpose and values
•Delivery of strategy
10%
87.5%
Launch of refreshed purpose and values
•Our refreshed purpose and values were successfully deployed with strong leadership tone from the
Group Chief Executive and Group Executives internally and externally.
•Our employee survey to test awareness and understanding of our new purpose, values and strategy
found that 82% of respondents said that HSBC has the right purpose, strategy and values to drive
success, and 76% believed that the purpose and values will lead to meaningful changes in how we
work. The strategy index is at 72%, two points ahead of the financial services benchmark that has
trended downwards.
•The purpose and values have been embedded into our onboarding and induction processes for
26,500 new joiners, our recognition framework and performance management approach.
Delivery of strategy
•We are making progress across the four strategic pillars: Focus on our strengths, digitise at scale,
energise for growth and transition to net zero.
•Focus on our strengths:
–In Wealth and Personal Banking, we saw growth of 138% in net new invested assets for Asia
wealth. In asset management, our funds under management rose 5% to $630 bn. In insurance,
the value of new business in Singapore, mainland China, and Hong Kong (including Hang Seng
Bank) increased 40% from 2020, to reach $917 m.
–In Commercial Banking, we saw strong growth in fee income in 2021, reaching $3.6 bn, a
growth of 9% compared with 2020. Our customer lending volume increased 3% to $349 bn. We
made progress on improving SME propositions in our key markets. Since the launch of Kinetic
in the UK in 2020 we have reached 24,000 customers at the end of 2021.
–In Global Banking and Markets, we reduced adjusted RWAs by 10% to $236 bn at 31 December
2021, driven by saves in our Western franchise, comprising of our Europe and Americas
businesses. Overall, Global Banking and Markets revenue reached approximately $15 bn, driven
by strong performance in Equities, Capital Markets and Advisory, and Securities Services.
–We made progress on restructuring our US business and HSBC Bank plc, our non-ring-fenced
bank in Europe and the UK. We announced three key acquisitions in 2021 to further strengthen
our wealth franchise in Asia. We entered into an agreement to acquire AXA Singapore, pending
regulatory approval, with the intention to merge the business with the operations of our existing
HSBC Life Singapore franchise. We agreed to fully acquire L&T Investment Management, the
12 th largest mutual fund management company in India. We received regulatory approval to
acquire the remaining 50% stake in HSBC Life China, bringing our shareholder ownership to
100% upon completion.
•Digitise at scale: We made good progress on automating our organisation at scale. Our Cloud
adoption rate, which is the percentage of our technology services on the private or public Cloud,
increased from approximately 20% in 2020 to 27% in 2021. At the end of 2021, 43% of our
customers were 'mobile active' users, who are customers that had logged onto a mobile app at least
once in the last 30 days. This is an improvement compared with 38% in 2020.
•Energise for growth: We continue to help to energise our colleagues through initiatives that help
develop their future skills and learning opportunities, in areas including data, digital and
sustainability.
•Transition to net zero: In 2021, we reduced our organisation’s absolute greenhouse gas emissions in
our operations to 341,000 CO2 tonnes, a decrease of 50% using 2019 as the baseline. We provided
and facilitated $82.6bn of sustainable finance and investment, taking the cumulative amount to
$126.7bn since 1 January 2020, as part of our $750 bn to $1 tn by 2030 ambition.
Ewen Stevenson
•Finance on the Cloud
deployment
•Climate stress test
•Resolvability
assessment
framework attestation
•Reduce Global
Finance function
costs and number of
FTEs
20%
84.4%
•The Finance on the Cloud programme entered into the implementation phase in 2021. The RWA and
liquidity Cloud migrations from the legacy Platfora solution was completed and the UK Cloud
transformation was extended to liquidity. All regulatory obligations in relation to this were met. We
also made progress with the global roll-out of the Cloud solution in Hong Kong and the US.
•We significantly developed our climate scenario capabilities, largely driven by the climate biennial
exploratory scenario exercise and through developing a framework to incorporate client adaptation
plans into climate scenario analysis to address insufficient client data issues. We developed
reporting that includes the Group’s carbon reduction metrics, with reporting of high-risk sectors
included in the quarterly Group Executive Committee update. We also enhanced disclosures to cover
quantitative risk metrics aligned with the climate risk appetite statement.
•We built capabilities to support the resolvability assessment framework and met all regulatory
deadlines during 2021 in relation to this.
•The Global Finance function costs were marginally above target due to market pay challenges and
the target for full-time equivalent colleagues was largely met.
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HSBC Holdings plc Annual Report and Accounts 2021
Single figure of remuneration
(Audited)
The following table shows the single figure of total remuneration of each executive Director for 2021, together with comparative figures.
Single figure of remuneration
Noel Quinn
Ewen Stevenson
(£000)
2021
2020
2021
2020
Base salary 1
1,288
1,266
751
738
Fixed pay allowance ('FPA')1
1,700
1,700
1,062
950
Cash in lieu of pension
129
127
75
74
Taxable benefits 2
95
186
3
12
Non-taxable benefits 2
71
59
42
32
Total fixed
3,283
3,338
1,933
1,806
Annual incentive 3
1,590
799
978
450
Notional returns 4
22
17
—
—
Replacement award 5
—
—
754
1,431
Total variable
1,612
816
1,732
1,881
Total fixed and variable
4,895
4,154
3,665
3,687
1 Executive Directors made the personal decision to dona te 100% o f their base salary increases for 2021 to charity given the ongoing challenging
external environment. Ewen Stevenson also donated his FPA increase for 2021 to charity. Figures shown in the table above are the gross figures
before charitable donations.
2 Taxable benefits include the provision of medical insurance, car and tax return assistance (including any associated tax due, where applicable).
Non-taxable benefits include the provision of life assurance and other insurance cover.
3 Noel Quinn and Ewen Stevenson both voluntarily waived the cash portion of their 2020 annual incentive. Without this voluntary waiver, the 2020
annual incentive of Noel Quinn and Ewen Stevenson would have been £1,598,000 and £900,000, respectively.
4 The deferred cash awards granted in prior years includes a right to receive notional returns for the period between the grant and vesting date. This
is determined by reference to a rate of return specified at the time of grant and paid annually, with the amount disclosed on a paid basis.
5 In 2019 Ewen Stevenson was granted replacement awards to replace unvested awards, which were forfeited as a result of him joining HSBC. The
awards, in general, match the performance, vesting and retention periods attached to the awards forfeited. The values included in the table for
2020 relate to his 2017 LTI award granted by the Royal Bank of Scotland Group plc ('RBS'), now renamed as NatWest Group plc ('NatWest'), for
performance year 2016, which was determined by applying the performance assessment outcome of 56.25% as disclosed in NatWest's Annual
Report and Accounts 2019 (page 91) to the maximum number of shares subject to performance conditions. This resulted in a payout equivalent to
78.09% of NatWest award shares that were forfeited and replaced with HSBC shares. A total of 313,608 shares were granted in respect of his
2017 LTI replacement award at a share price of £6.643. The HSBC share price was £5.845 when the awards ceased to be subject to performance
conditions, with no value attributable to share price appreciation. The value included in the table for 2021 relates to Ewen Stevenson's 2018 LTI
replacement award granted by NatWest for performance year 2017 and was subject to a pre-vest performance test assessed and disclosed by
NatWest in its Annual Report and Accounts 2020 (page 135). As no adjustment was proposed for Ewen Stevenson by NatWest, a total of
177,883 shares granted in respect of his 2018 LTI replacement award ceased to be subject to performance conditions. These awards were
granted at a share price of £6.643 and the HSBC share price was £4.240 when the awards ceased to be subject to performance conditions, with
no value attributable to share price appreciation.
Benefits
The values of the significant benefits in the single figure table are set out in the following table.1
Noel Quinn
(£000)
2021
2020
Insurance benefit (non-taxable)
67
51
Car and driver (UK and Hong Kong)2
87
139
1 The insurance and car benefits for Ewen Stevenson are not included in the above table as they were not deemed significant.
2 The 2021 car and driver benefit was lower than 2020 due to the impact of travel restrictions during the Covid-19 pandemic.
Long-term incentive awards
(Audited)
Long-term incentive in respect of 2021
After taking into account performance for 2021, the Committee
decided to grant Noel Quinn and Ewen Stevenson LTI awards of
£4,131,000 and £2,410,000, respectively.
The 2021 LTI awards will have a three-year performance period
starting 1 January 2022. During this period, performance will be
assessed based on four equally weighted measures: two financial
measures to incentivise value creation for our shareholders; a
measure linked to our climate ambitions; and a measure for
relative total shareholder return ('TSR'). This is consistent with the
measures used for our last LTI award.
RoTE is a key measure of our financial performance and how we
generate returns that deliver value for our shareholders. The target
range for this measure is aligned with our medium-term objective
of achieving a RoTE of 10% or more.
Capital reallocation to Asia remains one of the key levers of our
strategy and business transformation plan. This measure will be
assessed based on the share of Group tangible equity allocated to
Asia at the end of the performance period. The target range for
this measure is aligned with our long-term strategic plan.
The transition to net zero scorecard measures are aligned to our
strategic priority of bringing carbon emissions in our own
operations to net zero by 2030 and supporting our customers in
the transition to a more sustainable future, by providing and
facilitating $750bn to $1tn of sustainable finance and investment
over the same time period. Targets are linked to this climate
ambition and performance will be assessed based on the
reduction in our carbon footprint and the financing we provide to
our clients in their net zero transition.
Relative TSR rewards executive Directors based on comparison of
the TSR performance of the Group and a relevant peer group. No
changes were made to the peer group for this LTI award. The
Committee will review the TSR peer group for future LTI awards to
ensure the peer group remains appropriate, taking into account
the progress in the execution of our strategic shifts in our
geographical and business mix, notably future growth investment
in Asia and wealth business.
The LTI continues to be subject to a risk and compliance modifier,
which gives the Committee the discretion to adjust down the
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271
overall outcome to ensure that the Group operates soundly when
achieving its financial targets. For this purpose, the Committee will
receive information including any risk metrics outside of tolerance
for a significant period of time and any risk management failures
that have resulted in significant customer detriment, reputational
damage and/or regulatory censure.
The RoTE and capital reallocation to Asia measures are also
subject to a CET1 underpin. If the CET1 ratio at the end of the
performance period is below the CET1 risk tolerance level set in
the risk appetite statement, then the assessment for these
measures will be reduced to nil.
As the awards are not entitled to dividend equivalents in
accordance with regulatory requirements, the number of shares to
be awarded will be adjusted to reflect the expected dividend yield
of the shares over the vesting period.
To the extent performance conditions are satisfied at the end of
the three-year performance period, the awards will vest in five
equal annual instalments commencing from around the third
anniversary of the grant date. On vesting, shares equivalent to the
net number of shares that have vested (after those sold to cover
any income tax and social security payable) will be held for a
retention period of up to one year, or such period as required by
regulators.
Measures 1
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting
%
RoTE (with CET1 underpin)2
8.0%
9.5%
11.0%
25.0
Capital reallocation to Asia (with CET1
underpin)3
46.0%
48.0%
50.0%
25.0
Transition to net
zero 4
Carbon reduction
52.0%
56.0%
60.0%
25.0
Sustainable finance
and investment
$285.0bn
$340.0bn
$370.0bn
Relative TSR 5
At the median of the peer
group
Straight-line vesting between
minimum and maximum
At the upper quartile of the
peer group
25.0
Performance conditions for LTI awards in respect of 2021 (performance period 1 January 2022 to 31 December 2024)
1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.
2 To be assessed based on RoTE at the end of the performance period. This metric will be subject to the CET1 underpin outlined above.
3 To be assessed based on share of Group tangible equity (on a constant currency basis and excluding associates) allocated to Asia by 31 December
2024. This metric will be subject to the CET1 underpin outlined above.
4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2024 using
2019 as the baseline. The sustainable finance and investment metric will assess cumulative financing provided over the period commencing on
1 January 2020 and ending on 31 December 2024.
5 The peer group for the 2021 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche
Bank, J.P. Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.
2018 long-term incentive performance
The 2018 LTI award was granted to John Flint (former Group Chief Executive) and Marc Moses (former Group Chief Risk Officer).
Based on the scorecard outcome, 78,071 shares will vest for John Flint and 54,932 shares will vest for Marc Moses (determined by pro-
rating their awards for time in employment during the performance period of 1 January 2019 to 31 December 2021). The awards will vest
in five equal annual instalments commencing in March 2022. Using the average daily closing share prices over the three months to 31
December 2021 of £4.339 the value of awards to vest to John Flint and Marc Moses is £338,750 and £238,350, respectively.
Assessment of the LTI award in respect of 2018 (performance period 1 January 2019 to 31 December 2021)
Measures (with weighting)
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Actual
Assessment
Outcome
Average RoTE (with CET1 underpin)
(75%)
10.0%
11.0%
12.0%
6.6%
0.0%
0.00%
Employer advocacy 1 (12.5%)
65%
70%
75%
70%
50.0%
6.25%
Environmental, social and
governance rank 2 (12.5%)
At median of the peer
group
Straight-line vesting
between minimum
and maximum
At upper quartile of
peer group
Above upper
quartile
100.0%
12.50%
Total 3
18.75%
1 Assessed based on results of the 2021 employee Snapshot survey question: 'I would recommend this company as a great place to work'.
2 Based on Sustainalytics ratings. Peer group for this measure included Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group,
Deutsche Bank, DBS Group Holdings, J.P. Morgan Chase & Co., Lloyds Banking Group, Standard Chartered, UBS Group, ICBC, Itau and
Santander.
3 The award was subject to a risk and compliance underpin which gives the Committee the discretion to adjust down the overall scorecard
outcome, taking into account performance against risk and compliance factors during the performance period for the award. Taking into account
inputs received from Group Risk and Compliance and the Group Risk Committee, the Committee considered the application of the risk and
compliance underpin was not required.
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HSBC Holdings plc Annual Report and Accounts 2021
Scheme interests awarded during 2021
(Audited)
The table below sets out the scheme interests granted to executive Directors during 2021 in respect of performance year 2020, as
disclosed in the 2020 Directors’ remuneration report. No non-executive Directors received scheme interests during the financial year.
Scheme awards in 2021
(Audited)
Type of interest
awarded
Basis on which
award made
Date of award
Face value
awarded 1
£000
Percentage receivable
for minimum
performance
Number of
shares
awarded
End of
performance period
Ewen Stevenson
LTI deferred shares 2
% of salary 2
1 March 2021
2,716
25
637,197
31 December 2023
Noel Quinn
LTI deferred shares 2
% of salary 2
1 March 2021
4,767
25
1,118,554
31 December 2023
1 The face value of the award has been computed using HSBC's closing share price of £4.262 taken on 26 February 2021. LTI awards are subject to
a three-year forward-looking performance period and vest in five equal annual instalments, between the third and seventh anniversary of the
award date, subject to performance achieved. On vesting, awards will be subject to a one-year retention period. Awards are subject to malus
during the vesting period and clawback for a maximum period of 10 years from the date of the award.
2 In line with regulatory requirements, scheme interests awarded during 2021 were not eligible for dividend equivalents. In accordance with the
remuneration policy approved by shareholders at the 2019 AGM, the LTI award was determined at 293% of salary for Noel Quinn and 286% of
salary for Ewen Stevenson. The number of shares to be granted was determined by taking HSBC's closing share price of £4.262 taken on
26 February 2021, and applying a discount based on HSBC’s expected dividend yield of 5% per annum for the vesting period (£3.324).
The above table does not include details of shares issued as part of the fixed pay allowance and shares issued as part of the 2020 annual
incentive award that vested on grant and were not subject to any further service or performance conditions. Details of the performance
measures and targets for the LTI award in respect of 2020 are set out below:
Measures 1
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting
%
RoTE (with CET1 underpin)2
8.0%
9.0%
10.0%
25.0
Capital reallocation to Asia (with CET1 underpin)3
45.0%
47.0%
50.0%
25.0
Environment and
sustainability 4
Carbon reduction
42.0%
48.0%
51.0%
25.0
Sustainable finance and
investment
$200.0bn
$240.0bn
$260.0bn
Relative TSR 5
At median of the
peer group
Straight-line vesting between
minimum and maximum
At upper quartile of
peer group
25.0
Performance conditions for LTI awards in respect of 2020 (performance period 1 January 2021 to 31 December 2023)
1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.
2 To be assessed based on RoTE at the end of the performance period. The measure will also be subject to a CET1 underpin. If the CET1 ratio at the
end of the performance period is below the CET1 risk tolerance level set in the risk appetite statement, then the assessment for this measure will
be reduced to nil.
3 To be assessed based on share of Group tangible equity (on a constant currency basis and excluding associates) allocated to Asia by 31 December
2023. This metric will be measured on an organic basis and will exclude changes in Group tangible equity allocation resulting from acquisitions
and disposals (and also part-acquisitions or part-disposals) of businesses and is subject to the CET1 underpin outlined above.
4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2023 using
2019 as the baseline. The sustainable finance and investment metric will assess cumulative financing provided over the period commencing on
1 January 2020 and ending on 31 December 2023.
5 The peer group for the 2020 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche
Bank, J.P. Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.
Executive Directors’ interests in shares
(Audited)
The shareholdings of executive Directors in 2021, including the
shareholdings of their connected persons, at 31 December 2021
(or the date they stepped down from the Board, if earlier) are set
out below. The following table shows the comparison of
shareholdings with the company shareholding guidelines. There
have been no changes in the shareholdings of the executive
Directors from 31 December 2021 to the date of this report.
Individuals have five years from their appointment date to build up
the recommended levels of shareholding. In line with investor
guidance, for executive Directors, unvested shares which are not
subject to forward-looking performance conditions (on a net of tax
basis) will count towards their shareholding requirement under the
new policy proposed for shareholder approval at the 2022 AGM.
The Committee reviews compliance with the shareholding
requirement and has full discretion in determining if any unvested
shares should be taken into consideration for assessing
compliance with this requirement, taking into account shareholder
expectations and guidelines. The Committee also has full
discretion in determining any penalties for non-compliance.
With regard to post-employment shareholding arrangements,
we believe that our remuneration structure achieves the objective
of ensuring there is ongoing alignment of executive Directors'
interests with shareholder experience post-cessation of their
employment due to the following features of the policy:
•Shares delivered to executive Directors as part of the FPA have
a five-year retention period, which continues to apply following
a departure of an executive Director.
•Shares delivered as part of an annual incentive award are
subject to a one-year retention period, which continues to apply
following a departure of an executive Director.
•LTI awards have a seven-year vesting period with a one-year
post-vesting retention period, which is not accelerated on
departure. The weighted average holding period of an LTI
award within HSBC is therefore six years, in excess of the five-
year holding period typically implemented by FTSE-listed
companies. When an executive Director ceases employment as
a good leaver under our policy, any LTI awards granted will
continue to be released over a period of up to eight years,
subject to the outcome of performance conditions.
HSBC operates an anti-hedging policy under which individuals are
not permitted to enter into any personal hedging strategies in
relation to HSBC shares subject to a vesting and/or retention
period.
HSBC Holdings plc Annual Report and Accounts 2021
273
Shares
(Audited)
Shareholding
guidelines
(% of salary)
Shareholding at
31 Dec 2021 2 (% of
salary)
At 31 Dec 2021
Scheme interests
Share interests
(number
of shares)
Share options 3
Shares awarded
subject to deferral 1
without
performance
conditions 4
with
performance
conditions 5
Executive Directors
Noel Quinn 6
400%
380%
1,131,278
—
481,634
1,118,554
Ewen Stevenson 6
300%
483%
838,154
—
506,743
1,113,954
1 The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security that falls due
at the time of vesting.
2 The value of the shareholding is calculated using an average of the daily closing share prices in the three months to 31 December 2021 (£4.339).
3 At 31 December 2021, Noel Quinn and Ewen Stevenson did not hold any options under the HSBC Holdings Savings-Related Share Option Plan
(UK).
4 The amount for Ewen Stevenson reflects the award granted in May 2019, replacing the 2015 to 2018 LTIs forfeited by the Royal Bank of Scotland
Group plc, now renamed as NatWest Group plc ('NatWest'), and is subject to any performance adjustments assessed and disclosed in the relevant
NatWest Annual Report and Accounts.
5 L TI awards granted in February 2020 and 2021 are subject to the performance conditions as set out on page 273.
6 All Group Executives and executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment
(Noel Quinn and Ewen Stevenson were appointed on 5 August 2019 and 1 January 2019 respectively). For Group Executives, their shareholding
requirement is 250% of salary and unvested shares that are not subject to forward-looking performance conditions (on a net of tax basis) are
counted towards their shareholding requirement.
Total pension entitlements
(Audited)
No employees who served as executive Directors during the year
have a right to amounts under any HSBC final salary pension
scheme for their services as executive Directors or are entitled to
additional benefits in the event of early retirement. There is no
retirement age set for Directors, but the normal retirement age for
colleagues is 65.
Payments to past Directors
(Audited)
Details of the 2018 LTI outcome, in which John Flint (former Group
Chief Executive) and Marc Moses (former Group Chief Risk Officer)
participated, are outlined on page 272. No payments were made
to, or in respect of, former Directors in the year in excess of the
minimum threshold of £50,000 set for this purpose.
Payments for loss of office
(Audited)
No payments for loss of office were made to, or in respect of,
former or current Directors in the year.
External appointments
During 2021, executive Directors did not receive any fees from
external appointments.
Implementation of remuneration policy in 2022
for executive Directors
The base salary of our executive Directors will increase by 3.5%
with effect from 1 March 2022. The Committee determined the
increase was necessary to ensure that the total remuneration
opportunity of our executive Directors does not fall further behind
desired levels based on the size, complexity and international peer
group of the Group. This was discussed with shareholders during
our engagement with them on the new Directors' remuneration
policy.
The increase is in line with the average salary increase of our
wider workforce. There is no other change to the remuneration
elements of our executive Directors.
The following table summarises how the maximum opportunity for
each element of our remuneration policy for executive Directors
will be implemented in 2022.
Summary of operation
Noel Quinn
Ewen Stevenson
Base salary
3.5% increase with effect from 1 March 2022 (in line
with the increase for the wider workforce)
£1,336,000
£779,000
Fixed pay allowance
No change
£1,700,000
£1,085,000
Cash in lieu of pension
No change
10% of base salary
Benefits
No change
Same benefit provisions will be made available
Annual incentive
No change in maximum opportunity
Maximum opportunity will be 215% of base salary
Long-term incentive
No change in maximum opportunity
Maximum opportunity will be 320% of base salary
Implementation of remuneration policy in 2022
2022 annual incentive scorecards
The 2022 annual incentive scorecard measures for our executive
Directors have been set to deliver growth and business
transformation. The targets for the measures have been set,
reflecting on the Group's plan for 2022 and the macroeconomic
uncertainty, including the interest rate environment and inflation.
The Committee will continue to retain discretion to adjust the
formulaic outcomes of scorecards, taking into account factors
such as Group profits, wider business performance and
stakeholder experience, to ensure executive reward is aligned with
underlying Group performance and the broader stakeholder
experience.
The weightings and performance measures for the 2022 annual
incentive award for executive Directors are disclosed below. The
performance targets are commercially sensitive and it would be
detrimental to the Group’s interests to disclose them at the start of
the financial year. Subject to commercial sensitivity, we will
disclose the targets for a given year in the Annual Report and
Accounts for that year in the Directors' remuneration report.
Executive Directors will be eligible for an annual incentive award
of up to 215% of base salary.
The 2022 annual incentive scorecards for members of our Group
Executive Committee include similar measures as for the executive
Directors to drive performance in each of our businesses,
functions and regions that contribute to the overall success of the
Group. The Group Executives' LTI awards in respect of 2021 will
also be subject to the same three-year forward-looking scorecard
measures and targets as set out on page 271.
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HSBC Holdings plc Annual Report and Accounts 2021
Noel Quinn
Ewen Stevenson
Measures
Weighting %
Weighting %
Group adjusted profit before tax
20.0
15.0
Growth in Group lending and net new invested assets
15.0
10.0
RoTE
15.0
15.0
Group adjusted costs
10.0
10.0
Customer satisfaction in the UK, Hong Kong and key growth markets
15.0
15.0
Employee experience through maintaining and improving engagement, increasing diversity and improving inclusion
15.0
15.0
Personal objectives
Group Chief Executive
•Technology transformation, growth initiatives, restructuring of the Group and driving innovation programmes.
Group Chief Financial Officer
•Finance of the future, creating strong corporate development and Group transformation functions, Global Finance
function employee experience and Global Finance function efficiency.
10.0
20.0
Total
100.0
100.0
2022 annual incentive scorecard measures and weightings
The Group adjusted profit before tax, Group lending and net new
invested assets growth, RoTE and Group adjusted costs measures
will be subject to a CET1 underpin. If the CET1 ratio on 31
December 2022 is below the CET1 risk tolerance level set in the
risk appetite statement, then the assessment for these measures
will be reduced to nil. The 2022 annual incentive scorecard is
subject to a risk and compliance modifier, which allows the
Committee the discretion to adjust down the overall scorecard
outcome to ensure that the Group operates soundly when
achieving its financial targets. For this purpose, the Committee will
receive information including any risk thresholds outside of
tolerance for a significant period of time and any risk management
failures that have resulted in significant customer detriment,
reputational damage and/or regulatory censure.
Non-executive Directors
(Audited)
The following table shows the total fees and benefits of non-executive Directors for 2021, together with comparative figures for 2020.
Fees and benefits
(Audited)
Fees 1
Benefits 2
Total
(£000)
2021
2020
2021
2020
2021
2020
Henri de Castries 3
82
202
22
1
104
203
Laura Cha 3, 4
242
587
18
—
260
587
Rachel Duan 5
67
—
—
—
67
—
Dame Carolyn Fairbairn 6
80
—
—
—
80
—
James Forese 7
572
160
—
—
572
160
Steven Guggenheimer 8
250
134
—
—
250
134
Irene Lee 9
556
546
—
—
556
546
José Antonio Meade Kuribreña 10
223
202
—
4
223
206
Heidi Miller 3, 11
251
632
19
7
270
639
Eileen Murray 12
266
120
—
—
266
120
David Nish 13
482
480
10
8
492
488
Jackson Tai
350
355
—
12
350
367
Mark Tucker 14
1,500
1,500
33
52
1,533
1,552
Pauline van der Meer Mohr 15
291
312
—
2
291
314
Total (£000)
5,212
5,230
102
79
5,314
5,309
Total ($000)
7,169
6,958
140
105
7,309
7,063
1 Fees are in line with the Directors' remuneration policy that was approved at the 2019 AGM. Fees include a travel allowance o f £4,000 fo r non-UK
based non-executive Directors and for all non-executive Directors effective from 1 June 2019. Given the travel restrictions in place, the Board was
unable to travel to attend meetings in person. Therefore, no travel allowance was paid to non-executive Directors during 2021.
2 Benefits include taxable expenses such as accommodation, travel and subsistence relating to attendance at Board and other meetings at HSBC
Holdings' registered offices. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.
3 Retired from the Board on 28 May 2021.
4 Includes fees of £177,000 (2020: £423,800) for her role as non-executive Chair and member of the Nomination Committee of The Hongkong and
Shanghai Banking Corporation Limited.
5 Appointed to the Board and as a member of the Group Remuneration Committee and Nomination & Corporate Governance Committee on
1 September 2021.
6 Appointed to the Board and as a member of the Group Risk Committee, Group Remuneration Committee and Nomination & Corporate
Governance Committee on 1 September 2021.
7 Includes fees of £332,000 (2020: £nil) in relation to his role as a non-executive Director of HSBC North America Holdings, Inc. He was appointed
as non-executive Chair on 28 May 2021.
8 Appointed as Co-Chair of the Technology Governance Working Group on 1 March 2021.
9 Includes fees of £380,000 (2020: £546,000) in relation to her roles as a Director, Remuneration Committee Chair, Audit Committee member and
Risk Committee member of The Hongkong and Shanghai Banking Corporation Limited and in relation to her role as non-executive Chair of Hang
Seng Bank Limited.
10 Appointed to the Group Remuneration Committee on 28 May 2021.
11 Includes fees of £169,000 (2020: £431,000) in relation to her role as non-executive Chair of HSBC North America Holdings, Inc.
12 Appointed as Co-Chair of the Technology Governance Working Group on 1 March 2021. Stepped down as a member of the Group Audit
Committee on 28 May 2021.
13 Stepped down as a member of Group Remuneration Committee on 23 February 2021.
14 As previously announced in 2020, a part of the fee for 2021 was donated to charity. The fee shown in the single figure of remuneration is the gross
fee before charitable donations.
15 Stepped down as a member of the Group Risk Committee on 28 May 2021.
HSBC Holdings plc Annual Report and Accounts 2021
275
Non-executive Directors’ interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in
2021, including the shareholdings of their connected persons, at
31 December 2021, or date of cessation as a Director if earlier, are
set out below.
N on-executive Directors are expected to meet the shareholding
guidelines within five years of the date of their appointment. All
non-executive Directors who had been appointed for five years or
more at 31 December 2021 met the guidelines.
Shares
Shareholding guidelines
(number of shares)
Share interests
(number of shares)
Laura Cha (retired on 28 May 2021)
15,000
16,200
Henri de Castries (retired on 28 May 2021)
15,000
19,251
Rachel Duan (appointed to the Board on 1 Sep 2021)
15,000
—
Dame Carolyn Fairbairn (appointed to the Board on 1 Sep 2021)
15,000
—
James Forese
15,000
115,000
Steven Guggenheimer
15,000
15,000
Irene Lee
15,000
15,000
José Antonio Meade Kuribreña
15,000
15,000
Heidi Miller (retired on 28 May 2021)
15,000
15,700
Eileen Murray
15,000
75,000
David Nish
15,000
50,000
Jackson Tai
15,000
66,515
Mark Tucker
15,000
307,352
Pauline van der Meer Mohr
15,000
15,000
2022 fees for non-executive Directors
The table below sets out the 2022 fees for non-executive Directors.
2022 fees
Position
£
Non-executive Group Chairman 1
1,500,000
Non-executive Director (base fee)
127,000
Senior Independent Director
200,000
Group Risk Committee
Chair
150,000
Member
40,000
Group Audit Committee and Group Remuneration Committee
Chair
75,000
Member
40,000
Nomination & Corporate Governance Committee
Chair
––
Member
33,000
Technology Governance Working Group
Co-Chair
60,000
1 The Group Chairman does not receive a base fee or any other fee in respect of chairing of the Nomination & Corporate Governance Committee.
Report of the Directors | Corporate governance report
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HSBC Holdings plc Annual Report and Accounts 2021
Summary of shareholder return and Group Chief
Executive remuneration
The following graph shows HSBC TSR performance (based on the
daily spot Return Index in sterling) against the FTSE 100 Total
Return Index for the 10-year period ended 31 December 2021.
The FTSE 100 Total Return Index has been chosen as a recognised
broad equity market index of which HSBC Holdings is a member.
The single figure remuneration for the Group Chief Executive over
the past 10 years, together with the outcomes of the respective
annual incentive and LTI awards, are presented in the following
table.
HSBC TSR and FTSE 100 Total Return Index
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Group Chief Executive
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
Stuart
Gulliver
John
Flint
John
Flint
Noel
Quinn
Noel
Quinn
Noel
Quinn
Total single figure £000
7,532
8,033
7,619
7,340
5,675
6,086
2,387
4,582
2,922
1,977
4,154
4,895
Annual incentive 1 (% of maximum)
52%
49%
54%
45%
64%
80%
76%
76%
61%
66%
32%
57%
Long-term incentive 1,2,3 (% of maximum)
40%
49%
44%
41%
–%
–%
100%
–%
–%
–%
–%
—%
1 The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors’
remuneration report, which was deferred for five years and subject to service conditions and satisfactory completion of the five-year deferred
prosecution agreement with the US Department of Justice, entered into in December 2012 ('AML DPA') as determined by the Committee. The
AML DPA performance condition was met and the award vested in 2018. The value of the award at vesting was included in the 2018 single figure
of remuneration and included as long-term incentive for 2018.
2 Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially
completed. For Group Performance Share Plan ('GPSP') awards, this is the end of the financial year preceding the date of grant. GPSP awards
shown in 2012 to 2015 are therefore related to awards granted in 2013 to 2016.
3 The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. LTI awards have a three-
year performance period and the first LTI award was made in February 2017. The value of the LTI awards expected to vest will be included in the
total single figure of remuneration of the year in which the performance period ends. Noel Quinn did not receive the 2018 LTI award that had a
performance period ended on 31 December 2021.
Relative importance of spend on pay
The following chart shows the change in:
•total staff pay between 2020 and 2021; and
•dividends and share buy-backs in respect of 2020 and 2021.
In 2021, total spend on pay was up from 2020, and the distribution
to shareholders also increased from 2020 with the reinstatement
of dividends (following the suspension of dividend payments
during 2020) and the capital return to shareholders through the up
to $2 bn share buy-back announced in October 2021. In addition,
the Group has announced the intention to initiate a further up to
$1 bn buy-back, to commence after the existing buy-back has
concluded. Dividends include an approximation of the amount
payable on 28 April 2022 in relation to the second interim dividend
of $0.18 per ordinary share.
Relative importance of spend on pay
Total return to
shareholder
2021 —
$5,070m
$2,000m
$7,070m
ì
131.1%
2020 —
$3,059m
ì
Employee pay
2021 —
$18,742m
2020 —
$18,076m
3.7%
Employee pay
Dividends
Share buy-back
HSBC Holdings plc Annual Report and Accounts 2021
277
Our approach to workforce remuneration
Remuneration principles
Our performance and pay strategy aims to competitively reward
long-term sustainable performance. Our goal is to attract, motivate
and retain the very best people, regardless of gender, ethnicity,
age, disability or any other factor unrelated to performance or
experience. This supports the long-term interests of our
stakeholders, including our customers and the communities we
serve, our shareholders and our regulators.
Our approach to performance and pay in 2021 for the broader
workforce was underpinned by our remuneration principles.
Principle
Our approach in 2021
Fair,
appropriate
and free from
bias
•We help managers to make informed, consistent and fair pay decisions. Variable pay for 92% of our employees is either set centrally
or based on a starting point recommendation from HR.
•Communications and reporting encourage our managers to: challenge their assessments; question whether they were objective; and
use facts to make decisions.
•Managers in similar roles complete ‘fairness reviews’ where they discuss the performance and values-aligned behaviour ratings of
their teams. They help each other to make objective decisions by providing a diverse range of examples, facts and viewpoints, and
challenge each other to mitigate the risk of unconscious bias.
•During the annual review process, HR and management perform checks to ensure outcomes are in line with our principles and are
equitable. We use data to identify employees whose pay is lower than their comparable peer group. If there is no objective reason for
these variances, such as performance or skills and experience, we make adjustments.
A culture of
continuous
feedback
through
manager and
employee
empowerment
•We seek to create a culture where our people can fulfil their potential, gain new skills and develop their careers for the future.
•In 2021, we further improved our culture of continuous feedback, with 66% of our colleagues saying that conversations with their
managers across the year had a positive impact on their performance and 62% reporting positive effects on their well-being.
•Our continuous feedback tool, including a mobile app, makes it easier for our colleagues to share feedback with each other in the
moment, providing a structure so that they can share what went well and what they could do better in specific situations.
•We encourage colleagues to use our online career planning tools to help them with their thinking about future roles and the
capabilities they require and to drive conversations.
Reward and
recognition of
sustainable
performance
and values-
aligned
behaviour
•Individual performance is assessed against clear and relevant financial and non-financial objectives. These set out expectations for
each colleague in terms of performance and development.
•We recognise our colleagues not just for results, but also for demonstrating our values. As such, subject to local law, our colleagues
receive a behaviour rating as well as a performance rating.
•Group and business performance is used to determine the Group variable pay pool and that of each business. Where performance in
a year is weak, as measured by both financial and non-financial metrics, this will impact the relevant pool. The final pool also
considers the external operating environment and the expectations of our stakeholders.
•We undertake analytical reviews to ensure there is clear pay differentiation across both performance and behaviour ratings. This is
provided to senior management and the Committee as part of their oversight of the remuneration outcomes for the Group.
•We recognise examples of exceptional positive conduct through an increase in variable pay, and apply a reduction in variable pay for
misconduct or inappropriate behaviour that exposes us to financial, regulatory or reputational risk.
•We promote employee share ownership through variable pay deferrals and voluntary enrolment in an all-employee share plan.
Balanced,
simple and
transparent
total reward
packages,
which support
employee well-
being
•Paying our colleagues fairly and appropriately is critical to delivering on our strategic commitments. We work extensively with our
external market benchmarking consultants to get the latest insights on market pay levels and areas of potential risk. That guides us
as we make pay decisions, allowing us to focus on managing people risks and areas critical to our strategy.
•We maintain an appropriate balance between fixed pay, variable pay and employee benefits, taking into consideration an employee’s
seniority, role, individual performance and the market. Decisions are informed, but not driven, by market position and practice.
•We are committed to employee well-being and offer employee benefits that support the mental, physical and financial health of a
diverse workforce.
•We review pay based on gender to uphold our commitment to inclusion and pay equity.
•All HSBC employees that work in a jurisdiction with a legal minimum wage are paid at or above this amount. In 2014, HSBC in the
UK was formally accredited by the Living Wage Foundation for having adopted the ‘Living Wage’ and the ‘London Living Wage’. In
nine of our jurisdictions where a 'living wage' has been defined, our employees are paid at or above that level. We also undertake
regular reviews of equal pay for gender.
•As part of our commitment to the World Economic Forum ('WEF') metrics on measuring stakeholder capitalism, we review entry
level wages in key markets to compare both men and women against the local minimum wage. This provided an indication of
fairness at point of career entry. We have included data from the UK, US and Mexico where we have sufficient entry-level colleagues
and good quality gender disclosures to allow for meaningful analysis (see table below). In line with expectations, the data shows
broad consistency between male and female outcomes.
Average standard entry level vs. minimum wage by gender as at 31 December 2021
Market
Male
Female
All
UK
115%
114%
114%
US
153%
162%
158%
Mexico
259%
250%
254%
To calculate the above, we have used an average of annualised fixed pay to allow for a like-for-like comparison to include colleagues who work part-
time. For colleagues based in the UK, we have compared the entry level wage against the UK national minimum wage. For the US, our comparison is
against the respective state minimum wage, which is slightly higher than the federal minimum wage. In Mexico, we have used the minimum wage,
which is regulated by the National Minimum Wage Commission.
Report of the Directors | Corporate governance report
278
HSBC Holdings plc Annual Report and Accounts 2021
Supporting colleagues in 2021
The well-being of our people remained a critical focus, in particular
as the operating environment continued to be challenging for
many colleagues and their families. The pandemic was a key
influence on our activities during the year and our country-based
approach allowed us to respond quickly and flexibly to specific
situations in each of our markets. In India, we took urgent steps
during the second wave of the pandemic to help our colleagues
and their dependants with access to support via a Covid-19
taskforce consisting of employee volunteers working in
collaboration with partners. Our offices in India were set up to
manage vaccination drives for employees and their families and
we provided financial support to local non-profit organisations
delivering the relief effort on the ground.
Our global well-being programme covered three pillars: mental,
physical and financial well-being. Despite the immense challenges,
sentiment remained high. A total of 82% of colleagues rated their
mental well-being as positive, 75% rated their physical well-being
positively and 64% of colleagues reported their financial well-
being as positive in our December survey.
Our survey suggests that work-life balance has improved, with
76% of colleagues saying they can integrate their work and
personal life positively, compared with 74% in 2020.
The pandemic offered us the opportunity to take the best of what
we learnt and rethink the future of work. To support our approach,
we created three guiding principles:
•Customer focus: We aim to make sure the way we work helps
deliver the best commercial outcomes for our customers.
•Team commitment: We will connect with each other, build our
community and collaborate.
•Flexibility: We will provide our colleagues with more choice on
how, when and where we work, suitable to the roles we do.
Considering the challenges colleagues faced, it was encouraging
to see that check-ins happened regularly, with 60% of colleagues
having frequent conversations with their managers, an increase
from 56% in 2020. Our colleagues tell us that these have a positive
impact on their performance, development and well-being, and are
important in motivating them to perform at their best.
We also measure our colleagues’ sentiment on performance and
pay matters through our annual pay review surveys. In the most
recent survey, a significant proportion of the respondents’
comments indicated they believed they were paid fairly for what
they do. It also highlighted challenges on market positions and
potential retention issues in certain areas. Noting this sentiment of
our colleagues, the extraordinarily competitive market for talent
and material improvement in the Group's financial performance,
we agreed a Group variable pay pool of $3,495 m. This was
determined using our countercyclical funding methodology under
which a ceiling is used to limit the increase in variable pay pool at
higher levels of performance. Therefore, while adjusted profit
before tax rose 79%, the year-on-year increase in Group variable
pay pool was 31%, following a reduction of 20% in 2020. In
addition, fixed pay increases were targeted towards junior
colleagues to help address the impact of rising inflation in many of
our locations.
Throughout the year we also recognise our colleagues for
demonstrating our values. The ‘At Our Best‘ recognition online
platform allows for real-time recognition and communication of
positive behaviours by colleagues, in line with our refreshed
purpose and values. We ran a special ‘Spotlight on valuing
difference’ campaign to recognise the exceptional actions of our
colleagues in being empathetic, championing inclusivity, listening
and seeking out different perspectives. An additional points
budget was allocated and there were over 130,000 recognitions
during the campaign.
Remuneration structure for Group employees
Total compensation, which comprises fixed and variable pay, is
the key focus of our remuneration framework, with variable pay
differentiated by performance and demonstration of values-aligned
behaviours. We set out below the key features and design
characteristics of our remuneration framework, which apply on a
Group-wide basis, subject to compliance with local laws:
Fixed pay
Attract and retain
employees with market
competitive pay for the
role, skills and experience
required.
•May include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in
accordance with local market practice.
•Based on predetermined criteria, non-discretionary, transparent and not reduced based on
performance.
•Represents a higher proportion of total compensation for more junior employees.
•May change to reflect an individual’s position, role or grade, cost of living in the country,
individual skills, capabilities and experience.
•Fixed pay is generally delivered in cash on a monthly basis.
•Consistent with approach
for Group colleagues
except fixed pay
allowance paid in shares.
Benefits
Support the physical,
mental and financial health
of a diverse workforce in
accordance with local
market practice.
•Benefits may include, but are not limited to, the provision of a pension, medical insurance, life
insurance, health assessment and relocation support.
•Provision of medical
insurance, life insurance,
car and tax return
assistance. Group Chief
Executive is eligible to
receive accommodation
and a car benefit in Hong
Kong.
Annual incentive
Incentivise and reward
performance based on
annual financial and non-
financial measures
consistent with the
medium- to long-term
strategy, stakeholder
interests and values-
aligned behaviours.
•All employees are eligible to be considered for a discretionary variable pay award. Individual
awards are determined against objectives for performance set at the start of the year.
•Represents a higher proportion of total compensation for more senior employees and will be
more closely aligned to Group and business performance as seniority increases.
•Variable pay for Group employees identified as Material Risk Takers ('MRTs') under European
Union Regulatory Technical Standard ('RTS') 2021/923 is limited to 200% of fixed pay, as
approved by shareholders at the 2014 AGM held on 23 May 2014 (98% in favour).
•Awards are generally paid in cash and shares. For MRTs, at least 50% of the awards are in
shares and/or where required by regulations, in units linked to asset management funds.
•Annual incentive is
determined based on the
outcomes of annual
scorecard of financial and
non-financial measures.
•Executive Directors and
Group Executives are also
eligible to be considered
for a long-term incentive
award, which is subject
to three-year forward-
looking performance
measures. See details on
page 257.
Overview of remuneration structure for employees
Remuneration components
and objectives
Application for Group employees
Approach for executive
Directors
HSBC Holdings plc Annual Report and Accounts 2021
279
Deferral
Align employee interests
with the medium- to long-
term strategy, stakeholder
interests and values-
aligned behaviours.
•A Group-wide deferral approach is applicable to all employees. A portion of annual incentive
awards above a specified threshold is deferred in shares vesting annually over a three-year
period with 33% vesting on the first and second anniversaries of grant and 34% on the third
anniversary.
•For MRTs awards are generally subject to a minimum 40% deferral (60% for awards of
£500,000 or more) over a minimum period of four years.
•A deferral period of five years is applied for senior management and individuals identified in
specified roles with managerial responsibilities as prescribed under the PRA and FCA
remuneration rules.
•A deferral period of seven years is applied for individuals in PRA-designated senior
management functions.
•In accordance with the terms of the PRA and FCA remuneration rules, and subject to
compliance with local regulations, the deferral requirement for MRTs is not applied to
individuals where their total variable pay is £44,000 or less and variable pay is not more than
one-third of total compensation. For these individuals, the Group standard deferral applies.
•Individuals based outside the UK and identified as MRTs under local regulations, would be
subject to local requirements where necessary.
•All deferred awards are subject to malus provisions, subject to compliance with local laws.
Awards granted to MRTs on or after 1 January 2015 are subject to clawback.
•HSBC operates an anti-hedging policy for all employees, which prohibits employees from
entering into any personal hedging strategies in respect of HSBC securities.
•For Group and local MRTs, excluding executive Directors where deferral is typically in the
form of shares only, a minimum of 50% of the deferred awards is in HSBC shares and the
balance is deferred into cash. Local regulatory requirements would also apply where
necessary.
•For some employees in our asset management business, where required by the regulations
applicable to asset management entities within the Group, at least 50% of the deferred award
is linked to fund units reflective of funds managed by those entities, with the remaining
portion of deferred awards being in the form of deferred cash awards.
•Variable pay awards made in HSBC shares or linked to relevant fund units granted to MRTs
are generally subject to a one-year retention period post-vesting.
•MRTs who are subject to a five-year deferral period, except senior management or individuals
in PRA- and FCA-designated senior management functions, have a six-month retention period
applied to their awards.
•Where an employee is subject to more than one regulation, the requirement specific to the
sector and/or country in which the individual is working is applied.
•All of the LTI award, or at
least 60% of the total
variable award (including
LTI), is deferred. The
deferred awards will vest
in five equal annual
instalments, with the first
vesting on or around the
third anniversary of the
grant date and the last
instalment vesting on or
around the seventh
anniversary of the grant
date.
•All deferred awards are in
HSBC shares and subject
to a post-vesting
retention period of one
year.
Buy-out awards
Support recruitment of key
individuals.
•Buy-out awards may be offered if an individual holds any outstanding unvested awards that
are forfeited on resignation from the previous employer.
•The terms of the buy-out awards will not be more generous than the terms attached to the
awards forfeited on cessation of employment with the previous employer.
•For new hires, the
approach is consistent
with the approach taken
for employees and policy
approved by
shareholders.
Guaranteed variable
remuneration
Support recruitment of key
individuals.
•Guaranteed variable remuneration is awarded in exceptional circumstances for new hires,
and is limited to the individual’s first year of employment only.
•The exceptional circumstances would typically involve a critical new hire and would also
depend on factors such as the seniority of the individual, whether the new hire candidate has
any competing offers and the timing of the hire during the performance year.
•For new hires, the
approach is consistent
with the approach taken
for employees and policy
approved by
shareholders.
Severance payments
Adhere to contractual
agreements with
involuntary leavers.
•Where an individual’s employment is terminated involuntarily for gross misconduct then,
subject to compliance with local laws, the Group’s policy is not to make any severance
payment in such cases and all outstanding unvested awards are forfeited.
•For other cases of involuntary termination of employment, the determination of any
severance will take into consideration the performance of the individual, contractual notice
period, applicable local laws and circumstances of the case.
•Generally, all outstanding unvested awards will normally continue to vest in line with the
applicable vesting dates. Where relevant, any performance conditions attached to the
awards, and malus and clawback provisions, will remain applicable to those awards.
•Severance amounts awarded to MRTs are not considered as variable pay for the purpose of
application of the deferral and variable pay cap rules under the PRA and FCA remuneration
rules where such amounts include: (i) payments of fixed remuneration that would have been
payable during the notice and/or consultation period; (ii) statutory severance payments; (iii)
payments determined in accordance with any approach applicable in the relevant
jurisdictions; and (iv) payments made to settle a potential or actual dispute.
•Any payments will be in
line with the policy on
loss of office as noted on
page 274.
Overview of remuneration structure for employees (continued)
Remuneration components
and objectives
Application for Group employees
Approach for executive
Directors
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280
HSBC Holdings plc Annual Report and Accounts 2021
Link between risk, performance and reward
Our remuneration practices promote sound and effective risk
management while supporting our business objectives and the
delivery of our strategy.
We set out below the key features of our framework, which help
enable us to achieve alignment between risk, performance and
reward, subject to compliance with local laws and regulations:
Variable pay
pool
The Group variable pay pool is expected to move in line with Group performance, based on a range of financial, non-financial and
contextual factors. We also use a countercyclical funding methodology, with both a floor and a ceiling, with the payout ratio generally
reducing as performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is
important. The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay
pool, thereby limiting the risk of inappropriate behaviour to drive financial performance.
The main quantitative and qualitative performance and risk metrics used for assessment of performance include:
•Group and business unit financial performance, including capital requirements;
•current and future risks, taking into consideration performance against the risk appetite, financial and resourcing plan and global
conduct outcomes; and
•fines, penalties and provisions for customer redress, which are automatically included in the Committee’s definition of profit for
determining the pool.
In the event that the Group was unable to distribute dividends to shareholders for reasons such as capital adequacy, then the Group may
determine that as a year of weak performance. In such a year, the Group may withhold some, or all, variable pay for employees including
unvested share awards, using the metrics outlined above as a basis for that determination.
Individual
performance
scorecard
•Assessment of individual performance is made with reference to clear and relevant financial and non-financial objectives. Objectives
for senior management take into account appropriate measures linked to sustainability risks, such as: reduction in carbon footprint;
facilitating financing to help clients with their transition to net zero; employee diversity targets; and risk and compliance measures. A
mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as well as
a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved.
Control
function staff
•The performance and reward of individuals in control functions, including risk and compliance employees, are assessed according to a
balanced scorecard of objectives specific to the functional role they undertake.
•Their remuneration is determined independent of the performance of the business areas they oversee.
•The Committee is responsible for approving the remuneration for the Group Chief Risk and Compliance Officer and Group Head of
Internal Audit.
•Group policy is for control functions staff to report into their respective function. Remuneration decisions for senior functional roles are
made by the global function head.
•Remuneration is carefully benchmarked with the market and internally to ensure it is set at an appropriate level.
Variable pay
adjustments
and conduct
recognition
•Variable pay awards may be adjusted downwards in circumstances including:
– detrimental conduct, including conduct that brings HSBC into disrepute;
– involvement in events resulting in significant operational losses, or events that have caused or have the potential to cause
significant harm to HSBC; and
– non-compliance with the values-aligned behaviours and other mandatory requirements or policies.
•Rewarding positive conduct may take the form of use of our global recognition programme, At Our Best, or positive adjustments to
variable pay awards.
Malus
Malus can be applied to unvested deferred awards granted in prior years in circumstances including:
•detrimental conduct, including conduct that brings the business into disrepute;
•past performance being materially worse than originally reported;
•restatement, correction or amendment of any financial statements; and
•improper or inadequate risk management.
Clawback
Clawback can be applied to vested or paid awards granted to MRTs on or after 1 January 2015 for a period of seven years, extended to
10 years for employees in PRA and FCA designated senior management functions in the event of ongoing internal/regulatory
investigation at the end of the seven-year period. Clawback may be applied in circumstances including:
•participation in, or responsibility for, conduct that results in significant losses;
•failing to meet appropriate standards and propriety;
•reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of
employment; and
•a material failure of risk management suffered by HSBC or a business unit in the context of Group risk-management standards,
policies and procedures.
Sales
incentives
•We generally do not operate commission-based sales plans.
Identification
of MRTs
•We identify individuals as MRTs based on the qualitative and quantitative criteria set out in the RTS and using the following key
principles that underpin HSBC’s identification process:
–MRTs are identified at Group, HSBC Bank (consolidated) and HSBC UK Bank level.
–MRTs are also identified at other solo regulated entity level as required by the regulations.
–When identifying an MRT, HSBC considers an employee’s role within its matrix management structure. The global business and
function that an individual works within takes precedence, followed by the geographical location in which they work.
•We also identify additional MRTs based on our own internal criteria, which include compensation thresholds and individuals in certain
roles and grades who otherwise would not be identified as MRTs under the criteria prescribed in the RTS.
Alignment between risk and reward
Framework
elements
Application
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281
Comparison of Directors' and employees' pay
The following table compares the changes in each Director's
salary, taxable benefits and annual incentive between 2020 and
2021 with the percentage change in each of those elements of pay
for UK-based employees of HSBC Group Management Services
Limited, the employing entity of the executive Directors.
There were no changes to the fees or benefits of the non-executive
Directors between 2021 and 2020. The year-on-year percentage
change in fees noted in the table below is primarily driven by any
pro-rated fees received by the non-executive Director for 2021
and/or 2020 based on time served by them on the Board and the
relevant Board committees and any additional responsibilities
taken on by the non-executive Director during each year. The
value of benefits received by the non-executive Directors reflect
the taxable expense reimbursements claimed, and the associated
gross-up tax, in relation to attending the Board meetings in each
year. Non-executive Directors who joined after 1 January 2021 are
not included.
Annual percentage change in remuneration
2020
2021
Director/employees
Base salary/fees
Benefits
Annual
incentive
Base salary/fees
Benefits
Annual
incentive 2
Executive Directors
Noel Quinn 1
151.7%
353.7%
20.2%
1.7%
-48.9%
99.0%
Ewen Stevenson
2.6%
-25.0%
-58.4%
1.8%
-75.0%
117.3%
Non-executive Directors 3
Kathleen Casey (retired on 24 April 2020)
-65.0%
200.0%
-
-
-
-
Laura Cha 4
97.0%
-
-
-58.8%
-
-
Henri de Castries 4,5
4.1%
-75.0%
-
-59.4%
2,100.0%
-
James Forese 6
-
-
-
257.5%
-
-
Steven Guggenheimer 7
-
-
-
86.6%
-
-
Irene Lee
20.3%
-100.0%
-
1.8%
-
-
José Antonio Meade Kuribreña 8
28.7%
100.0%
-
10.4%
-100.0%
-
Heidi Miller 4,5
1.1%
-100.0%
-
-60.3%
171.4%
-
Eileen Murray 7
-
-
-
121.7%
-
-
David Nish
108.7%
-50.0%
-
0.4%
25.0%
-
Sir Jonathan Symonds (retired on 18 February 2020)
-86.5%
-4.8%
-
-
-
-
Jackson Tai 8
-10.8%
-78.9%
-
-1.4%
-100.0%
-
Mark Tucker
-
-77.5%
-
—
-36.5%
-
Pauline van der Meer Mohr 8
17.7%
-75.0%
-
-6.7%
-100.0%
-
Employee group 9
2.0%
2.3%
-20.0%
1.0%
1.3%
25.2%
1 Noel Quinn succeeded John Flint as interim Group Chief Executive with effect from 5 August 2019 and was appointed permanently into the role
on 17 March 2020. The annual percentage change in 2020 for Noel Quinn is based on remuneration reported in his 2019 single figure of
remuneration (for the period 5 August 2019 to 31 December 2019) and his 2020 single figure of remuneration (for the period 1 January 2020 to
31 December 2020). Based on his annualised 2019 compensation as an executive Director, his percentage change in salary, benefits and annual
incentive was 2.1%, 85.2% and -50.9%, respectively for 2020.
2 Noel Quinn and Ewen Stevenson both voluntarily waived the cash portion of their 2020 annual incentive. The year-on-year percentage change
between 2020 and 2021 would be -1% for Noel Quinn and 9% for Ewen Stevenson without this cash waiver.
3 In some instances, non-executive Directors may have served only part of the year resulting in large year-on-year percentage changes in fees and/
or benefits. Page 275 provides the underlying single figure of remuneration for non-executive Directors used to calculate the figures above.
4 Retired from the Board during 2021 and therefore fees received during 2021 were lower than the fees received in 2020.
5 There was no change to the benefit provided. The year-on-year change reflected the increase in taxable expense reimbursement claimed in 2021
for attending Board and other meetings at HSBC Holdings' registered offices.
6 In 2021, James Forese was appointed as non-executive Chair of HSBC North America Holdings, Inc. Fees for 2021 included fees in relation to this
role.
7 Joined the Board during 2020 and therefore received fees for only part of 2020.
8 Received no taxable benefits in 2021, resulting in a 100% reduction from 2021.
9 Employee group consists of individuals employed by HSBC Group Management Services Ltd, the employing entity of the executive Directors, as
no individuals are employed directly by HSBC Holdings.
Pay ratio
The following table shows the ratio between the total pay of the
Group Chief Executive and the lower quartile, median and upper
quartile pay of our UK employees.
Total pay ratio
Method
Lower
quartile
Median
Upper
quartile
2021
A
154:1
90:1
46:1
2020
A
139:1
85:1
43:1
2019
A
169:1
105:1
52:1
Total pay and benefits amounts used to calculate the ratio
(£)
Method
Lower quartile
Median
Upper quartile
Total
pay and
benefits
Total
salary
Total
pay and
benefits
Total
salary
Total
pay and
benefits
Total
salary
2021
A
31,727
27,666
54,678
41,500
106,951
84,000
2020
A
29,833
23,264
48,703
36,972
96,386
75,000
2019
A
28,920
24,235
46,593
41,905
93,365
72,840
The increase in median ratio is primarily driven by a higher annual
incentive payout than 2020 when the Group Chief Executive
voluntarily decided to waive the cash portion of his annual
incentive award and we protected the outcomes for junior
colleagues against material year-on-year volatility when the Group
variable pay pool was down 20%. The 2021 annual incentive
award of the Group Chief Executive was higher than in 2020,
reflecting the improvement in the financial performance of the
Group and execution of our strategy at pace.
The total pay and benefits for the median employee for 2021 was
£54,678, a 12.3% increase compared with 2020.
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Our UK workforce comprises a diverse mix of employees across
different businesses and levels of seniority, from junior cashiers in
our retail branches to senior executives managing our global
business units. We aim to deliver market-competitive pay for each
role, taking into consideration the skills and experience required
for the business. Our approach to pay is designed to attract and
motivate the very best people, regardless of gender, ethnicity, age,
disability or any other factor unrelated to performance or
experience. We actively promote learning and development
opportunities for our employees to provide a framework for them
to develop their career. To help people to develop skills for the
changing world around us, we launched Future Skills in
September 2021, supporting colleagues to explore new personal,
digital, data and sustainability skills through a series of learning
activities and events. As an individual progresses in their career
we would expect their total compensation opportunity to also
increase, reflecting their role and responsibilities.
Pay structure varies across roles in order to deliver an appropriate
mix of fixed and variable pay. Junior employees have a greater
portion of their pay delivered in a fixed component, which does
not vary with performance and allows them to predictably meet
their day-to-day needs. Our senior management, including
executive Directors, generally have a higher portion of their total
compensation opportunity structured as variable pay and linked to
the performance of the Group, given their role and ability to
influence the strategy and performance of the Group. Executive
Directors also have a higher proportion of their variable pay
delivered in shares, which vest over a period of seven years with a
post-vesting retention period of one year. During this deferral and
retention period, the awards are linked to the share price so the
value of award realised by them after the vesting and retention
period will be aligned to the performance of the Group.
We are satisfied that the median pay ratio is consistent with the
pay, reward and progression policies for our UK workforce, taking
into account the diverse mix of our UK employees, the
compensation structure mix applicable to each role and our
objective of delivering market competitive pay for each role
subject to Group, business and individual performance.
Our ratios have been calculated using the option ‘A’ methodology
prescribed under the UK Companies (Miscellaneous Reporting)
Regulations 2018. Under this option, the ratios are calculated
using full-time equivalent pay and benefits of all employees
providing services in the UK at 31 December 2021. We believe this
approach provides accurate information and representation of the
ratios. The ratio has been computed taking into account the pay
and benefits of over 37,000 UK employees, other than the
individual performing the role of Group Chief Executive. We
calculated our lower quartile, median and upper quartile pay and
benefits information for our UK employees using:
•full-time equivalent annualised fixed pay, which includes salary
and allowances, at 31 December 2021;
•variable pay awards for 2021;
•return on deferred cash awards granted in prior years. The
deferred cash portion of the annual incentive granted in prior
years includes a right to receive notional returns for the period
between the grant date and vesting date, which is determined
by reference to a rate of return specified at the time of grant. A
payment of notional return is made annually and the amount is
disclosed on a paid basis in the year in which the payment is
made;
•gains realised from exercising awards from taxable employee
share plans; and
•full-time equivalent value of taxable benefits and pension
contributions.
For this purpose, full-time equivalent fixed pay and benefits for
each employee have been calculated by using each employee’s
fixed pay and benefits at 31 December 2021. Where an employee
works part-time, fixed pay and benefits are grossed up, where
appropriate, to full-time equivalent. One-off benefits provided on a
temporary basis to employees on secondment to the UK have not
been included in calculating the ratios as these are not permanent
in nature and in some cases, depending on individual
circumstances, may not truly reflect a benefit to the employee.
Total pay and benefits for the Group Chief Executive used for this
purpose is the total remuneration for Noel Quinn as reported in the
single figure of remuneration table. Total remuneration does not
include an LTI as he has not received an LTI award with a
performance period that ended during 2021. In a year in which the
value of an LTI is included in the single figure table of
remuneration, the ratios could be higher.
Given the different business mix, size of the business,
methodologies for computing pay ratios, estimates and
assumptions used by other companies to calculate their respective
pay ratios, as well as differences in employment and
compensation practices between companies, the ratios reported
may not be comparable to those reported by other listed peers on
the FTSE 100 and our international peers.
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283
Additional regulatory remuneration disclosures
This section provides disclosures required under the Hong Kong
Ordinances, Hong Kong Listing Rules and the Pillar 3 remuneration
disclosures.
For the purpose of the Pillar 3 remuneration disclosures, executive
Directors and non-executive Directors are considered to be
members of the management body. Members of the Group
Executive Committee other than the executive Directors are
considered as senior management.
MRT remuneration disclosures
The following tables set out the remuneration disclosures for
individuals identified as MRTs for HSBC Holdings.
Remuneration information for individuals who are only identified
as MRTs at HSBC Bank plc, HSBC UK Bank plc or other solo-
regulated entity levels is included, where relevant, in those
entities' disclosures.
The 2021 variable pay information included in the following tables
is based on the market value of awards. For share awards, the
market value is based on HSBC Holdings' share price at the date
of grant (unless indicated otherwise). For cash awards, it is the
value of awards expected to be paid to the individual over the
deferral period.
Remuneration awarded for the financial year (REM1)
Supervisory
function
Management
function
Other senior
management
Other identified
staff
Fixed
remuneration
Number of identified staff
14.0
2.0
22.9
1,020.7
Total fixed pay ($m)
7.2
6.9
48.9
619.6
Of which: cash-based ($m)1
7.2
3.1
48.9
619.6
Of which: shares or equivalent ownership interests ($m)2
—
3.8
—
—
Of which: share-linked instruments or equivalent non-cash instruments ($m)
—
—
—
—
Of which: other instruments ($m)
—
—
—
—
Of which: other forms ($m)
—
—
—
—
Variable
remuneration 3
Number of identified staff
14.0
2.0
22.9
1,020.7
Total variable remuneration ($m)4,5
—
15.1
76.3
637.5
Of which: cash-based ($m)
—
1.8
27.1
307.2
Of which: deferred ($m)
—
—
16.2
161.6
Of which: shares or equivalent ownership interests ($m)2
—
13.3
49.2
318.1
Of which: deferred ($m)
—
11.5
38.3
178.2
Of which: share-linked instruments or equivalent non-cash instruments ($m)
—
—
—
8.8
Of which: deferred ($m)
—
—
—
4.7
Of which: other instruments ($m)
—
—
—
—
Of which: deferred ($m)
—
—
—
—
Of which: other forms ($m)
—
—
—
3.4
Of which: deferred ($m)
—
—
—
2.1
Total remuneration ($m)
7.2
22.0
125.2
1,257.1
1 Cash-based fixed remuneration is paid immediately.
2 Paid in HSBC shares. Vested shares are subject to a retention period of up to one year.
3 Variable pay awarded in respect of 2021. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the
variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.
4 The Group has used the discount rate under PRA remuneration rule 15.13 for 15 individuals for the purpose of calculating the ratio between fixed
and variable components of 2021 total remuneration.
5 13 identified staff members were exempt from the application of the remuneration structure requirements for MRTs under the PRA and FCA
remuneration rules. Their total remuneration is $4.2 m, of which $3.6 m is fixed pay and $0.6 m is variable remuneration.
Special payments to staff whose professional activities have a material impact on institutions’ risk profile (REM2)
Supervisory
function
Management
function
Other senior
management
Other
identified staff
Guaranteed variable remuneration awards 1
Number of identified staff
—
—
—
—
Total amount ($m)
—
—
—
—
Of which guaranteed variable remuneration awards paid during the financial year, that are not taken
into account in the bonus cap ($m)
—
—
—
—
Severance payments awarded in previous periods, that have been paid out during the financial year 2
Number of identified staff
—
—
—
—
Total amount ($m)
—
—
—
—
Severance payments awarded during the financial year 2
Number of identified staff
—
—
—
64.6
Total amount ($m)
—
—
—
68.2
Of which paid during the financial year ($m)
—
—
—
54.3
Of which deferred ($m)
—
—
—
—
Of which severance payments paid during the financial year, that are not taken into account in the
bonus cap ($m)
—
—
—
68.2
Of which highest payment that has been awarded to a single person ($m)
—
—
—
5.0
1 No guaranteed variable remuneration was awarded in 2021. HSBC would offer a guaranteed variable remuneration award in exceptional
circumstances for new hires, and for the first year of employment only. It would typically involve a critical new hire, and would also depend on
factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the
performance year.
2 Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements
(excludes pre-existing benefit entitlements triggered on terminations).
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HSBC Holdings plc Annual Report and Accounts 2021
Deferred remuneration at 31 December 1 (REM3)
$m
Total amount
of deferred
remuneration
awarded for
previous
performance
periods
Of which:
due to vest in
the financial
year
Of which:
vesting in
subsequent
financial years
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration
that was due
to vest in the
financial year
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration
that was due
to vest in
future
performance
years
Total amount
of adjustment
during the
financial year
due to ex post
implicit
adjustments
Total amount
of deferred
remuneration
awarded
before the
financial year
actually paid
out in the
financial year
Total of
amount of
deferred
remuneration
awarded for
previous
performance
period that
has vested
but is subject
to retention
periods
Supervisory function
—
—
—
—
—
—
—
—
Cash-based
—
—
—
—
—
—
—
—
Shares
—
—
—
—
—
—
—
—
Share-linked instruments
—
—
—
—
—
—
—
—
Other instruments
—
—
—
—
—
—
—
—
Other forms
—
—
—
—
—
—
—
—
Management function
24.7
1.9
22.8
—
—
2.0
1.9
0.2
Cash-based
3.5
0.3
3.2
—
—
—
0.3
—
Shares
21.2
1.6
19.6
—
—
2.0
1.6
0.2
Share-linked instruments
—
—
—
—
—
—
—
—
Other instruments
—
—
—
—
—
—
—
—
Other forms
—
—
—
—
—
—
—
—
Other senior management
82.5
13.2
69.3
—
—
4.6
13.3
1.8
Cash-based
40.2
7.2
33.0
—
—
—
7.2
—
Shares
40.6
4.9
35.7
—
—
4.3
5.0
1.3
Share-linked instruments
1.7
1.1
0.6
—
—
0.2
1.1
0.5
Other instruments
—
—
—
—
—
—
—
—
Other forms
—
—
—
—
—
0.1
—
—
Other identified staff
717.9
173.0
544.9
—
—
39.8
175.4
35.6
Cash-based
349.9
94.3
255.6
—
—
—
95.3
—
Shares
350.4
70.4
280.0
—
—
38.5
71.6
31.8
Share-linked instruments
11.8
5.4
6.4
—
—
1.0
5.5
2.0
Other instruments
—
—
—
—
—
—
—
—
Other forms
5.8
2.9
2.9
—
—
0.3
3.0
1.8
Total amount
825.1
188.1
637.0
—
—
46.4
190.6
37.6
1 This table provides details of balances and movements during performance year 2021. For details of variable pay awards granted for 2021, refer to
the 'Remuneration awarded for the financial year' table. Deferred remuneration is made in cash and/or shares. Share-based awards are made in
HSBC shares.
Identified staff - remuneration by band 1 (REM4)
Identified staff that are high earners as set
out in Article 450(i) CRR
€1,000,000 – 1,500,000
243
€1,500,000 – 2,000,000
85
€2,000,000 – 2,500,000
54
€2,500,000 – 3,000,000
25
€3,000,000 – 3,500,000
11
€3,500,000 – 4,000,000
8
€4,000,000 – 4,500,000
6
€4,500,000 – 5,000,000
5
€5,000,000 – 6,000,000
4
€6,000,000 – 7,000,000
4
€7,000,000 – 8,000,000
3
€8,000,000 – 9,000,000
—
€9,000,000 – 10,000,000
2
€10,000,000 – 11,000,000
—
€11,000,000 – 12,000,000
1
1 Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates
published by the European Commission for financial programming and budget for December of the reported year as published on its website.
HSBC Holdings plc Annual Report and Accounts 2021
285
Information on remuneration of staff whose professional activities have a material impact on institutions’ risk profile (REM5)
Management body
Business areas
Total
Supervisory
function
Management
function
Total
Investment
banking
Retail
banking
Asset
management
Corporate
function
Independent
internal
control
function
All
other
Total number of identified staff
1,059.6
Of which members of the Board
14.0
2.0
16.0
Of which senior management
2.0
3.0
—
7.9
4.0
6.0
Of which other identified staff
504.5
162.0
30.0
110.6
142.6
71.0
Total remuneration of identified staff
($m)
7.2
22.0
29.2
741.3
186.3
39.7
167.3
118.7
129.0
Of which variable remuneration ($m)1
—
15.1
15.1
410.7
87.5
21.0
82.8
48.5
63.3
Of which fixed remuneration ($m)
7.2
6.9
14.1
330.6
98.8
18.7
84.5
70.2
65.7
1 Variable pay awarded in respect of 2021. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the
variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.
Directors’ emoluments
The details of compensation paid to executive and non-executive Directors for the year ended 31 December 2021 are set out below.
Emoluments
Noel Quinn
Ewen Stevenson
Non-executive Directors
2021
2020
2021
2020
2021
2020
£000
£000
£000
£000
£000
£000
Directors' base salary, allowances and benefits in kind
3,283
3,338
1,933
1,806
Non-executive Directors' fees and benefits in kind
5,314
5,309
Pension contributions
—
—
—
—
—
—
Performance-related pay paid or receivable 1
5,721
4,517
3,388
2,568
—
—
Inducements to join paid or receivable
—
—
754
1,431
—
—
Compensation for loss of office
—
—
—
—
—
—
Notional return on deferred cash
22
17
—
—
—
—
Total
9,026
7,872
6,075
5,805
5,314
5,309
Total ($000)
12,414
10,097
8,356
7,446
7,309
7,063
1 Includes the value of the deferred and LTI awards at grant.
The aggregate amount of Directors' emoluments (including both
executive Directors and non-executive Directors) for the year
ended 31 December 2021 was $28,079,057. As per our policy,
benefits in kind may include, but are not limited to, the provision
of medical insurance, income protection insurance, health
assessment, life assurance, club membership, tax assistance, car
benefit, travel assistance, provision of company owned-
accommodation and relocation costs (including any tax due on
these benefits, where applicable). Post-employment medical
insurance benefit was provided to former Directors, including
Douglas Flint valued at £6,477 ($8,909), Stuart Gulliver valued at
£6,477 ($8,909), John Flint valued at £10,303 ($14,171), and Marc
Moses valued at £15,310 ($21,058). Tax return support was also
provided to John Flint £8,292 ($11,405), and Marc Moses £2,500
($3,439). The total aggregate value of benefits provided to former
executive Directors was £49,359 ($67,891). The aggregate value of
Director retirement benefits for current Directors is nil. Amounts
are converted into US dollars based on the average year-to-date
exchange rates for the respective year.
There were payments under retirement benefit arrangements with
two former Directors of $435,131. The provision at 31 December
2021 in respect of unfunded pension obligations to former
Directors amounted to $8,162,646. This relates to unfunded
unapproved retirement benefits schemes.
Emoluments of senior management and five highest
paid employees
The following tables set out the details of emoluments paid to
senior management, which in this case comprises executive
Directors and members of the Group Executive Committee, for the
year ended 31 December 2021, or for the period of appointment in
2021 as a Director or member of the Group Executive Committee.
Details of the remuneration paid to the five highest paid
employees, comprising one executive Director and four Group
Executives, for the year ended 31 December 2021, are also
presented.
Emoluments
£000s
Five highest paid employees
Senior management
Basic salaries, allowances and benefits in kind
13,070
37,816
Pension contributions
22
303
Performance-related pay paid or receivable 1
21,870
54,033
Inducements to join paid or receivable
6,388
7,039
Compensation for loss of office
—
—
Total
41,350
99,191
Total ($000)
56,873
136,428
1 Includes the value of deferred shares awards at grant.
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HSBC Holdings plc Annual Report and Accounts 2021
Emoluments by bands
Hong Kong dollars
US dollars
Number of highest paid employees
Number of senior management
$0 – $1,000,000
$0 – $128,652
—
1
$5,000,001 – $5,500,000
$643,262 – $707,588
—
1
$6,000,001 – $6,500,000
$771,915 – $836,241
—
1
$12,500,001 – $13,000,000
$1,608,156 – $1,672,482
—
1
$14,000,001 – $14,500,000
$1,801,134 – $1,865,461
—
1
$19,000,001 – $19,500,000
$2,444,397 – $2,508,723
—
1
$24,500,001 – $25,000,000
$3,151,985 – $3,216,311
—
1
$25,500,001 – $26,000,000
$3,280,638 – $3,344,964
—
1
$26,500,001 – $27,000,000
$3,409,290 – $3,473,616
—
2
$27,500,001 – $28,000,000
$3,537,943 – $3,602,269
—
1
$38,000,001 – $38,500,000
$4,888,793 – $4,953,119
—
1
$39,500,001 – $40,000,000
$5,081,772 – $5,146,098
—
1
$40,000,001 – $40,500,000
$5,146,098 – $5,210,424
—
1
$41,500,001 – $42,000,000
$5,339,077 – $5,403,403
—
1
$42,000,001 – $42,500,000
$5,403,403 – $5,467,729
—
1
$45,500,001 – $46,000,000
$5,853,687 – $5,918,013
—
1
$56,500,001 – $57,000,000
$7,268,864 – $7,333,190
—
1
$58,000,001 – $58,500,000
$7,461,842 – $7,526,168
—
1
$65,500,001 – $66,000,000
$8,426,736 – $8,491,062
—
1
$68,000,001 – $68,500,000
$8,748,367 – $8,812,693
1
1
$76,500,001 – $77,000,000
$9,841,913 – $9,906,239
1
1
$77,500,001 – $78,000,000
$9,970,565 – $10,034,891
1
1
$96,000,001 – $96,500,000
$12,350,636 – $12,414,962
1
1
$122,500,001 – $123,000,000
$15,759,926 – $15,824,252
1
1
Share capital and other related disclosures
Share buy-back programme
On 26 October 2021, HSBC Holdings commenced a share buy-
back to purchase its ordinary shares of $0.50 each up to a
maximum consideration of $2.0bn. This programme will end no
later than 20 April 2022. The purpose of the programme is to
reduce HSBC’s number of outstanding ordinary shares. As at
31 December 2021, 120,366,714 ordinary shares had been
purchased and cancelled representing a nominal value of
$60,183,357 and an aggregate consideration paid by HSBC of
£524,301,527. The shares cancelled represented 0.58% of the
shares in issue and 0.59% of the shares in issue, excluding
treasury shares.
The table that follows outlines details of the shares purchased and
cancelled on a monthly basis during 2021.
Number
of shares
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
Month
£
£
£
£
Share buy-back of 2021
Oct-21
5,260,011
4.4800
4.4155
4.4553
23,435,159
Nov-21
67,010,270
4.4750
4.1525
4.3602
292,178,124
Dec-21
48,096,433
4.5280
4.0990
4.3390
208,688,243
120,366,714
524,301,527
Dividends
Dividends for 2021
An interim dividend of $0.07 for the 2021 half-year was paid on
30 September 2021. For further details of the dividends approved
in 2021, see Note 8 on the financial statements.
On 22 February 2022, the Directors approved a second interim
dividend for 2021 of $0.18 per ordinary share, making a total of
$0.25 for the 2021 full year. The second interim dividend for 2021
will be payable on 28 April 2022 in cash in US dollars, or in sterling
or Hong Kong dollars at exchange rates to be determined on
19 April 2022. As the second interim dividend for 2021 was
approved after 31 December 2021, it has not been included in the
balance sheet of HSBC as a liability. The distributable reserves of
HSBC Holdings at 31 December 2021 were $32.2bn.
A quarterly dividend of £0.01 per Series A sterling preference
share was paid on 15 March, 15 June, 15 September and
15 December 2021. The Series A dollar preference shares were
redeemed on 13 January 2021.
Dividends for 2022
The Group has reviewed whether it will revert to paying quarterly
dividends and is currently not intending to pay quarterly dividends
during 2022. The Group will continue to review whether to revert
to paying quarterly dividends in future years, and a further update
will be given at or ahead of the 2022 results announcement in
February 2023.
A dividend of £0.01 per Series A sterling preference share was
approved on 22 February 2022 for payment on 15 March 2022.
Share capital
Issued share capital
The nominal value of HSBC Holdings’ issued share capital paid
up at 31 December 2021 was $10,315,760,219.50 divided into
20,631,520,439 ordinary shares of $0.50 each and one non-
cumulative preference share of £0.01, representing approximately
100.00% and 0.00% respectively of the nominal value of HSBC
Holdings’ total issued share capital paid up at 31 December 2021.
The 1,450,000 non-cumulative preference shares of $0.01 each
were redeemed on 13 January 2021.
Rights, obligations and restrictions attaching to shares
The rights and obligations attaching to each class of ordinary and
non-cumulative preference shares in our share capital are set out
in full in our Articles of Association. The Articles of Association
may be amended by special resolution of the shareholders and can
be found on our website at www.hsbc.com/who-we-are/
leadership-and-governance/board-responsibilities.
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287
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no
right to fixed income. There are no voting restrictions on the
issued ordinary shares, all of which are fully paid. On a show of
hands, each member present has the right to one vote at general
meetings. On a poll, each member present or voting by proxy is
entitled to one vote for every $0.50 nominal value of share capital
held.
There are no specific restrictions on transfers of ordinary shares,
which are governed by the general provisions of the Articles of
Association and prevailing legislation.
Information on the policy adopted by the Board for paying interim dividends
on the ordinary shares may be found in the 'Shareholder information' section
on page 397.
Dividend waivers
HSBC Holdings' employee benefit trusts, which hold shares in
HSBC Holdings in connection with the operation of its share plans,
have lodged standing instructions to waive dividends on shares
held by them that have not been allocated to employees. Shares
held by custodians in connection with the vesting of employee
share awards also lodged instructions to waive dividends. The
total amount of dividends waived during 2021 was $6.8m.
Preference shares
The preference shares, which have preferential rights to income
and capital, do not, in general, confer a right to attend and vote at
general meetings.
There are three classes of preference shares in the share capital of
HSBC Holdings: non-cumulative US dollar preference shares of
$0.01 each (‘dollar preference shares’); non-cumulative preference
shares of £0.01 each (‘sterling preference shares’); and non-
cumulative preference shares of €0.01 (‘euro preference shares’).
The sterling preference share in issue is a Series A sterling
preference share. There are no dollar preference shares or euro
preference shares in issue.
Information on dividends approved for 2020 and 2021 may be found in Note
8 on the financial statements on page 340.
Further details of the rights and obligations attaching to the HSBC Holdings’
issued share capital may be found in Note 31 on the financial statements.
Compliance with Hong Kong Listing Rule 13.25A(2)
HSBC Holdings has been granted a waiver from strict compliance
with Rule 13.25A(2) of the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong.
Under this waiver, HSBC’s obligation to file a Next Day Return
following the issue of new shares, pursuant to the vesting of share
awards granted under its share plans to persons who are not
Directors, would only be triggered where it falls within one of the
circumstances set out under Rule 13.25A(3).
Share capital changes in 2021
The following events occurred during the year in relation to the
ordinary share capital of HSBC Holdings:
Scrip dividends
There were no scrip dividends issued during the year.
All-employee share plans
Number
Aggregate
nominal value
Exercise price
from
to
$
£
£
HSBC Holdings Savings-Related Share Option Plan (UK)
HSBC ordinary shares issued in £
3,197,834
1,598,917
2.627
4.4037
Options over HSBC ordinary shares lapsed
19,287,652
9,643,826
Options over HSBC ordinary shares granted in response to approximately
11,183 applications from HSBC employees in the UK on 22 September 2021
15,410,381
7,705,191
HSBC Holdings
ordinary shares issued
Aggregate
nominal value
Market value per share
from
to
$
£
£
HSBC International Employee Share Purchase Plan
283,004
141,502
3.5975
4.4995
HSBC share plans
HSBC Holdings
ordinary shares issued
Aggregate
nominal value
Market value per share
from
to
$
£
£
Vesting of awards under the HSBC Share Plan 2011
54,785,215
27,392,608
4.052
4.555
Authorities to allot and to purchase shares and
pre-emption rights
At the AGM in 2021, shareholders renewed the general authority
for the Directors to allot new shares up to 13,615,199,500 ordinary
shares, 15,000,000 non-cumulative preference shares of £0.01
each, 15,000,000 non-cumulative preference shares of $0.01 each
and 15,000,000 non-cumulative preference shares of €0.01 each.
Shareholders also renewed the authority for the Directors to make
market purchases of up to 2,042,279,925 ordinary shares. The
Directors exercised this authority during the year and purchased
120,366,714 ordinary shares.
In addition, shareholders gave authority for the Directors to grant
rights to subscribe for, or to convert any security into, no more
than 4,084,559,850 ordinary shares in relation to any issue by
HSBC Holdings or any member of the Group of contingent
convertible securities that automatically convert into or are
exchanged for ordinary shares in HSBC Holdings in prescribed
circumstances. For further details on the issue of contingent
convertible securities, see Note 31 on the financial statements.
Other than as disclosed in the tables above headed ‘Share capital
changes in 2021’, the Directors did not allot any shares during
2020.
Debt securities
In 2021, HSBC Holdings issued the equivalent of $19.34 bn of debt
securities in the public capital markets in a range of currencies and
maturities in the form of senior securities to ensure it meets the
current and proposed regulatory rules, including those relating to
the availability of adequate total loss-absorbing capacity. For
details of capital instruments and subordinated bail-inable debt,
see Notes 28 and 31 on pages 370 and 379.
Treasury shares
In accordance with the terms of a waiver granted by the Hong
Kong Stock Exchange on 19 December 2005, HSBC Holdings
will comply with the applicable law and regulation in the UK in
relation to the holding of any shares in treasury and with the
conditions of the waiver in connection with any shares it may hold
in treasury. At 31 December 2021, pursuant to Chapter 6 of the UK
Companies Act 2006, 325,273,407 ordinary shares were held in
treasury. This was the maximum number of shares held at any
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288
HSBC Holdings plc Annual Report and Accounts 2021
time during 2021, representing 1.58% of the shares in issue as at
31 December 2021. The nominal value of shares held in treasury
was $162,636,704.
Notifiable interests in share capital
During 2021, HSBC Holdings did not receive any notification of
major holdings of voting rights pursuant to the requirements of
Rule 5 of the Disclosure, Guidance and Transparency Rules. No
further notifications had been received between 31 December
2021 and 11 February 2022. Previous notifications received are as
follows:
•BlackRock, Inc. gave notice on 3 March 2020 that on
2 March 2020 it had the following: an indirect interest in HSBC
Holdings ordinary shares of 1,235,558,490; qualifying financial
instruments with 7,294,459 voting rights that may be acquired
if the instruments are exercised or converted; and financial
instruments with a similar economic effect to qualifying
financial instruments, which refer to 2,441,397 voting rights,
representing 6.07%, 0.03% and 0.01%, respectively, of the
total voting rights at 2 March 2020.
•Ping An Asset Management Co., Ltd. gave notice on
6 December 2017 that on 4 December 2017 it had an indirect
interest in HSBC Holdings ordinary shares of 1,007,946,172,
representing 5.04% of the total voting rights at that date.
At 31 December 2021, according to the register maintained by
HSBC Holdings pursuant to section 336 of the Securities and
Futures Ordinance of Hong Kong:
•BlackRock, Inc. gave notice on 1 September 2020 that on
27 August 2020 it had the following interests in HSBC Holdings
ordinary shares: a long position of 1,477,023,361 shares and a
short position of 38,760,188 shares, representing 7.14% and
0.19%, respectively, of the ordinary shares in issue at that date.
•Ping An Asset Management Co., Ltd., gave notice on
25 September 2020 that on 23 September 2020 it had a long
position of 1,655,479,531 in HSBC Holdings ordinary shares,
representing 8.00% of the ordinary shares in issue at that date.
On 8 February 2022, pursuant to section 324 of Part XV of the
Securities and Futures Ordinance of Hong Kong, BlackRock, Inc.
gave notice that on 3 February 2022 it had the following interests
in HSBC Holdings ordinary shares: a long position of
1,638,892,657 shares and a short position of 13,731,141 shares,
representing 7.96% and 0.07%, respectively, of the ordinary
shares in issue at that date.
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited, at least 25% of the
total issued share capital has been held by the public at all times
during 2021 and up to the date of this report.
Dealings in HSBC Holdings listed securities
The Group has policies and procedures that, except where
permitted by statute and regulation, prohibit specified transactions
in respect of its securities listed on The Stock Exchange of Hong
Kong Limited. Except for dealings as intermediaries or as trustees
by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any
of its subsidiaries has purchased, sold or redeemed any of its
securities listed on The Stock Exchange of Hong Kong Limited
during the year ended 31 December 2021.
Directors’ interests
Pursuant to the requirements of the UK Listing Rules and
according to the register of Directors’ interests maintained by
HSBC Holdings pursuant to section 352 of the Securities and
Futures Ordinance of Hong Kong, the Directors of HSBC Holdings
at 31 December 2021 had certain interests, all beneficial unless
otherwise stated, in the shares or debentures of HSBC Holdings
and its associated corporations.
Save as stated in the following table, no further interests were
held by Directors, and no Directors or their connected persons
were awarded or exercised any right to subscribe for any shares or
debentures in any HSBC corporation during the year.
No Directors held any short position as defined in the Securities
and Futures Ordinance of Hong Kong in the shares or debentures
of HSBC Holdings and its associated corporations.
Directors’ interests – shares and debentures
At 31 Dec 2021 or date of cessation, if earlier
At 1 Jan 2021, or
date of appointment,
if later
Beneficial
owner
Child
under 18
or spouse
Jointly with
another
person
Trustee
Total
interests
HSBC Holdings ordinary shares
Laura Cha (retired on 28 May 2021)
16,200
16,200
—
—
—
16,200
Henri de Castries (retired on 28 May 2021)
19,251
19,251
—
—
—
19,251
Rachel Duan (appointed to the Board on 1 Sep 2021)
—
—
—
—
—
—
Dame Carolyn Fairbairn (appointed to the Board on 1 Sep 2021)
—
—
—
—
—
—
James Forese 1
115,000
115,000
—
—
—
115,000
Steven Guggenheimer 1
15,000
—
—
15,000
—
15,000
Irene Lee
11,904
15,000
—
—
—
15,000
José Antonio Meade Kuribreña 1
15,000
15,000
—
—
—
15,000
Heidi Miller 1 (retired on 28 May 2021)
15,700
15,700
—
—
—
15,700
Eileen Murray 1
75,000
75,000
—
—
—
75,000
David Nish
50,000
—
50,000
—
—
50,000
Noel Quinn 2
778,958
1,131,278
—
—
—
1,131,278
Ewen Stevenson 2
545,731
838,154
—
—
—
838,154
Jackson Tai 1,3
66,515
32,800
11,965
21,750
—
66,515
Mark Tucker
307,352
307,352
—
—
—
307,352
Pauline van der Meer Mohr
15,000
15,000
—
—
—
15,000
1 James Forese has an interest in 23,000, Steven Guggenheimer has an interest in 3,000, José Antonio Meade Kuribreña has an interest in 3,000,
Heidi Miller has an interest in 3,140, Eileen Murray has an interest in 15,000 and Jackson Tai has an interest in 13,303 listed American Depositary
Shares ('ADS'), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS
represents five HSBC Holdings ordinary shares.
2 Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings Savings-Related Share Option Plan (UK)
and the HSBC Share Plan 2011 are set out in the Scheme interests in the Directors’ remuneration report on page 254. At 31 December 2021, the
aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising
through employee share plans and the interests above were: Noel Quinn – 2,731,466; and Ewen Stevenson – 2,458,851. Each Director’s total
interests represents approximately 0.01% of the shares in issue and 0.01% of the shares in issue excluding treasury shares.
3 Jackson Tai has a non-beneficial interest in 11,965 shares of which he is custodian.
HSBC Holdings plc Annual Report and Accounts 2021
289
There have been no changes in the shares or debentures of the
current Directors from 31 December 2021 to the date of this
report.
Listing Rule 9.8.4 and other disclosures
This section of the Annual Report and Accounts 2021 forms part of
and includes certain disclosures required in the Report of the
Directors incorporated by cross-reference, including under Listing
Rule 9.8.4 and otherwise as applicable by law.
Content
Page references
Long-term incentives
271
Dividend waivers
287
Dividends
287
Share buy-back
24, 287
Emissions
46
Energy efficiency
46, 53, 55
Principal activities of HSBC
13, 30, 97, 362
Business review and future developments
12–41, 43, 122, 135, 388
Directors’ governance
Appointment and re-election
A rigorous selection process is followed for the appointment of
Directors. Appointments are made on merit and candidates are
considered against objective criteria, having regard to the benefits
of a diverse Board. Appointments are made in accordance with
HSBC Holdings' Articles of Association. The Nomination &
Corporate Governance Committee report sets out further details of
the Board selection process. The number of Directors (other than
any alternate Directors) must not be fewer than five nor exceed 25.
The Board may at any time appoint any person as a Director,
either to fill a vacancy or as an addition to the existing Board. The
Board may appoint any Director to hold any employment or
executive office, and may revoke or terminate any such
appointment.
Non-executive Directors are appointed for an initial three-year
term and, subject to continued satisfactory performance based
upon an assessment by the Group Chairman and the Nomination
& Corporate Governance Committee, are proposed for re-election
by shareholders at each AGM. They typically serve two three-year
terms. The Board may invite a Director to serve additional periods
but any term beyond six years is subject to review with an
explanation to be provided in the Annual Report and Accounts.
Shareholders vote at each AGM on whether to elect and re-elect
individual Directors. All Directors that stood for election and re-
election at the 2021 AGM were elected and re-elected by
shareholders.
None of the Directors who retired during the year or who are not
offering themselves for re-election at the 2022 AGM have raised
concerns about the operation of the Board or the management of
the company.
No executive Director is involved in deciding their own
remuneration outcome.
Commitments
The terms and conditions of the appointments of non-executive
Directors are set out in a letter of appointment, which includes the
expectations of them and the estimated time required to perform
their role. Letters of appointment of each non-executive Director
are available for inspection at the registered office of HSBC
Holdings. The anticipated time commitment for non-executive
Directors serving on the Board and as a member of any
committees is no more than 75 days per annum. Directors who in
addition chair a large committee should expect to commit up to
100 days per annum. Any additional time commitment connected
with Board-related appointments will be confirmed separately.
Board approval is required for any non-executive Directors’
external commitments, with consideration given to time
commitments and conflicts of interest.
Conflicts of interest
The Board has an established policy and set of procedures to
ensure that the Board’s management of the Directors’ conflicts of
interest policy operates effectively. The Board has the power to
authorise conflicts where they arise, in accordance with the
Companies Act 2006 and HSBC Holdings' Articles of Association.
Details of all Directors’ conflicts of interest are recorded in the
register of conflicts, which is maintained by the Group Company
Secretary and Chief Governance Officer's office. The Board agreed
for 2022 onwards that the conflicts register be reviewed annually
by the Board and quarterly by the Nomination & Corporate
Governance Committee. Upon appointment, new Directors are
advised of the policy and procedures for managing conflicts.
Directors are required to notify the Board of any actual or potential
conflicts of interest and to update the Board with any changes to
the facts and circumstances surrounding such conflicts. Directors
are requested to review and confirm their own and their respective
closely associated persons' outside interests and appointments
twice a year. The Board has considered, and authorised (with or
without conditions) where appropriate, potential conflicts as they
have arisen during the year in accordance with the said policy and
procedures. All non-executive Directors are re-vetted by the
compliance team every three years from appointment and as part
of such process all conflicts checks are refreshed.
Directors' indemnity
The Articles of Association of HSBC Holdings contain a qualifying
third-party indemnity provision, which entitles Directors and other
officers to be indemnified out of the assets of HSBC Holdings
against claims from third parties in respect of certain liabilities.
HSBC Holdings has granted, by way of deed poll, indemnities to
the Directors, including former Directors, against certain liabilities
arising in connection with their position as a Director of HSBC
Holdings or of any Group company. Directors are indemnified to
the maximum extent permitted by law.
The indemnities that constitute a 'qualifying third-party indemnity
provision', as defined by section 234 of the Companies Act 2006,
remained in force for the whole of the financial year (or, in the
case of Directors appointed during 2021, from the date of their
appointment). The deed poll is available for inspection at the
registered office of HSBC Holdings.
Additionally, Directors have the benefit of Directors’ and officers’
liability insurance.
Qualifying pension scheme indemnities have also been granted to
the Trustees of the Group's pension schemes, which were in force
for the whole of the financial year and remain in force as at the
date of this report.
Contracts of significance
During 2021, none of the Directors had a material interest, directly
or indirectly, in any contract of significance with any HSBC
company. During the year, all Directors were reminded of their
obligations in respect of transacting in HSBC securities and
following specific enquiry all Directors have confirmed that they
have complied with their obligations.
Shareholder engagement
The Board is directly accountable to, and gives high priority to
communicating with, HSBC’s shareholders. Information about
HSBC and its activities is provided to shareholders in its Interim
Reports and the Annual Report and Accounts as well as on
www.hsbc.com.
To complement regular publications, there is continual dialogue
between members of the Board and institutional investors
throughout the year. For examples of such engagement see t he
Group Chairman's governance statement on page 218 and the
Remuneration Committee Chair's letter on page 254.
Directors are encouraged to develop an understanding of the
views of shareholders. Enquiries from individuals on matters
relating to their shareholdings and HSBC’s business are
welcomed.
Any individual or institutional investor can make an enquiry by
contacting the investor relations team, Group Chairman, Group
Chief Executive, Group Chief Financial Officer and Group Company
Secretary and Chief Governance Officer. Our Senior Independent
Director is also available to shareholders if they have concerns that
Report of the Directors | Corporate governance report
290
HSBC Holdings plc Annual Report and Accounts 2021
cannot be resolved or for which the normal channels would not be
appropriate. He can be contacted via the Group Company
Secretary and Chief Governance Officer at 8 Canada Square,
London E14 5HQ.
Annual General Meeting
The AGM in 2022 is planned to be held in London at 11:00am on
Friday, 29 April 2022. Information on how to participate, both in
advance and on the day, can be found in the Notice of the 2022
AGM, which will be sent to shareholders on 25 March 2022 and
be available on www.hsbc.com/agm. A live webcast will be
available on www.hsbc.com. A recording of the proceedings will
be available on www.hsbc.com shortly after the conclusion of the
AGM. Due to the current environment, these arrangements may
change. Shareholders should monitor our website and
announcements for any updates. Shareholders may send enquiries
to the Board in writing via the Group Company Secretary and Chief
Governance Officer, HSBC Holdings plc, 8 Canada Square, London
E14 5HQ or by sending an email to
shareholderquestions@hsbc.com.
General meetings and resolutions
Shareholders may require the Directors to call a general meeting
other than an AGM, as provided by the UK Companies Act 2006. A
valid request to call a general meeting may be made by members
representing at least 5% of the paid-up capital of HSBC Holdings
as carries the right of voting at its general meetings (excluding any
paid-up capital held as treasury shares). A request must state the
general nature of the business to be dealt with at the meeting and
may include the text of a resolution that may properly be moved
and is intended to be moved at the meeting. At any general
meeting convened on such request, no business may be
transacted except that stated by the requisition or proposed by the
Board.
Shareholders may request the Directors to send a resolution to
shareholders for consideration at an AGM, as provided by the UK
Companies Act 2006. A valid request must be made by
(i) members representing at least 5% of the paid-up capital of
HSBC Holdings as carries the right of voting at its general
meetings (excluding any paid-up capital held as treasury shares),
or (ii) at least 100 members who have a right to vote on the
resolution at the AGM in question and hold shares in HSBC
Holdings on which there has been paid up an average sum, per
member, of at least £100.
The request must be received by the company not later than (i) six
weeks before the AGM in question; or (ii) if later, the time at which
the notice of AGM is published.
A request may be in hard copy form or in electronic form, and
must be authenticated by the person or persons making it. A
request may be made in writing to HSBC Holdings at its UK
address, referred to in the paragraph above or by sending an email
to shareholderquestions@hsbc.com.
Events after the balance sheet date
For details of events after the balance sheet date, see Note 37 on
the financial statements.
Change of control
The Group is not party to any significant agreements that take
effect, alter or terminate following a change of control of the
Group. The Group does not have agreements with any Director or
employee that would provide compensation for loss of office or
employment resulting from a takeover bid.
Branches
The Group provides a wide range of banking and financial services
through branches and offices in the UK and overseas.
Research and development activities
During the ordinary course of business the Group develops new
products and services within the global businesses.
Political donations
HSBC does not make any political donations or incur political
expenditure within the ordinary meaning of those words. We have
no intention of altering this policy. However, the definitions of
political donations, political parties, political organisations and
political expenditure used in the UK Companies Act 2006 are very
wide. As a result, they may cover routine activities that form part
of the normal business activities of the Group and are an accepted
part of engaging with stakeholders. To ensure that neither the
Group nor any of its subsidiaries inadvertently breaches the UK
Companies Act 2006, authority is sought from shareholders at the
AGM to make political donations.
HSBC provides administrative support to two political action
committees ('PACs') in the US funded by voluntary political
contributions by eligible employees. We do not control the PACs,
and all decisions regarding the amounts and recipients of
contributions are directed by the respective steering committee of
each PAC, which are comprised of eligible employees. The PACs
recorded combined political donations of $15,500 during 2021
(2020: $100,750).
Charitable contributions
For details of charitable contributions, see page 77.
Internal control
The Board is responsible for maintaining and reviewing the
effectiveness of risk management and internal control systems,
and for determining the level and type of risks the Group is willing
to take in achieving its strategic objectives.
To meet this requirement and to discharge its obligations under
the FCA Handbook and the PRA Handbook, procedures have been
designed: for safeguarding assets against unauthorised use or
disposal; for maintaining proper accounting records; and for
ensuring the reliability and usefulness of financial information used
within the business or for publication.
These procedures provide reasonable assurance against material
misstatement, errors, losses or fraud. They are designed to provide
effective internal control within the Group and accord with the
Financial Reporting Council‘s guidance for Directors issued in
2014, on risk management, internal control and related financial
and business reporting. The procedures have been in place
throughout the year and up to 22 February 2022, the date
of approval of the Annual Report and Accounts 2021.
The key risk management and internal control procedures include
the following:
Global principles
The Group's Global Principles set an overarching standard for all
other policies and procedures and are fundamental to the Group’s
risk management structure. They inform and connect our purpose,
values, strategy and risk management principles, guiding us to do
the right thing and treat our customers and our colleagues fairly at
all times.
Risk management framework
The risk management framework supports our Global Principles. It
outlines the key principles and practices that we employ in
managing material risks. It applies to all categories of risk and
supports a consistent approach in identifying, assessing,
managing and reporting the risks we accept and incur in our
activities.
Delegation of authority within limits set by the Board
Subject to certain matters reserved for the Board, the Group Chief
Executive has been delegated authority limits and powers within
which to manage the day-to-day affairs of the Group, including the
right to sub-delegate those limits and powers. Each relevant Group
Executive Committee member or executive Director has delegated
authority within which to manage the day-to-day affairs of the
business or function for which he or she is accountable.
Delegation of authority from the Board requires those individuals
to maintain a clear and appropriate apportionment of significant
responsibilities and to oversee the establishment and maintenance
of systems of control that are appropriate to their business or
function. Authorities to enter into credit and market risk exposures
HSBC Holdings plc Annual Report and Accounts 2021
291
are delegated with limits to line management of Group companies.
However, credit proposals with specified higher-risk
characteristics require the concurrence of the appropriate global
function. Credit and market risks are measured and reported at
subsidiary company level and aggregated for risk concentration
analysis on a Group-wide basis.
Risk identification and monitoring
Systems and procedures are in place to identify, assess, control
and monitor the material risk types facing HSBC as set out in the
risk management framework. The Group‘s risk measurement and
reporting systems are designed to help ensure that material risks
are captured with all the attributes necessary to support well-
founded decisions, that those attributes are accurately assessed
and that information is delivered in a timely manner for those risks
to be successfully managed and mitigated.
Changes in market conditions/practices
Processes are in place to identify new risks arising from changes
in market conditions/practices or customer behaviours, which
could expose the Group to heightened risk of loss or reputational
damage. The Group employs a top and emerging risks framework,
which contains an aggregate of all current and forward-looking
risks and enables it to take action that either prevents them
materialising or limits their impact.
During 2021 due to the prolonged impact of the Covid-19
pandemic on the global economy, banks continued to play an
expanded role to support society and customers. The pandemic
and its impact on the global economy have impacted many of our
customers’ business models and income, requiring significant
levels of support from both governments and banks.
To meet the additional challenges, we supplemented our existing
approach to risk management with additional tools and practices
and these continue to be in place. We continue our focus on the
quality and timeliness of the data used to inform management
decisions, through measures such as early warning indicators,
prudent active risk management of our risk appetite, and ensuring
regular communication with our Board and other key
stakeholders.
Responsibility for risk management
All employees are responsible for identifying and managing risk
within the scope of their role as part of the three lines of defence
model. This is an activity-based model to delineate management
accountabilities and responsibilities for risk management and the
control environment. The second line of defence sets the policy
and guidelines for managing specific risk areas, provides advice
and guidance in relation to the risk, and challenges the first line of
defence (the risk owners) on effective risk management.
The Board delegated authority to the Group Audit Committee
('GAC') and it reviewed the independence, autonomy and
effectiveness of the Group's policies and procedures on
whistleblowing, including the procedures for the protection of staff
who raise concerns of detrimental treatment.
Strategic plans
Strategic plans are prepared for global businesses, global
functions and geographical regions within the framework of the
Group’s overall strategy. Financial resource plans, informed by
detailed analysis of risk appetite describing the types and quantum
of risk that the Group is prepared to take in executing its strategy,
are prepared and adopted by all major Group operating companies
and set out the key business initiatives and the likely financial
effects of those initiatives.
The effectiveness of the Group’s system of risk management and
internal control is reviewed regularly by the Board, the GRC and
the GAC.
During 2021, the Group continued to focus on operational
resilience and invest in the non-financial risk infrastructure. There
was a particular focus on material and emerging risks and areas
undergoing strategic growth.
The GRC and the GAC received confirmation that executive
management has taken or is taking the necessary actions to
remedy any failings or weaknesses identified through the
operation of the Group's framework of controls. In response to the
prolonged Covid-19 pandemic, our business continuity responses
have been successfully implemented and the majority of service
level agreements continue to be maintained.
Internal control over financial reporting
HSBC is required to comply with section 404 of the US Sarbanes-
Oxley Act of 2002 and assess its effectiveness of internal control
over financial reporting at 31 December 2021. In 2014, the GAC
endorsed the adoption of the COSO 2013 framework for the
monitoring of risk management and internal control systems to
satisfy the requirements of section 404 of the Sarbanes-Oxley Act.
The key risk management and internal control procedures over
financial reporting include the following:
Entity level controls
The primary mechanism through which comfort over risk
management and internal control systems is achieved is through
assessments of the effectiveness of controls to manage risk, and
the reporting of issues on a regular basis through the various risk
management and risk governance forums. Entity level controls are
a defined suite of internal controls that have a pervasive influence
over the entity as a whole and meet the principles of the
Committee of Sponsoring Organizations of the Treadway
Commission ('COSO') framework. They include controls related to
the control environment, such as the Group's values and ethics,
the promotion of effective risk management and the overarching
governance exercised by the Board and its non-executive
committees. The design and operational effectiveness of entity
level controls are assessed annually as part of the assessment of
the effectiveness of internal controls over financial reporting. If
issues are significant to the Group, they are escalated to the GRC
and also to the GAC, if concerning financial reporting matters.
Process level transactional controls
Key process level controls that mitigate the risk of financial
misstatement are identified, recorded and monitored in
accordance with the risk framework. This includes the
identification and assessment of relevant control issues against
which action plans are tracked through to remediation. Further
details on HSBC’s approach to risk management can be found on
page 121. The GAC has continued to receive regular updates on
HSBC’s ongoing activities for improving the effective oversight of
end-to-end business processes, and management continued to
identify opportunities for enhancing key controls, such as through
the use of automation technologies.
Financial reporting
The Group’s financial reporting process is controlled using
documented accounting policies and reporting formats, supported
by detailed instructions and guidance on reporting requirements,
issued to all reporting entities within the Group in advance of each
reporting period end. The submission of financial information from
each reporting entity is supported by a certification by the
responsible financial officer and analytical review procedures at
reporting entity and Group levels.
Disclosure Committee
Chaired by the Group Chief Financial Officer, the Disclosure
Committee supports the discharge of the Group’s obligations
under relevant legislation and regulation including the UK and
Hong Kong listing rules, the UK Market Abuse Regulation and US
Securities and Exchange Commission rules. In so doing, the
Disclosure Committee is empowered to determine whether a new
event or circumstance should be disclosed, including the form and
timing of such disclosure, and review certain material disclosures
made or to be made by the Group. The membership of the
Disclosure Committee consists of senior management, including
the Group Chief Financial Officer, Group Chief Legal Officer and
Group Company Secretary and Chief Governance Officer. The
Group's brokers, external auditors and its external legal counsel
also attend as required. The integrity of disclosures is underpinned
by structures and processes within the Global Finance and Global
Risk and Compliance functions that support rigorous analytical
Report of the Directors | Corporate governance report
292
HSBC Holdings plc Annual Report and Accounts 2021
review of financial reporting and the maintenance of proper
accounting records. As required by the Sarbanes-Oxley Act, the
Group Chief Executive and the Group Chief Financial Officer have
certified that the Group's disclosure controls and procedures were
effective as at the end of the period covered by the Annual Report
and Accounts 2021.
The annual review of the effectiveness of the Group's system of
risk management and internal control over financial reporting was
conducted with reference to the COSO 2013 framework. Based on
the assessment performed, the Directors concluded that for the
year ended 31 December 2021, the Group's internal control over
financial reporting was effective.
PwC has audited the effectiveness of HSBC's internal control over
financial reporting and has given an unqualified opinion.
Going concern
The Board, having made appropriate enquiries, is satisfied that the
Group as a whole has adequate resources to continue operations
for a period of at least 12 months from the date of this report, and
it therefore continues to adopt the going concern basis in
preparing the financial statements.
For further details, see page 41.
Employees
At 31 December 2021, HSBC had a total workforce equivalent to
220,000 full-time employees compared with 226,000 at the end of
2020 and 235,000 at the end of 2019. Our main centres of
employment were India with approximately 38,000 employees, the
UK with 35,000, mainland China with 30,000, Hong Kong with
28,000, Mexico with 16,000 and the US with 7,000.
Our business spans many cultures, communities and continents.
We aim to provide an environment where our colleagues can fulfil
their potential by building their skills and capabilities while
focusing on the development of a diverse and inclusive culture.
We use confidential employee surveys to assess progress and
make changes. We want to provide an open culture, where our
colleagues feel connected, supported to speak up and where our
leaders encourage and use feedback. Where we make
organisational changes, we support our people, in particular where
there are job impacts.
Employee relations
We consult with and, where appropriate, negotiate with employee
representative bodies where we have them. It is our policy to
maintain well-developed communications and consultation
programmes with all employee representative bodies. There have
been no material disruptions to our operations from labour
disputes during the past five years.
We are committed to complying with the applicable employment
law and regulations in the jurisdictions in which we operate.
HSBC’s global employment practices and relations policy provides
the framework and controls through which we seek to uphold that
commitment.
Diversity and inclusion
Our customers, colleagues and communities span many cultures
and continents. We value difference, and believe that diversity
makes us strong. We are dedicated to building a diverse and
connected workforce where everyone feels a sense of belonging.
Our Group People Committee, which is made up of Group
Executive Committee members, governs our diversity and
inclusion agenda. It meets regularly to agree actions to improve
diverse representation and build a more inclusive culture where
our colleagues can bring the best of themselves to work, and
deliver more equal outcomes for our stakeholders. Members of
our Group Executive Committee are held to account for the actions
they take on diversity via aspirational targets contained within
their performance scorecards. Every colleague at HSBC must treat
each other with dignity and respect to ensure an inclusive
environment. Our policies make it clear that we do not tolerate
unlawful discrimination, bullying or harassment on any grounds.
To align our approach to inclusion best practices, we participate in
global diversity benchmarks that help us to identify improvement
opportunities. We also track a large number of diversity and
inclusion metrics, which enable us to pinpoint inclusion barriers,
and take action where required. Our gender diversity statistics are
set out on page 72.
Further details of our diversity and inclusion activity, together with our Gender
and Ethnicity Pay Gap Report 2021, can be found at www.hsbc.com/
diversitycommitments.
Employment of people with a disability
We strongly believe in providing equal opportunities for all
employees. The employment of people with a disability is included
in this commitment. The recruitment, training, development and
promotion of people with a disability are based on the aptitudes
and abilities of the individual. Should employees become disabled
during their employment with us, efforts are made to continue
their employment. Where necessary, we will provide appropriate
training, facilities and reasonable equipment.
Employee development
We aim to build a dynamic, inclusive culture where the best want
to develop the skills and experiences that help them fulfil their
potential. This determines how we develop our people and recruit,
identify and nurture talent. A range of resources bring this to life
including:
•HSBC University, our platform for learning and development
with specific business and technical academies;
•our My HSBC Career portal, which offers career development
information and resources; and
•HSBC Talent Marketplace, our new online platform that uses AI
to provide opportunities to learn as we work.
Each year, every employee is asked to complete global mandatory
training. It plays a critical role in shaping our culture by ensuring
everyone is focused on issues that are fundamental to working at
HSBC, from sustainability, to financial crime risk, to our
intolerance of bullying and harassment.
As the opportunities we face change, we provide development to
key populations through business and technical academies. This
includes our risk academy, which helps us to develop broad
capabilities in traditional areas of risk like financial crime but also
in emerging risk issues like climate risk and the ethics of AI and
Big Data.
Our approach to learning is skills based. Our academies work with
our businesses to identify the key skills and capabilities we need in
the future. Alongside this, we help colleagues identify, assess and
develop the skills that match their ambition and aspirations. In
2021, as part of our Future Skills programme a ‘Focus 4’ campaign
encouraged colleagues to identify four future skills they want to
prioritise in their development plans. Over four themed weeks,
various events introduced colleagues to areas such as data, digital
and sustainability skills, as well as personal skills like critical
thinking and resilience.
Our new platform for learning content is Degreed. This helps
colleagues identify, assess and develop key skills through internal
and external training materials in a way that suits them. Content
can range from quick videos, articles or podcasts to packaged
programmes or learning pathways.
In 2021, we launched the HSBC Talent MarketPlace, an AI-based
platform, which matches colleagues to projects and experiences
based on their aspirations. By December, this had been rolled out
to nearly 50,000 colleagues in the US, India, Singapore and the
UK, and will be rolled out globally in 2022.
Effective people management and impactful leadership remain
critical to our ability to energise for growth. In 2021, we launched
a refreshed executive development curriculum for our most senior
population. This combines internal programmes and business
school activities with targeted technical programmes on key topics
and skills.
HSBC Holdings plc Annual Report and Accounts 2021
293
Health and safety
We are committed to providing a safe and healthy working
environment for everyone. We have adopted global policies,
mandatory procedures, and incident and information reporting
systems across the organisation that reflect our core values and
are aligned to international standards. Our global health and safety
performance is subject to ongoing monitoring and assurance.
Our chief operating officers have overall responsibility for
engendering a positive health and safety culture and ensuring that
global policies, procedures and systems are put into practice
locally. They also have responsibility for ensuring all local legal
requirements are met.
We delivered a range of programmes in 2021 to help us
understand and manage our health and safety risks:
•We continued to provide enhancements to our workplaces
globally to minimise the risks of Covid-19, including enhanced
cleaning, improved ventilation and social distancing measures.
•We updated our advice and risk assessment methodology on
working from home, providing more awareness and best
practices on good ergonomics and well-being to be adopted as
we transitioned to new ways of working.
•We delivered health and safety training and awareness to
220,000 of our employees and contractors globally, ensuring
roles and responsibilities were clear and understood.
•We completed the annual safety inspection on all of our
buildings globally, subject to local Covid-19 restrictions, to
ensure we were meeting our standards and continuously
improving our safety performance.
•We continued to focus on enhancing the safety culture in our
supply chain through our SAFER Together programme,
covering the five key elements of best practice safety culture,
including speaking up about safety, and recognising
excellence. Our 2021 safety climate survey results showed a
continued high level of positive safety culture, significantly
above the industry average.
•We commenced a targeted guidance and training programme
for our construction partners in our key markets globally to help
them understand and deliver industry leading health and safety
performance, with over 130 construction workers receiving
safety passporting training.
•Our Eat Well Live Well programme continued educating and
informing our colleagues on how to make healthy food and
drink choices. We enhanced the programme to provide digital
educational and information resources, including a suite of
videos and recipe ideas. The programme was a key component
of HSBC’s winning entry in the 2021 Global Healthy Workplace
Awards.
•We put in place effective storm preparation controls and
processes to ensure the protection of our people and
operations. In 2021, there were 38 named storms that passed
over 1,935 of our buildings, resulting in 0 injuries or material
business impact.
Employee health and safety
2021
2020
2019
Rate of workplace fatalities per 100,000 employees
—
—
—
Number of major injuries to employees 1
14
15
29
All injury rate per 100,000 employees
64
88
189
1 Fractures, dislocation, concussion, loss of consciousness, overnight
admission to hospital.
Remuneration
HSBC’s pay and performance strategy is designed to reward
competitively the achievement of long-term sustainable
performance and attract and motivate the very best people,
regardless of gender, ethnicity, age, disability or any other factor
unrelated to performance or experience with the Group, while
performing their role in the long-term interests of our stakeholders.
For further details of the Group’s approach to remuneration, see page 278.
Employee share plans
Share options and discretionary awards of shares granted under
HSBC share plans align the interests of employees with the
creation of shareholder value. The following table sets out the
particulars of outstanding options, including those held by
employees working under employment contracts that are regarded
as ‘continuous contracts’ for the purposes of the Hong Kong
Employment Ordinance. The options were granted at nil
consideration. No options have been granted to substantial
shareholders and suppliers of goods or services, nor in excess of
the individual limit for each share plan. No options were cancelled
by HSBC during the year.
A summary for each plan of the total number of the options that
were granted, exercised or lapsed during 2021 is shown in the
following table. Further details required to be disclosed pursuant
to Chapter 17 of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited are available on our
website at www.hsbc.com/who-we-are/leadership-and-
governance/remuneration and on the website of The Stock
Exchange of Hong Kong Limited at www.hkex.com.hk, or can be
obtained upon request from the Group Company Secretary and
Chief Governance Officer, 8 Canada Square, London E14 5HQ.
Particulars of options held by Directors of HSBC Holdings are set out on
page 273.
Note 5 on the financial statements gives details of share-based payments,
including discretionary awards of shares granted under HSBC share plans.
All-employee share plans
HSBC operates all-employee share option plans under which
options are granted over HSBC ordinary shares. Subject to leaver
provisions, options are normally exercisable after three or five
years. During 2021, options were granted by reference to the
average market value of HSBC Holdings ordinary shares on the
five business days immediately preceding the invitation date, then
applying a discount of 20%. The closing price for HSBC Holdings
ordinary shares quoted on the London Stock Exchange on
21 September 2021, the day before the options were granted and
as derived from the Daily Official List, was £3.5975.
The HSBC Holdings Savings-Related Share Option Plan (UK) will
expire on 24 April 2030, by which time the plan may be extended
with approval from shareholders, unless the Directors resolve to
terminate the plan at an earlier date.
The HSBC International Employee Share Purchase Plan was
introduced in 2013 and now includes employees based in
28 jurisdictions, although no options are granted under this plan.
During 2021, approximately 190,000 employees were offered
participation in these plans.
HSBC Holdings Savings-Related Share Option Plan (UK)
HSBC Holdings ordinary shares
Dates of awards
Exercise price
Usually exercisable
At
Granted
Exercised
Lapsed
At
from
to
from
to
from
to
1 Jan 2021
during year
during year 1
during year
31 Dec 2021
(£)
(£)
20 Sep 2015
22 Sep 2021
2.6270
5.9640
1 Nov 2019
30 Apr 2027
130,952,539
15,410,381
3,878,418
19,287,652
123,196,850
1 The weighted average closing price of the shares immediately before the dates on which options were exercised was £4.3351.
Report of the Directors | Corporate governance report
294
HSBC Holdings plc Annual Report and Accounts 2021
Statement of compliance
The statement of corporate governance practices set out on pages
217 to 296 and the information referred to therein constitutes the
'Corporate governance report' and 'Report of the Directors' of
HSBC Holdings. The websites referred to do not form part of this
report.
Relevant corporate governance codes, role profiles and policies
UK Corporate Governance
Code
www.frc.org.uk
Hong Kong Corporate
Governance Code (set out in
Appendix 14 to the Rules
Governing the Listing of
Securities on the Stock
Exchange of Hong Kong
Limited)
www.hkex.com.hk
Descriptions of the roles and
responsibilities of the:
– Group Chairman
– Group Chief Executive
– Senior Independent Director
– Board
www.hsbc.com/who-we-are/
leadership-and-governance/
board-responsibilities
Board and senior management
www.hsbc.com/who-we-are/
leadership-and-governance
Roles and responsibilities of the
Board's committees
www.hsbc.com/who-we-are/
leadership-and-governance/
board-committees
Board’s policies on:
– diversity and inclusion
– shareholder communication
– human rights
– remuneration practices and
governance
www.hsbc.com/who-we-are/
leadership-and-governance/
board-responsibilities
Global Internal Audit Charter
www.hsbc.com/who-we-are/
leadership-and-governance/
corporate-governance-codes/
internal-control
HSBC is subject to corporate governance requirements in both the
UK and Hong Kong. During 2021, HSBC complied with the
provisions and requirements of both the UK and Hong Kong
Corporate Governance Codes.
Under the Hong Kong Code, the audit committee should be
responsible for the oversight of all risk management and internal
control systems. HSBC’s Group Risk Committee is responsible for
oversight of internal control, other than internal control over
financial reporting, and risk management systems. This is
permitted under the UK Corporate Governance Code.
HSBC Holdings has codified obligations for transactions in Group
securities in accordance with the requirements of the UK Market
Abuse Regulation and the rules governing the listing of securities
on HKEx, save that the HKEx has granted waivers from strict
compliance with the rules that take into account accepted
practices in the UK, particularly in respect of employee share
plans. During the year, all Directors were reminded of their
obligations in respect of transacting in HSBC Group securities.
Following specific enquiry all Directors have confirmed that they
have complied with their obligations.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
22 February 2022
HSBC Holdings plc Annual Report and Accounts 2021
295
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and
Accounts 2021, the Directors’ remuneration report and the
financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the parent company (‘Company’) and Group
financial statements in accordance with UK-adopted international
accounting standards. The company has also prepared financial
statements in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) N0 1606/2002 as it
applies in the European Union. In preparing these financial
statements, the Directors have also elected to comply with
International Financial Reporting Standards issued by the
International Accounting Standards Board (IFRSs as issued by
IASB). Under company law, the Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and Group,
and of the profit or loss of the Company and Group for that period.
In preparing these financial statements, the Directors are required
to:
•select suitable accounting policies and then apply them
consistently;
•make judgements and accounting estimates that are
reasonable and prudent;
•state whether applicable UK-adopted international accounting
standards, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and IFRSs issued by IASB have been followed,
subject to any material departures disclosed and explained in
the financial statements; and
•prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company and
Group will continue in business.
The Directors are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions, and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
The Directors are responsible for the maintenance and integrity of
the Annual Report and Accounts 2021 as they appear on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts 2021,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the
Company’s position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in the
‘Report of the Directors: Corporate governance report’ on pages
220 to 223 of the Annual Report and Accounts 2021, confirms that,
to the best of their knowledge:
•the Group financial statements, which have been prepared in
accordance with UK-adopted international accounting
standards, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and IFRSs issued by IASB, give a true and fair
view of the assets, liabilities, financial position, and profit or
loss of the Group; and
•the management report represented by the Report of the
Directors includes a fair review of the development and
performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties that it faces.
The Group Audit Committee has responsibility, delegated to it
from the Board, for overseeing all matters relating to external
financial reporting. The Group Audit Committee report on page
240 sets out how the Group Audit Committee discharges its
responsibilities.
Disclosure of information to auditors
In accordance with section 418 of the Companies Act 2006, the
Directors’ report includes a statement, in the case of each Director
in office as at the date the Report of the Directors is approved,
that:
•so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware; and
•they have taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors
are aware of that information.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
22 February 2022
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Financial statements
The financial statements provide detailed information and notes on our income, balance sheet, cash flows and changes in equity,
alongside a report from our independent auditors.
298 Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc
308 Financial statements
318 Notes on the financial statements
Making our cards more sustainable and accessible
We are ending single-use plastic in our payment cards. By the end of 2026, the approximately 23 million cards we issue each year will be
made from recycled PVC plastic. This action is expected to reduce CO2 emissions by 161 tonnes and save 73 tonnes of plastic waste per
year as part of our net zero strategy. We rolled out recycled PVC cards for 13 markets in 2021, issuing them for customers needing new or
replacement cards.
Our UK cards also feature a range of accessibility features as standard for all customers. Working with charities such as Alzheimer’s
Society, the new features include considerations for people with dementia, visual impairments, learning difficulties, dyslexia and colour
blindness. These include tactile raised dots to differentiate credit cards from debit cards, and retail cards from commercial ones.
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Independent auditors’ report to the members of HSBC Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, HSBC Holdings plc’s group financial statements 1 and company financial statements (the ’financial statements’):
•give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2021 and of the group’s and
company’s profit and the group’s and company’s cash flows for the year then ended;
•have been properly prepared in accordance with UK-adopted international accounting standards; and
•have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Group Audit Committee (‘GAC’).
Separate opinion in relation to international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international
accounting standards, have also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union.
In our opinion, the group and company financial statements have been properly prepared in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international
accounting standards, have also applied international financial reporting standards (‘IFRSs’) as issued by the International Accounting
Standards Board (‘IASB’).
In our opinion, the group and company financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’), International Standards on Auditing
issued by the International Auditing and Assurance Standards Board (‘ISAs’) and applicable law. Our responsibilities under ISAs (UK) and
ISAs are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
During the period, we identified that PricewaterhouseCoopers provided an impermissible training service via a publicly available seminar
in respect of the implementation of a new Indonesian IT security regulation. The attendees at this seminar included six members of staff
from HSBC Indonesia. The HSBC staff who attended the course were not from the Finance function and were not in roles relevant to our
audit. In addition, HSBC Indonesia is not within the scope of the group audit. We confirm that based on our assessment of the breach,
nature and scope of the service and our communication with the GAC, that the provision of this service has not compromised our
professional judgement or integrity and as such believe that an objective, reasonable and informed third party in possession of these facts
would conclude that our integrity and objectivity has not been impaired and accordingly we remain independent for the purposes of the
audit.
Other than the matter referred to above, to the best of our knowledge, we declare that no other non-audit services prohibited by the FRC’s
Ethical Standard were provided to the company or its controlled undertakings in the period under audit.
Other than those disclosed in Note 6, we have provided no non-audit services to the company or its controlled undertakings in the period
under audit.
Our audit approach
Overview
Audit scope
•This was the third year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP (‘PwC’), who
you first appointed on 31 March 2015 in relation to that year’s audit. In addition to forming this opinion, in this report we have also
provided information on how we approached the audit, how it changed from the previous year and details of the significant
discussions that we had with the GAC.
1 We have audited the financial statements, included within the Annual Report and Accounts 2021 (the ‘Annual Report’), which comprise: the
consolidated and company balance sheets as at 31 December 2021, the consolidated and company income statements and the consolidated and
company statements of comprehensive income for the year then ended, the consolidated and company statements of cash flows for the year then
ended, the consolidated and company statements of changes in equity for the year then ended, and the notes to the financial statements, which
include a summary of significant accounting policies and other explanatory information. Certain notes to the financial statements have been
presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial
statements and are identified as ‘(Audited)’. The relevant disclosures are included in the Risk review section on pages 127 to 216 and the
Directors' remuneration report disclosures on pages 268 to 276.
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HSBC Holdings plc Annual Report and Accounts 2021
Key audit matters
•Expected credit losses - Impairment of loans and advances (group)
•Investment in associate – Bank of Communications Co., Ltd (‘BoCom’) (group)
•Impairment of investments in subsidiaries (parent)
•Valuation of defined benefit pensions obligations (group)
Materiality
•Overall group materiality: US$970m (2020: US$900m) based on 5% of adjusted profit before tax.
•Overall company materiality: US$920m (2020: US$855m) based on 0.75% of total assets. This would result in an overall materiality of
US$2bn and was therefore reduced below the group materiality.
•Performance materiality: US$725m (2020: US$675m) (group) and US$690m (2020: US$641m) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Compared to last year the number of key audit matters has reduced from eight to four. The following are no longer considered to be key
audit matters.
•Impact of Covid-19 (group and company) - Given the impact of Covid-19 on working practices and international travel, the majority of
our interactions continued to be undertaken virtually, including those with the partners and teams for Significant Subsidiaries and
operations centres, and with HSBC Board members and management. Similarly, a substantial part of our audit testing was performed
remotely. We used established practices throughout 2021 for interacting and undertaking our audit testing virtually, consistent with the
hybrid working models at both PwC network teams and HSBC.
•IT access management (group) - Management has remediated a number of the control deficiencies in relation to IT access
management.
•Valuation of financial instruments (group) - The financial instruments where significant pricing inputs are unobservable, the most
material of which are the private equity investments held by Global Banking and Markets and the Insurance business, experienced
reduced market volatility during the year that impacted the determination of the fair value.
•Impairment of goodwill and intangible assets (group) - The risk of impairment at the period end is reduced due to the significant
surplus between the recoverable amounts and the carrying value for the goodwill and intangible asset balances at the year end, after
the full impairment recognised for the WPB LatAm goodwill in 2021.
The remaining four key audit matters are consistent with last year.
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Expected credit losses - Impairment of loans and advances (group)
Nature of the key audit matter
Determining expected credit losses (‘ECL’) involves management judgement and is subject to a high degree of estimation uncertainty.
Management makes various assumptions when estimating ECL. The significant assumptions that we focused on in our audit included those with greater
levels of management judgement and for which variations had the most significant impact on ECL. These included assumptions made in determining
forward looking economic scenarios and their probability weightings and estimating material management judgemental adjustments.
The impact of Covid-19, including the nature and extent of government support, supply chain constraints and increasing energy prices, and more recent
factors, including developments in China’s commercial real estate sector, have resulted in unprecedented economic conditions that vary between
territories and industries, leading to uncertainty around judgements made in determining the severity and probability weighting of macroeconomic
variable (‘MEV’) forecasts across the different economic scenarios used in ECL models.
The modelling methodologies used to estimate ECL are developed using historical experience. The impact of the unprecedented economic conditions has
also resulted in certain limitations in the reliability of these methodologies to forecast the extent and timing of future customer defaults and therefore
estimate ECL. In addition, modelling methodologies do not incorporate all factors that are relevant to estimating ECL, such as differentiating the impact on
industry sectors of economic conditions. These limitations are addressed with management judgemental adjustments, the measurement of which is
inherently judgemental and subject to a high level of estimation uncertainty.
Management makes other assumptions which are less judgemental or for which variations have a less significant impact on ECL. These assumptions
include:
•The methodologies used in quantitative scorecards for determining customer risk ratings (‘CRRs’);
•Estimating expected cash flows and collateral valuations for credit impaired wholesale exposures;
•Model methodologies themselves; and
•Quantitative and qualitative criteria used to assess significant increases in credit risk.
Matters discussed with the Group Audit Committee
We held discussions with the GAC covering governance and controls over ECL, with a significant focus on the continuing impact of Covid-19 and other economic
conditions, including recent developments in China’s commercial real estate sector. We discussed a number of areas, including:
•The severity of MEV forecasts in economic scenarios, and their related probability weightings, across territories;
•Management judgemental adjustments and the nature and extent of analysis used to support those adjustments;
•The criteria and conditions used to assess to what extent management judgemental adjustments continue to be needed;
•Management’s policies, governance and controls over model validation and monitoring; and
•The disclosures made in relation to ECL, in particular the impact of adjustments on determining ECL and the resulting estimation uncertainty.
How our audit addressed the Key Audit Matter
We assessed the design and effectiveness of governance and controls over the estimation of ECL. We observed management’s review and challenge in
governance forums for (1) the determination of MEV forecasts and their probability weightings for different economic scenarios, and (2) the assessment of
ECL for Retail and Wholesale portfolios, including the assessment of model limitations and any resulting management judgemental adjustments.
We also tested controls over:
•Model validation and monitoring;
•Credit reviews that determine customer risk ratings for wholesale customers;
•The identification of credit impaired events;
•The input of critical data into source systems and the flow and transformation of critical data from source systems to impairment models and
management judgemental adjustments; and
•The calculation and approval of management judgemental adjustments to modelled outcomes.
We involved our economic experts in assessing the significant assumptions made in determining the severity and probability weighting of MEV forecasts.
These assessments considered the sensitivity of ECL to variations in the severity and probability weighting of MEVs for different economic scenarios. We
involved our modelling experts in assessing the appropriateness of the significant assumptions and methodologies used for models and management
judgemental adjustments. We independently reperformed the calculations for a sample of those models and management judgemental adjustments. We
further considered whether the judgements made in selecting the significant assumptions would give rise to indicators of possible management bias.
In addition, we performed substantive testing over:
•The compliance of ECL methodologies and assumptions with the requirements of IFRS 9;
•The appropriateness and application of the quantitative and qualitative criteria used to assess significant increases in credit risk;
•A sample of critical data used in ECL models and to estimate management judgemental adjustments as at 31 December 2021;
•Assumptions and critical data for a sample of credit impaired wholesale exposures; and
•A sample of CRRs applied to wholesale exposures.
We evaluated and tested the Credit Risk disclosures made in the Annual Report.
Relevant references in the Annual Report and Accounts 2021
•Credit risk disclosures, page 137.
•GAC Report, page 245.
•Note 1.2(d): Financial instruments measured at amortised cost, page 321.
•Note 1.2(i): Impairment of amortised cost and FVOCI financial assets, page 323.
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Impairment of investment in associate - Bank of Communications Co., Ltd (‘BoCom’) (group)
Nature of the key audit matter
At 31 December 2021, the fair value of the investment in BoCom, based on the share price, was US$15.1bn lower than the carrying value (‘CV’) of
US$23.6bn.
This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using the higher of
fair value and value in use ('VIU'). The VIU was US$1.2bn in excess of the CV. On this basis, management concluded no impairment was required.
The methodology in the VIU model is dependent on various assumptions, both short term and long term in nature. These assumptions, which are subject
to estimation uncertainty, are derived from a combination of management’s judgement, analysts’ forecasts and market data. The significant assumptions
that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant impact on the
VIU. Specifically, these included:
•The discount rate;
•Short term assumptions for operating income growth rate, cost-income ratio, expected credit losses and effective tax rates;
•Long term assumptions for profit and asset growth rates, expected credit losses, and effective tax rates; and
•Capital related assumptions (risk-weighted assets, capital adequacy ratio and tier 1 capital adequacy ratio).
Matters discussed with the Group Audit Committee
We discussed the appropriateness of the VIU methodology and significant assumptions with the GAC, giving consideration to the macroeconomic
environment, the outlook for the Chinese banking market and the fair value, which has been lower than the carrying value for approximately 10 years. We
also discussed the disclosures made in relation to BoCom, including reasonably possible alternatives for the significant assumptions, the use of sensitivity
analysis to explain estimation uncertainty and the changes in certain assumptions that would result in the VIU being equal to the CV.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine the VIU. We assessed the appropriateness of the methodology
used, and the mathematical accuracy of the calculations, to estimate the VIU. In respect of the significant assumptions, our testing included the following:
•Challenging the appropriateness of the significant assumptions and, where relevant, their interrelationships;
•Obtaining evidence for data supporting significant assumptions including historic experience, external market information, third-party sources including
analyst reports, information from BoCom management and historical publicly available BoCom financial information;
•Assessing the sensitivity of the VIU to reasonable variations in certain significant assumptions, both individually and in aggregate;
•Determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management; and
•Assessing whether the judgements made in deriving the significant assumptions give rise to indicators of possible management bias.
We observed the quarterly meetings in March, May, September, and November 2021 between management and BoCom management, held specifically to
identify facts and circumstances impacting assumptions relevant to the determination of the VIU.
Representations were obtained from management that assumptions used were consistent with information currently available to the group. .
We evaluated and tested the disclosures made in the Annual Report in relation to BoCom.
Relevant references in the Annual Report and Accounts 2021
•GAC Report, page 245.
•Note 1.2(a): Critical accounting estimates and judgements, page 320.
•Note 18 Interests in associates and joint ventures, page 359.
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Impairment of investments in subsidiaries (company)
Nature of the key audit matter
The macroeconomic and geopolitical environment continues to be challenging, impacting both 2021 and the outlook into 2022 and beyond. These
external factors, as well as HSBC’s strategy, impact the financial position and performance of subsidiaries within the group. These factors were
considered by management in determining if there were potential indicators of impairment that required an impairment assessment for investment in
subsidiaries.
Management compared the net assets to the carrying value of each direct subsidiary of HSBC Holdings plc. Where the net assets did not support the
carrying value or the subsidiary made a loss during the period, management estimated the recoverable amount using the higher of value in use (‘VIU’) or
fair value less cost to sell. Management predominantly used VIU in its impairment tests, unless it believed that fair value would result in a higher
recoverable amount for any subsidiary. The impairment test resulted in a partial reversal of an impairment charge of US$3.1bn in relation to the
investment in HSBC Overseas Holdings (UK) Limited (‘HOHU’). This resulted in investment in subsidiaries of US$163bn at 31 December 2021.
The methodology used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature. These
assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by management
and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and for which
variations had the most significant impact on the recoverable amount. Specifically, these included HSBC’s strategic planning cycle for 2022 to 2026
including revenue forecasts and cost reduction targets, regulatory capital requirements, long term growth rates and discount rates.
Matters discussed with the Group Audit Committee
We discussed the partial reversal of the impairment charge for HOHU, the appropriateness of methodologies used and significant assumptions with the
GAC, giving consideration to the macroeconomic outlook and HSBC’s strategy. We considered reasonably possible alternatives for significant
assumptions.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine the recoverable amounts. We assessed the appropriateness of
the methodology used, and tested the mathematical accuracy of the calculations, to estimate the recoverable amounts. In respect of the significant
assumptions, our testing included the following:
•Challenging the achievability of management’s strategic planning cycle and the prospects for HSBC’s businesses, as well as considering the
achievement of historic forecasts;
•Obtaining and evaluating evidence where available for critical data relating to significant assumptions, from a combination of historic experience and
external market and other financial information;
•Assessing whether the cash flows included in the model were in accordance with the relevant accounting standard;
•Assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
•Determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report in relation to investment in subsidiaries.
Relevant references in the Annual Report and Accounts 2021
•Note 19: Investments in subsidiaries, page 362.
Valuation of defined benefit pensions obligations (group)
Nature of the key audit matter
The group has a defined benefit obligation of US$42.8bn, of which US$32.3bn relates to HSBC Bank (UK) pension scheme.
The valuation of the defined benefit obligation for HSBC Bank (UK) pension scheme is dependent on a number of actuarial assumptions. Management
uses an actuarial expert to determine the valuation of the defined benefit obligation. The valuation methodology uses a number of market based inputs
and other financial and demographic assumptions. The significant assumptions that we focused our audit on were those with greater levels of
management judgement and for which variations had the most significant impact on the liability. Specifically, these included the discount rate, inflation
rate and mortality rate.
Matters discussed with the Group Audit Committee
We discussed with the GAC the methodologies and significant assumptions used by management to determine the value of the defined benefit obligation.
How our audit addressed the Key Audit Matter
We tested governance and controls in place over the methodologies and the significant assumptions, including those in relation to the use of
management's experts. We also evaluated the objectivity and competence of management’s expert involved in the valuation of the defined benefit
obligation.
We assessed the appropriateness of the methodology used, and the mathematical accuracy of the calculations, to estimate the liability. In respect of the
significant assumptions, we used our actuarial experts to understand the judgements made by management and their actuarial expert in determining the
significant assumptions and compared these assumptions to our independently compiled expected ranges based on market observable indices and the
knowledge and opinions of our actuarial experts.
We evaluated and tested the disclosures made in the Annual Report in relation to the defined benefit pension obligation.
Relevant references in the Annual Report and Accounts 2021
•GAC Report, page 246.
•Note 1.2(k): Critical accounting estimates and judgements, page 327.
•Note 5: Employee compensation and benefits, page 331.
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How we tailored the audit scope
We performed a risk assessment, giving consideration to relevant external and internal factors, including Covid-19, climate change,
geopolitical and economic risks, relevant accounting and regulatory developments, HSBC’s strategy and the changes taking place across
the group. We also considered our knowledge and experience obtained in prior year audits. As part of considering the impact of climate
change in our risk assessment, we evaluated management's assessment of the impact of climate risk, which is set out on page 45,
including their conclusion that there is no material impact on the financial statements. In particular, we considered management’s
assessment of the impact on ECL on loans and advances to customers, the financial statement line item we determined to be most likely
to be impacted by climate risk. Management’s assessment gave consideration to a number of matters, including the climate stress testing
performed in 2021.
Using our risk assessment, we tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and
controls, and the industry in which they operate. We continually assessed risks and changed the scope of our audit where necessary.
Our risk assessment and scoping identified certain entities (collectively the Significant Subsidiaries) for which we obtained audit opinions.
We obtained full scope audit opinions for the consolidated financial position and performance of Hongkong and Shanghai Banking
Corporation Limited, HSBC Bank plc, and HSBC North America Holdings Limited. We also obtained full scope audit opinions for the
company financial position and performance of HSBC UK Bank plc, HSBC Bank Canada and HSBC Mexico S.A. We obtained audit
opinions over specific balances for HSBC Bank Middle East Limited - UAE Operations. The audits for HSBC Bank plc and HSBC UK Bank
plc were performed by other PwC teams in the UK. All other audits were performed by other PwC network firms.
We continued with our approach for rotating certain smaller locations in and out of scope over a number of reporting periods. These
locations, which are subject to local external audits, are individually relatively small compared to the group. Notwithstanding their size, the
rotational approach is designed to ensure that over time these locations are subject to audit work as part of the group audit. HSBC Bank
Malaysia was removed from the scope of The Hongkong and Shanghai Banking Corporation Limited audit for 2021 and India was
included.
Group-wide audit approach
HSBC has entity level controls that have a pervasive influence across the group, as well as other global and regional governance and
controls over aspects of financial reporting, such as those operated by the Global Risk function for expected credit losses. A significant
amount of IT and operational processes and controls relevant to financial reporting are undertaken in operations centres run by Digital
Business Services ('DBS') across different locations. Financial reporting processes and controls are performed centrally in HSBC’s Group
Finance function and the four Finance operations centres, including the impairment assessment of goodwill and intangible assets, the
consolidation of the group’s results, the preparation of the financial statements, and management’s oversight controls relevant to the
group’s financial reporting.
For these areas, we either performed audit work ourselves, or directed and provided oversight of the audit work performed by PwC teams
in the UK, Poland, China, Sri Lanka, Malaysia, India and the Philippines. A substantial part of our audit testing in these locations was
performed remotely. Some of this work was relied upon by the PwC teams auditing the Significant Subsidiaries. This audit work, together
with analytical review procedures and assessing the outcome of local external audits, also mitigated the risk of material misstatement for
balances in entities that were not part of a Significant Subsidiary.
Significant Subsidiaries audit approach
We asked the partners and teams reporting to us on the Significant Subsidiaries to work to assigned materiality levels reflecting the size
of the operations they audited. The performance materiality levels ranged from US$48m to US$690m. Certain Significant Subsidiaries
were audited to a local statutory audit materiality that was less than our overall group materiality.
We designed global audit approaches for the products and services that substantially make up HSBC’s global businesses, such as
lending, deposits and derivatives. These approaches were provided to the partners and teams performing audit testing for the Significant
Subsidiaries.
We were in active dialogue throughout the year with the partners and teams responsible for the audits of the Significant Subsidiaries,
including consideration of how they planned and performed their work. We attended Audit Committee meetings for some of the
Significant Subsidiaries. We also attended meetings with management in each of these Significant Subsidiaries at the year-end. Given the
impact of Covid-19 on working practices and international travel, the majority of our interactions continued to be undertaken virtually.
The audit of The Hongkong and Shanghai Banking Corporation Limited in Hong Kong relied upon work performed by other teams in Hong
Kong and the PwC network firms in India, mainland China and Singapore. Similarly, the audit of HSBC Bank plc in the UK relied upon
work performed by other teams in the UK and the PwC network firms in France and Germany. We considered how the audit partners and
teams for the Significant Subsidiaries instructed and provided oversight to the work performed in these locations. Collectively, Significant
Subsidiaries covered 85% of total assets and 75% of total operating income.
Using the work of others
We continued to make use of evidence provided by others. This included testing of controls performed by Global Internal Audit and
management themselves in some low risk areas. We used the work of PwC experts, for example, economic experts for our work around
the severity and probability weighting of macroeconomic variables used as part of the expected credit loss allowance and actuaries on the
estimates used in determining pension liabilities. An increasing number of controls are operated on behalf of HSBC by third parties. We
obtained audit evidence from work that is scoped and provided by other auditors that are engaged by those third parties. For example, we
obtained a report evidencing the testing of external systems and controls supporting HSBC’s payroll and HR processes.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
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Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – group
Financial statements – company
Overall materiality
US$970m (2020: US$900m).
US$920m (2020: US$855m).
How we determined it
5% of adjusted profit before tax
0.75% of total assets. This would result in an overall
materiality of US$2bn and was therefore reduced below the
group materiality level.
Rationale for benchmark
applied
We believe a standard benchmark of 5% of adjusted profit
before tax is an appropriate quantitative indicator of
materiality, although certain items could also be material for
qualitative reasons. This benchmark is standard for listed
entities and consistent with the wider industry. We selected
adjusted profit because, as discussed on page 28,
management believes it best reflects the performance of
HSBC and how the group is run. We excluded the
adjustments made by management on page 28 for certain
customer redress programmes and fair value movements of
financial instruments, as in our opinion they are recurring
items that form part of ongoing business performance.
A benchmark of total assets has been used, as the
company’s primary purpose is to act as a holding company
with investments in the group’s subsidiaries, not to generate
operating profits and therefore a profit based measure is not
relevant.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% of overall materiality, amounting to US$725m for the group financial statements and US$690m for
the company financial statements.
In determining the performance materiality, we considered a number of factors, including the history of misstatements, our risk
assessment and aggregation risk, and the effectiveness of controls. We concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the GAC that we would report to them misstatements identified during our audit above US$48m (group audit) (2020:
US$45m) and US$48m (company audit) (2020: US$45m) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of
accounting included:
•Performing a risk assessment to identify factors that could impact the going concern basis of accounting, including the impact of
external risks including geopolitical, Covid-19 and climate change risks.
•Understanding and evaluating the group’s financial forecasts and the group’s stress testing of liquidity and regulatory capital, including
the severity of the stress scenarios that were used.
•Understanding and evaluating credit rating agency ratings and actions.
•Reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the
company's ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related
Financial Disclosures (‘TCFD’) recommendations. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information, including the TCFD reporting and other information related to climate change, is materially inconsistent
with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an
apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Report of Independent Registered Public Accounting Firm to the Board of Directors and
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304
HSBC Holdings plc Annual Report and Accounts 2021
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters
as described below.
Strategic Report and Report of the Directors’
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Report of the
Directors’ for the year ended 31 December 2021 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Report of the Directors’.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
•The directors’ confirmation that they have carried out an assessment of the emerging and principal risks;
•The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
•The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial statements;
•The directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment covers and why
the period is appropriate; and
•The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and
meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with
the financial statements and our knowledge and understanding of the group and company and their environment obtained in the course
of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
•The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and company's position, performance, business model and strategy;
•The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
•The section of the Annual Report describing the work of the GAC.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by
the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ responsibility statement, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) and ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
HSBC Holdings plc Annual Report and Accounts 2021
305
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of financial crime laws and regulations and regulatory compliance, including regulatory reporting requirements and
conduct of business, and we considered the extent to which non-compliance might have a material effect on the financial statements. We
also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We
evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or
reduce costs, creating fictitious trades to hide losses or to improve financial performance, and management bias in accounting estimates.
The group engagement team shared this risk assessment with the Significant Subsidiaries auditors so that they could include appropriate
audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component
auditors included:
•Review of correspondence with and reports from the regulators, including the Prudential Regulation Authority (‘PRA’) and Financial
Conduct Authority (‘FCA’);
•Reviewed reporting to the GAC and GRC in respect of compliance and legal matters;
•Review a sample of legal correspondence with legal advisors;
•Enquiries of management and review of internal audit reports, insofar as they related to the financial statements;
•Obtain legal confirmations from legal advisors relating to material litigation and compliance matters;
•Assessment of matters reported on the group’s whistleblowing programmes and the results of management’s investigation of such
matters; insofar as they related to the financial statements.
•Challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to the
determination of expected credit losses, the impairment assessments of the investment in BoCom, valuation of defined benefit
pensions obligations and investment in subsidiaries (see related key audit matters);
•Obtaining confirmations from third parties to confirm the existence of a sample of transactions and balances; and
•Identifying and testing journal entries, including those posted with certain descriptions, posted and approved by the same individual,
backdated journals or posted by infrequent and unexpected users.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also,
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We
will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements in accordance with ISAs (UK) is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the
audit. We also:
•Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s and company’s internal control.
•Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
•Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and
company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the group to cease to continue as a going concern.
•Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
•Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group
and company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group and company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
306
HSBC Holdings plc Annual Report and Accounts 2021
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•we have not obtained all the information and explanations we require for our audit; or
•adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
•certain disclosures of directors’ remuneration specified by law are not made; or
•the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the GAC, we were appointed by the members on 31 March 2015 to audit the financial statements for
the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is seven years,
covering the years ended 31 December 2015 to 31 December 2021.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part
of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance
with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial
report has been prepared using the single electronic format specified in the ESEF RTS.
Scott Berryman (Senior Statutory Auditor)
for and on behal f of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
22 February 2022
HSBC Holdings plc Annual Report and Accounts 2021
307
Financial statements
Page
Consolidated income statement
308
Consolidated statement of comprehensive income
308
Consolidated balance sheet
310
Consolidated statement of cash flows
311
Consolidated statement of changes in equity
312
HSBC Holdings income statement
314
HSBC Holdings statement of comprehensive income
314
HSBC Holdings balance sheet
315
HSBC Holdings statement of cash flows
316
HSBC Holdings statement of changes in equity
317
Consolidated income statement
for the year ended 31 December
2021
2020
2019
Notes*
$m
$m
$m
Net interest income
26,489
27,578
30,462
– interest income 1,2
36,188
41,756
54,695
– interest expense 3
(9,699)
(14,178)
(24,233)
Net fee income
2
13,097
11,874
12,023
– fee income
16,788
15,051
15,439
– fee expense
(3,691)
(3,177)
(3,416)
Net income from financial instruments held for trading or managed on a fair value basis
3
7,744
9,582
10,231
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss
3
4,053
2,081
3,478
Changes in fair value of designated debt and related derivatives 4
3
(182)
231
90
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
3
798
455
812
Gains less losses from financial investments
569
653
335
Net insurance premium income
4
10,870
10,093
10,636
Other operating income
502
527
2,957
Total operating income
63,940
63,074
71,024
Net insurance claims and benefits paid and movement in liabilities to policyholders
4
(14,388)
(12,645)
(14,926)
Net operating income before change in expected credit losses and other credit impairment
charges
49,552
50,429
56,098
Change in expected credit losses and other credit impairment charges
928
(8,817)
(2,756)
Net operating income
50,480
41,612
53,342
Employee compensation and benefits
5
(18,742)
(18,076)
(18,002)
General and administrative expenses
(11,592)
(11,115)
(13,828)
Depreciation and impairment of property, plant and equipment and right-of-use assets 5
(2,261)
(2,681)
(2,100)
Amortisation and impairment of intangible assets
(1,438)
(2,519)
(1,070)
Goodwill impairment
21
(587)
(41)
(7,349)
Total operating expenses
(34,620)
(34,432)
(42,349)
Operating profit
15,860
7,180
10,993
Share of profit in associates and joint ventures
19
3,046
1,597
2,354
Profit before tax
18,906
8,777
13,347
Tax expense
7
(4,213)
(2,678)
(4,639)
Profit for the year
14,693
6,099
8,708
Attributable to:
– ordinary shareholders of the parent company
12,607
3,898
5,969
– preference shareholders of the parent company
7
90
90
– other equity holders
1,303
1,241
1,324
– non-controlling interests
776
870
1,325
Profit for the year
14,693
6,099
8,708
$
$
$
Basic earnings per ordinary share
9
0.62
0.19
0.30
Diluted earnings per ordinary share
9
0.62
0.19
0.30
*For Notes on the financial statements, see page 318.
1 Interest income includes $30,916m (2020: $35,293m) of interest recognised on financial assets measured at amortised cost and $4,337m (2020:
$5,614m) of interest recognised on financial assets measured at fair value through other comprehensive income.
2 Interest revenue calculated using the effective interest method comprises interest recognised on financial assets measured at either amortised cost
or fair value through other comprehensive income.
3 Interest expense includes $8,227m (2020: $12,426m) of interest on financial instruments, excluding interest on financial liabilities held for trading
or designated or otherwise mandatorily measured at fair value.
4 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
5 Includes depreciation of the right-of-use assets of $878m (2020: $1,029m).
Financial statements
308
HSBC Holdings plc Annual Report and Accounts 2021
Consolidated statement of comprehensive income
for the year ended 31 December
2021
2020
2019
$m
$m
$m
Profit for the year
14,693
6,099
8,708
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
(2,139)
1,750
1,152
– fair value gains/(losses)
(2,270)
2,947
1,793
– fair value gains transferred to the income statement on disposal
(464)
(668)
(365)
– expected credit (recoveries)/losses recognised in the income statement
(49)
48
109
– income taxes
644
(577)
(385)
Cash flow hedges
(664)
471
206
– fair value gains/(losses)
595
(157)
551
– fair value (gains)/losses reclassified to the income statement
(1,514)
769
(286)
– income taxes
255
(141)
(59)
Share of other comprehensive income/(expense) of associates and joint ventures
103
(73)
21
– share for the year
103
(73)
21
Exchange differences
(2,393)
4,855
1,044
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability
(274)
834
13
– before income taxes
(107)
1,223
(17)
– income taxes
(167)
(389)
30
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in
own credit risk
531
167
(2,002)
– before income taxes
512
190
(2,639)
– income taxes
19
(23)
637
Equity instruments designated at fair value through other comprehensive income
(446)
212
366
– fair value gains/(losses)
(443)
212
364
– income taxes
(3)
—
2
Effects of hyperinflation
315
193
217
Other comprehensive income/(expense) for the period, net of tax
(4,967)
8,409
1,017
Total comprehensive income for the year
9,726
14,508
9,725
Attributable to:
– ordinary shareholders of the parent company
7,765
12,146
6,838
– preference shareholders of the parent company
7
90
90
– other equity holders
1,303
1,241
1,324
– non-controlling interests
651
1,031
1,473
Total comprehensive income for the year
9,726
14,508
9,725
HSBC Holdings plc Annual Report and Accounts 2021
309
Consolidated balance sheet
At
31 Dec
31 Dec
2021
2020
Notes*
$m
$m
Assets
Cash and balances at central banks
403,018
304,481
Items in the course of collection from other banks
4,136
4,094
Hong Kong Government certificates of indebtedness
42,578
40,420
Trading assets
11
248,842
231,990
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
14
49,804
45,553
Derivatives
15
196,882
307,726
Loans and advances to banks
83,136
81,616
Loans and advances to customers
1,045,814
1,037,987
Reverse repurchase agreements – non-trading
241,648
230,628
Financial investments
16
446,274
490,693
Prepayments, accrued income and other assets
22
139,982
156,412
Current tax assets
970
954
Interests in associates and joint ventures
18
29,609
26,684
Goodwill and intangible assets
21
20,622
20,443
Deferred tax assets
7
4,624
4,483
Total assets
2,957,939
2,984,164
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation
42,578
40,420
Deposits by banks
101,152
82,080
Customer accounts
1,710,574
1,642,780
Repurchase agreements – non-trading
126,670
111,901
Items in the course of transmission to other banks
5,214
4,343
Trading liabilities
23
84,904
75,266
Financial liabilities designated at fair value
24
145,502
157,439
Derivatives
15
191,064
303,001
Debt securities in issue
25
78,557
95,492
Accruals, deferred income and other liabilities
26
123,778
128,624
Current tax liabilities
698
690
Liabilities under insurance contracts
4
112,745
107,191
Provisions
27
2,566
3,678
Deferred tax liabilities
7
4,673
4,313
Subordinated liabilities
28
20,487
21,951
Total liabilities
2,751,162
2,779,169
Equity
Called up share capital
31
10,316
10,347
Share premium account
31
14,602
14,277
Other equity instruments
22,414
22,414
Other reserves
6,460
8,833
Retained earnings
144,458
140,572
Total shareholders’ equity
198,250
196,443
Non-controlling interests
19
8,527
8,552
Total equity
206,777
204,995
Total liabilities and equity
2,957,939
2,984,164
*For Notes on the financial statements, see page 318.
The accompanying notes on pages 318 to 396 and the audited sections in ‘Risk’ on pages 120 to 216 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 144 to 152), and ‘Directors’ remuneration report’ on pages 254 to 287 form
an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 22 February 2022 and signed on its behalf by:
Mark E Tucker
Ewen Stevenson
Group Chairman
Group Chief Financial Officer
Financial statements
310
HSBC Holdings plc Annual Report and Accounts 2021
Consolidated statement of cash flows
for the year ended 31 December
2021
2020
2019
$m
$m
$m
Profit before tax
18,906
8,777
13,347
Adjustments for non-cash items:
Depreciation, amortisation and impairment
4,286
5,241
10,519
Net gain from investing activities
(647)
(541)
(399)
Share of profits in associates and joint ventures
(3,046)
(1,597)
(2,354)
Gain on disposal of subsidiaries, businesses, associates and joint ventures
—
—
(929)
Change in expected credit losses gross of recoveries and other credit impairment charges
(519)
9,096
3,012
Provisions including pensions
1,063
1,164
2,423
Share-based payment expense
467
433
478
Other non-cash items included in profit before tax
510
(906)
(2,297)
Elimination of exchange differences 1
18,937
(25,749)
(3,742)
Changes in operating assets and liabilities
Change in net trading securities and derivatives
(9,226)
13,150
(18,910)
Change in loans and advances to banks and customers
(11,014)
(14,131)
(53,760)
Change in reverse repurchase agreements – non-trading
552
9,950
(7,390)
Change in financial assets designated and otherwise mandatorily measured at fair value
(4,254)
(1,962)
(2,308)
Change in other assets
19,899
(19,610)
(21,863)
Change in deposits by banks and customer accounts
95,703
226,723
79,163
Change in repurchase agreements – non-trading
14,769
(28,443)
(25,540)
Change in debt securities in issue
(16,936)
(9,075)
19,268
Change in financial liabilities designated at fair value
(11,425)
(6,630)
20,068
Change in other liabilities
(10,935)
20,323
23,124
Dividends received from associates
808
761
633
Contributions paid to defined benefit plans
(509)
(495)
(533)
Tax paid
(3,077)
(4,259)
(2,267)
Net cash from operating activities
104,312
182,220
29,743
Purchase of financial investments
(493,042)
(496,669)
(445,907)
Proceeds from the sale and maturity of financial investments
521,190
476,990
413,186
Net cash flows from the purchase and sale of property, plant and equipment
(1,086)
(1,446)
(1,343)
Net cash flows from purchase/(disposal) of customer and loan portfolios
3,059
1,362
1,118
Net investment in intangible assets
(2,479)
(2,064)
(2,289)
Net cash flow from acquisition and disposal of subsidiaries, businesses, associates and joint ventures
(106)
(603)
(83)
Net cash from investing activities
27,536
(22,430)
(35,318)
Issue of ordinary share capital and other equity instruments
1,996
1,497
—
Cancellation of shares
(707)
—
(1,000)
Net sales/(purchases) of own shares for market-making and investment purposes
(1,386)
(181)
141
Redemption of preference shares and other equity instruments
(3,450)
(398)
—
Subordinated loan capital repaid 2
(864)
(3,538)
(4,210)
Dividends paid to shareholders of the parent company and non-controlling interests
(6,383)
(2,023)
(9,773)
Net cash from financing activities
(10,794)
(4,643)
(14,842)
Net increase/(decrease) in cash and cash equivalents
121,054
155,147
(20,417)
Cash and cash equivalents at 1 Jan
468,323
293,742
312,911
Exchange differences in respect of cash and cash equivalents
(15,345)
19,434
1,248
Cash and cash equivalents at 31 Dec 3
574,032
468,323
293,742
Cash and cash equivalents comprise:
– cash and balances at central banks
403,018
304,481
154,099
– items in the course of collection from other banks
4,136
4,094
4,956
– loans and advances to banks of one month or less
55,705
51,788
41,626
– reverse repurchase agreements with banks of one month or less
76,658
65,086
65,370
– treasury bills, other bills and certificates of deposit less than three months
28,488
30,023
20,132
– cash collateral and net settlement accounts
11,241
17,194
12,376
– less: items in the course of transmission to other banks
(5,214)
(4,343)
(4,817)
Cash and cash equivalents at 31 Dec 3
574,032
468,323
293,742
Interest received was $40,175m (2020: $45,578m; 2019: $58,627m), interest paid was $12,695m (2020: $17,740m; 2019: $27,384m) and
dividends received (excluding dividends received from associates, which are presented separately above) were $1,898m (2020: $1,158m;
2019: $2,369m).
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 repayments of $(0.9)b n (2020: $(3.5)b n; 2019: $(4.2)b n) of securities. Non-cash
changes during the year included foreign exchange gains/(losses) of $(0.3)b n (2020: $0.5b n; 2019: $0.6b n) and fair value gains/(losses) of $(1.0)b n
(2020: $1.1b n; 2019: $1.4b n).
3 At 31 December 2021 $33,634m (2020: $41,912 m; 2019: $35,735 m) was not available for use by HSBC, of which $15,357m (2020: $16,935 m;
2019: $19,353 m) related to mandatory deposits at central banks.
HSBC Holdings plc Annual Report and Accounts 2021
311
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
Called up
share
capital
and
share
premium
Other
equity
instru-
ments
Retained
earnings 3,4
Financial
assets
at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Merger
and other
reserves 4,5
Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
24,624
22,414
140,572
1,816
457
(20,375)
26,935
196,443
8,552
204,995
Profit for the year
—
—
13,917
—
—
—
—
13,917
776
14,693
Other comprehensive income (net of tax)
—
—
661
(2,455)
(654)
(2,394)
—
(4,842)
(125)
(4,967)
– debt instruments at fair value through
other comprehensive income
—
—
—
(2,105)
—
—
—
(2,105)
(34)
(2,139)
– equity instruments designated at fair value
through other comprehensive income
—
—
—
(350)
—
—
—
(350)
(96)
(446)
– cash flow hedges
—
—
—
—
(654)
—
—
(654)
(10)
(664)
– changes in fair value of financial liabilities
designated at fair value upon initial
recognition arising from changes in own
credit risk
—
—
531
—
—
—
—
531
—
531
– remeasurement of defined benefit asset/
liability
—
—
(288)
—
—
—
—
(288)
14
(274)
– share of other comprehensive income of
associates and joint ventures
—
—
103
—
—
—
—
103
—
103
– effects of hyperinflation
—
—
315
—
—
—
—
315
—
315
– exchange differences
—
—
—
—
—
(2,394)
—
(2,394)
1
(2,393)
Total comprehensive income for the
year
—
—
14,578
(2,455)
(654)
(2,394)
—
9,075
651
9,726
Shares issued under employee remuneration
and share plans
354
—
(336)
—
—
—
—
18
—
18
Capital securities issued 1
—
2,000
(4)
—
—
—
—
1,996
—
1,996
Dividends to shareholders
—
—
(5,790)
—
—
—
—
(5,790)
(593)
(6,383)
Redemption of securities 2
—
(2,000)
—
—
—
—
—
(2,000)
—
(2,000)
Transfers 6
—
—
(3,065)
—
—
—
3,065
—
—
—
Cost of share-based payment arrangements
—
—
467
—
—
—
—
467
—
467
Cancellation of shares 7
(60)
—
(2,004)
—
—
—
60
(2,004)
—
(2,004)
Other movements
—
—
40
5
—
—
—
45
(83)
(38)
At 31 Dec 2021
24,918
22,414
144,458
(634)
(197)
(22,769)
30,060
198,250
8,527
206,777
At 1 Jan 2020
24,278
20,871
136,679
(108)
(2)
(25,133)
27,370
183,955
8,713
192,668
Profit for the year
—
—
5,229
—
—
—
—
5,229
870
6,099
Other comprehensive income (net of tax)
—
—
1,118
1,913
459
4,758
—
8,248
161
8,409
– debt instruments at fair value through
other comprehensive income
—
—
—
1,746
—
—
—
1,746
4
1,750
–equity instruments designated at fair value
through other comprehensive income
—
—
—
167
—
—
167
45
212
– cash flow hedges
—
—
—
—
459
—
—
459
12
471
– changes in fair value of financial liabilities
designated at fair value upon initial
recognition arising from changes in own
credit risk
—
—
167
—
—
—
—
167
—
167
– remeasurement of defined benefit asset/
liability
—
—
831
—
—
—
—
831
3
834
– share of other comprehensive income of
associates and joint ventures
—
—
(73)
—
—
—
—
(73)
—
(73)
– effects of hyperinflation
—
—
193
—
—
—
—
193
—
193
– exchange differences
—
—
—
—
—
4,758
—
4,758
97
4,855
Total comprehensive income for the year
—
—
6,347
1,913
459
4,758
—
13,477
1,031
14,508
Shares issued under employee remuneration
and share plans
346
—
(339)
—
—
—
—
7
—
7
Capital securities issued 1
—
1,500
(3)
—
—
—
—
1,497
—
1,497
Dividends to shareholders
—
—
(1,331)
—
—
—
—
(1,331)
(692)
(2,023)
Redemption of securities 2
—
—
(1,450)
—
—
—
—
(1,450)
—
(1,450)
Transfers 6
—
—
435
—
—
—
(435)
—
—
—
Cost of share-based payment arrangements
—
—
434
—
—
—
—
434
—
434
Other movements
—
43
(200)
11
—
—
—
(146)
(500)
(646)
At 31 Dec 2020
24,624
22,414
140,572
1,816
457
(20,375)
26,935
196,443
8,552
204,995
Financial statements
312
HSBC Holdings plc Annual Report and Accounts 2021
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Called up
share
capital and
share
premium
Other
equity
instru-
ments
Retained
earnings 3,4
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Merger
and other
reserves 4,5
Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2019
23,789
22,367
138,191
(1,532)
(206)
(26,133)
29,777
186,253
7,996
194,249
Profit for the year
—
—
7,383
—
—
—
—
7,383
1,325
8,708
Other comprehensive income (net of tax)
—
—
(1,759)
1,424
204
1,000
—
869
148
1,017
– debt instruments at fair value through
other comprehensive income
—
—
—
1,146
—
—
—
1,146
6
1,152
– equity instruments designated at fair value
through other comprehensive income
—
—
—
278
—
—
—
278
88
366
– cash flow hedges
—
—
—
—
204
—
—
204
2
206
– changes in fair value of financial liabilities
designated at fair value due to movement
in own credit risk
—
—
(2,002)
—
—
—
—
(2,002)
—
(2,002)
– remeasurement of defined benefit asset/
liability
—
—
5
—
—
—
—
5
8
13
– share of other comprehensive income of
associates and joint ventures
—
—
21
—
—
—
—
21
—
21
– effects of hyperinflation
—
—
217
—
—
—
—
217
—
217
– exchange differences
—
—
—
—
—
1,000
—
1,000
44
1,044
Total comprehensive income for the year
—
—
5,624
1,424
204
1,000
—
8,252
1,473
9,725
Shares issued under employee remuneration
and share plans
557
—
(495)
—
—
—
—
62
—
62
Shares issued in lieu of dividends and
amounts arising thereon
—
—
2,687
—
—
—
—
2,687
—
2,687
Dividends to shareholders
—
—
(11,683)
—
—
—
—
(11,683)
(777)
(12,460)
Redemption of securities 2
—
(1,496)
(12)
—
—
—
—
(1,508)
—
(1,508)
Transfers 6
—
—
2,475
—
—
—
(2,475)
—
—
—
Cost of share-based payment arrangements
—
—
478
—
—
—
—
478
—
478
Cancellation of shares 7
(68)
—
(1,000)
—
—
—
68
(1,000)
—
(1,000)
Other movements
—
—
414
—
—
—
—
414
21
435
At 31 Dec 2019
24,278
20,871
136,679
(108)
(2)
(25,133)
27,370
183,955
8,713
192,668
1 During 2021, HSBC Holdings issu ed $2,000 m of additional tier 1 instruments on which there were $4 m of external issue costs. In 2020, HSBC
Holdings issued $1,500m of perpetual subordinated contingent convertible capital securities.
2 During 2021, HSBC Holdings redeemed $2,000m 6.875% perpetual subordinated contingent convertible capital securities. For further details, see
Note 31 in the Annual Report and Accounts 2021. In 2020, HSBC Holdings called and later redeemed $1,450m 6.20% non-cumulative US dollar
preference shares. In 2019, HSBC Holdings redeemed $1,500 m 5.625% perpetual subordinated capital securities on which there were $12m of
external issuance costs. Under IFRSs external issuance costs are classified as equity.
3 At 31 December 2021, retained earnings included 558,397,704 treasury shares (2020: 509,825,249; 2019: 432,108,782). In addition, treasury
shares are also held within HSBC’s Insurance business retirement funds for the benefit of policyholders or beneficiaries within employee trusts for
the settlement of shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets and
Security Service s.
4 Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998,
including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been charged
against retained earnings.
5 Statutory share premium relief under section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of HSBC Bank plc in
1992, HSBC Continental Europe in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only.
In HSBC’s consolidated financial statements, the fair value differences of $8,290m in respect of HSBC Continental Europe and $12,768m in respect
of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation
subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’), following a number of intra-Group reorganisations. During
2009, pursuant to section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m
was recognised in the merger reserve.
6 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In the comparative periods, impairments (2020: $435m; 2019: $2,475m) were recognised and a permitted transfer of these
amounts was made from the merger reserve to retained earnings. During 2021, a part reversal of these impairments resulted in a transfer from
retained earnings back to the merger reserve of $3,065m.
7 For further details, see Note 31 in the Annual Report and Accounts 2021. In October 2021, HSBC announced a share buy-back of up to $2.0b n,
which will be completed no later than April 2022. At 31 December 2021, 120,366,714 ordinary shares had been purchased and cancelled
representing a nominal value of $60m, which has been transferred from share capital to capital redemption reserve within merger and other
reserves. In August 2019, HSBC announced a share buy-back of up to $1.0 bn, which was completed in September 2019.
HSBC Holdings plc Annual Report and Accounts 2021
313
HSBC Holdings income statement
for the year ended 31 December
2021
2020
2019
Notes*
$m
$m
$m
Net interest expense
(2,367)
(2,632)
(2,554)
– interest income
380
473
1,249
– interest expense
(2,747)
(3,105)
(3,803)
Fee (expense)/income
(5)
(12)
(2)
Net income from financial instruments held for trading or managed on a fair value basis
3
110
801
1,477
Changes in fair value of designated debt and related derivatives 1
3
349
(326)
(360)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or
loss
3
(420)
1,141
1,659
Dividend income from subsidiaries
11,404
8,156
15,117
Other operating income
230
1,889
1,293
Total operating income
9,301
9,017
16,630
Employee compensation and benefits
5
(30)
(56)
(37)
General and administrative expenses
(1,845)
(4,276)
(4,772)
Impairment of subsidiaries
3,065
(435)
(2,562)
Total operating expenses
1,190
(4,767)
(7,371)
Profit before tax
10,491
4,250
9,259
Tax (charge)/credit
343
(165)
(218)
Profit for the year
10,834
4,085
9,041
*For Notes on the financial statements, see page 318.
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
HSBC Holdings statement of comprehensive income
for the year ended 31 December
2021
2020
2019
$m
$m
$m
Profit for the year
10,834
4,085
9,041
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in
own credit risk
267
176
(396)
– before income taxes
259
176
(573)
– income taxes
8
—
177
Other comprehensive income/(expense) for the year, net of tax
267
176
(396)
Total comprehensive income for the year
11,101
4,261
8,645
Financial statements
314
HSBC Holdings plc Annual Report and Accounts 2021
HSBC Holdings balance sheet
31 Dec 2021
31 Dec 2020
Notes*
$m
$m
Assets
Cash and balances with HSBC undertakings
2,590
2,913
Financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value
51,408
65,253
Derivatives
15
2,811
4,698
Loans and advances to HSBC undertakings
25,108
10,443
Financial investments
26,194
17,485
Prepayments, accrued income and other assets
1,513
1,445
Current tax assets
122
—
Investments in subsidiaries
163,211
160,660
Intangible assets
215
276
Total assets at 31 Dec
273,172
263,173
Liabilities and equity
Liabilities
Amounts owed to HSBC undertakings
111
330
Financial liabilities designated at fair value
24
32,418
25,664
Derivatives
15
1,220
3,060
Debt securities in issue
25
67,483
64,029
Accruals, deferred income and other liabilities
4,240
4,865
Subordinated liabilities
28
17,059
17,916
Current tax liabilities
—
71
Deferred tax liabilities
311
438
Total liabilities
122,842
116,373
Equity
Called up share capital
31
10,316
10,347
Share premium account
14,602
14,277
Other equity instruments
22,414
22,414
Merger and other reserves
37,882
34,757
Retained earnings
65,116
65,005
Total equity
150,330
146,800
Total liabilities and equity at 31 Dec
273,172
263,173
*For Notes on the financial statements, see page 318.
The accompanying notes on pages 318 to 396 and the audited sections in ‘Risk’ on pages 120 to 216 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 144 to 152), and ‘Directors’ remuneration report’ on pages 254 to 287 form
an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 22 February 2022 and signed on its behalf by:
Mark E Tucker
Ewen Stevenson
Group Chairman
Group Chief Financial Officer
HSBC Holdings plc Annual Report and Accounts 2021
315
HSBC Holdings statement of cash flows
for the year ended 31 December
2021
2020
2019
$m
$m
$m
Profit before tax
10,491
4,250
9,259
Adjustments for non-cash items
(2,954)
442
2,657
– depreciation, amortisation and impairment/expected credit losses
(2,976)
87
72
– share-based payment expense
2
1
1
– other non-cash items included in profit before tax
20
354
2,584
Changes in operating assets and liabilities
Change in loans to HSBC undertakings
3,364
(327)
41,471
Change in financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value
(4,409)
(3,289)
(38,451)
Change in net trading securities and net derivatives
47
(1,657)
(1,433)
Change in other assets
(226)
(633)
(437)
Change in financial investments
20
449
(70)
Change in debt securities in issue
(2,833)
3,063
1,899
Change in financial liabilities designated at fair value
(1,396)
1,258
1,227
Change in other liabilities
(691)
1,366
437
Tax received
32
270
459
Net cash from operating activities
1,445
5,192
17,018
Purchase of financial investments
(16,966)
(11,652)
(19,293)
Proceeds from the sale and maturity of financial investments
16,074
9,342
6,755
Net cash outflow from acquisition of or increase in stake of subsidiaries
(1,337)
(2,558)
(3,721)
Repayment of capital from subsidiaries
2,000
1,516
—
Net investment in intangible assets
(26)
(33)
(44)
Net cash from investing activities
(255)
(3,385)
(16,303)
Issue of ordinary share capital and other equity instruments
2,334
1,846
500
Redemption of preference shares and other equity instruments
(3,450)
—
—
Purchase of treasury shares
(28)
—
—
Cancellation of shares
(707)
—
(1,006)
Subordinated loan capital repaid
—
(1,500)
(4,107)
Debt securities issued
19,379
15,951
10,817
Debt securities repaid
(5,569)
(16,577)
—
Dividends paid on ordinary shares
(4,480)
—
(7,582)
Dividends paid to holders of other equity instruments
(1,310)
(1,331)
(1,414)
Net cash from financing activities
6,169
(1,611)
(2,792)
Net increase/(decrease) in cash and cash equivalents
7,359
196
(2,077)
Cash and cash equivalents at 1 January
6,176
5,980
8,057
Cash and cash equivalents at 31 Dec
13,535
6,176
5,980
Cash and cash equivalents comprise:
– cash at bank with HSBC undertakings
2,590
2,913
2,382
– loans and advances to banks of one month or less
93
249
102
– treasury and other eligible bills
10,852
3,014
3,496
Interest received was $1,636m (2020: $1,952m; 2019: $2,216m), interest paid was $2,724m (2020: $3,166m; 2019: $3,819m) and
dividends received were $11,404m (2020: $8,156m; 2019: $15,117m).
Financial statements
316
HSBC Holdings plc Annual Report and Accounts 2021
HSBC Holdings statement of changes in equity
for the year ended 31 December
Called up
share
capital
Share
premium
Other
equity
instruments
Retained
earnings 1
Merger
and other
reserves
Total
shareholders’
equity
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
10,347
14,277
22,414
65,005
34,757
146,800
Profit for the year
—
—
—
10,834
—
10,834
Other comprehensive income (net of tax)
—
—
—
267
—
267
– changes in fair value of financial liabilities designated at fair value due to movement
in own credit risk
—
—
—
267
—
267
Total comprehensive income for the year
—
—
—
11,101
—
11,101
Shares issued under employee share plans
29
325
—
(103)
—
251
Capital securities issued
—
—
2,000
(20)
—
1,980
Cancellation of shares 2
(60)
—
—
(2,004)
60
(2,004)
Dividends to shareholders
—
—
—
(5,790)
—
(5,790)
Redemption of capital securities
—
—
(2,000)
—
—
(2,000)
Transfers 3
—
—
—
(3,065)
3,065
—
Other movements
—
—
—
(8)
—
(8)
At 31 Dec 2021
10,316
14,602
22,414
65,116
37,882
150,330
At 1 Jan 2020
10,319
13,959
20,743
62,484
37,539
145,044
Profit for the year
—
—
—
4,085
—
4,085
Other comprehensive income (net of tax)
—
—
—
176
—
176
– changes in fair value of financial liabilities designated at fair value due to movement
in own credit risk
—
—
—
176
—
176
Total comprehensive income for the year
—
—
—
4,261
—
4,261
Shares issued under employee share plans
28
318
—
2,540
(2,347)
539
Capital securities issued
—
—
1,500
(15)
—
1,485
Dividends to shareholders
—
—
—
(1,331)
—
(1,331)
Redemption of capital securities
—
—
—
(1,450)
—
(1,450)
Transfers 3
—
—
—
435
(435)
—
Other movements 4
—
—
171
(1,919)
—
(1,748)
At 31 Dec 2020
10,347
14,277
22,414
65,005
34,757
146,800
At 1 Jan 2019
10,180
13,609
22,231
61,434
39,899
147,353
Profit for the year
—
—
—
9,041
—
9,041
Other comprehensive income (net of tax)
—
—
—
(396)
—
(396)
– changes in fair value of financial liabilities designated at fair value due to movement
in own credit risk
—
—
—
(396)
—
(396)
Total comprehensive income for the year
—
—
—
8,645
—
8,645
Shares issued under employee share plans
36
521
—
(56)
—
501
Shares issued in lieu of dividends and amounts arising thereon
171
(171)
—
2,687
—
2,687
Cancellation of shares
(68)
—
—
(1,000)
68
(1,000)
Capital securities issued
—
—
—
—
—
—
Dividends to shareholders
—
—
—
(11,683)
—
(11,683)
Redemption of capital securities
—
—
(1,488)
(20)
—
(1,508)
Transfers 3
—
—
—
2,475
(2,475)
—
Other movements
—
—
—
2
47
49
At 31 Dec 2019
10,319
13,959
20,743
62,484
37,539
145,044
Dividends per ordinary share at 31 December 2021 were $0.22 (2020: nil; 2019: $0.51).
1 At 31 December 2021, retained earnings includ ed 329,871,829 ($2,542m) treasury shares (2020: 326,766,253 ($2,521m); 2019: 326,191,804
($2,543m)).
2 On 26 October 2021, HSBC announced a share buy-back of up to $2.0b n, which is to be completed no later than 20 April 2022.
3 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In 2021, a part reversal of this impairment resulted in a transfer from retained earnings back to the merger reserve of
$3,065m. At 31 December 2020, an additional impairment of $435m (2019: $2,475 m) was recognised and a permitted transfer of this amount was
made from the merger reserve to retained earnings.
4 Includes an adjustment to retained earnings for a repayment of capital by a subsidiary of $1,650m, which had been recognised as dividend income
in 2019.
HSBC Holdings plc Annual Report and Accounts 2021
317
Notes on the financial statements
Page
Page
1
Basis of preparation and significant accounting policies
318
21
Goodwill and intangible assets
365
2
Net fee income
329
22
Prepayments, accrued income and other assets
368
3
Net income from financial instruments measured at fair value
through profit or loss
329
23
Trading liabilities
368
24
Financial liabilities designated at fair value
368
4
Insurance business
330
25
Debt securities in issue
369
5
Employee compensation and benefits
331
26
Accruals, deferred income and other liabilities
369
6
Auditors’ remuneration
337
27
Provisions
369
7
Tax
338
28
Subordinated liabilities
370
8
Dividends
340
29
Maturity analysis of assets, liabilities and off-balance sheet
commitments
373
9
Earnings per share
340
10
Segmental analysis
341
30
Offsetting of financial assets and financial liabilities
378
11
Trading assets
344
31
Called up share capital and other equity instruments
379
12
Fair values of financial instruments carried at fair value
344
32
Contingent liabilities, contractual commitments and guarantees
381
13
Fair values of financial instruments not carried at fair value
350
33
Finance lease receivables
382
14
Financial assets designated and otherwise mandatorily measured
at fair value through profit or loss
351
34
Legal proceedings and regulatory matters
382
35
Related party transactions
385
15
Derivatives
352
36
Business disposals
387
16
Financial investments
356
37
Events after the balance sheet date
388
17
Assets pledged, collateral received and assets transferred
358
38
HSBC Holdings’ subsidiaries, joint ventures and associates
388
18
Interests in associates and joint ventures
359
19
Investments in subsidiaries
362
20
Structured entities
363
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 and the separate financial statements of HSBC Holdings comply with UK-adopted
international accounting standards and with the requirements of the Companies Act 2006, and have also applied international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These financial statements are
also prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting
Standards Board (‘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 2021 affecting these consolidated and separate financial statements.
Standards adopted during the year ended 31 December 2021
There were no new accounting standards or interpretations that had a significant effect on HSBC in 2021. Accounting policies have been
consistently applied.
(b) Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC,
and consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong
Financial Reporting Standards. The ‘Notes on the financial statements’, taken together with the ‘Report of the Directors’, include the
aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c)Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments effective from 1 January 2021 that are applicable to HSBC. However, the IASB has
published a number of minor amendments to IFRSs that are effective from 1 January 2022 and 1 January 2023. HSBC expects they will
have an insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of
HSBC Holdings.
New IFRSs
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with amendments to the standard issued in June 2020. The standard sets out the
requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. Following the
amendments, IFRS 17 is effective from 1 January 2023. The standard has been endorsed for use in the EU but has not yet been endorsed
for use in the UK. The Group is in the process of implementing IFRS 17. Industry practice and interpretation of the standard are still
developing. Therefore, the likely financial impact of its implementation remains uncertain. However, we have the following expectations
as to the impact compared with our current accounting policy for insurance contracts, which is set out in policy 1.2(j) below:
•Under IFRS 17, there will be no present value of in-force business (‘PVIF’) asset recognised. Instead the estimated future profit will be
included in the measurement of the insurance contract liability as the contractual service margin (‘CSM’), representing unearned
profit, and this will be gradually recognised in revenue as services are provided over the duration of the insurance contract. While the
profit over the life of an individual contract will be unchanged, its emergence will be later under IFRS 17. The removal of the PVIF
asset and the recognition of CSM, which is a liability, will reduce equity. The PVIF asset will be eliminated to equity on transition,
together with other adjustments to assets and liabilities to reflect IFRS 17 measurement requirements and any consequential
amendments to financial assets in the scope of IFRS 9.
Notes on the financial statements
318
HSBC Holdings plc Annual Report and Accounts 2021
•IFRS 17 requires increased use of current market values in the measurement of insurance liabilities. Changes in market conditions for
certain products measured under the general measurement approach are immediately recognised in profit or loss, while changes in
market conditions for other products measured under the variable fee approach are included in the measurement of CSM.
•In accordance with IFRS 17, directly attributable costs will be incorporated in the CSM and recognised in the results of insurance
services as a reduction in reported revenue, as profit is recognised over the duration of insurance contracts. Costs that are not directly
attributable will remain in operating expenses. This will result in a reduction in reported operating expenses compared with the current
accounting policy.
•We intend to provide an update on the likely financial impacts at or around our 2022 interim results announcement, when we expect
that this will be reasonably estimable.
(d)Foreign currencies
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major
currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US
dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its
subsidiaries, as well as representing a significant proportion of its funds generated from financing activities.
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. In the
consolidated financial statements, the assets and liabilities of branches, subsidiaries, joint ventures and associates whose functional
currency is not US dollars are translated into the Group’s presentation currency at the rate of exchange at the balance sheet date, while
their results are translated into US dollars at the average rates of exchange for the reporting period. Exchange differences arising are
recognised in other comprehensive income. On disposal of a foreign operation, exchange differences previously recognised in other
comprehensive income are reclassified to the income statemen t.
(e)Presentation of information
Certain disclosures required by IFRSs have been included in the sections marked as (‘Audited’) in the Annual Report and Accounts 2021 as
follows:
•Disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the ‘Risk
review’ on pages 120 to 216.
•The ‘Own funds disclosure’ is included in the ‘Risk review’ on page 193.
•Disclosures relating to HSBC’s securitisation activities and structured products are included in the ‘Risk review’ on pages 120 to 216.
HSBC follows the UK Finance Disclosure Code. The UK Finance Disclosure Code aims to increase the quality and comparability of UK
banks’ disclosures and sets out five disclosure principles together with supporting guidance agreed in 2010. In line with the principles of
the UK Finance Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators and
standard setters, and will assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.
(f)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 HSBC’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 involve d.
(g)Segmental analysis
HSBC’s Chief Operating Decision Maker is the Group Chief Executive, who is supported by the rest of the Group Executive Committee
(‘GEC’), which operates as a general management committee under the direct authority of the Board. Operating segments are reported in
a manner consistent with the internal reporting provided to the Group Chief Executive and the GEC.
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 mad e.
(h)Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have
the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and
capital resources. These considerations include stressed scenarios that reflect the uncertainty that the global Covid-19 pandemic has had
on HSBC’s operations, as well as considering potential impacts from other top and emerging risks, and the related impact 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, 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 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. This election is made for each
business combination.
HSBC Holdings plc Annual Report and Accounts 2021
319
HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.
Goodwill
Goodwill is allocated to cash-generating units (‘CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at
which goodwill is monitored for internal management purposes. HSBC’s CGUs are based on geographical regions subdivided by global
business, except for Global Banking and Markets, for which goodwill is monitored on a global basis.
Impairment testing is performed at least 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 and non-financial assets (see Note 1.2(n)) 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:
Judgements
Estimates
•The accuracy of forecast cash flows is subject to a
high degree of uncertainty in volatile market
conditions. Where such circumstances are
determined to exist, management re-tests goodwill
for impairment more frequently than once a year
when indicators of impairment exist. This ensures
that the assumptions on which the cash flow
forecasts are based continue to reflect current
market conditions and management’s best
estimate of future business prospects.
•The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for
which detailed forecasts are available and to assumptions regarding the long-term pattern of
sustainable cash flows thereafter. Forecasts are compared with actual performance and verifiable
economic data, but they reflect management’s view of future business prospects at the time of
the assessment.
•The rates used to discount future expected cash flows can have a significant effect on their
valuation, and are based on the costs of equity assigned to individual CGUs. The cost of equity
percentage is generally derived from a capital asset pricing model and market implied cost of
equity, which incorporates inputs reflecting a number of financial and economic variables,
including the risk-free interest rate in the country concerned and a premium for the risk of the
business being evaluated. These variables are subject to fluctuations in external market rates and
economic conditions beyond management’s control.
•Key assumptions used in estimating goodwill and non-financial asset impairment are described in
Note 21.
HSBC sponsored structured entities
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that
entity or in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not
considered a sponsor if the only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights and
obligations, the joint arrangement is classified as either a joint operation or a joint venture. HSBC classifies investments in entities over
which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.
HSBC 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 HSBC 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 acquisitions 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.
Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the assessment of impairment of our investment in Bank of Communications Co. Limited
(‘BoCom’), which involves estimations of value in use:
Judgements
Estimates
•Management’s best estimate of BoCom’s earnings are based on management’s
explicit forecasts over the short to medium term and the capital maintenance
charge, which is management’s forecast of the earnings that need to be withheld in
order for BoCom to meet capital requirements over the forecast period, both of
which are subject to uncertain factors.
•Key assumptions used in estimating BoCom’s value in use, the sensitivity of the
value in use calculations to different assumptions and a sensitivity analysis that
shows the changes in key assumptions that would reduce the excess of value in use
over the carrying amount (the ‘headroom’) to nil are described in Note 18.
(b)Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value, are
recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an
exception to this, interest on debt instruments issued by HSBC for funding purposes that are designated under the fair value option to
reduce an accounting mismatch and on derivatives managed in conjunction with those debt instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss.
Notes on the financial statements
320
HSBC Holdings plc Annual Report and Accounts 2021
Non-interest income and expense
HSBC generates fee income from services provided at a fixed price over time, such as account service and card fees, or when HSBC
delivers a specific transaction at a point in time, such as broking services and import/export services. With the exception of certain fund
management and performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be variable
depending on the size of the customer portfolio and HSBC’s performance as fund manager. Variable fees are recognised when all
uncertainties are resolved. Fee income is generally earned from short-term contracts with payment terms that do not include a significant
financing component.
HSBC acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades,
HSBC acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.
HSBC 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 HSBC 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.
Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:
•‘Net income from financial instruments held for trading or managed on a fair value basis’: This comprises net trading income, which
includes all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other financial
instruments managed on a fair value basis, together with the related interest income, expense and dividends, excluding the effect of
changes in the credit risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the fair value
of derivatives that are managed in conjunction with financial assets and liabilities measured at fair value through profit or loss.
•‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through
profit or loss’: This includes interest income, interest expense and dividend income in respect of financial assets and liabilities
measured at fair value through profit or loss; and those derivatives managed in conjunction with the above that can be separately
identifiable from other trading derivatives.
•‘Changes in fair value of designated debt instruments and related derivatives’: Interest paid on debt instruments and interest cash
flows on related derivatives is presented in interest expense where doing so reduces an accounting mismatch.
•‘Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss’: This includes interest on
instruments that fail the solely payments of principal and interest test, see (d) below.
The accounting policies for insurance premium income are disclosed in Note 1.2(j).
(c)Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial
instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if
there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price
in an active market or a valuation technique that uses only data from observable markets, HSBC 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 until the transaction matures, is closed out, the valuation inputs become observable or HSBC
enters into an offsetting transaction. The fair value of financial instruments is generally measured on an individual basis. However, in
cases where HSBC manages a group of financial assets and liabilities according to its net market or credit risk exposure, the fair value of
the group of financial instruments is measured on a net basis but the underlying financial assets and liabilities are presented separately in
the financial statements, unless they satisfy the IFRS offsetting criteria.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data. However, certain financial instruments are classified on the basis of valuation
techniques that feature one or more significant market inputs that are unobservable, and for them, the measurement of fair value is more judgemental:
Judgements
Estimates
•An instrument in its entirety is classified as valued using significant unobservable
inputs if, in the opinion of management, a significant proportion of the instrument’s
inception profit or greater than 5% of the instrument’s valuation is driven by
unobservable inputs.
•‘Unobservable’ in this context means that there is little or no current market data
available from which to determine the price at which an arm’s length transaction
would be likely to occur. It generally does not mean that there is no data available
at all upon which to base a determination of fair value (consensus pricing data
may, for example, be used).
•Details on the Group’s level 3 financial instruments and the
sensitivity of their valuation to the effect of applying reasonable
possible alternative assumptions in determining their fair value
are set out in Note 12.
(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. HSBC
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.
HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending
commitment is expected to be held for trading, the commitment to lend is recorded as a derivative. When HSBC intends to hold the loan,
the loan commitment is included in the impairment calculations set out below.
HSBC Holdings plc Annual Report and Accounts 2021
321
Non-trading reverse repurchase, repurchase and similar agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the balance
sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell (‘reverse
repos’) are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and
reverse repos are measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale
price is treated as interest and recognised in net interest income over the life of the agreement.
Contracts that are economically equivalent to reverse repo or repo agreements (such as sales or purchases of debt securities entered into
together with total return swaps with the same counterparty) are accounted for similarly to, and presented together with, reverse repo or
repo agreements.
(e)Financial assets measured at fair value through other comprehensive income
Financial assets 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 fair
value through other comprehensive income (‘FVOCI’). These comprise primarily debt securities. They are recognised on the trade date
when HSBC enters into contractual arrangements to purchase and are 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)Equity securities measured at fair value with fair value movements presented in other comprehensive income
The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar
investments where HSBC holds the investments other than to generate a capital return. Gains or losses on the derecognition of these
equity securities are not transferred to profit or loss. Otherwise, equity securities are measured at fair value through profit or loss (except
for dividend income, which is recognised in profit or loss).
(g)Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out
below and are so designated irrevocably at inception:
•The use of the designation removes or significantly reduces an accounting mismatch.
•A group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy.
•The financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are
normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when
HSBC enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished.
Subsequent changes in fair values are recognised in the income statement in ‘Net income from financial instruments held for trading or
managed on a fair value basis’ or ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss’ except for the effect of changes in the liabilities’ credit risk, which is presented in ‘Other
comprehensive income’, unless that treatment would create or enlarge an accounting mismatch in profit or loss.
Under the above criterion, the main classes of financial instruments designated by HSBC are:
•Debt instruments for funding purposes that are designated to reduce an accounting mismatch: The interest and/or foreign exchange
exposure on certain fixed-rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain
swaps as part of a documented risk management strategy.
•Financial assets and financial liabilities under unit-linked and non-linked investment contracts: A contract under which HSBC does not
accept significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with
discretionary participation features (‘DPF’), but is accounted for as a financial liability. Customer liabilities under linked and certain non-
linked investment contracts issued by insurance subsidiaries are determined based on the fair value of the assets held in the linked
funds. If no fair value designation was made for the related assets, at least some of the assets would otherwise be measured at either
fair value through other comprehensive income or amortised cost. The related financial assets and liabilities are managed and reported
to management on a fair value basis. Designation at fair value of the financial assets and related liabilities allows changes in fair values
to be recorded in the income statement and presented in the same line.
•Financial liabilities that contain both deposit and derivative components: These financial liabilities are managed and their performance
evaluated on a fair value basis.
(h)Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other
indices. Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as
assets when their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial
liabilities, which are bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.
Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value, the contractual interest is
shown in ‘Interest expense’ together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge
accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC uses these derivatives or,
where allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign
operations as appropriate to the risk being hedged.
Notes on the financial statements
322
HSBC Holdings plc Annual Report and Accounts 2021
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.
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. The effective portion of gains and
losses on the hedging instrument is recognised in other comprehensive income and other gains and losses are recognised immediately in
the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on
the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not
applied.
(i)Impairment of amortised cost and FVOCI financial assets
Expected credit losses (‘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 FVOCI, and certain loan commitments and
financial guarantee contracts. At initial recognition, 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, 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 that 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’. Purchased or originated credit-impaired financial assets (‘POCI’) are treated differently, as set
out below.
Credit impaired (stage 3)
HSBC 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 when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower’s financial condition; and
•the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit impaired and default are
aligned as far as possible so that stage 3 represents all loans 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.
Renegotiation
Loans are identified as renegotiated and classified as credit impaired when we modify the contractual payment terms due to significant
credit distress of the borrower. Renegotiated loans remain classified as credit impaired until there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash flows and retain the designation of renegotiated until maturity or
derecognition.
A loan that is renegotiated 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 renegotiated loan is a substantially different financial
instrument. Any new loans that arise following derecognition events in these circumstances are considered to be POCI and will continue
to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified loans could be transferred out of stage 3 if they no longer exhibit any
evidence of being credit impaired and, in the case of renegotiated loans, there is sufficient evidence to demonstrate a significant reduction
in the risk of non-payment of future cash flows over the minimum observation period, and there are no other indicators of impairment.
These loans could be transferred to stage 1 or 2 based on the mechanism as described below by comparing the risk of a default occurring
HSBC Holdings plc Annual Report and Accounts 2021
323
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). Any amount written off as a result of the modification of contractual terms would not be reversed.
Loan modifications other than renegotiated loans
Loan modifications that are not identified as renegotiated 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’s rights to the cash flows under the original contract have expired, the old loan is derecognised and the new
loan is recognised at fair value. The rights to cash flows are generally considered to have expired if the commercial restructure is at
market rates and no payment-related concession has been provided. Mandatory and general offer loan modifications that are not
borrower-specific, for example market-wide customer relief programmes, have not been classified as renegotiated loans and generally
have not resulted in derecognition, but their stage allocation is determined considering all available and supportable information under our
ECL impairment policy. Changes made to these financial instruments that are economically equivalent and required by interest rate
benchmark reform do not result in the derecognition or a change in the carrying amount of the financial instrument, but instead require
the effective interest rate to be updated to reflect the change of the interest rate benchmark.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or
implicitly compares the risk of default occurring at the reporting date compared with that at initial recognition, taking into account
reasonable and supportable information, including information about past events, current conditions and future economic conditions. The
assessment is unbiased, probability-weighted, and to the extent relevant, uses forward-looking information consistent with that used in
the measurement of ECL. The analysis of credit risk is multifactor. The determination of whether a specific factor is relevant and its weight
compared with other factors depends on the type of product, the characteristics of the financial instrument and the borrower, and the
geographical region. Therefore, it is not possible to provide a single set of criteria that will determine what is considered to be a significant
increase in credit risk, and these criteria will differ for different types of lending, particularly between retail and wholesale. However,
unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when 30 days past
due. In addition, wholesale loans that are individually assessed, which are typically corporate and commercial customers, and included on
a watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime probability of default (‘PD’), which
encompasses a wide range of information including the obligor’s customer risk rating (‘CRR’), macroeconomic 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:
Origination CRR
Significance trigger – PD to increase by
0.1–1.2
15bps
2.1–3.3
30bps
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:
Origination CRR
Additional significance criteria – number of CRR grade notches deterioration
required to identify as significant credit deterioration (stage 2) (> or equal to)
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 138.
For certain portfolios of debt securities where external market ratings are available and credit ratings are not used in credit risk
management, the debt securities will be in stage 2 if their credit risk increases to the extent they are no longer considered investment
grade. Investment grade is where the financial instrument has a low risk of incurring losses, the structure has a strong capacity to meet its
contractual cash flow obligations in the near term, and adverse changes in economic and business conditions in the longer term may, but
will not necessarily, reduce the ability of the borrower to fulfil their contractual cash flow obligations.
For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from credit scores, which incorporates 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
homogeneous 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 identifies
loans with a PD higher than would be expected from loans that are performing as originally expected, and higher than what would have
been acceptable at origination. It therefore approximates a comparison of origination to reporting date PDs.
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.
Notes on the financial statements
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HSBC Holdings plc Annual Report and Accounts 2021
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 the recognition of a new financial instrument following a renegotiation where concessions have been granted for
economic or contractual reasons relating to the borrower’s financial difficulty that otherwise would not have been considered. The
amount of change-in-lifetime ECL is recognised in profit or loss until the POCI 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. Except for renegotiated loans, financial instruments are
transferred out of stage 3 when they no longer exhibit any evidence of credit impairment as described above. Renegotiated loans that are
not POCI will continue to be in stage 3 until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment
of future cash flows, observed over a minimum one-year period and there are no other indicators of impairment. For loans that are
assessed for impairment on a portfolio basis, the evidence typically comprises a history of payment performance against the original or
revised terms, as appropriate to the circumstances. For loans that are assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information
that 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.
In general, HSBC calculates ECL using three main components: a probability of default, a loss given default (’LGD’) and the exposure at
default (‘EAD’).
The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead.
The 12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the
instrument respectively.
The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet
date to the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD
given the event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to
be realised and the time value of money.
HSBC makes use of the Basel II IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in
the following table:
Model
Regulatory capital
IFRS 9
PD
•Through the cycle (represents long-run average PD throughout a
full economic cycle)
•The definition of default includes a backstop of 90+ days past
due, although this has been modified to 180+ days past due for
some portfolios, particularly UK and US mortgages
•Point in time (based on current conditions, adjusted to take into
account estimates of future conditions that will impact PD)
•Default backstop of 90+ days past due for all portfolios
EAD
•Cannot be lower than current balance
•Amortisation captured for term products
LGD
•Downturn LGD (consistent losses expected to be suffered during
a severe but plausible economic downturn)
•Regulatory floors may apply to mitigate risk of underestimating
downturn LGD due to lack of historical data
•Discounted using cost of capital
•All collection costs included
•Expected LGD (based on estimate of loss given default including
the expected impact of future economic conditions such as
changes in value of collateral)
•No floors
•Discounted using the original effective interest rate of the loan
•Only costs associated with obtaining/selling collateral included
Other
•Discounted back from point of default to balance sheet date
While 12-month PDs are recalibrated from Basel 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 discounted cash flow (‘DCF’) methodology. The expected
future cash flows are based on the credit risk officer’s estimates as 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 the 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 HSBC is exposed to credit risk. For wholesale overdrafts,
credit risk management actions are taken no less frequently than on an annual basis and therefore this period is to the expected date of
the next substantive credit review. The date of the substantive credit review also represents the initial recognition of the new facility.
However, where the financial instrument includes both a drawn and undrawn commitment and the contractual ability to demand
repayment and cancel the undrawn commitment does not serve to limit HSBC’s exposure to credit risk to the contractual notice period,
the contractual period does not determine the maximum period considered. Instead, ECL is measured over the period HSBC remains
exposed to credit risk that is not mitigated by credit risk management actions. This applies to retail overdrafts and credit cards, where the
period is the average time taken for stage 2 exposures to default or close as performing accounts, determined on a portfolio basis and
HSBC Holdings plc Annual Report and Accounts 2021
325
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.
Forward-looking economic inputs
HSBC applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions
representative of its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected 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 144.
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:
Judgements
Estimates
•Defining what is considered to be a significant increase in credit risk
•Determining the lifetime and point of initial recognition of overdrafts and credit cards
•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 adjustments to account for late breaking events, model and data
limitations and deficiencies, and expert credit judgements
•The section ‘Measurement uncertainty and
sensitivity analysis of ECL estimates’, marked as
audited from page 144, sets out the assumptions
used in determining ECL, and provides an
indication of the sensitivity of the result to the
application of different weightings being applied
to different economic assumptions
(j) Insurance contracts
A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to
compensate that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but
is accounted for as an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with
discretionary participation features (‘DPF‘), which are also accounted for as insurance contracts as required by IFRS 4 ‘Insurance
Contracts’.
Net insurance premium income
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are
accounted for when liabilities are established. Reinsurance premiums are accounted for in the same accounting period as the premiums
for the direct insurance contracts to which they relate.
Net insurance claims and benefits paid and movements in liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs
and any policyholder bonuses allocated in anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when
notified.
Reinsurance recoveries are accounted for in the same period as the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles.
Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by
reference to the value of the relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the
future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and
management’s expectation of the future performance of the assets backing the contracts, as well as other experience factors such as
mortality, lapses and operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual terms,
regulation, or past distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4.
The Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the
carrying amount of the liability.
In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance
of the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other
comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a
deferred participating asset is recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising
from realised gains and losses on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-
force at the balance sheet date, as an asset. The asset represents the present value of the equity holders’ interest in the issuing insurance
companies’ profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force business
(‘PVIF’) is determined by discounting those expected future profits using appropriate assumptions in assessing factors such as future
mortality, lapse rates and levels of expenses, and a risk discount rate that reflects the risk premium attributable to the respective
Notes on the financial statements
326
HSBC Holdings plc Annual Report and Accounts 2021
contracts. The PVIF incorporates allowances for both non-market risk and the value of financial options and guarantees. The PVIF asset is
presented gross of attributable tax in the balance sheet and movements in the PVIF asset are included in ‘Other operating income’ on a
gross of tax basis.
(k)Employee compensation and benefits
Share-based payments
HSBC 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
HSBC operates a number of pension schemes including defined benefit, defined contribution and post-employment benefit schemes.
Payments to defined contribution schemes are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly
comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.
Remeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets excluding
interest and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net
defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets (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 cost 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 for the principal plan.
Judgements
Estimates
•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 for the
principal plan and the sensitivity of the calculation to different assumptions are
described in Note 5.
(l)Tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates
to items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as 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. HSBC 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 in which 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.
Critical accounting estimates and judgements
The recognition of deferred tax assets depends on judgements and estimates.
Judgements
Estimates
•In assessing the probability and sufficiency of future taxable profit, we
consider the availability of evidence to support the recognition of deferred
tax assets. taking into account the inherent risk in long-term forecasting
and drivers of recent history of tax losses where applicable, taking into
account the future reversal of existing taxable temporary differences and
tax planning strategies including corporate reorganisations. Specific
judgements supporting deferred tax assets are described in Note 7.
The recognition of deferred tax assets is sensitive to estimates of future
cash flows projected for periods for which detailed forecasts are available
and to assumptions regarding the long-term pattern of cash flows
thereafter, on which forecasts of future taxable profit are based, and
which affect the expected recovery periods and the pattern of utilisation
of tax losses and tax credits. In particular there is estimation uncertainty
relating to the recognition of deferred tax on the post-1 April 2017 tax
losses of HSBC Holdings plc. See Note 7 for further detail.
HSBC Holdings plc Annual Report and Accounts 2021
327
(m)Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive
obligation that has arisen as a result of past events and for which a reliable estimate can be made.
Critical 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:
Judgements
Estimates
•Determining whether a present obligation exists. Professional advice is
taken on the assessment of litigation and similar obligations.
•Provisions for legal proceedings and regulatory matters typically require a
higher degree of judgement than other types of provisions. When matters
are at an early stage, accounting judgements can be difficult because of the
high degree of uncertainty associated with determining whether a present
obligation exists, and estimating the probability and amount of any outflows
that may arise. As matters progress, management and legal advisers
evaluate on an ongoing basis whether provisions should be recognised,
revising previous estimates as appropriate. At more advanced stages, it is
typically easier to make estimates around a better defined set of possible
outcomes.
•Provisions for legal proceedings and regulatory matters remain very
sensitive to the assumptions used in the estimate. There could be a
wider range of possible outcomes for any pending legal proceedings,
investigations or inquiries. As a result it is often not practicable to
quantify a range of possible outcomes for individual matters. It is also
not practicable to meaningfully quantify ranges of potential outcomes
in aggregate for these types of provisions because of the diverse
nature and circumstances of such matters and the wide range of
uncertainties involved.
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related
to legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of
settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which
is generally the fee received or present value of the fee receivable.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain
guarantees as insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance
liabilities. This election is made on a contract-by-contract basis, and is irrevocable.
(n)Impairment of non-financial assets
Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment,
intangible assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is
indication of impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level. In
addition, impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are
considered to be the principal operating legal entities divided by global business.
Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of
the fair value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying value 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 21).
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.
Critical accounting estimates and judgements
The review of goodwill and other non-financial assets 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 described in the Critical accounting estimates and judgements in
Note 1.2(a).
Notes on the financial statements
328
HSBC Holdings plc Annual Report and Accounts 2021
2
Net fee income
Net fee income by global business
2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Funds under management
1,984
126
546
—
2,656
Cards
1,949
240
23
1
2,213
Credit facilities
103
833
690
1
1,627
Broking income
863
69
669
—
1,601
Account services
429
677
340
6
1,452
Unit trusts
1,065
23
—
—
1,088
Underwriting
4
6
1,009
(2)
1,017
Global custody
167
24
787
—
978
Remittances
75
357
343
—
775
Imports/exports
1
474
145
—
620
Insurance agency commission
324
17
—
—
341
Other
1,305
1,077
2,503
(2,465)
2,420
Fee income
8,269
3,923
7,055
(2,459)
16,788
Less: fee expense
(2,375)
(284)
(3,452)
2,420
(3,691)
Net fee income
5,894
3,639
3,603
(39)
13,097
2020
2019
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
Total
$m
$m
$m
$m
$m
$m
Funds under management
1,686
126
477
—
2,289
2,177
Cards
1,564
360
25
—
1,949
1,975
Credit facilities
93
740
626
—
1,459
1,618
Broking income
862
61
616
—
1,539
1,057
Account services
431
598
264
—
1,293
2,003
Unit trusts
881
18
—
—
899
1,035
Underwriting
5
9
1,002
(1)
1,015
829
Global custody
189
22
723
—
934
717
Remittances
77
313
288
(1)
677
747
Imports/exports
—
417
160
—
577
662
Insurance agency commission
307
17
1
—
325
377
Other
1,123
893
2,369
(2,290)
2,095
2,242
Fee income
7,218
3,574
6,551
(2,292)
15,051
15,439
Less: fee expense
(1,810)
(349)
(3,284)
2,266
(3,177)
(3,416)
Net fee income
5,408
3,225
3,267
(26)
11,874
12,023
Net fee income included $6,742m of fees earned on financial assets that were not at fair value through profit or loss, other than amounts
included in determining the effective interest rate (2020: $5,858m; 2019: $6,647m), $1,520m of fees payable on financial liabilities that
were not at fair value through profit or loss, other than amounts included in determining the effective interest rate (2020: $1,260m;
2019: $1,450m), $3,849m of fees earned on trust and other fiduciary activities (2020: $3,426m; 2019: $3,110m) and $305m of fees
payable relating to trust and other fiduciary activities (2020: $267m; 2019: $237m).
3
Net income from financial instruments measured at fair value through profit or loss
2021
2020
2019
$m
$m
$m
Net income/(expense) arising on:
Net trading activities
6,668
11,074
16,121
Other instruments managed on a fair value basis
1,076
(1,492)
(5,890)
Net income from financial instruments held for trading or managed on a fair value basis
7,744
9,582
10,231
Financial assets held to meet liabilities under insurance and investment contracts
4,134
2,481
3,830
Liabilities to customers under investment contracts
(81)
(400)
(352)
Net income from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss
4,053
2,081
3,478
Derivatives managed in conjunction with HSBC’s issued debt securities
(2,811)
2,619
2,561
Other changes in fair value
2,629
(2,388)
(2,471)
Changes in fair value of designated debt and related derivatives 1
(182)
231
90
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
798
455
812
Year ended 31 Dec
12,413
12,349
14,611
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
HSBC Holdings plc Annual Report and Accounts 2021
329
HSBC Holdings
2021
2020
2019
$m
$m
$m
Net income/(expense) arising on:
– trading activities
87
(336)
(559)
– other instruments managed on a fair value basis
23
1,137
2,036
Net income from financial instruments held for trading or managed on a fair value basis
110
801
1,477
Derivatives managed in conjunction with HSBC Holdings-issued debt securities
(625)
694
764
Other changes in fair value
974
(1,020)
(1,124)
Changes in fair value of designated debt and related derivatives
349
(326)
(360)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
(420)
1,141
1,659
Year ended 31 Dec
39
1,616
2,776
4
Insurance business
Net insurance premium income
Non-linked
insurance
Linked life
insurance
Investment
contracts with
DPF 1
Total
$m
$m
$m
$m
Gross insurance premium income
8,529
1,027
1,873
11,429
Reinsurers’ share of gross insurance premium income
(555)
(4)
—
(559)
Year ended 31 Dec 2021
7,974
1,023
1,873
10,870
Gross insurance premium income
8,321
579
1,563
10,463
Reinsurers’ share of gross insurance premium income
(362)
(8)
—
(370)
Year ended 31 Dec 2020
7,959
571
1,563
10,093
Gross insurance premium income
9,353
489
2,266
12,108
Reinsurers’ share of gross insurance premium income
(1,465)
(7)
—
(1,472)
Year ended 31 Dec 2019
7,888
482
2,266
10,636
1 Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities to policyholders
Non-linked
insurance
Linked life
insurance
Investment
contracts with
DPF 1
Total
$m
$m
$m
$m
Gross claims and benefits paid and movement in liabilities
10,474
1,134
3,332
14,940
– claims, benefits and surrenders paid
2,929
1,023
2,142
6,094
– movement in liabilities
7,545
111
1,190
8,846
Reinsurers’ share of claims and benefits paid and movement in liabilities
(543)
(9)
—
(552)
– claims, benefits and surrenders paid
(343)
(7)
—
(350)
– movement in liabilities
(200)
(2)
—
(202)
Year ended 31 Dec 2021
9,931
1,125
3,332
14,388
Gross claims and benefits paid and movement in liabilities
10,050
1,112
1,853
13,015
– claims, benefits and surrenders paid
3,695
900
2,083
6,678
– movement in liabilities
6,355
212
(230)
6,337
Reinsurers’ share of claims and benefits paid and movement in liabilities
(366)
(4)
—
(370)
– claims, benefits and surrenders paid
(430)
(10)
—
(440)
– movement in liabilities
64
6
—
70
Year ended 31 Dec 2020
9,684
1,108
1,853
12,645
Gross claims and benefits paid and movement in liabilities
11,305
1,217
3,810
16,332
– claims, benefits and surrenders paid
3,783
900
1,921
6,604
– movement in liabilities
7,522
317
1,889
9,728
Reinsurers’ share of claims and benefits paid and movement in liabilities
(1,402)
(4)
—
(1,406)
– claims, benefits and surrenders paid
(411)
(17)
—
(428)
– movement in liabilities
(991)
13
—
(978)
Year ended 31 Dec 2019
9,903
1,213
3,810
14,926
1 Discretionary participation features.
Notes on the financial statements
330
HSBC Holdings plc Annual Report and Accounts 2021
Liabilities under insurance contracts
Non-linked
insurance
Linked life
insurance
Investment
contracts with
DPF 1
Total
$m
$m
$m
$m
Gross liabilities under insurance contracts at 1 Jan 2021
72,464
6,449
28,278
107,191
Claims and benefits paid
(2,929)
(1,023)
(2,142)
(6,094)
Increase in liabilities to policyholders
10,474
1,134
3,332
14,940
Exchange differences and other movements 2
(534)
(47)
(2,711)
(3,292)
Gross liabilities under insurance contracts at 31 Dec 2021
79,475
6,513
26,757
112,745
Reinsurers’ share of liabilities under insurance contracts
(3,638)
(30)
—
(3,668)
Net liabilities under insurance contracts at 31 Dec 2021
75,837
6,483
26,757
109,077
Gross liabilities under insurance contracts at 1 Jan 2020
65,324
6,151
25,964
97,439
Claims and benefits paid
(3,695)
(900)
(2,083)
(6,678)
Increase in liabilities to policyholders
10,050
1,112
1,853
13,015
Exchange differences and other movements 2
785
86
2,544
3,415
Gross liabilities under insurance contracts at 31 Dec 2020
72,464
6,449
28,278
107,191
Reinsurers’ share of liabilities under insurance contracts
(3,434)
(14)
—
(3,448)
Net liabilities under insurance contracts at 31 Dec 2020
69,030
6,435
28,278
103,743
1 Discretionary participation features.
2‘Exchange differences and other movements’ includes movements in liabilities arising from net unrealised investment gains recognised in other
comprehensive income.
The key factors contributing to the movement in liabilities to policyholders included movements in the market value of assets supporting
policyholder liabilities, death claims, surrenders, lapses, new business, the declaration of bonuses and other amounts attributable to
policyholders.
5
Employee compensation and benefits
2021
2020
2019
$m
$m
$m
Employee compensation and benefits
18,742
18,076
18,002
Capitalised wages and salaries
870
1,320
1,475
Gross employee compensation and benefits for the year ended 31 Dec
19,612
19,396
19,477
Consists of:
Wages and salaries
17,072
17,072
17,056
Social security costs
1,503
1,378
1,472
Post-employment benefits
1,037
946
949
Year ended 31 Dec
19,612
19,396
19,477
Employee compensation and benefits are presented net of software capitalisation costs in the income statement. During 2021, the
allocation methodology for internally capitalised software costs between ‘employee compensation and benefits’ and ‘general
administrative expenses’ has been updated to better reflect the underlying costs being capitalised.
Average number of persons employed by HSBC during the year by global business
2021
2020
2019
Wealth and Personal Banking
138,026
144,615
148,680
Commercial Banking
44,992
45,631
46,584
Global Banking and Markets
48,179
49,055
51,313
Corporate Centre
359
411
478
Year ended 31 Dec
231,556
239,712
247,055
Average number of persons employed by HSBC during the year by geographical region
2021
2020
2019
Europe
60,919
64,886
66,392
Asia
127,673
129,923
133,624
Middle East and North Africa
9,329
9,550
9,798
North America
13,845
15,430
16,615
Latin America
19,790
19,923
20,626
Year ended 31 Dec
231,556
239,712
247,055
HSBC Holdings plc Annual Report and Accounts 2021
331
Reconciliation of total incentive awards granted to income statement charge
2021
2020
2019
$m
$m
$m
Total incentive awards approved for the current year
3,495
2,659
3,341
Less: deferred bonuses awarded, expected to be recognised in future periods
(379)
(239)
(337)
Total incentives awarded and recognised in the current year
3,116
2,420
3,004
Add: current year charges for deferred bonuses from previous years
270
286
327
Other
4
2
(55)
Income statement charge for incentive awards
3,390
2,708
3,276
Share-based payments
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $467m was equity settled (2020: $434m;
2019: $478m), as follows:
2021
2020
2019
$m
$m
$m
Conditional share awards
479
411
521
Savings-related and other share award option plans
27
51
30
Year ended 31 Dec
506
462
551
HSBC share awards
Award
Policy
Deferred share awards
(including annual incentive
awards, LTI awards
delivered in shares) and
Group Performance Share
Plans (‘GPSP’)
An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the
award to be granted.
• Deferred awards generally require employees to remain in employment over the vesting period and are generally not
subject to performance conditions after the grant date. An exception to these are the LTI awards, which are subject to
performance conditions.
• Deferred share awards generally vest over a period of three, five or seven years.
• Vested shares may be subject to a retention requirement post-vesting.
• Awards are subject to malus and clawback provisions.
International Employee
Share Purchase Plan
(‘ShareMatch’)
The plan was first introduced in Hong Kong in 2013 and now includes employees based in 28 jurisdictions.
• Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
• Matching awards are added at a ratio of one free share for every three purchased (in mainland China matching awards
are settled in cash).
• Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum
period of two years and nine months.
Movement on HSBC share awards
2021
2020
Number
Number
(000s)
(000s)
Conditional share awards outstanding at 1 Jan
103,473
97,055
Additions during the year
75,549
72,443
Released in the year
(63,635)
(60,673)
Forfeited in the year
(6,023)
(5,352)
Conditional share awards outstanding at 31 Dec
109,364
103,473
Weighted average fair value of awards granted ($)
6.49
7.28
HSBC share option plans
Main plans
Policy
Savings-related share
option plans (‘Sharesave’)
• From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings to
acquire shares.
•These are generally exercisable within six months following either the third or fifth anniversary of the commencement
of a three-year or five-year contract, respectively.
•The exercise price is set at a 20% (2020: 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.
Notes on the financial statements
332
HSBC Holdings plc Annual Report and Accounts 2021
Movement on HSBC share option plans
Savings-related
share option plans
Number
WAEP 1
(000s)
£
Outstanding at 1 Jan 2021
130,953
2.97
Granted during the year 2
15,410
3.15
Exercised during the year 3
(3,878)
3.80
Expired during the year
(11,502)
3.53
Forfeited during the year
(7,786)
3.97
Outstanding at 31 Dec 2021
123,197
2.85
– of which exercisable
4,949
4.05
Weighted average remaining contractual life (years)
3.02
Outstanding at 1 Jan 2020
65,060
4.81
Granted during the year 2
111,469
2.63
Exercised during the year 3
(1,387)
4.48
Expired during the year
(43,032)
4.81
Forfeited during the year
(1,158)
4.88
Outstanding at 31 Dec 2020
130,953
2.97
– of which exercisable
8,170
4.50
Weighted average remaining contractual life (years)
3.68
1 Weighted average exercise price.
2 The weighted average fair value of options granted during the year was $0.85 (2020: $0.47).
3 The weighted average share price at the date the options were exercised was $5.87 (2020: $7.08).
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 192 contains
details of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined
benefit plan is the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK)
Pension Scheme being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act.
HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are
recoverable through reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a
surplus is recoverable, HSBC has considered its current right to obtain a future refund or a reduction in future contributions together with
the rights of third parties such as trustees.
The principal plan
The principal plan has a defined benefit section and a defined contribution section. 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 HSBC. 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.
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 £31.1b n ($41.1b n) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5b n ($3.3b n), giving a
funding level of 109%. These figures include defined contribution assets amounting to £2.4b n ($3.2b n). The main differences between the
assumptions used for assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are more prudent
assumptions for discount rate, inflation rate and life expectancy. The next funding valuation will have an effective date of 31 December
2022.
Although the plan was in surplus at the valuation date, HSBC continued to make separately committed lump sum contributions and the
final such contribution of £160m ($218m) was paid in 2021. The main employer of the principal plan is HSBC UK Bank plc, with additional
support from HSBC Holdings plc. The HSBC Bank (UK) Pension Scheme is fully sectionalised and no entities outside the ring fence
participate in the HBUK section.
The actuary also assessed the value of the liabilities if 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 and include an explicit allowance for the future administrative expenses of the plan.
Under this approach, the amount of assets needed was estimated to be £33b n ($44b n) at 31 December 2019.
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 pension (‘GMP’) equalisation, and any potential conversion of GMPs into non-GMP benefits, to
be an approximate 0.9% increase in the principal plan’s liabilities, or £187m ($239m). This was recognised in the income statement in
2018. A further judgment by the High Court on 20 November 2020 ruled that GMPs should also be equalised for those who had previously
transferred benefits from the principal plan to another arrangement, with £13m ($17m) consequently being recognised in 2020. We
continue to assess the impact of GMP equalisation.
HSBC Holdings plc Annual Report and Accounts 2021
333
Income statement charge
2021
2020
2019
$m
$m
$m
Defined benefit pension plans
243
146
176
Defined contribution pension plans
767
775
758
Pension plans
1,010
921
934
Defined benefit and contribution healthcare plans
27
25
15
Year ended 31 Dec
1,037
946
949
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
Fair value of
plan assets
Present value of
defined benefit
obligations
Effect of
limit on plan
surpluses
Total
$m
$m
$m
$m
Defined benefit pension plans
51,431
(42,277)
(23)
9,131
Defined benefit healthcare plans
103
(572)
—
(469)
At 31 Dec 2021
51,534
(42,849)
(23)
8,662
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other
liabilities’)
(1,607)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and
other assets’)
10,269
Defined benefit pension plans
52,990
(43,995)
(44)
8,951
Defined benefit healthcare plans
114
(639)
—
(525)
At 31 Dec 2020
53,104
(44,634)
(44)
8,426
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other
liabilities’)
(2,025)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other
assets’)
10,450
HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2021 amounted to $30m (2020: $56m). The
average number of persons employed during 2021 was 54 (2020: 59). A small number of employees are members of defined benefit
pension plans. These employees are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings pays contributions to such plan
for its own employees in accordance with the schedules of contributions determined by the trustees of the plan and recognises these
contributions as an expense as they fall due.
Notes on the financial statements
334
HSBC Holdings plc Annual Report and Accounts 2021
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value of plan
assets
Present value of
defined benefit
obligations
Effect of the asset
ceiling
Net defined benefit
asset/(liability)
Principal 1
plan
Other
plans
Principal 1
plan
Other
plans
Principal 1
plan
Other
plans
Principal 1
plan
Other
plans
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
42,505
10,485
(33,005)
(10,990)
—
(44)
9,500
(549)
Service cost
—
—
(55)
(276)
—
—
(55)
(276)
– current service cost
—
—
(14)
(206)
—
—
(14)
(206)
– past service cost and gains/(losses) from settlements
—
—
(41)
(70)
—
—
(41)
(70)
Net interest income/(cost) on the net defined benefit asset/
(liability)
613
172
(473)
(174)
—
(1)
140
(3)
Remeasurement effects recognised in other comprehensive
income
(377)
7
(271)
471
—
22
(648)
500
– return on plan assets (excluding interest income)
(377)
7
—
—
—
—
(377)
7
– actuarial gains/(losses) financial assumptions
—
—
611
315
—
—
611
315
– actuarial gains/(losses) demographic assumptions
—
—
(447)
64
—
—
(447)
64
– actuarial gains/(losses) experience adjustments
—
—
(435)
92
—
—
(435)
92
– other changes
—
—
—
—
—
22
—
22
Exchange differences
(361)
(94)
283
138
—
—
(78)
44
Benefits paid
(1,396)
(645)
1,396
712
—
—
—
67
Other movements 2
400
122
(130)
97
—
—
270
219
At 31 Dec 2021
41,384
10,047
(32,255)
(10,022)
—
(23)
9,129
2
At 1 Jan 2020
37,874
9,693
(30,158)
(10,424)
—
(16)
7,716
(747)
Service cost
—
—
(68)
(172)
—
—
(68)
(172)
– current service cost
—
—
(28)
(184)
—
—
(28)
(184)
– past service cost and losses from settlements
—
—
(40)
12
—
—
(40)
12
Net interest income/(cost) on the net defined benefit asset/
(liability)
726
233
(575)
(245)
—
—
151
(12)
Remeasurement effects recognised in other comprehensive
income
3,173
879
(2,118)
(547)
—
(26)
1,055
306
– return on plan assets (excluding interest income)
3,173
692
—
—
—
—
3,173
692
– actuarial gains/(losses) financial assumptions
—
—
(3,179)
(564)
—
—
(3,179)
(564)
– actuarial gains/(losses) demographic assumptions
—
—
86
49
—
—
86
49
– actuarial gains/(losses) experience adjustments
—
—
975
87
—
—
975
87
– other changes
—
187
—
(119)
—
(26)
—
42
Exchange differences
1,446
249
(1,100)
(387)
—
(2)
346
(140)
Benefits paid
(1,148)
(652)
1,148
727
—
—
—
75
Other movements 2
434
83
(134)
58
—
—
300
141
At 31 Dec 2020
42,505
10,485
(33,005)
(10,990)
—
(44)
9,500
(549)
1 For further details of the principal plan, see page 333.
2 O ther movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.
HSBC expects to make $145 m of contributions to defined benefit pension plans during 2022. Benefits expected to be paid from the plans
to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans
2022
2023
2024
2025
2026
2027-2031
$m
$m
$m
$m
$m
$m
The principal plan 1,2
1,444
1,491
1,542
1,592
1,644
9,070
Other plans 1
474
473
460
459
453
2,325
1 The duration of the defined benefit obligation is 17.3 years for the principal plan under the disclosure assumptions adopted (2020: 17.4 years) and
12.7 years for all other plans combined (2020: 13.5 years).
2 For further details of the principal plan, see page 333.
HSBC Holdings plc Annual Report and Accounts 2021
335
Fair value of plan assets by asset classes
31 Dec 2021
31 Dec 2020
Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC 1
Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC 1
$m
$m
$m
$m
$m
$m
$m
$m
The principal plan 2
Fair value of plan assets
41,384
36,270
5,114
1,037
42,505
37,689
4,816
973
– equities 3
197
5
192
—
268
7
261
—
– bonds 4
36,295
35,612
683
—
36,198
35,479
719
—
– derivatives
1,864
—
1,864
1,037
1,973
—
1,973
973
– property
1,094
—
1,094
—
1,106
—
1,106
—
– other 5
1,934
653
1,281
—
2,960
2,203
757
—
Other plans
Fair value of plan assets
10,047
8,248
1,799
52
10,485
9,512
973
54
– equities
892
668
224
5
1,484
1,069
415
3
– bonds
7,080
6,490
590
5
7,624
7,143
481
10
– derivatives
7
(13)
20
—
(57)
—
(57)
—
– property
123
119
4
—
192
157
35
—
– other
1,945
984
961
42
1,242
1,143
99
41
1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 35.
2 For further details on the principal plan, see page 333.
3 Includes $192 m (2020: $261 m) in relation to private equities.
4 Principal plan bonds includes fixed income bonds of $18,315 m (2020: $17,730 m) and index-linked bonds of $18,160 m (2020: $18,468 m).
5 Other includes $0 m (2020: $696 m) of pooled investment vehicles with quoted underlying assets and $1,281 m (2020: $757 m) of pooled investment
vehicles with unquoted underlying assets.
Post-employment defined benefit plans’ principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current
average yields of high-quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit
obligations.
Key actuarial assumptions for the principal plan 1
Discount rate
Inflation rate (RPI)2
Inflation rate (CPI)2
Rate of increase for
pensions
Rate of pay increase
%
%
%
%
%
UK
At 31 Dec 2021
1.90
3.45
3.20
3.30
3.45
At 31 Dec 2020
1.45
3.05
2.50
3.00
2.75
1 For further details on the principal plan, see page 333.
2 Due to the significant difference between short-term and long-term inflation expectations that has developed over 2021, HSBC UK has changed the
methodology of setting inflation-related assumptions to fully and separately reflect how benefits are linked to RPI inflation and CPI inflation
respectively. For example, the revaluation of deferred pensions is driven by CPI inflation expectations in the short to medium term, whereas
increases to pensions in payment are driven by RPI inflation expectations over the long term.
Mortality tables and average life expectancy at age 60 for the principal plan 1
Mortality
table
Life expectancy at age 60 for
a male member currently:
Life expectancy at age 60 for
a female member currently:
Aged 60
Aged 40
Aged 60
Aged 40
UK
At 31 Dec 2021
SAPS S3 2
27.3
28.8
28.5
30.1
At 31 Dec 2020
SAPS S3 2
27.0
28.5
28.1
29.7
1 For further details of the principal plan, see page 333.
2 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 2020 core projection model with an initial addition to improvement of 0.25% per annum and a long-term rate of improvement
of 1.25% per annum.
The effect of changes in key assumptions on the principal plan 1
Impact on HBUK section of the
HSBC Bank (UK) Pension Scheme obligation 2
Financial impact of increase
Financial impact of decrease
2021
2020
2021
2020
$m
$m
$m
$m
Discount rate – increase/decrease of 0.25%
(1,337)
(1,383)
1,425
1,475
Inflation rate (RPI and CPI) – increase/decrease of 0.25%
1,211
871
(980)
(830)
Pension payments and deferred pensions – increase/decrease of 0.25%
1,267
1,307
(1,177)
(1,222)
Pay – increase/decrease of 0.25%
20
60
(20)
(59)
Change in mortality – increase of 1 year
1,387
1,453
N/A
N/A
1 For further details of the principal plan, see page 333.
2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions to the nearest 0.05%.
Notes on the financial statements
336
HSBC Holdings plc Annual Report and Accounts 2021
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this in
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the
projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised
in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the
prior period.
Directors’ emoluments
Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 254.
6
Auditor’s remuneration
2021
2020
2019
$m
$m
$m
Audit fees payable to PwC 1
88.1
92.9
85.2
Other audit fees payable
2.0
1.0
0.9
Year ended 31 Dec
90.1
93.9
86.1
Fees payable by HSBC to PwC
2021
2020
2019
$m
$m
$m
Fees for HSBC Holdings’ statutory audit 2
19.5
21.9
15.7
Fees for other services provided to HSBC
109.9
108.3
95.0
– audit of HSBC’s subsidiaries
68.6
71.0
69.5
– audit-related assurance services 3
18.7
17.2
10.0
– other assurance services 4,5
22.6
20.1
12.2
– taxation compliance services
—
—
1.6
– other non-audit services 4
—
—
1.7
Year ended 31 Dec
129.4
130.2
110.7
1 Audit fees payable to PwC in the current year include adjustments made to the prior year audit fee after finalisation of the 2020 financial
statements.
2 Fees payable to PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC
Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries, which are clearly
identifiable as being in support of the Group audit opinion.
3 Including services for assurance and other services that relate to statutory and regulatory filings, including interim reviews.
4 Including permitted services relating to attestation reports on internal controls of a service organisation primarily prepared for and used by third-
party end user, including comfort letters.
5 Includes reviews of PRA regulatory reporting returns.
No fees were payable by HSBC to PwC as principal auditor for the following types of services: internal audit services and services related
to litigation, recruitment and remuneration.
Fees payable by HSBC’s associated pension schemes to PwC
2021
2020
2019
$000
$000
$000
Audit of HSBC’s associated pension schemes
382
316
250
Year ended 31 Dec
382
316
250
No fees were payable by HSBC’s associated pension schemes to PwC as principal auditor for the following types of services: internal
audit services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation,
recruitment and remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC amounted to $6.3m (2020: $12.3m;
2019: $17.2m). In these cases, HSBC was connected with the contracting party and may therefore have been involved in appointing PwC.
These fees arose from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate
concerns that borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated
basis for the Group.
HSBC Holdings plc Annual Report and Accounts 2021
337
7
Tax
Tax expense
2021
2020
2019
$m
$m
$m
Current tax 1
3,250
2,700
3,768
– for this year
3,182
2,883
3,689
– adjustments in respect of prior years
68
(183)
79
Deferred tax
963
(22)
871
– origination and reversal of temporary differences
874
(341)
684
– effect of changes in tax rates
132
58
(11)
– adjustments in respect of prior years
(43)
261
198
Year ended 31 Dec 2
4,213
2,678
4,639
1 Current tax included Hong Kong profits tax of $813m (2020: $888m; 2019: $1,413m). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong was 16.5% (2020: 16.5%; 2019: 16.5%).
2 In addition to amounts recorded in the income statement, a tax charge of $7m (2020: charge of $7m) was recorded directly to equity.
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation
tax rate as follows:
2021
2020
2019
$m
%
$m
%
$m
%
Profit before tax
18,906
8,777
13,347
Tax expense
Taxation at UK corporation tax rate of 19.00%
3,592
19.0
1,668
19.0
2,536
19.0
Impact of differently taxed overseas profits in overseas locations
280
1.5
178
2.0
253
1.9
UK banking surcharge
332
1.8
(113)
(1.3)
29
0.2
Items increasing tax charge in 2021:
– impact of differences between French tax basis and IFRSs
434
2.3
—
—
—
—
– local taxes and overseas withholding taxes
360
1.9
228
2.6
484
3.6
– UK tax losses not recognised
294
1.6
444
5.1
364
2.7
– other permanent disallowables
254
1.3
322
3.6
481
3.6
– non-deductible goodwill write-down
178
0.9
—
—
1,421
10.7
– impact of changes in tax rates
132
0.7
58
0.6
(11)
(0.1)
– bank levy
93
0.5
202
2.3
184
1.4
– impacts of hyperinflation
68
0.4
65
0.7
29
0.2
– adjustments in respect of prior period liabilities
25
0.1
78
0.9
277
2.1
– non-deductible regulatory settlements
2
—
33
0.4
5
—
Items reducing tax charge in 2021:
– non-taxable income and gains
(641)
(3.4)
(515)
(5.8)
(844)
(6.3)
– tax impact of planned sale of French retail banking business
(434)
(2.3)
—
—
—
—
– effect of profits in associates and joint ventures
(414)
(2.2)
(250)
(2.8)
(467)
(3.5)
– deductions for AT1 coupon payments
(270)
(1.4)
(310)
(3.5)
(263)
(2.0)
– non-UK movements in unrecognised deferred tax
(67)
(0.4)
608
6.9
12
0.1
– non-deductible UK customer compensation
(5)
—
(18)
(0.2)
382
2.9
– non-taxable gain on dilution of shareholding in SABB
—
—
—
—
(181)
(1.3)
– other items
—
—
—
—
(52)
(0.4)
Year ended 31 Dec
4,213
22.3
2,678
30.5
4,639
34.8
The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax rates
for 2021 include Hong Kong (16.5%), the US (21%) and the UK (19%). If the Group’s profits were taxed at the statutory rates of the
countries in which the profits arose, then the tax rate for the year would have been 22.3% (2020: 19.7%). The effective tax rate for the year
of 22.3% was lower than in the previous year (2020: 30.5%). The impact of non-recognition of deferred tax was smaller in 2021 than in
202 0, which decreased the effective tax rate by 10.8%. This was partly offset by changes in the geographical composition of profits,
which resulted in tax at applicable local statutory rates being 2.5% greater for 2020 than for 2021.
The signing of a framework agreement for the planned sale of the French retail banking business resulted in a tax deduction (tax value of
$434m) for a provision for loss on disposal, which was recorded in the French tax return. A deferred tax liability of the same amount arises
as a consequence of the temporary difference between the French tax basis and IFRSs in respect of this provision.
During 2021, legislation to increase the main rate of UK corporation tax from 19% to 25% from 1 April 2023 was enacted, increasing the
Group’s 2021 tax charge by $132m due to the remeasurement of deferred tax balances.
Accounting for taxes involves some estimation because tax law is uncertain and its application requires a degree of judgement, which
authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice
where appropriate. We do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and
deferred tax assets where recovery is probable.
Notes on the financial statements
338
HSBC Holdings plc Annual Report and Accounts 2021
Movement of deferred tax assets and liabilities
Loan
impairment
provisions
Unused tax
losses and
tax credits
Derivatives, FVOD 1
and other
investments
Insurance
business
Expense
provisions
Fixed
assets
Retirement
obligations
Other
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Assets
1,242
1,821
548
—
565
901
—
960
6,037
Liabilities
—
—
(705)
(1,622)
—
—
(2,306)
(1,234)
(5,867)
At 1 Jan 2021
1,242
1,821
(157)
(1,622)
565
901
(2,306)
(274)
170
Income statement
(89)
161
22
(43)
(333)
(26)
(336)
(319)
(963)
Other comprehensive income
(5)
33
149
—
74
25
(205)
713
784
Foreign exchange and other adjustments
14
(14)
(5)
25
(10)
3
28
(81)
(40)
At 31 Dec 2021
1,162
2,001
9
(1,640)
296
903
(2,819)
39
(49)
Assets 2
1,162
2,001
9
—
296
903
109
742
5,222
Liabilities 2
—
—
—
(1,640)
—
—
(2,928)
(703)
(5,271)
Assets
983
1,414
979
—
650
1,002
—
422
5,450
Liabilities
—
—
(558)
(1,621)
—
—
(1,613)
(401)
(4,193)
At 1 Jan 2020
983
1,414
421
(1,621)
650
1,002
(1,613)
21
1,257
Income statement
295
355
(274)
(32)
(81)
(112)
(190)
61
22
Other comprehensive income
—
—
(23)
—
—
—
(387)
(660)
(1,070)
Foreign exchange and other adjustments
(36)
52
(281)
31
(4)
11
(116)
304
(39)
At 31 Dec 2020
1,242
1,821
(157)
(1,622)
565
901
(2,306)
(274)
170
Assets 2
1,242
1,821
548
—
565
901
—
960
6,037
Liabilities 2
—
—
(705)
(1,622)
—
—
(2,306)
(1,234)
(5,867)
1 Fair value of own debt.
2 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $4,624m (2020: $4,483m)
and deferred tax liabilities $4,673m (2020: $4,313m).
In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future
business profit projections and the track record of meeting forecasts. Management’s assessment of the likely availability of future taxable
profits against which to recover deferred tax assets is based on the most recent financial forecasts approved by management, which
cover a five-year period and are extrapolated where necessary, and takes into consideration the reversal of existing taxable temporary
differences and past business performance.
The Group’s net deferred tax asset of $4.6b n (2020: $4.5b n) included $2.6b n (2020: $2.4b n) of deferred tax assets relating to the US and a
net deferred asset of $0.0b n (2020: $0.00) in France.
The net US deferred tax asset of $2.6b n included $1.1b n related to US tax losses that expire in 13 to 17 years. Management expects the
US deferred tax asset to be substantially recovered in seven to eight years, with the majority recovered in the first five years.
The net deferred tax asset in France of $0.0b n included $0.4b n related to tax losses which are expected to be substantially recovered
within 10 years.
Following the signing of a framework agreement in 2021 for the planned sale of the French retail banking business, that business is now
excluded from our deferred tax analysis as its sale is considered probable. Although the French consolidated tax group recorded a tax loss
in both 2020 and 2021, this would have been taxable profit if the effects of the retail banking business and other non-recurring items,
mainly related to the restructuring of the European business, were excluded. The French net deferred tax asset is supported by forecasts
of taxable profit, also taking into consideration the history of profitability in the remaining businesses. No net deferred tax asset was
recognised as at 31 December 2020 as management did not consider there to be convincing evidence of sufficient future taxable profits
within the French consolidated tax group to support recognition.
The Group’s net deferred tax liability of $4.7b n (2020: $4.3 bn) included a net UK deferred tax asset of $0.8 bn (2020: $0.6 bn), of which
$0.2 bn related to UK banking tax losses which are expected to be substantially recovered within one year. The net UK deferred tax asset
of $0.8 bn excludes a $3.0b n deferred tax liability arising on the UK pension scheme surplus, the reversal of which is not taken into
account when estimating future taxable profits. The UK deferred tax assets are supported by forecasts of taxable profit, also taking into
consideration the history of profitability in the relevant businesses.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance
sheet was $16.9b n (2020: $15.6b n). This amount included unused UK tax losses of $10.5b n (2020: $9.3b n), of which $5.8b n (2020:
$4.3b n) arose after 1 April 2017 and can be recovered against the future taxable profits of any of the Group’s UK tax resident subsidiaries.
The remaining balance can only be recovered against future taxable profits of HSBC Holdings plc. No deferred tax was recognised on any
of these losses due to the absence of convincing evidence regarding the availability of sufficient future taxable profits against which to
recover them, taking into account the recent history of taxable losses within the UK group. Deferred tax asset recognition is reassessed at
each balance sheet date based on the available evidence. Of the total amounts unrecognised, $10.9b n (2020: $11.5b n) had no expiry date,
$0.7b n (2020: $0.7b n) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the
timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate
temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $12.7b n
(2020: $12.1b n) and the corresponding unrecognised deferred tax liability was $0.8b n (2020: $0.7b n).
HSBC Holdings plc Annual Report and Accounts 2021
339
8
Dividends
Dividends to shareholders of the parent company
2021
2020
2019
Per
share
Total
Settled
in scrip
Per
share
Total
Settled
in scrip
Per
share
Total
Settled
in scrip
$
$m
$m
$
$m
$m
$
$m
$m
Dividends paid on ordinary shares
In respect of previous year:
– fourth interim dividend / interim dividend
0.15
3,059
—
—
—
—
0.21
4,206
1,160
In respect of current year:
– first interim dividend
0.07
1,421
—
—
—
—
0.10
2,013
375
– second interim dividend
—
—
—
—
—
—
0.10
2,021
795
– third interim dividend
—
—
—
—
—
—
0.10
2,029
357
Total
0.22
4,480
—
—
—
—
0.51
10,269
2,687
Total dividends on preference shares classified as
equity (paid quarterly)1
4.99
7
62.00
90
62.00
90
Total coupons on capital securities classified as
equity
1,303
1,241
1,324
Dividends to shareholders
5,790
1,331
11,683
1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The security was redeemed and
cancelled on 13 January 2021.
Total coupons on capital securities classified as equity
2021
2020
2019
Total
Total
Total
First call date
Per security
$m
$m
$m
Perpetual subordinated contingent convertible securities,1,2
$1,500 m issued at 5.625%2
Nov 2019
$56.250
—
—
84
$2,000 m issued at 6.875%3
Jun 2021
$68.750
69
138
138
$2,250 m issued at 6.375%
Sep 2024
$63.750
143
143
143
$2,450 m issued at 6.375%
Mar 2025
$63.750
156
156
156
$3,000 m issued at 6.000%
May 2027
$60.000
180
180
180
$2,350 m issued at 6.250%
Mar 2023
$62.500
147
147
147
$1,800 m issued at 6.500%
Mar 2028
$65.000
117
117
117
$1,500 m issued at 4.600%4
Jun 2031
$46.000
69
—
—
$1,000 m issued at 4.000%5
Mar 2026
$40.000
20
—
—
$1,000 m issued at 4.700%6
Mar 2031
$47.000
24
—
—
€1,500 m issued at 5.250%
Sep 2022
€52.500
93
90
88
€1,000 m issued at 6.000%
Sep 2023
€60.000
70
67
66
€1,250 m issued at 4.750%
July 2029
€47.500
72
67
68
£1,000 m issued at 5.875%
Sep 2026
£58.750
80
74
75
SGD1,000 m issued at 4.700%
Jun 2022
SGD47.000
35
35
34
SGD750 m issued at 5.000%
Sep 2023
SGD50.000
28
27
28
Total
1,303
1,241
1,324
1 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of each security’s
issuance currency 1,000 per security.
2 This security was called by HSBC Holdings on 22 November 2019 and was redeemed and cancelled on 17 January 2020. Between the date of
exercise of the call option and the redemption, this security was considered to be a subordinated liability. For further details on additional tier 1
securities, see Note 31.
3 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.
4 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.
5 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2026.
6 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2031.
After the end of the year, the Directors approved a second interim dividend in respect of the financial year ended 31 December 2021 of
$0.18 per ordinary share, a distribution of approximately $3,649m. The second interim dividend for 2021 will be payable on 28 April 2022
to holders on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on
11 March 2022. No liability was recorded in the financial statements in respect of the second interim dividend for 2021.
On 4 January 2022, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m
($34m). No liability was recorded in the balance sheet at 31 December 2021 in respect of this coupon payment.
9
Earnings per share
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the
weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by
dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average
number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be
issued on conversion of dilutive potential ordinary shares.
Notes on the financial statements
340
HSBC Holdings plc Annual Report and Accounts 2021
Profit attributable to the ordinary shareholders of the parent company
2021
2020
2019
$m
$m
$m
Profit attributable to shareholders of the parent company
13,917
5,229
7,383
Dividend payable on preference shares classified as equity
(7)
(90)
(90)
Coupon payable on capital securities classified as equity
(1,303)
(1,241)
(1,324)
Year ended 31 Dec
12,607
3,898
5,969
Basic and diluted earnings per share
2021
2020
2019
Profit
Number
of shares
Per
share
Profit
Number
of shares
Per
share
Profit
Number
of shares
Per
share
$m
(millions)
$
$m
(millions)
$
$m
(millions)
$
Basic 1
12,607
20,197
0.62
3,898
20,169
0.19
5,969
20,158
0.30
Effect of dilutive potential
ordinary shares
105
73
75
Diluted 1
12,607
20,302
0.62
3,898
20,242
0.19
5,969
20,233
0.30
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares is
8.6 million (2020: 14.6 million; 2019: 1.1 million).
10
Segmental analysis
The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’), is considered the Chief Operating Decision
Maker (‘CODM’) for the purposes of identifying the Group’s reportable segments. Global business results are assessed by the CODM on
the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. Therefore,
we present these results on an adjusted basis as required by IFRSs. The 2020 and 2019 adjusted performance information is presented on
a constant currency basis. The 2020 and 2019 income statements are converted at the average rates of exchange for 2021, and the
balance sheets at 31 December 2020 and 31 December 2019 at the prevailing rates of exchange on 31 December 2021.
Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income
and expense. These allocations include the costs of certain support services and global functions to the extent that they can be
meaningfully attributed to global businesses. While such allocations have been made on a systematic and consistent basis, they
necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-
business line transactions. All such transactions are undertaken on arm’s length terms. The intra-Group elimination items for the global
businesses are presented in Corporate Centre.
Our global businesses
We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The
products and services offered to customers are organised by these global businesses.
•Wealth and Personal Banking (‘WPB’) provides a full range of retail banking and wealth products to our customers from personal
banking to ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings
accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide
wealth management services, including insurance and investment products, global asset management services, investment
management and private wealth solutions for customers with more sophisticated and international requirements.
•Commercial Banking (‘CMB’) offers a broad range of products and services to serve the needs of our commercial customers, including
small and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and
receivables finance, treasury management and liquidity solutions (payments and cash management and commercial cards),
commercial insurance and investments. CMB also offers customers access to products and services offered by other global
businesses, such as Global Banking and Markets, which include foreign exchange products, raising capital on debt and equity markets
and advisory services.
•Global Banking and Markets (‘GBM’) provides tailored financial solutions to major government, corporate and institutional clients and
private investors worldwide. The client-focused business lines deliver a full range of banking capabilities including financing, advisory
and transaction services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and
securities services, and principal investment activities.
HSBC Holdings plc Annual Report and Accounts 2021
341
HSBC adjusted profit before tax and balance sheet data
2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
Total
$m
$m
$m
$m
$m
Net operating income/(expense) before change in expected credit losses
and other credit impairment charges 1
22,110
13,415
15,002
(437)
50,090
– external
21,753
13,294
16,558
(1,515)
50,090
– inter-segment
357
121
(1,556)
1,078
—
of which: net interest income/(expense)
14,198
8,898
4,122
(739)
26,479
Change in expected credit losses and other credit impairment recoveries
288
300
337
3
928
Net operating income/(expense)
22,398
13,715
15,339
(434)
51,018
Total operating expenses
(15,384)
(6,973)
(10,006)
215
(32,148)
Operating profit/(loss)
7,014
6,742
5,333
(219)
18,870
Share of profit in associates and joint ventures
34
1
—
3,011
3,046
Adjusted profit before tax
7,048
6,743
5,333
2,792
21,916
%
%
%
%
%
Share of HSBC’s adjusted profit before tax
32.2
30.8
24.3
12.7
100.0
Adjusted cost efficiency ratio
69.6
52.0
66.7
49.2
64.2
Adjusted balance sheet data
$m
$m
$m
$m
$m
Loans and advances to customers (net)
488,786
349,126
207,162
740
1,045,814
Interests in associates and joint ventures
499
13
126
28,971
29,609
Total external assets
932,582
622,925
1,229,820
172,612
2,957,939
Customer accounts
859,029
506,688
344,205
652
1,710,574
2020
Net operating income/(expense) before change in expected credit losses and other
credit impairment charges 1
22,571
13,718
15,768
(287)
51,770
– external
20,474
14,114
18,651
(1,469)
51,770
– inter-segment
2,097
(396)
(2,883)
1,182
—
– of which: net interest income/(expense)
15,470
9,560
4,580
(1,337)
28,273
Change in expected credit losses and other credit impairment (charges)/recoveries
(3,005)
(4,989)
(1,289)
1
(9,282)
Net operating income/(expense)
19,566
8,729
14,479
(286)
42,488
Total operating expenses
(15,443)
(6,897)
(9,640)
(429)
(32,409)
Operating profit/(loss)
4,123
1,832
4,839
(715)
10,079
Share of profit in associates and joint ventures
7
(1)
—
2,186
2,192
Adjusted profit before tax
4,130
1,831
4,839
1,471
12,271
%
%
%
%
%
Share of HSBC’s adjusted profit before tax
33.7
14.9
39.4
12.0
100.0
Adjusted cost efficiency ratio
68.4
50.3
61.1
(149.5)
62.6
Adjusted balance sheet data
$m
$m
$m
$m
$m
Loans and advances to customers (net)
462,286
338,193
220,692
1,231
1,022,402
Interests in associates and joint ventures
444
13
141
26,472
27,070
Total external assets
869,924
562,125
1,319,389
187,189
2,938,627
Customer accounts
823,991
464,380
331,164
593
1,620,128
2019
Net operating income/(expense) before change in expected credit losses and other
credit impairment charges 1
26,140
15,594
15,282
(581)
56,435
– external
21,777
16,522
20,782
(2,646)
56,435
– inter-segment
4,363
(928)
(5,500)
2,065
—
– of which: net interest income/(expense)
17,820
11,242
5,309
(3,338)
31,033
Change in expected credit losses and other credit impairment (charges)/recoveries
(1,376)
(1,194)
(155)
38
(2,687)
Net operating income/(expense)
24,764
14,400
15,127
(543)
53,748
Total operating expenses
(15,823)
(7,028)
(9,891)
(821)
(33,563)
Operating profit/(loss)
8,941
7,372
5,236
(1,364)
20,185
Share of profit in associates and joint ventures
54
1
1
2,440
2,496
Adjusted profit before tax
8,995
7,373
5,237
1,076
22,681
%
%
%
%
%
Share of HSBC’s adjusted profit before tax
39.7
32.5
23.1
4.7
100.0
Adjusted cost efficiency ratio
60.5
45.1
64.7
(141.3)
59.5
Adjusted balance sheet data
$m
$m
$m
$m
$m
Loans and advances to customers (net)
448,880
348,716
248,062
1,141
1,046,799
Interests in associates and joint ventures
445
14
16
25,305
25,780
Total external assets
780,456
515,962
1,283,597
161,055
2,741,070
Customer accounts
758,414
392,133
298,618
760
1,449,925
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Notes on the financial statements
342
HSBC Holdings plc Annual Report and Accounts 2021
Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for
reporting the results or advancing the funds:
2021
2020
2019
$m
$m
$m
Reported external net operating income by country/territory 1
49,552
50,429
56,098
– UK
10,909
9,163
9,011
– Hong Kong
14,245
15,783
18,449
– US
3,795
4,474
4,471
– France
2,179
1,753
1,942
– other countries
18,424
19,256
22,225
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Adjusted results reconciliation
2021
2020
2019
Adjusted
Significant
items
Reported
Adjusted
Currency
translation
Significant
items
Reported
Adjusted
Currency
translation
Significant
items
Reported
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Revenue 1
50,090
(538)
49,552
51,770
(1,393)
52
50,429
56,435
(1,010)
673
56,098
ECL
928
—
928
(9,282)
465
—
(8,817)
(2,687)
(69)
—
(2,756)
Operating expenses
(32,148)
(2,472)
(34,620)
(32,409)
1,072
(3,095)
(34,432)
(33,563)
981
(9,767)
(42,349)
Share of profit in associates and joint
ventures
3,046
—
3,046
2,192
(133)
(462)
1,597
2,496
(142)
—
2,354
Profit/(loss) before tax
21,916
(3,010)
18,906
12,271
11
(3,505)
8,777
22,681
(240)
(9,094)
13,347
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Adjusted balance sheet reconciliation
2021
2020
2019
Reported and
adjusted
Adjusted
Currency
translation
Reported
Adjusted
Currency
translation
Reported
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net)
1,045,814
1,022,402
15,585
1,037,987
1,046,799
(10,056)
1,036,743
Interests in associates and joint ventures
29,609
27,070
(386)
26,684
25,780
(1,306)
24,474
Total external assets
2,957,939
2,938,627
45,537
2,984,164
2,741,070
(25,918)
2,715,152
Customer accounts
1,710,574
1,620,128
22,652
1,642,780
1,449,925
(10,810)
1,439,115
Adjusted profit reconciliation
2021
2020
2019
$m
$m
$m
Year ended 31 Dec
Adjusted profit before tax
21,916
12,271
22,681
Significant items
(3,010)
(3,505)
(9,094)
– customer redress programmes (revenue)
11
(21)
(163)
– disposals, acquisitions and investment in new businesses (revenue)
—
(10)
768
– fair value movements on financial instruments 1
(242)
264
84
– restructuring and other related costs (revenue)2
(307)
(170)
—
– costs of structural reform 3
—
—
(158)
– customer redress programmes (operating expenses)
(49)
54
(1,281)
– impairment of goodwill and other intangible assets
(587)
(1,090)
(7,349)
– past service costs of guaranteed minimum pension benefits equalisation
—
(17)
—
– restructuring and other related costs (operating expenses)4
(1,836)
(1,908)
(827)
– settlements and provisions in connection with legal and other regulatory matters
—
(12)
61
– impairment of goodwill (share of profit in associates and joint ventures)5
—
(462)
—
– currency translation on significant items
(133)
(229)
Currency translation
11
(240)
Reported profit before tax
18,906
8,777
13,347
1 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
2 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
3 Comprises costs associated with preparations for the UK’s exit from the European Union.
4 Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of
tangible assets of $197m in 2020.
5 During 2020, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in
2019. HSBC's post-tax share of the goodwill impairment was $462m.
HSBC Holdings plc Annual Report and Accounts 2021
343
11
Trading assets
2021
2020
$m
$m
Treasury and other eligible bills
23,110
24,035
Debt securities
89,944
102,846
Equity securities
109,614
77,643
Trading securities
222,668
204,524
Loans and advances to banks 1
7,767
8,242
Loans and advances to customers 1
18,407
19,224
Year ended 31 Dec
248,842
231,990
1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts.
12
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 inactive markets, HSBC sources alternative market information, with greater weight given to
information that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument
comparability, consistency of data sources, underlying data accuracy and timing of prices.
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.
The majority of financial instruments measured at fair value are in GBM. GBM’s fair value governance structure comprises its Finance
function, Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing
valuation and ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation
Committees, which consist of independent support functions. These committees are overseen by the Valuation Committee Review Group,
which considers all material subjective valuations.
Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific
instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which
are either based on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active
market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to HSBC’s
liabilities. The change in fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows: for each
security at each reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for
the same issuer. Then, using discounted cash flow, each security is valued using an appropriate market discount curve. The difference in
the valuations is attributable to the Group’s own credit spread. This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instruments are included within trading liabilities and are measured at fair value.
The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC, recorded in other comprehensive income, reverse
over the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.
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. These are financial instruments with quoted prices for identical instruments in
active markets that HSBC can access at the measurement date.
•Level 2 – valuation technique using observable inputs. These are 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. These are financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
Notes on the financial statements
344
HSBC Holdings plc Annual Report and Accounts 2021
Financial instruments carried at fair value and bases of valuation
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
Recurring fair value measurements at 31 Dec
Assets
Trading assets
180,423
65,757
2,662
248,842
167,980
61,511
2,499
231,990
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
17,937
17,629
14,238
49,804
19,711
14,365
11,477
45,553
Derivatives
2,783
191,621
2,478
196,882
2,602
302,454
2,670
307,726
Financial investments
247,745
97,838
3,389
348,972
303,654
94,746
3,654
402,054
Liabilities
Trading liabilities
63,437
20,682
785
84,904
53,290
21,814
162
75,266
Financial liabilities designated at fair value
1,379
136,243
7,880
145,502
1,267
150,866
5,306
157,439
Derivatives
1,686
186,290
3,088
191,064
1,788
297,025
4,188
303,001
Transfers between Level 1 and Level 2 fair values
Assets
Liabilities
Financial
investments
Trading
assets
Designated and otherwise
mandatorily measured at
fair value
Derivatives
Trading
liabilities
Designated
at fair value
Derivatives
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2021
Transfers from Level 1 to Level 2
8,477
6,553
1,277
103
181
—
212
Transfers from Level 2 to Level 1
6,007
4,132
768
—
638
—
—
At 31 Dec 2020
Transfers from Level 1 to Level 2
4,514
3,891
245
—
155
7,414
—
Transfers from Level 2 to Level 1
7,764
5,517
328
1
433
—
—
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.
Fair value adjustments
We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation
model that would otherwise be considered by a market participant. We classify fair value adjustments as either ‘risk-related’ or ‘model-
related’. The majority of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in the
recognition of profits or losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer
be required. Similarly, fair value adjustments will decrease when the related positions are unwound, but this may not result in profit or
loss.
Global Banking and Markets fair value adjustments
2021
2020
GBM
Corporate
Centre
GBM
Corporate
Centre
$m
$m
$m
$m
Type of adjustment
Risk-related
868
42
1,170
28
– bid-offer
412
—
514
—
– uncertainty
66
1
106
1
– credit valuation adjustment
228
35
445
27
– debt valuation adjustment
(92)
—
(120)
—
– funding fair value adjustment
254
6
204
—
– other
—
—
21
—
Model-related
57
—
74
—
– model limitation
57
—
70
—
– other
—
—
4
—
Inception profit (Day 1 P&L reserves)
106
—
104
—
At 31 Dec
1,031
42
1,348
28
We continue to observe losses on the disposals of certain uncollateralised over-the-counter (‘OTC’) derivatives as part of our
commitments to reduce RWAs in GBM, as set out in our business update in February 2020. Based on our analysis, these losses are not
considered to give rise to an adjustment within the IFRS 13 ‘Fair Value Measurement’ framework.
The reduction in fair value adjustments was driven by increased liquidity, lower volatility and an improved credit environment. Movement
in funding fair value adjustment included a change in measurement from Libor to a Libor replacement risk-free rate.
Bid-offer
IFRS 13 ‘Fair Value Measurement’ requires the use of the price within the bid-offer spread that is most representative of fair value.
Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be
incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or
unwinding the position.
HSBC Holdings plc Annual Report and Accounts 2021
345
Uncertainty
Certain model inputs may be less readily determinable from market data and/or the choice of model itself may be more subjective.
In these circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative
values for uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.
Credit and debt valuation adjustments
The credit valuation adjustment (‘CVA’) is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the
possibility that the counterparty may default and that HSBC may not receive the full market value of the transactions.
The debt valuation adjustment (‘DVA’) is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC
may default, and that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the
exception of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments
are not netted across Group entities.
HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC,
to HSBC’s expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default.
Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected
positive exposure of the counterparty to HSBC and multiplying the result by the loss expected in the event of default. Both calculations are
performed over the life of the potential exposure.
For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio,
to calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty
netting agreements and collateral agreements with the counterparty.
The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk is an adverse correlation between the counterparty’s
probability of default and the mark-to-market value of the underlying transaction. The risk can either be general, perhaps related to the
currency of the issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-specific
approach is applied to reflect this risk in the valuation.
Funding fair value adjustment
The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future funding
exposure of any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a
simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the
counterparty. The FFVA and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future
material market characteristics. In these circumstances, model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant
unobservable inputs. The accounting for inception profit adjustments is discussed in Note 1.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3
Assets
Liabilities
Financial
investments
Trading
assets
Designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss
Derivatives
Total
Trading
liabilities
Designated
at fair value
Derivatives
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Private equity including strategic
investments
544
2
13,732
—
14,278
9
—
—
9
Asset-backed securities
1,008
132
1
—
1,141
—
—
—
—
Structured notes
—
—
—
—
—
—
7,879
—
7,879
Derivatives with monolines
—
—
—
—
—
—
—
—
—
Other derivatives
—
—
—
2,478
2,478
—
—
3,088
3,088
Other portfolios
1,837
2,528
505
—
4,870
776
1
—
777
At 31 Dec 2021
3,389
2,662
14,238
2,478
22,767
785
7,880
3,088
11,753
Private equity including strategic
investments
930
4
10,971
—
11,905
4
—
—
4
Asset-backed securities
1,286
523
25
—
1,834
—
—
—
—
Structured notes
—
—
—
—
—
29
5,301
—
5,330
Derivatives with monolines
—
—
—
68
68
—
—
—
—
Other derivatives
—
—
—
2,602
2,602
—
—
4,187
4,187
Other portfolios
1,438
1,972
481
—
3,891
129
5
1
135
At 31 Dec 2020
3,654
2,499
11,477
2,670
20,300
162
5,306
4,188
9,656
Notes on the financial statements
346
HSBC Holdings plc Annual Report and Accounts 2021
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain
‘other derivatives’ and predominantly all Level 3 asset-backed securities are legacy positions. HSBC has the capability to hold these
positions.
Private equity including strategic investments
The fair value of a private equity investment (including strategic investments) is estimated on the basis of an analysis of the investee’s
financial position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an
active market; the price at which similar companies have changed ownership; or from published net asset values (‘NAV’) received. If
necessary, adjustments are made to the NAV of funds to obtain the best estimate of fair value.
Asset-backed securities
While quoted market prices are generally used to determine the fair value of the asset-backed securities (‘ABSs’), valuation models are
used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices
are required. For certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with
assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The
valuations output is benchmarked for consistency against observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded
derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked
notes issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and other portfolios.
Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and
foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no arbitrage’ principles. For many
vanilla derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there
may be some differences in market practice. Inputs to valuation models are determined from observable market data wherever possible,
including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the
market directly, but can be determined from observable prices via model calibration procedures or estimated from historical data or other
sources.
Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
Movement in Level 3 financial instruments
Assets
Liabilities
Financial
investments
Trading
assets
Designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss
Derivatives
Trading
liabilities
Designated
at fair value
Derivatives
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2021
3,654
2,499
11,477
2,670
162
5,306
4,188
Total gains/(losses) recognised in profit or loss
(10)
(378)
1,753
2,237
16
(836)
2,583
– net income/(losses) from financial instruments held for
trading or managed on a fair value basis
—
(378)
—
2,237
16
—
2,583
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss
—
—
1,753
—
—
(836)
—
– gains less losses from financial investments at fair value
through other comprehensive income
(10)
—
—
—
—
—
—
Total gains/(losses) recognised in other comprehensive
income (‘OCI’)1
(521)
(18)
(285)
(27)
(8)
(61)
(26)
– financial investments: fair value gains
(428)
—
—
—
—
—
—
– exchange differences
(93)
(18)
(285)
(27)
(8)
(61)
(26)
Purchases
1,025
1,988
3,692
—
1,014
1
—
New issuances
—
—
—
—
35
5,969
—
Sales
(580)
(473)
(1,216)
—
(4)
(27)
—
Settlements
(336)
(747)
(1,049)
(2,347)
(681)
(2,922)
(3,962)
Transfers out
(383)
(1,027)
(184)
(418)
(7)
(704)
(734)
Transfers in
540
818
50
363
258
1,154
1,039
At 31 Dec 2021
3,389
2,662
14,238
2,478
785
7,880
3,088
Unrealised gains/(losses) recognised in profit or loss relating
to assets and liabilities held at 31 Dec 2020
—
(309)
1,509
1,298
—
166
(969)
– net income/(losses) from financial instruments held for
trading or managed on a fair value basis
—
(309)
—
1,298
—
—
(969)
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss
—
—
1,509
—
—
166
—
HSBC Holdings plc Annual Report and Accounts 2021
347
Movement in Level 3 financial instruments (continued)
Assets
Liabilities
Financial
investments
Trading assets
Designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss
Derivatives
Trading
liabilities
Designated at
fair value
Derivatives
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2020
3,218
4,979
9,476
2,136
53
5,016
2,302
Total gains/(losses) recognised in profit or loss
17
(6)
504
2,281
307
(59)
3,398
– net income/(losses) from financial instruments held for
trading or managed on a fair value basis
—
(6)
—
2,281
307
—
3,398
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss
—
—
504
—
—
(59)
—
– gains less losses from financial investments at fair value
through other comprehensive income
17
—
—
—
—
—
—
Total gains/(losses) recognised in other comprehensive
income (‘OCI’)1
394
115
286
143
17
204
169
– financial investments: fair value gains
270
—
—
—
—
—
—
– exchange differences
124
115
286
143
17
204
169
Purchases
671
687
3,701
—
66
—
—
New issuances
—
—
1
—
6
1,876
—
Sales
(674)
(1,579)
(2,042)
—
(260)
—
—
Settlements
(530)
(1,122)
(435)
(1,542)
(26)
(1,531)
(1,462)
Transfers out
(101)
(1,790)
(140)
(565)
(9)
(777)
(528)
Transfers in
659
1,215
126
217
8
577
309
At 31 Dec 2020
3,654
2,499
11,477
2,670
162
5,306
4,188
Unrealised gains/(losses) recognised in profit or loss relating
to assets and liabilities held at 31 Dec 2020
—
(32)
412
707
1
(91)
(1,621)
– net income/(losses) from financial instruments held for
trading or managed on a fair value basis
—
(32)
—
707
1
—
(1,621)
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss
—
—
412
—
—
(91)
—
1 Included in ‘financial investments: fair value gains/(losses)’ in the current year and ‘exchange differences’ in the consolidated statement of
comprehensive income.
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and
out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Sensitivity of fair values to reasonably possible alternative assumptions
2021
2020
Reflected in profit or loss
Reflected in OCI
Reflected in profit or loss
Reflected in OCI
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
$m
$m
$m
$m
$m
$m
$m
$m
Derivatives, trading assets and trading
liabilities 1
143
(146)
—
—
229
(244)
—
—
Financial assets and liabilities designated and
otherwise mandatorily measured at fair value
through profit or loss
849
(868)
—
—
644
(643)
—
—
Financial investments
20
(20)
113
(112)
35
(35)
110
(110)
At 31 Dec
1,012
(1,034)
113
(112)
908
(922)
110
(110)
1‘Derivatives, trading assets and trading liabilities’ are presented as one category to reflect the manner in which these instruments are risk-
managed.
T he sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies
take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical
data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most
favourable or the most unfavourable change from varying the assumptions individually.
Notes on the financial statements
348
HSBC Holdings plc Annual Report and Accounts 2021
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 31 December
2021.
Quantitative information about significant unobservable inputs in Level 3 valuations
Fair value
2021
2020
Assets
Liabilities
Valuation
techniques
Key unobservable
inputs
Full range
of inputs
Full range
of inputs
$m
$m
Lower
Higher
Lower
Higher
Private equity including strategic
investments
14,278
9
See below
See below
Asset-backed securities
1,141
—
– collateralised loan/debt obligation
20
—
Market proxy
Prepayment rate
—
—
0%
9%
Market proxy
Bid quotes
0
100
0
100
– other ABSs
1,121
—
Market proxy
Bid quotes
0
100
0
101
Structured notes
—
7,879
– equity-linked notes
—
6,565
Model – Option model
Equity volatility
6%
124%
6%
115%
Model – Option model
Equity correlation
22%
99%
(4)%
88%
– FX-linked notes
—
629
Model – Option model
FX volatility
1%
99%
0%
36%
– other
—
685
Derivatives with monolines
—
—
Model – Discounted cash flow
Credit spread
—
—
2%
2%
Other derivatives
2,478
3,088
– interest rate derivatives
797
990
securitisation swaps
284
595
Model – Discounted cash flow
Prepayment rate
5%
10%
6%
6%
long-dated swaptions
36
73
Model – Option model
IR volatility
15%
35%
6%
28%
other
477
322
– FX derivatives
379
403
FX options
212
270
Model – Option model
FX volatility
1%
99%
0%
43%
other
167
133
– equity derivatives
1,143
1,513
long-dated single stock options
590
895
Model – Option model
Equity volatility
4%
138%
0%
120%
other
553
618
– credit derivatives
159
182
other
159
182
Other portfolios
4,870
777
– repurchase agreements
778
—
Model – Discounted cash flow
IR curve
1%
5%
0%
5%
– other 1
4,092
777
At 31 Dec 2021
22,767
11,753
1‘Other’ includes a range of smaller asset holdings.
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key unobservable
inputs. The key unobservable inputs would be price and correlation. The valuation approach includes using a range of inputs that include
company specific financials, traded comparable companies multiples, published net asset values and qualitative assumptions, which are
not directly comparable or quantifiable.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They
vary according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of
evidence, such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and
macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments
with common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider
range of instruments will be used to understand the factors that influence current market pricing and the manner of that influence.
Volatility
Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike
and maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from
observable data. The range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core
range is significantly narrower than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC
portfolio.
Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one. It
is used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of
instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations
is used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices,
proxy correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the
wide variation in correlation inputs by market price pair.
HSBC Holdings plc Annual Report and Accounts 2021
349
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash
flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit
spreads may be implied from market prices and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of
each variable.
HSBC Holdings
Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
2021
2020
$m
$m
Valuation technique using observable inputs: Level 2
Assets at 31 Dec
– derivatives
2,811
4,698
– designated and otherwise mandatorily measured at fair value through profit or loss
51,408
65,253
Liabilities at 31 Dec
– designated at fair value
32,418
25,664
– derivatives
1,220
3,060
13
Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases of valuation
Fair value
Carrying
amount
Quoted market
price Level 1
Observable
inputs Level 2
Significant
unobservable
inputs Level 3
Total
$m
$m
$m
$m
$m
At 31 Dec 2021
Assets
Loans and advances to banks
83,136
—
82,220
1,073
83,293
Loans and advances to customers
1,045,814
—
10,287
1,034,288
1,044,575
Reverse repurchase agreements – non-trading
241,648
—
241,531
121
241,652
Financial investments – at amortised cost
97,302
38,722
63,022
523
102,267
Liabilities
Deposits by banks
101,152
—
101,149
—
101,149
Customer accounts
1,710,574
—
1,710,733
—
1,710,733
Repurchase agreements – non-trading
126,670
—
126,670
—
126,670
Debt securities in issue
78,557
—
78,754
489
79,243
Subordinated liabilities
20,487
—
26,206
—
26,206
At 31 Dec 2020
Assets
Loans and advances to banks
81,616
—
80,457
1,339
81,796
Loans and advances to customers
1,037,987
—
9,888
1,025,573
1,035,461
Reverse repurchase agreements – non-trading
230,628
—
230,330
272
230,602
Financial investments – at amortised cost
88,639
28,722
67,572
507
96,801
Liabilities
Deposits by banks
82,080
—
81,996
—
81,996
Customer accounts
1,642,780
—
1,642,988
143
1,643,131
Repurchase agreements – non-trading
111,901
3
111,898
—
111,901
Debt securities in issue
95,492
—
96,371
657
97,028
Subordinated liabilities
21,951
—
28,552
—
28,552
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, items in
the course of collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong
currency notes in circulation, 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 HSBC expects to flow from an
instrument’s cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no
observable market prices are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of
similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are
estimated using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from
third-party brokers reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected
Notes on the financial statements
350
HSBC Holdings plc Annual Report and Accounts 2021
customer prepayment rates, using assumptions that HSBC believes are consistent with those that would be used by market participants
in valuing such loans; new business rates estimates for similar loans; and trading inputs from other market participants including
observed primary and secondary trades. From time to time, we may engage a third-party valuation specialist to measure the fair value of a
pool of loans.
The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants’ expectations of
credit losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit-
impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are
determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are
estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values in debt securities in issue and subordinated liabilities are determined using quoted market prices at the balance sheet date
where available, or by reference to quoted market prices for similar instruments.
Repurchase and reverse repurchase agreements – non-trading
Fair values of repurchase and reverse repurchase agreements that are held on a non-trading basis provide approximate carrying amounts.
This is due to the fact that balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purposes of measurement and disclosure
are described above.
Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
2021
2020
Carrying amount
Fair value 1
Carrying amount
Fair value 1
$m
$m
$m
$m
Assets at 31 Dec
Loans and advances to HSBC undertakings
25,108
25,671
10,443
10,702
Financial investments – at amortised cost
26,194
26,176
17,485
17,521
Liabilities at 31 Dec
Amounts owed to HSBC undertakings
111
111
330
330
Debt securities in issue
67,483
69,719
64,029
67,706
Subordinated liabilities
17,059
21,066
17,916
22,431
1 Fair values (other than Level 1 financial investments) were determined using valuation techniques with observable inputs (Level 2).
14
Financial assets designated and otherwise mandatorily measured at fair value through profit
or loss
2021
2020
Designated at
fair value
Mandatorily
measured at fair
value
Total
Designated at fair
value
Mandatorily
measured at fair
value
Total
$m
$m
$m
$m
$m
$m
Securities
2,251
42,062
44,313
2,492
39,088
41,580
– treasury and other eligible bills
599
31
630
635
26
661
– debt securities
1,652
5,177
6,829
1,857
5,250
7,107
– equity securities
—
36,854
36,854
—
33,812
33,812
Loans and advances to banks and customers
—
4,307
4,307
—
2,988
2,988
Other
—
1,184
1,184
—
985
985
At 31 Dec
2,251
47,553
49,804
2,492
43,061
45,553
HSBC Holdings plc Annual Report and Accounts 2021
351
15
Derivatives
Notional contract amounts and fair values of derivatives by product contract type held by HSBC
Notional contract amount
Fair value – Assets
Fair value – Liabilities
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange
7,723,034
43,839
79,801
1,062
80,863
77,670
207
77,877
Interest rate
14,470,539
162,921
151,631
1,749
153,380
146,808
966
147,774
Equities
659,142
—
12,637
—
12,637
14,379
—
14,379
Credit
190,724
—
2,175
—
2,175
3,151
—
3,151
Commodity and other
74,159
—
1,205
—
1,205
1,261
—
1,261
Gross total fair values
23,117,598
206,760
247,449
2,811
250,260
243,269
1,173
244,442
Offset (Note 30)
(53,378)
(53,378)
At 31 Dec 2021
23,117,598
206,760
247,449
2,811
196,882
243,269
1,173
191,064
Foreign exchange
7,606,446
35,021
106,696
309
107,005
108,903
1,182
110,085
Interest rate
15,240,867
157,436
249,204
1,914
251,118
236,594
2,887
239,481
Equities
652,288
—
14,043
—
14,043
15,766
—
15,766
Credit
269,401
—
2,590
—
2,590
3,682
—
3,682
Commodity and other
120,259
—
2,073
—
2,073
3,090
—
3,090
Gross total fair values
23,889,261
192,457
374,606
2,223
376,829
368,035
4,069
372,104
Offset (Note 30)
(69,103)
(69,103)
At 31 Dec 2020
23,889,261
192,457
374,606
2,223
307,726
368,035
4,069
303,001
The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships
indicate the nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.
Derivative assets and liabilities decreased during 2021, driven by yield curve movements and changes in foreign exchange rates.
Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Notional contract amount
Assets
Liabilities
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange
36,703
—
384
—
384
377
—
377
Interest rate
35,970
45,358
712
1,715
2,427
769
74
843
At 31 Dec 2021
72,673
45,358
1,096
1,715
2,811
1,146
74
1,220
Foreign exchange
23,413
—
506
—
506
870
—
870
Interest rate
47,569
34,006
966
3,221
4,187
2,176
8
2,184
At 31 Dec 2020
70,982
34,006
1,472
3,221
4,693
3,046
8
3,054
Use of derivatives
For details regarding the use of derivatives, see page 207 under ‘Market risk’.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of
derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include
market-making and risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of
generating revenue based on spread and volume. Risk management activity is undertaken to manage the risk arising from client
transactions, with the principal purpose of retaining client margin. Other derivatives classified as held for trading include non-qualifying
hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities
designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation
techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as shown in the following
table:
Unamortised balance of derivatives valued using models with significant unobservable inputs
2021
2020
$m
$m
Unamortised balance at 1 Jan
104
73
Deferral on new transactions
311
232
Recognised in the income statement during the year:
(308)
(205)
– amortisation
(177)
(116)
– subsequent to unobservable inputs becoming observable
(4)
(4)
– maturity, termination or offsetting derivative
(127)
(85)
Exchange differences
(1)
4
Other
—
—
Unamortised balance at 31 Dec 1
106
104
1 This amount is yet to be recognised in the consolidated income statement.
Notes on the financial statements
352
HSBC Holdings plc Annual Report and Accounts 2021
Hedge accounting derivatives
HSBC applies hedge accounting to manage the following risks: interest rate 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’.
Fair value hedges
HSBC enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value caused by movements in market
interest rates on certain fixed-rate financial instruments that are not measured at fair value through profit or loss, including debt securities
held and issued.
HSBC hedging instrument by hedged risk
Hedging instrument
Carrying amount
Notional amount 1
Assets
Liabilities
Balance sheet
presentation
Change in fair value 2
Hedged risk
$m
$m
$m
$m
Interest rate 3
90,556
1,637
1,410
Derivatives
1,330
At 31 Dec 2021
90,556
1,637
1,410
1,330
Interest rate 3
121,573
1,675
3,761
Derivatives
(1,894)
At 31 Dec 2020
121,573
1,675
3,761
(1,894)
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, which uses the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk ‘interest rate’ includes inflation risk.
HSBC hedged item by hedged risk
Hedged item
Ineffectiveness
Carrying amount
Accumulated fair value hedge adjustments included in
carrying amount 2
Change in fair
value 1
Recognised
in profit and
loss
Assets
Liabilities
Assets
Liabilities
Balance sheet presentation
Profit and loss
presentation
Hedged risk
$m
$m
$m
$m
$m
$m
Interest rate 3
68,059
1,199
Financial assets designated
and otherwise mandatorily
measured at fair value
through other
comprehensive income
(1,932)
(36)
Net income from
financial instruments
held for trading or
managed on a fair
value basis
2
(3)
Loans and advances to
banks
(3)
3,066
9
Loans and advances to
customers
(41)
14,428
992
Debt securities in issue
609
86
1
Deposits by banks
1
At 31 Dec 2021
71,127
14,514
1,205
993
(1,366)
(36)
Interest rate 3
102,260
3,392
Financial assets designated and
otherwise mandatorily
measured at fair value through
other comprehensive income
2,456
(11)
Net income from
financial instruments
held for trading or
managed on a fair
value basis
6
3
Loans and advances to banks
1
2,280
56
Loans and advances to
customers
21
12,148
1,620
Debt securities in issue
(613)
89
3
Deposits by banks
18
At 31 Dec 2020
104,546
12,237
3,451
1,623
1,883
(11)
1 Used in effectiveness testing, which comprise an 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 of $1,061m for FVOCI assets and assets of $15m for debt issued.
3 The hedged risk ‘interest rate’ includes inflation risk.
HSBC Holdings plc Annual Report and Accounts 2021
353
HSBC Holdings hedging instrument by hedged risk
Hedging instrument
Carrying amount
Notional amount 1,4
Assets
Liabilities
Balance sheet
presentation
Change in fair value 2
Hedged risk
$m
$m
$m
$m
Interest rate 3
45,358
1,715
74
Derivatives
(1,515)
At 31 Dec 2021
45,358
1,715
74
(1,515)
Interest rate 3
34,006
3,221
8
Derivatives
1,927
At 31 Dec 2020
34,006
3,221
8
1,927
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 foreign exchange risk.
4 The notional amount of non-dynamic fair value hedges is equal to $45,358m, of which the weighted-average maturity date is January 2028 and the
weighted-average swap rate is 1.30%. The majority of these hedges are internal to the Group.
HSBC Holdings hedged item by hedged risk
Hedged item
Ineffectiveness
Carrying amount
Accumulated fair value
hedge adjustments included
in carrying amount 2
Change in fair
value 1
Recognised in
profit and loss
Assets
Liabilities
Assets
Liabilities
Balance sheet
presentation
Profit and loss
presentation
Hedged risk
$m
$m
$m
$m
$m
$m
Interest rate 3
39,154
1,408
Debt
securities
in issue
1,599
(21)
Net income from
financial instruments
held for trading or
managed on a fair
value basis
7,863
(104)
Loans and
Advances to
banks
(104)
At 31 Dec 2021
7,863
39,154
(104)
1,408
1,495
(21)
Interest rate 3
37,338
3,027
Debt securities
in issue
(1,910)
17
Net income from financial
instruments held for
trading or managed on a
fair value basis
Loans and
Advances to
banks
At 31 Dec 2020
—
37,338
—
3,027
(1,910)
17
1 Used in effectiveness testing; 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 liabilities of $54.4m for debt issued.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.
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.
For some debt securities held, HSBC manages interest rate risk in a dynamic risk management strategy. The assets in scope of this
strategy are high-quality fixed-rate debt securities, which may be sold to meet liquidity and funding requirements.
The interest rate risk of the HSBC fixed-rate debt securities issued is managed in a non-dynamic risk management strategy.
Cash flow hedges
HSBC’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.
HSBC 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.
HSBC 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, which are considered dynamic hedges.
Notes on the financial statements
354
HSBC Holdings plc Annual Report and Accounts 2021
Hedging instrument by hedged risk
Hedging instrument
Hedged item
Ineffectiveness
Carrying amount
Change in fair
value 2
Change in fair
value 3
Recognised in
profit and loss
Profit and loss
presentation
Notional
amount 1
Assets
Liabilities
Balance sheet
presentation
Hedged risk
$m
$m
$m
$m
$m
$m
Foreign currency
17,930
827
207
Derivatives
987
987
—
Net income from
financial instruments
held for trading or
managed on a fair
value basis
Interest rate
72,365
112
217
Derivatives
(519)
(500)
(19)
At 31 Dec 2021
90,295
939
424
468
487
(19)
Foreign currency
24,506
309
448
Derivatives
(630)
(630)
—
Net income from
financial instruments
held for trading or
managed on a fair
value basis
Interest rate
35,863
239
2
Derivatives
519
514
5
At 31 Dec 2020
60,369
548
450
(111)
(116)
5
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.
Reconciliation of equity and analysis of other comprehensive income by risk type
Interest rate
Foreign currency
$m
$m
Cash flow hedging reserve at 1 Jan 2021
495
(37)
Fair value gains/(losses)
(500)
987
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
(217)
(1,177)
Income taxes
185
25
Others
45
(3)
Cash flow hedging reserve at 31 Dec 2021
8
(205)
Cash flow hedging reserve at 1 Jan 2020
204
(205)
Fair value gains/(losses)
514
(630)
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
(107)
822
Income taxes
(79)
(23)
Others
(37)
(1)
Cash flow hedging reserve at 31 Dec 2020
495
(37)
Net investment hedges
The Group applies hedge accounting in respect of certain net investments in non-US dollar functional currency foreign operations for
changes in spot exchange rates only. Hedging could be undertaken for Group structural exposure to changes in the US dollar to foreign
currency exchange rates using forward foreign exchange contracts or by financing with foreign currency borrowings. The aggregate
positions at the reporting date and the performance indicators of both live and de-designated hedges are summarised below. There were
no amounts reclassified to the profit and loss account during the accounting periods presented.
Hedges of net investment in foreign operations
Carrying value
Nominal
amount
Amounts
recognised in OCI
Hedge ineffectiveness
recognised in income
statement
Derivative
assets
Derivative
liabilities
Description of hedged risk
$m
$m
$m
$m
$m
2021
Pound sterling-denominated structural foreign exchange
229
—
15,717
(126)
—
Swiss franc-denominated structural foreign exchange
—
(8)
809
101
—
Hong Kong dollar-denominated structural foreign exchange
7
—
4,992
5
—
Other structural foreign exchange 1
7
—
4,387
6
—
Total
243
(8)
25,905
(14)
—
2020
Pound sterling-denominated structural foreign exchange
—
733
10,500
(167)
—
Swiss franc-denominated structural foreign exchange
—
—
—
111
—
Hong Kong dollar-denominated structural foreign exchange
—
—
—
—
—
Other structural foreign exchange 1
—
—
—
—
—
Total
—
733
10,500
(56)
—
1 Other currencies include New Taiwan dollar, Singapore dollar, Canadian dollar, Omani rial, South Korean won and United Arab Emirates dirham.
HSBC Holdings plc Annual Report and Accounts 2021
355
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 ‘Financial Instruments’
HSBC has applied both the first set of amendments (‘Phase 1’) and the second set of amendments (‘Phase 2’) to IFRS 9 and IAS 39
applicable to hedge accounting. The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented
in the balance sheet as ‘Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive
income’, ‘Loans and advances to customers’, ‘Debt securities in issue’ and ‘Deposits by banks’. The notional value of the derivatives
impacted by the Ibor reform, including those designated in hedge accounting relationships, is disclosed on page 127 in the section
‘Financial instruments impacted by the Ibor reform’. For further details on Ibor transition, see 'Top and emerging risks' on page 126.
During 2021, the Group transitioned all of its hedging instruments referencing sterling Libor, European Overnight Index Average rate
(‘Eonia’) and Japanese yen Libor. The Group also transitioned some of the hedging instruments referencing US dollar Libor. There is no
significant judgement applied for these benchmarks to determine whether and when the transition uncertainty has been resolved.
The most significant Ibor benchmark in which the Group continues to have hedging instruments is US dollar Libor. It is expected that the
transition out of US dollar Libor hedging derivatives will be largely completed by the end of 2022. These transitions do not necessitate
new approaches compared with any of the mechanisms used so far for transition and it will not be necessary to change the transition risk
management strategy.
For some of the Ibors included under the ‘Other’ header in the table below, judgement has been needed to establish whether a transition
is required, since there are Ibor benchmarks that are subject to computation methodology improvements and insertion of fallback
provisions without full clarity being provided by their administrators on whether these Ibor benchmarks will be demised.
The notional amounts of interest rate derivatives designated in hedge accounting relationships do not represent the extent of the risk
exposure managed by the Group but they are expected to be directly affected by market-wide Ibor reform and in scope of Phase 1
amendments and are shown in the table below. The cross-currency swaps designated in hedge accounting relationships and affected by
Ibor reform are not significant and have not been presented below.
Hedging instrument impacted by Ibor reform
Hedging instrument
Impacted by Ibor reform
Not impacted
by Ibor reform
Notional
amount 1
€2
£
$
Other 3
Total
$m
$m
$m
$m
$m
$m
$m
Fair value hedges
6,178
—
18,525
6,615
31,318
59,238
90,556
Cash flow hedges
7,954
—
100
8,632
16,686
55,679
72,365
At 31 Dec 2021
14,132
—
18,625
15,247
48,004
114,917
162,921
Fair value hedges
17,792
3,706
32,789
10,128
64,415
57,157
121,572
Cash flow hedges
8,344
2,522
8,705
6,797
26,368
9,495
35,863
At 31 Dec 2020
26,136
6,228
41,494
16,925
90,783
66,652
157,435
1 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of
transactions outstanding at the balance sheet date and they do not represent amounts at risk.
2 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which
are ‘Fair value hedges’ of $6,178m (31 December 2020: $6,000m) and ‘Cash flow hedges’ of $7,954m (31 December 2020: $8,344m).
3 Other benchmarks impacted by Ibor reform comprise mainly of Canadian dollar offered rate (‘CDOR’), Hong Kong interbank offered rate (‘HIBOR’)
and Mexican interbank equilibrium interest rate (‘TIIE’) related derivatives.
Hedging instrument impacted by Ibor reform held by HSBC Holdings
Hedging instrument
Impacted by Ibor reform
Not impacted
by Ibor reform
Notional
amount
€
£
$
Other
Total
$m
$m
$m
$m
$m
$m
$m
Fair value hedges
9,944
—
20,035
1,458
31,437
13,921
45,358
At 31 Dec 2021
9,944
—
20,035
1,458
31,437
13,921
45,358
Fair value hedges
4,290
5,393
21,081
3,242
34,006
—
34,006
At 31 Dec 2020
4,290
5,393
21,081
3,242
34,006
—
34,006
16
Financial investments
Carrying amount of financial investments
2021
2020
$m
$m
Financial investments measured at fair value through other comprehensive income
348,972
402,054
– treasury and other eligible bills
100,158
118,163
– debt securities
246,998
281,467
– equity securities
1,770
2,337
– other instruments
46
87
Debt instruments measured at amortised cost
97,302
88,639
– treasury and other eligible bills
21,634
11,757
– debt securities
75,668
76,882
At 31 Dec
446,274
490,693
Notes on the financial statements
356
HSBC Holdings plc Annual Report and Accounts 2021
Equity instruments measured at fair value through other comprehensive income
Fair value
Dividends
recognised
Type of equity instruments
$m
$m
Investments required by central institutions
766
17
Business facilitation
954
24
Others
50
3
At 31 Dec 2021
1,770
44
Investments required by central institutions
904
22
Business facilitation
1,387
22
Others
46
3
At 31 Dec 2020
2,337
47
Weighted average yields of investment debt securities
Up to 1
year
1 to 5
years
5 to 10
years
Over 10
years
Yield
Yield
Yield
Yield
%
%
%
%
Debt securities measured at fair value through other comprehensive income
US Treasury
1.2
1.5
1.3
2.1
US Government agencies
0.2
1.2
2.8
1.9
US Government-sponsored agencies
1.0
1.6
2.3
1.6
UK Government
2.5
0.5
0.7
2.6
Hong Kong Government
0.4
0.9
2.2
—
Other governments
2.0
2.5
2.2
3.7
Asset-backed securities
9.3
0.7
1.1
0.5
Corporate debt and other securities
2.3
1.3
2.4
3.1
Debt securities measured at amortised cost
US Treasury
0.7
1.3
5.9
2.9
US Government agencies
3.8
8.2
5.4
2.5
US Government-sponsored agencies
2.7
2.8
2.3
3.3
Hong Kong Government
2.0
3.8
2.1
4.8
Other governments
3.0
3.9
3.3
3.9
Asset-backed securities
—
—
—
7.5
Corporate debt and other securities
3.4
3.3
3.7
3.3
The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield
for each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2021 by the book
amount of debt securities at that date. The yields do not include the effect of related derivatives.
HSBC Holdings
HSBC Holdings carrying amount of financial investments
2021
2020
$m
$m
Debt instruments measured at amortised cost
– treasury and other eligible bills
19,508
10,941
– debt securities
6,686
6,544
At 31 Dec
26,194
17,485
Weighted average yields of investment debt securities
Up to 1
year
1 to 5
years
5 to 10
years
Over 10
years
Yield
Yield
Yield
Yield
%
%
%
%
Debt securities measured at amortised cost
US Treasury
0.3
0.3
—
—
The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended
31 December 2021 by the book amount of debt securities at that date. The yields do not include the effect of related derivatives.
HSBC Holdings plc Annual Report and Accounts 2021
357
17
Assets pledged, collateral received and assets transferred
Assets pledged
Financial assets pledged as collateral
2021
2020
$m
$m
Treasury bills and other eligible securities
9,613
12,774
Loans and advances to banks
412
236
Loans and advances to customers
55,370
43,168
Debt securities
66,629
67,312
Equity securities
34,472
26,101
Other
45,396
60,810
Assets pledged at 31 Dec
211,892
210,401
Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 79 of the Pillar 3 Disclosures at 31 December 2021.
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the
case of securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value
of the pool of assets available for use as collateral. This is also the case 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 for collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash
collateral in relation to derivative transactions.
Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Hong Kong Government certificates
of indebtedness are held.
Financial assets pledged as collateral which the counterparty has the right to sell or repledge
2021
2020
$m
$m
Trading assets
69,719
64,225
Financial investments
12,416
16,915
At 31 Dec
82,135
81,140
Collateral received
The fair value of assets accepted as collateral relating primarily to standard securities lending, reverse repurchase agreements, swaps of
securities and derivative margining that HSBC is permitted to sell or repledge in the absence of default was $476,455 m
(2020: $447,101 m). The fair value of any such collateral sold or repledged was $271,582 m (2020: $246,520 m).
HSBC 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.
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 equity securities lent under securities lending
agreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be
recognised in full while 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 the transaction, and remains exposed to interest rate risk and credit risk on these pledged assets.
With the exception of ‘Other sales’ in the following table, the counterparty’s recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
Carrying amount of:
Fair value of:
Transferred
assets
Associated
liabilities
Transferred
assets
Associated
liabilities
Net
position
$m
$m
$m
$m
$m
At 31 Dec 2021
Repurchase agreements
51,135
48,180
Securities lending agreements
43,644
2,918
Other sales (recourse to transferred assets only)
3,826
3,826
3,830
3,842
(12)
At 31 Dec 2020
Repurchase agreements
52,413
51,092
Securities lending agreements
38,364
124
Other sales (recourse to transferred assets only)
3,564
3,478
3,619
3,564
55
Notes on the financial statements
358
HSBC Holdings plc Annual Report and Accounts 2021
18
Interests in associates and joint ventures
Carrying amount of HSBC’s interests in associates and joint ventures
2021
2020
$m
$m
Interests in associates
29,515
26,594
Interests in joint ventures
94
90
Interests in associates and joint ventures
29,609
26,684
Principal associates of HSBC
2021
2020
Carrying amount
Fair value 1
Carrying amount
Fair value 1
$m
$m
$m
$m
Bank of Communications Co., Limited
23,616
8,537
21,248
7,457
The Saudi British Bank
4,426
5,599
4,215
4,197
1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in
the fair value hierarchy).
At 31 Dec 2021
Country of incorporation
and principal place of
business
Principal
activity
HSBC’s
interest
%
Bank of Communications Co., Limited
People’s Republic of
China
Banking services
19.03
The Saudi British Bank
Saudi Arabia
Banking services
31.00
A list of all associates and joint ventures is set out in Note 38.
Bank of Communications Co., Limited
The Group’s investment in Bank of Communications Co., Limited (‘BoCom’) is classified as an associate. Significant influence in BoCom
was established with consideration of all relevant factors, including representation on BoCom’s Board of Directors and participation in a
resource and experience sharing agreement (‘RES’). Under the RES, HSBC staff have been seconded to assist in the maintenance of
BoCom’s financial and operating policies. Investments in associates are recognised using the equity method of accounting in accordance
with IAS 28, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s
share of BoCom’s net assets. An impairment test is required if there is any indication of impairment.
Impairment testing
At 31 December 2021, the fair value of the Group’s investment in BoCom had been below the carrying amount for approximately 10
years. As a result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at
31 December 2021 as the recoverable amount as determined by a value-in-use (‘VIU’) calculation was higher than the carrying value.
At 31 Dec 2021
At 31 Dec 2020
VIU
Carrying value
Fair value
VIU
Carrying value
Fair value
$bn
$bn
$bn
$bn
$bn
$bn
BoCom
24.8
23.6
8.5
21.8
21.2
7.5
Compared with 31 December 2020, the extent to which the VIU exceeds the carrying value (‘headroom’) increased by $0.6bn. The
increase in headroom was principally due to the impact on the VIU from BoCom's actual performance, which was better than earlier
estimates, revisions to management's best estimates of BoCom's future earnings in the short to medium term, and the net impact of
revisions to certain long-term assumptions.
In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are
described below and are based on factors observed at period-end. The factors that could result in a change in the VIU and an impairment
include a short-term underperformance by BoCom, a change in regulatory capital requirements or an increase in uncertainty regarding the
future performance of BoCom resulting in a downgrade of the forecast of future asset growth or profitability. An increase in the discount
rate could also result in a reduction of VIU and an impairment. At the point where the carrying value exceeds the VIU, impairment would
be recognised.
If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying
value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available to
ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best estimate.
There are two main components to the VIU calculation. The first component is management’s best estimate of BoCom’s earnings, which
is based on explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than recent historical
actual growth and also reflects the uncertainty arising from the current economic outlook. Reflecting management's intent to continue to
retain its investment, earnings beyond the short to medium term are then extrapolated into perpetuity using a long-term growth rate to
derive a terminal value, which comprises the majority of the VIU. The second component is the capital maintenance charge (‘CMC’),
which is management’s forecast of the earnings that need to be withheld in order for BoCom to meet capital requirements over the
forecast period, meaning that CMC is deducted when arriving at management’s estimate of future earnings available to ordinary
shareholders. The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total
assets and the expected capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU.
Additionally, management considers other qualitative factors, to ensure that the inputs to the VIU calculation remain appropriate.
HSBC Holdings plc Annual Report and Accounts 2021
359
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
•Long-term profit growth rate: 3% (2020: 3%) for periods after 2025, which does not exceed forecast GDP growth in mainland China
and is consistent with forecasts by external analysts.
•Long-term asset growth rate: 3% (2020: 3%) for periods after 2025, which is the rate that assets are expected to grow to achieve long-
term profit growth of 3%.
•Discount rate: 10.03% (2020: 11.37%) based on a capital asset pricing model (‘CAPM’), using market data. The discount rate used is
within the range of 8.7% to 10.1% (2020 equivalent range: 10.9% to 11.9%) indicated by the CAPM. The lower rate reflects the impact
of a relative reduction in the volatility of Chinese banks’ equity prices and a decrease in mainland China’s credit risk due to its relatively
quick recovery from the impact of the Covid-19 outbreak. While the CAPM range sits at the lower end of the range adopted by selected
external analysts of 9.9% to 13.5% (2020: 10.3% to 15.0%), we continue to regard the CAPM range as the most appropriate basis for
determining this assumption.
•Expected credit losses as a percentage of customer advances (‘ECL’): ranges from 0.98% to 1.12% (2020: 0.98% to 1.22%) in the short
to medium term, reflecting reported credit experience through the ongoing Covid-19 pandemic in mainland China followed by an
expected reversion to recent historical levels. For periods after 2025, the ratio is 0.97% (2020: 0.88%), which is higher than BoCom’s
average ECL in recent years prior to the Covid-19 outbreak.
•Risk-weighted assets as a percentage of total assets: ranges from 61.0% to 62.4% (2020: 61.0% to 62.0%) in the short to medium
term, reflecting reductions that may arise from a subsequent lowering of ECL and a continuation of the trend of strong retail loan
growth. For periods after 2025, the ratio is 61.0% (2020: 61.0%). These rates are similar to BoCom’s actual results in recent years and
forecasts disclosed by external analysts.
•Operating income growth rate: ranges from 5.1% to 6.2% (2020: 3.5% to 6.7%) in the short to medium term, and is lower than
BoCom’s actual results in recent years and the forecasts disclosed by external analysts, reflecting BoCom’s most recent actual results,
global trade tensions and industry developments in mainland China.
•Cost-income ratio: ranges from 35.5% to 36.1% (2020: 36.3% to 36.8%) in the short to medium term. These ratios are similar to
BoCom's actual results in recent years and forecasts disclosed by external analysts.
•Effective tax rate (‘ETR’): ranges from 6.8% to 15.0% (2020: 7.8% to 16.5%) in the short to medium term, reflecting BoCom’s actual
results and an expected increase towards the long-term assumption through the forecast period. For periods after 2025, the rate is
15.0% (2020: 16.8%), which is higher than the recent historical average, and aligned to the minimum tax rate as proposed by the
OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.
•Capital requirements: capital adequacy ratio ('CAR') of 12.5% (2020: 11.5%) and tier 1 capital adequacy ratio of 9.5% (2020: 9.5%),
based on BoCom’s capital risk appetite and capital requirements respectively. The CAR assumption was updated to 12.5% from 11.5%
following the approval of BoCom's capital management plan in March 2021.
The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil:
Key assumption
Changes to key assumption to reduce headroom to nil
•Long-term profit growth rate
•Decrease by 28 basis points
•Long-term asset growth rate
•Increase by 23 basis points
•Discount rate
•Increase by 36 basis points
•Expected credit losses as a percentage of customer advances
•Increase by 4 basis points
•Risk-weighted assets as a percentage of total assets
•Increase by 194 basis points
•Operating income growth rate
•Decrease by 39 basis points
•Cost-income ratio
•Increase by 109 basis points
•Long-term effective tax rate
•Increase by 322 basis points
•Capital requirements – capital adequacy ratio
•Increase by 40 basis points
•Capital requirements – tier 1 capital adequacy ratio
•Increase by 195 basis points
The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of
the VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at the
same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts’ forecasts, which
can change period to period.
Notes on the financial statements
360
HSBC Holdings plc Annual Report and Accounts 2021
Sensitivity of VIU to reasonably possible changes in key assumptions
Favourable change
Unfavourable change
Increase in VIU
VIU
Decrease in VIU
VIU
bps
$bn
$bn
bps
$bn
$bn
At 31 Dec 2021
Long-term profit growth rate 1
87
4.2
29.0
(69)
(2.7)
22.1
Long-term asset growth rate 1
(69)
2.9
27.7
87
(4.7)
20.1
Discount rate 2
(133)
5.4
30.2
207
(5.3)
19.5
Expected credit losses as a percentage
of customer advances
2021 to 2025: 103
2026 onwards: 91
1.5
26.3
2021 to 2025: 121
2026 onwards: 105
(2.7)
22.1
Risk-weighted assets as a percentage of total assets
(111)
0.2
25.0
280
(2.1)
22.7
Operating income growth rate
37
1.0
25.8
(58)
(1.8)
23.0
Cost-income ratio
(152)
1.7
26.5
174
(1.7)
23.1
Long-term effective tax rate
(104)
0.3
25.1
1,000
(3.6)
21.2
Capital requirements – capital adequacy ratio
—
—
24.8
325
(10.0)
14.8
Capital requirements – tier 1 capital adequacy ratio
—
—
24.8
364
(6.5)
18.3
At 31 Dec 2020
Long-term profit growth rate 1
—
—
21.8
(50)
(1.3)
20.5
Long-term asset growth rate 1
(50)
1.4
23.2
—
—
21.8
Discount rate
(47)
1.2
23.0
53
(1.2)
20.6
Expected credit losses as a percentage
of customer advances
2020 to 2024: 96
2025 onwards: 76
2.3
24.1
2020 to 2024: 122
2025 onwards: 95
(2.1)
19.7
Risk-weighted assets as a percentage of total assets
(40)
0.1
21.9
166
(0.8)
21.0
Operating income growth rate
2
0.2
22.0
(69)
(1.5)
20.3
Cost-income ratio
(149)
1.3
23.1
120
(1.2)
20.6
Long-term effective tax rate
(316)
0.9
22.7
820
(2.2)
19.6
Capital requirements – capital adequacy ratio
—
—
21.8
297
(7.8)
14.0
Capital requirements – tier 1 capital adequacy ratio
—
—
21.8
263
(5.3)
16.5
1 The reasonably possible ranges of the long-term profit growth rate and long-term asset growth rate assumptions reflect the close relationship
between these assumptions, which would result in offsetting changes to each assumption.
2 The unfavourable change in the reasonably possible ranges of the discount rate assumption reflects the impact of adopting the average of the rates
adopted by selected external analysts.
Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of
VIU is $19.0bn to $29.3bn (2020 equivalent range: $17.2bn to $25.7bn). The range is based on impacts set out in the table above arising
from the favourable/unfavourable change in the earnings in the short to medium term, the long-term expected credit losses as a
percentage of customer advances, and a 50 bps increase/decrease in the discount rate. The discount rate has been included this year,
reflecting the relative materiality of movements in this assumption. All other long-term assumptions and the basis of the CMC have been
kept unchanged when determining the reasonably possible range of the VIU.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2021, HSBC included the associate’s
results on the basis of the financial statements for the 12 months ended 30 September 2021, taking into account changes in the
subsequent period from 1 October 2021 to 31 December 2021 that would have materially affected the results.
Selected balance sheet information of BoCom
At 30 Sep
2021
2020
$m
$m
Cash and balances at central banks
123,194
121,987
Loans and advances to banks and other financial institutions
98,932
107,334
Loans and advances to customers
993,956
870,728
Other financial assets
541,577
508,328
Other assets
47,679
44,622
Total assets
1,805,338
1,652,999
Deposits by banks and other financial institutions
287,057
273,708
Customer accounts
1,099,266
1,012,732
Other financial liabilities
228,135
207,110
Other liabilities
40,070
31,105
Total liabilities
1,654,528
1,524,655
Total equity
150,810
128,344
Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements
At 31 Dec
2021
2020
$m
$m
HSBC’s share of total shareholders’ equity
23,097
20,743
Goodwill and other intangible assets
519
505
Carrying amount
23,616
21,248
HSBC Holdings plc Annual Report and Accounts 2021
361
Selected income statement information of BoCom
For the 12 months ended 30 Sep
2021
2020
$m
$m
Net interest income
24,582
21,994
Net fee and commission income
7,170
6,398
Change in expected credit losses and other credit impairment charges
(9,701)
(9,698)
Depreciation and amortisation
(2,297)
(2,072)
Tax expense
(1,045)
(858)
Profit for the year
14,199
10,261
Other comprehensive income
(368)
(769)
Total comprehensive income
13,831
9,492
Dividends received from BoCom
692
633
The Saudi British Bank
The Group’s investment in The S audi British Bank (‘SABB’) is classified as an associate. HSBC is the largest shareholder in SABB with a
shareholding of 31%. Significant influence in SABB is established via representation on the Board of Directors. Investments in associates
are recognised using the equity method of accounting in accordance with IAS 28, as described previously for BoCom.
Impairment testing
There were no indicators of impairment at 31 December 2021. The fair value of the Group’s investment in SABB of $5.6 bn was above the
carrying amount of $4.4 bn.
19
Investments in subsidiaries
Main subsidiaries of HSBC Holdings
At 31 Dec 2021
Place of incorporation
or registration
HSBC’s
interest %
Share class
Europe
HSBC Bank plc
England and Wales
100
£1 Ordinary, $0.01 Non-Cumulative Third Dollar
Preference
HSBC UK Bank plc
England and Wales
100
£1 Ordinary
HSBC Continental Europe
France
99.99
€5 Actions
HSBC Trinkaus & Burkhardt AG
Germany
100
Stückaktien no par value
Asia
Hang Seng Bank Limited
Hong Kong
62.14
HK$5 Ordinary
HSBC Bank (China) Company Limited
People’s Republic of
China
100
CNY 1 Ordinary
HSBC Bank Malaysia Berhad
Malaysia
100
RM 0.5 Ordinary
HSBC Life (International) Limited
Bermuda
100
HK$1 Ordinary
The Hongkong and Shanghai Banking Corporation Limited
Hong Kong
100
Ordinary no par value
Middle East and North Africa
HSBC Bank Middle East Limited
United Arab Emirates
100
$1 Ordinary and $1 Cumulative Redeemable
Preference shares
North America
HSBC Bank Canada
Canada
100
Common no par value and Preference no par value
HSBC Bank USA, N.A.
US
100
$100 Common and $0.01 Preference
Latin America
HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC
Mexico
99.99
MXN 2 Ordinary
Details of the debt, subordinated debt and preference shares issued by the main subsidiaries to parties external to the Group are included
in Note 25 ‘Debt securities in issue’ and Note 28 ‘Subordinated liabilities’, respectively.
A list of all related undertakings is set out in Note 38. The principal countries of operation are the same as the countries and territories of
incorporation except for HSBC Life (International) Limited, which operates mainly in Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised
in accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk appetite for the
relevant country or region. HSBC’s capital management process is incorporated in the annual operating plan, which is approved by the
Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where
necessary. These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit
retention. The net increase in investments in subsidiaries was partly due to the reversal of impairment of HSBC Overseas Holdings (UK)
Limited of $3.1b n. The cumulative impairment for HSBC Overseas Holdings (UK) Limited as at 31 December 2021 is $7.2b n. It is
reasonably possible that outcomes in the future may be different from the assumptions made as at December 2021 that could require a
material change to the carrying amount of HSBC Overseas Holdings (UK) Limited. The carrying value is $33.1b n as at 31 December 2021
(2020:$30.7b n).
As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its
investment in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for
such investments. During 2021, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant
restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned
dividends or payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among
Notes on the financial statements
362
HSBC Holdings plc Annual Report and Accounts 2021
other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and
operating performance.
The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 32.
Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 20
‘Structured entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries with significant non-controlling interests
2021
2020
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by non-controlling interests
37.86%
37.86%
Place of business
Hong Kong
Hong Kong
$m
$m
Profit attributable to non-controlling interests
708
843
Accumulated non-controlling interests of the subsidiary
7,597
7,604
Dividends paid to non-controlling interests
568
625
Summarised financial information:
– total assets
230,866
224,483
– total liabilities
209,315
202,907
– net operating income before changes in expected credit losses and other credit impairment charges
4,280
4,568
– profit for the year
1,872
2,230
– total comprehensive income for the year
1,686
2,535
20
Structured entities
HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets,
conduits and investment funds, established either by HSBC or a third party.
Consolidated structured entities
Total assets of HSBC’s consolidated structured entities, split by entity type
Conduits
Securitisations
HSBC
managed funds
Other
Total
$bn
$bn
$bn
$bn
$bn
At 31 Dec 2021
4.4
10.0
6.3
8.4
29.1
At 31 Dec 2020
6.9
11.7
5.3
10.8
34.7
Conduits
HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.
•At 31 December 2021, Solitaire, HSBC’s principal SIC, held $1.6 bn of ABSs (2020: $1.9b n). It is currently funded entirely by commercial
paper (‘CP’) issued to HSBC. At 31 December 2021, HSBC held $1.8 bn of CP (2020: $2.1b n).
Multi-seller conduit
HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC
bears risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $6.7bn at 31 December 2021
(2020: $9.6b n). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit
enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset
origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or
synthetically through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than
agent in its role as investment manager, HSBC controls these funds.
Other
HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance
transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds
through its involvement as a principal in the funds.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group enters into transactions
with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment
opportunities.
HSBC Holdings plc Annual Report and Accounts 2021
363
Nature and risks associated with HSBC interests in unconsolidated structured entities
Securitisations
HSBC managed
funds
Non-HSBC
managed funds
Other
Total
Total asset values of the entities ($m)
0–500
96
294
1,408
37
1,835
500–2,000
11
116
911
3
1,041
2,000–5,000
—
33
435
—
468
5,000–25,000
—
14
197
—
211
25,000+
—
4
11
—
15
Number of entities at 31 Dec 2021
107
461
2,962
40
3,570
$bn
$bn
$bn
$bn
$bn
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities
4.8
10.8
18.6
3.8
38.0
– trading assets
—
0.2
2.4
0.1
2.7
– financial assets designated and otherwise mandatorily measured at fair
value
—
10.0
15.5
—
25.5
– loans and advances to customers
4.8
—
0.1
3.0
7.9
– financial investments
—
0.6
0.6
—
1.2
– other assets
—
—
—
0.7
0.7
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities
—
—
—
0.4
0.4
– other liabilities
—
—
—
0.4
0.4
Other off-balance sheet commitments
0.1
0.9
4.6
1.2
6.8
HSBC’s maximum exposure at 31 Dec 2021
4.9
11.7
23.2
4.6
44.4
Total asset values of the entities ($m)
0–500
86
292
1,430
47
1,855
500–2,000
9
94
733
2
838
2,000–5,000
—
32
389
—
421
5,000–25,000
—
14
311
—
325
25,000+
—
5
41
—
46
Number of entities at 31 Dec 2020
95
437
2,904
49
3,485
$bn
$bn
$bn
$bn
$bn
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities
4.4
9.9
17.5
2.1
33.9
– trading assets
—
0.3
3.2
—
3.5
– financial assets designated and otherwise mandatorily measured at fair
value
—
8.6
13.8
—
22.4
– loans and advances to customers
4.4
—
—
1.5
5.9
– financial investments
—
1
0.5
—
1.5
– other assets
—
—
—
0.6
0.6
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities
—
—
—
0.3
0.3
– other liabilities
—
—
—
0.3
0.3
Other off-balance sheet commitments
0.1
0.5
4.9
1.2
6.7
HSBC’s maximum exposure at 31 Dec 2020
4.5
10.4
22.4
3.6
40.9
The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur as
a result of its involvement with these entities regardless of the probability of the loss being incurred.
•For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential
future losses.
•For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying
value of these interests at the balance sheet reporting date.
The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order
to mitigate the Group's exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has
investments in ABSs issued by third-party structured entities.
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment
opportunities. Further information on funds under management is provided on page 104.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC
may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs.
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to
provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions.
Notes on the financial statements
364
HSBC Holdings plc Annual Report and Accounts 2021
In addition to the interests disclosed above, HSBC enters into derivative contracts, reverse repos and stock borrowing transactions with
structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk
management solutions.
HSBC sponsored structured entities
The amount of assets transferred to and income received from such sponsored structured entities during 2021 and 2020 were not
significant.
21
Goodwill and intangible assets
2021
2020
$m
$m
Goodwill
5,033
5,881
Present value of in-force long-term insurance business
9,453
9,435
Other intangible assets 1
6,136
5,127
At 31 Dec
20,622
20,443
1 Included within other intangible assets is internally generated software with a net carrying value of $5,430m (2020: $4,452m). During the year,
capitalisation of internally generated software was $2,373m (2020: $1,934m), impairment was $137m (2020: $1,322m) and amortisation was
$1,183m (2020: $1,085m).
Movement analysis of goodwill
2021
2020
$m
$m
Gross amount
At 1 Jan
23,135
22,084
Exchange differences
(905)
967
Other
(15)
84
At 31 Dec
22,215
23,135
Accumulated impairment losses
At 1 Jan
(17,254)
(16,494)
Impairment losses
(587)
(41)
Exchange differences
659
(719)
At 31 Dec
(17,182)
(17,254)
Net carrying amount at 31 Dec
5,033
5,881
Goodwill
Impairment testing
The Group’s impairment test in respect of goodwill allocated to each cash-generating unit (‘CGU’) is performed at 1 October each year. A
review for indicators of impairment is undertaken at each subsequent quarter-end and at 31 December 2021.
As a result of the 1 October 2021 annual impairment test, we recognised $0.6bn of goodwill impairment related to the Latin America –
WPB CGU. Impairment resulted from a combination of factors, including our macroeconomic outlook and the impact of inflationary
pressure on judgements made to estimate value in use (‘VIU’). Significant inputs to the VIU calculation are discussed in more detail within
‘Basis of the recoverable amount’ below. Management considered the sensitivity of certain assumptions, in particular the discount rate,
and the outcome of reasonably possible alternative scenarios. This resulted in full impairment of goodwill allocated to Latin America –
WPB.
Impairment results and key assumptions in VIU calculations – impaired CGU at 1 October 2021
Carrying amount
of which
goodwill
Value in use
Impairment
Discount
rate
Growth rate
beyond initial
cash flow
projections
$bn
$bn
$bn
$bn
%
%
Latin America – WPB
2.3
0.6
1.7
0.6
14.5
4.8
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use at each respective testing date.
The VIU is calculated by discounting management’s cash flow projections for the CGU. The key assumptions used in the VIU calculation
for each individually significant CGU that is not impaired are discussed below.
Key assumptions in VIU calculation – significant CGUs at 1 October 2021
Goodwill at
1 Oct 2021
Discount rate
Growth rate
beyond initial
cash flow
Goodwill at
1 Oct 2020
Discount
rate
Growth rate
beyond initial cash
flow projections
$m
%
%
$m
%
%
Europe – WPB
3,556
9.2
1.8
3,582
9.6
1.9
At 1 October 2021, aggregate goodwill of $2,108m (1 October 2020: $2,059m) had been allocated to CGUs that were not considered
individually significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives,
other than goodwill.
HSBC Holdings plc Annual Report and Accounts 2021
365
Management’s judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on forecast profitability plans approved by the Board and minimum capital levels
required to support the business operations of a CGU. The Board challenges and endorses planning assumptions in light of internal capital
allocation decisions necessary to support our strategy, current market conditions and macroeconomic outlook including climate risk. For
the 1 October 2021 impairment test, cash flow projections until the end of 2026 were considered, in line with our 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 capital asset
pricing model (‘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. The discount rates for each CGU are refined to
reflect the rates of inflation for the countries within which the CGU operates. In addition, for the purposes of testing goodwill for
impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with
the cost of equity rates produced by external sources for businesses operating in similar markets.
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. These growth rates reflect inflation for the countries within which the CGU operates or from which it
derives revenue.
Sensitivities of key assumptions in calculating VIU
At 1 October 2021, Europe – WPB was sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable
amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect
of each input to 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. A reasonable change in a single key assumption may not result in
impairment, although taken together a combination of reasonable changes in key assumptions could result in a recoverable amount that
is lower than the CGU’s carrying amount.
Input
Key assumptions
Associated risks
Reasonably possible change
Cash-generating unit
Europe – WPB
Forecast
profitability
•Level of interest rates and yield
curves.
•Competitors’ position within the
market.
•Level and change in unemployment
rates.
•Uncertain regulatory
environment.
•Customer remediation
and regulatory actions.
•Forecast profitability projections
decrease by 30%. This does not result in
an impairment.
Discount rate
Discount rate used is a reasonable
estimate of a suitable market rate for
the profile of the business.
•External evidence
suggests that the rate
used is not appropriate to
the business.
•Discount rate increases by 100 bps. This
does not result in an impairment.
Sensitivity of VIU to reasonably possible changes in key assumptions and changes to current assumptions to achieve nil headroom
In $bn (unless otherwise stated)
Europe – WPB
At 1 October 2021
Carrying amount
18.8
VIU
29.8
Impact on VIU
100bps increase in the discount rate – single variable
(3.7)
30% decrease in forecast profitability – single variable
(9.2)
Cumulative impact of all changes
(11.7)
Changes to key assumption to reduce headroom to nil – single variable
Discount rate – bps
409
Profit cash flows – %
36
Other intangible assets
Impairment testing
Impairment of other intangible assets is assessed in accordance with our policy explained in Note 1.2(n) by comparing the net carrying
amount of CGUs containing intangible assets with their recoverable amounts. Recoverable amounts are determined by calculating an
estimated VIU or fair value, as appropriate, for each CGU. No significant impairment was recognised during the year.
In 2020, having considered the pervasive macroeconomic deterioration caused by the outbreak of Covid-19, along with the impact of
forecast profitability in some businesses, we recognised $1.3bn of capitalised software impairment related principally to businesses within
HSBC Bank plc, our non-ring-fenced bank in Europe, and to a lesser degree businesses within HSBC USA Inc. This impairment reflected
underperformance and deterioration in the future forecasts of these businesses, substantially relating to prior periods in HSBC Bank plc.
Key assumptions in VIU calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
•Management’s judgement in estimating future cash flows: We considered past business performance, current market conditions and
our macroeconomic outlook to estimate future earnings. 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
Notes on the financial statements
366
HSBC Holdings plc Annual Report and Accounts 2021
the plan, and would therefore have recognised a provision for restructuring costs. For some businesses, this means that the benefit of
certain strategic actions may not be included in the impairment assessment, including capital releases.
•Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term
perspective of the businesses within the Group.
•Discount rates: Rates are based on a combination of CAPM and market-implied calculations considering market data for the
businesses and geographies in which the Group operates.
Future software capitalisation
We will continue to invest in digital capabilities to meet our strategic objectives. However, software capitalisation within businesses
where impairment was identified will not resume until the performance outlook for each business indicates future profits are sufficient to
support capitalisation. The cost of additional software investment in these businesses will be recognised as an operating expense until
such time.
Sensitivity of estimates relating to non-financial assets
As explained in Note 1.2(a), estimates of future cash flows for CGUs are made in the review of goodwill and non-financial assets for
impairment. Non-financial assets include other intangible assets shown above, and owned property, plant and equipment and right-of-use
assets (see Note 22). The most significant sources of estimation uncertainty are in respect of the goodwill balances disclosed above. There
are no non-financial asset balances relating to individual CGUs which involve estimation uncertainty that represents a significant risk of
resulting in a material adjustment to the results and financial position of the Group within the next financial year.
Non-financial assets are widely distributed across CGUs within the legal entities of the Group, including Corporate Centre assets that
cannot be allocated to CGUs and are therefore tested for impairment at consolidated level. The recoverable amounts of other intangible
assets, owned property, plant and equipment, and right-of-use assets cannot be lower than individual asset fair values less costs to
dispose, where relevant. At 31 December 2021 none of the CGUs were sensitive to reasonably possible adverse changes in key
assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions, management
considers the available evidence in respect of each input to 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.
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term (‘PVIF’) insurance business, expected cash flows are projected after adjusting for
a variety of assumptions made by each insurance operation to reflect local market conditions, and management’s judgement of future
trends and uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology)
including valuing the cost of policyholder options and guarantees using stochastic techniques.
Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by
the Actuarial Control Committee.
Movements in PVIF
2021
2020
$m
$m
At 1 Jan
9,435
8,945
Change in PVIF of long-term insurance business
130
382
– value of new business written during the year
1,090
776
– expected return 1
(903)
(1,003)
– assumption changes and experience variances (see below)
(105)
604
– other adjustments
48
5
Exchange differences and other movements
(112)
108
At 31 Dec
9,453
9,435
1‘Expected return’ represents the unwinding of the discount rate and reversal of expected cash flows for the period.
Assumption changes and experience variances
Included within this line item are:
•$59m (2020: $132m), directly offsetting interest rate-driven changes to the valuation of liabilities under insurance contracts;
•$(324)m (2020: $247m), reflecting the future expected sharing of returns with policyholders on contracts with discretionary
participation features (‘DPF’), to the extent this sharing is not already included in liabilities under insurance contracts; and
•$160m (2020: $225m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed
market movements and the impact of such changes is included in the sensitivities presented below.
2021
2020
Hong Kong
France 1
Hong Kong
France 1
%
%
%
%
Weighted average risk-free rate
1.40
0.69
0.71
0.34
Weighted average risk discount rate
5.20
1.55
4.96
1.34
Expense inflation
3.00
1.80
3.00
1.60
1 For 2021, the calculation of France’s PVIF assumes a risk discount rate of 1.55% (2020: 1.34%) plus a risk margin of $215m (2020: $213m).
HSBC Holdings plc Annual Report and Accounts 2021
367
Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances
for risks not reflected in the best-estimate cash flow modelling. Where the insurance operations provide options and guarantees to
policyholders, the cost of these options and guarantees is accounted for as a deduction from the PVIF asset, unless the cost of such
guarantees is already allowed for as an explicit addition to liabilities under insurance contracts. For further details of these guarantees and
the impact of changes in economic assumptions on our insurance manufacturing subsidiaries, see page 214.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to non-economic assumptions, including mortality and/or morbidity, lapse
rates and expense rates. For further details on the impact of changes in non-economic assumptions on our insurance manufacturing
operations, see page 216.
22
Prepayments, accrued income and other assets
2021
2020
$m
$m
Prepayments and accrued income
8,233
8,114
Settlement accounts
17,713
17,316
Cash collateral and margin receivables
42,171
59,543
Assets held for sale 1
3,411
299
Bullion
15,283
20,151
Endorsements and acceptances
11,229
10,278
Reinsurers’ share of liabilities under insurance contracts (Note 4)
3,668
3,448
Employee benefit assets (Note 5)
10,269
10,450
Right-of-use assets
2,985
4,002
Owned property, plant and equipment
10,255
10,412
Other accounts
14,765
12,399
At 31 Dec
139,982
156,412
1 ‘Assets held for sale’ includes $2.6bn of loans and advances to customers that were classified as assets held for sale, reflecting our exit of mass
market retail banking in the US.
Prepayments, accrued income and other assets include $91,045m (2020: $105,469m) of financial assets, the majority of which are
measured at amortised cost.
23
Trading liabilities
2021
2020
$m
$m
Deposits by banks 1
4,243
6,689
Customer accounts 1
9,424
10,681
Other debt securities in issue (Note 25)
1,792
1,582
Other liabilities – net short positions in securities
69,445
56,314
At 31 Dec
84,904
75,266
1‘Deposits by banks’ and ‘Customer accounts’ include repos, stock lending and other amounts.
24
Financial liabilities designated at fair value
HSBC
2021
2020
$m
$m
Deposits by banks and customer accounts 1
16,703
19,176
Liabilities to customers under investment contracts
5,938
6,385
Debt securities in issue (Note 25)
112,761
121,034
Subordinated liabilities (Note 28)
10,100
10,844
At 31 Dec
145,502
157,439
1 Structured deposits placed at HSBC Bank USA are insured by the Federal Deposit Insurance Corporation, a US government agency, up to
$250,000 per depositor.
The carrying amount of financial liabilities designated at fair value was $827 m more than the contractual amount at maturity. The
cumulative amount of change in fair value attributable to changes in credit risk was a loss of $2,084 m (2020: loss of $2,542 m).
HSBC Holdings
2021
2020
$m
$m
Debt securities in issue (Note 25)
26,818
19,624
Subordinated liabilities (Note 28)
5,600
6,040
At 31 Dec
32,418
25,664
Notes on the financial statements
368
HSBC Holdings plc Annual Report and Accounts 2021
The carrying amount of financial liabilities designated at fair value was $1,766m more than the contractual amount at maturity
(2020: $3,019m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $951m
(2020: $1,210m).
25
Debt securities in issue
HSBC
2021
2020
$m
$m
Bonds and medium-term notes
166,537
176,570
Other debt securities in issue
26,573
41,538
Total debt securities in issue
193,110
218,108
Included within:
– trading liabilities (Note 23)
(1,792)
(1,582)
– financial liabilities designated at fair value (Note 24)
(112,761)
(121,034)
At 31 Dec
78,557
95,492
HSBC Holdings
2021
2020
$m
$m
Debt securities
94,301
83,653
Included within:
– financial liabilities designated at fair value (Note 24)
(26,818)
(19,624)
At 31 Dec
67,483
64,029
26
Accruals, deferred income and other liabilities
2021
2020
$m
$m
Accruals and deferred income
10,466
10,406
Settlement accounts
15,226
13,008
Cash collateral and margin payables
50,226
65,557
Endorsements and acceptances
11,232
10,293
Employee benefit liabilities (Note 5)
1,607
2,025
Liabilities of disposal groups held for sale 1
9,005
—
Lease liabilities
3,586
4,614
Other liabilities
22,430
22,721
At 31 Dec
123,778
128,624
1 Includes $8.8bn of customer accounts that were classified as liabilities of disposal groups held for sale, reflecting our exit of mass market retail
banking in the US.
Accruals, deferred income and other liabilities include $111,887m (2020: $120,229m) of financial liabilities, the majority of which are
measured at amortised cost.
27
Provisions
Restructuring
costs
Legal proceedings
and regulatory
matters
Customer
remediation
Other
provisions
Total
$m
$m
$m
$m
$m
Provisions (excluding contractual commitments)
At 1 Jan 2021
671
756
858
305
2,590
Additions
347
249
192
471
1,259
Amounts utilised
(499)
(316)
(548)
(58)
(1,421)
Unused amounts reversed
(170)
(59)
(113)
(124)
(466)
Exchange and other movements
34
(11)
(3)
(36)
(16)
At 31 Dec 2021
383
619
386
558
1,946
Contractual commitments 1
At 1 Jan 2021
1,088
Net change in expected credit loss provision and other movements
(468)
At 31 Dec 2021
620
Total provisions
At 31 Dec 2020
3,678
At 31 Dec 2021
2,566
HSBC Holdings plc Annual Report and Accounts 2021
369
Restructuring
costs
Legal proceedings
and regulatory
matters
Customer
remediation
Other
provisions
Total
$m
$m
$m
$m
$m
Provisions (excluding contractual commitments)
At 1 Jan 2020
356
605
1,646
280
2,887
Additions
698
347
189
222
1,456
Amounts utilised
(322)
(177)
(739)
(125)
(1,363)
Unused amounts reversed
(74)
(75)
(240)
(80)
(469)
Exchange and other movements
13
56
2
8
79
At 31 Dec 2020
671
756
858
305
2,590
Contractual commitments 1
At 1 Jan 2020
511
Net change in expected credit loss provision and other movements
577
At 31 Dec 2020
1,088
Total provisions
At 31 Dec 2019
3,398
At 31 Dec 2020
3,678
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.
Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 34. Legal proceedings include civil court, arbitration or
tribunal proceedings brought against HSBC companies (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, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply
with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or
industry developments in sales practices and is not necessarily initiated by regulatory action. Further details of customer remediation are
set out in this note.
At 31 December 2021, $173 m (2020: $328 m) of the customer remediation provision related to the estimated liability for redress in respect
of the possible mis-selling of payment protection insurance (‘PPI’) policies in previous years. Of the $328 m balance at 31 December 2020,
$192 m was utilised during 2021 and the provision was increased by $37 m.
At 31 December 2021, a provision of $87 m (2020: $302 m) was held relating to the estimated liability for redress payable to customers
following a review of historical collections and recoveries practices in the UK. During 2021, redress payments and incurred operating
costs totalled $197 m, in addition to the net release of $18 m of provision. This release reflect the actual number of customers impacted
and cost of redress paid, which were lower than has been previously estimated.
For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in ‘Contractual
commitments’, see Note 32. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the
movement in the expected credit loss provision is disclosed within the 'Reconciliation of allowances for loans and advances to banks and
customers including loan commitments and financial guarantees' table on page 153.
28
Subordinated liabilities
HSBC’s subordinated liabilities
2021
2020
$m
$m
At amortised cost
20,487
21,951
– subordinated liabilities
18,640
20,095
– preferred securities
1,847
1,856
Designated at fair value (Note 24)
10,100
10,844
– subordinated liabilities
10,100
10,844
– preferred securities
—
—
At 31 Dec
30,587
32,795
Issued by HSBC subsidiaries
9,112
10,223
Issued by HSBC Holdings
21,475
22,572
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be
called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If
not redeemed at the first call date, coupons payable may reset or become floating rate based on relevant market rates. On subordinated
liabilities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed in the following table 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.
Notes on the financial statements
370
HSBC Holdings plc Annual Report and Accounts 2021
HSBC’s subsidiaries subordinated liabilities in issue
2021
2020
First call date
Maturity date
$m
$m
Additional tier 1 capital securities guaranteed by HSBC Holdings 1
$900m
10.176% non-cumulative step-up perpetual preferred securities, series 2 2
Jun 2030
900
900
900
900
Additional tier 1 capital securities guaranteed by HSBC Bank plc 1
£700m
5.844% non-cumulative step-up perpetual preferred securities 3
Nov 2031
947
956
947
956
Tier 2 securities issued by HSBC Bank plc
$750m
Undated floating rate primary capital notes
Jun 1990
750
750
$500m
Undated floating rate primary capital notes
Sep 1990
500
500
$300m
Undated floating rate primary capital notes, series 3
Jun 1992
300
300
$300m
7.65% subordinated notes
—
May 2025
300
300
1,850
1,850
£300m
6.50% subordinated notes
—
Jul 2023
406
409
£350m
5.375% callable subordinated step-up notes 4
Nov 2025
Nov 2030
539
583
£500m
5.375% subordinated notes
—
Aug 2033
900
981
£225m
6.25% subordinated notes
—
Jan 2041
303
306
£600m
4.75% subordinated notes
—
Mar 2046
805
812
2,953
3,091
4,803
4,941
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Limited
$400m
Primary capital undated floating rate notes (third series)
Jul 1991
400
400
400
400
Tier 2 securities issued by HSBC Bank Malaysia Berhad
MYR500m
5.05% subordinated bonds 5,6
Nov 2022
Nov 2027
120
124
120
124
Tier 2 securities issued by HSBC USA Inc.
$250m
7.20% subordinated debentures 5
—
Jul 2097
222
222
Other subordinated liabilities each less than $150 m 7
—
200
222
422
Tier 2 securities issued by HSBC Bank USA, N.A.
$1,000m
5.875% subordinated notes 8
—
Nov 2034
456
497
$750m
5.625% subordinated notes 8
—
Aug 2035
489
533
$700m
7.00% subordinated notes
—
Jan 2039
697
700
1,642
1,730
Tier 2 securities issued by HSBC Finance Corporation
$2,939m
6.676% senior subordinated notes 5,9
—
Jan 2021
—
509
—
509
Tier 2 securities issued by HSBC Bank Canada
Other subordinated liabilities each less than $150 m 5
Oct 1996
Nov 2083
9
9
9
9
Securities issued by other HSBC subsidiaries
Other subordinated liabilities each less than $200 m 10
69
232
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec
9,112
10,223
1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.
2 The interest rate payable after June 2030 is the sum of the three-month Libor plus 4.98%.
3 The interest rate payable after November 2031 is the sum of the compounded daily Sonia rate plus 2.0366%.
4 The interest rate payable after November 2025 is the sum of the compounded daily Sonia rate plus 1.6193%.
5 These securities are ineligible for inclusion in the capital base of HSBC.
6 The interest rate payable after November 2022 is 6.05%.
7 These securities matured in 2021 and were redeemed.
8 HSBC tendered for these securities in November 2019. The principal balance is $357m and $383m respectively. The original notional values of
these securities are $1,000m and $750m respectively.
9 HSBC tendered for these securities in 2017. In January 2018, a further tender was conducted. The principal balance is $509m. The original
notional of these securities is $2,939m. This instrument matured and settled in January 2021.
10 These securities are included in the capital base of HSBC, in accordance with the grandfathering provisions under CRR II. In 2021, securities of
$49m matured and were redeemed, and in addition approximately $109m were redeemed in June 2021 in relation to securities that matured at
31 December 2020. The latter were no longer eligible for inclusion in the capital base of HSBC at the end of 2020.
HSBC Holdings’ subordinated liabilities
2021
2020
$m
$m
At amortised cost
17,059
17,916
Designated at fair value (Note 24)
5,600
6,040
At 31 Dec
22,659
23,956
HSBC Holdings plc Annual Report and Accounts 2021
371
HSBC Holdings’ subordinated liabilities in issue
First call
Maturity
2021
2020
date
date
$m
$m
Tier 2 securities issued by HSBC Holdings
Amounts owed to third parties
$2,000m
4.25% subordinated notes 2,3
—
Mar 2024
2,072
2,151
$1,500m
4.25% subordinated notes 2
—
Aug 2025
1,615
1,702
$1,500m
4.375% subordinated notes 2
—
Nov 2026
1,641
1,736
$488m
7.625% subordinated notes 1
—
May 2032
536
541
$222m
7.35% subordinated notes 1
—
Nov 2032
241
243
$2,000m
6.50% subordinated notes 1
—
May 2036
2,032
2,034
$2,500m
6.50% subordinated notes 1
—
Sep 2037
2,825
3,033
$1,500m
6.80% subordinated notes 1
—
Jun 2038
1,491
1,490
$1,500m
5.25% subordinated notes 2
—
Mar 2044
1,946
2,092
£650m
5.75% subordinated notes 2
—
Dec 2027
1,040
1,130
£650m
6.75% subordinated notes 2
—
Sep 2028
877
884
£750m
7.00% subordinated notes 2
—
Apr 2038
1,082
1,157
£900m
6.00% subordinated notes 2
—
Mar 2040
1,320
1,483
€1,500m
3.0% subordinated notes 2
—
Jun 2025
1,737
1,916
€1,000m
3.125% subordinated notes 2
—
Jun 2028
1,304
1,472
21,759
23,064
Amounts owed to HSBC undertakings
$900m
10.176% subordinated step-up cumulative notes
Jun 2030
Jun 2040
900
892
900
892
At 31 Dec
22,659
23,956
1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering
provisions under CRR II.
2 These securities are included in the capital base of HSBC as fully CRR II-compliant tier 2 securities on an end point basis.
3 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while
they are measured at fair value in the Group.
Guaranteed by HSBC Holdings or HSBC Bank plc
Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these
were lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualified as additional tier 1
capital for HSBC under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The capital security
guaranteed by HSBC Bank plc also qualified as additional tier 1 capital for HSBC Bank plc (on a solo and a consolidated basis) under
CRR II until 31 December 2021 by virtue of the same grandfathering process. Since 31 December 2021, these securities have no longer
qualified as regulatory capital for HSBC or HSBC Bank plc.
These preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions
and distributions upon liquidation of the relevant issuer that are equivalent to the rights that they would have had if they had purchased
non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments
are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy
requirements, or if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions
on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or
redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.
If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required or if the Directors expect it to do so in
the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the
holders’ interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by
HSBC Holdings that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.
If the preferred securities guaranteed by HSBC Bank plc are outstanding in November 2048, or if the total capital ratio of HSBC Bank plc
(on a solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term,
provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders’
interests in the preferred security guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank
plc that have economic terms which are in all material respects equivalent to the preferred security and its guarantee.
Tier 2 securities
Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital
securities are included within HSBC's regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by virtue of the
application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is amortised for
regulatory purposes in their final five years before maturity.
Notes on the financial statements
372
HSBC Holdings plc Annual Report and Accounts 2021
29
Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 374 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 assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) 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.
•Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual
maturity of the underlying instruments and not on the basis of the disposal transaction.
•Liabilities under insurance contracts are irrespective of contractual maturity included in the ‘Due over 5 years’ time bucket in the
maturity table provided below. An analysis of the expected maturity of liabilities under insurance contracts based on undiscounted
cash flows is provided on page 215. Liabilities under investment contracts are classified in accordance with their contractual maturity.
Undated investment contracts are included in the ‘Due over 5 years’ time bucket, although such contracts are subject to surrender and
transfer options by the policyholders.
•Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
HSBC Holdings plc Annual Report and Accounts 2021
373
HSBC
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
Cash and balances at central banks
403,018
—
—
—
—
—
—
—
403,018
Items in the course of collection from other banks
4,136
—
—
—
—
—
—
—
4,136
Hong Kong Government certificates of
indebtedness
42,578
—
—
—
—
—
—
—
42,578
Trading assets
244,422
2,403
440
194
468
621
294
—
248,842
Financial assets designated or otherwise
mandatorily measured at fair value
4,968
89
585
515
224
855
1,852
40,716
49,804
Derivatives
195,701
164
85
110
233
91
310
188
196,882
Loans and advances to banks
55,572
10,889
5,469
1,078
1,512
5,321
3,134
161
83,136
Loans and advances to customers
160,583
82,531
69,380
42,459
42,651
107,393
220,746
320,071
1,045,814
– personal
50,573
11,373
8,934
8,022
7,766
25,271
78,373
284,922
475,234
– corporate and commercial
97,554
64,511
52,548
29,341
28,749
72,441
127,527
32,664
505,335
– financial
12,456
6,647
7,898
5,096
6,136
9,681
14,846
2,485
65,245
Reverse repurchase agreements – non-trading
155,997
49,392
18,697
9,386
3,661
2,672
1,843
—
241,648
Financial investments
47,084
68,034
33,233
20,638
21,779
49,903
80,367
125,236
446,274
Accrued income and other financial assets
79,077
5,932
2,935
536
537
265
812
3,722
93,816
Financial assets at 31 Dec 2021
1,393,136
219,434
130,824
74,916
71,065
167,121
309,358
490,094
2,855,948
Non-financial assets
—
—
—
—
—
—
—
101,991
101,991
Total assets at 31 Dec 2021
1,393,136
219,434
130,824
74,916
71,065
167,121
309,358
592,085
2,957,939
Off-balance sheet commitments received
Loan and other credit-related commitments
49,061
—
—
—
—
—
—
—
49,061
Financial liabilities
Hong Kong currency notes in circulation
42,578
—
—
—
—
—
—
—
42,578
Deposits by banks
63,660
2,695
2,419
238
125
14,653
16,734
628
101,152
Customer accounts
1,615,025
51,835
19,167
8,007
9,710
3,143
3,585
102
1,710,574
– personal
802,777
24,725
12,038
5,961
5,255
2,304
2,242
26
855,328
– corporate and commercial
623,459
22,980
5,654
1,762
3,402
706
1,167
33
659,163
– financial
188,789
4,130
1,475
284
1,053
133
176
43
196,083
Repurchase agreements – non-trading
117,625
4,613
1,716
292
142
975
377
930
126,670
Items in the course of transmission to other
banks
5,214
—
—
—
—
—
—
—
5,214
Trading liabilities
79,789
3,810
346
218
223
445
73
—
84,904
Financial liabilities designated at
fair value
18,080
9,437
4,514
3,287
4,485
17,422
42,116
46,161
145,502
– debt securities in issue: covered bonds
—
1,137
—
—
—
1,481
1,160
—
3,778
– debt securities in issue: unsecured
9,916
5,967
2,823
2,259
3,462
14,758
34,515
35,282
108,982
– subordinated liabilities and preferred securities
—
—
—
—
—
—
5,371
4,729
10,100
– other
8,164
2,333
1,691
1,028
1,023
1,183
1,070
6,150
22,642
Derivatives
190,233
46
11
30
25
100
288
331
191,064
Debt securities in issue
7,053
7,777
5,664
6,880
1,703
9,045
20,254
20,181
78,557
– covered bonds
—
—
—
997
—
996
860
—
2,853
– otherwise secured
957
164
42
31
193
896
1,696
1,207
5,186
– unsecured
6,096
7,613
5,622
5,852
1,510
7,153
17,698
18,974
70,518
Accruals and other financial liabilities
91,749
10,317
5,630
1,103
1,072
1,948
2,407
2,829
117,055
Subordinated liabilities
—
1
11
—
—
417
2,055
18,003
20,487
Total financial liabilities at 31 Dec 2021
2,231,006
90,531
39,478
20,055
17,485
48,148
87,889
89,165
2,623,757
Non-financial liabilities
—
—
—
—
—
—
—
127,405
127,405
Total liabilities at 31 Dec 2021
2,231,006
90,531
39,478
20,055
17,485
48,148
87,889
216,570
2,751,162
Off-balance sheet commitments given
Loan and other credit-related commitments
813,491
121
133
228
254
78
931
238
815,474
– personal
239,207
34
34
54
108
32
688
238
240,395
– corporate and commercial
456,498
76
91
168
143
46
243
—
457,265
– financial
117,786
11
8
6
3
—
—
—
117,814
Notes on the financial statements
374
HSBC Holdings plc Annual Report and Accounts 2021
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
Cash and balances at central banks
304,481
—
—
—
—
—
—
—
304,481
Items in the course of collection from other banks
4,094
—
—
—
—
—
—
—
4,094
Hong Kong Government certificates of
indebtedness
40,420
—
—
—
—
—
—
—
40,420
Trading assets
228,434
1,778
458
135
67
644
474
—
231,990
Financial assets designated at fair value
3,061
240
466
262
454
1,424
1,992
37,654
45,553
Derivatives
306,561
15
12
14
14
441
424
245
307,726
Loans and advances to banks
51,652
11,283
5,640
3,068
2,284
4,059
3,359
271
81,616
Loans and advances to customers
172,306
70,746
65,838
44,392
38,606
112,440
206,448
327,211
1,037,987
– personal
51,711
9,645
7,918
7,270
7,033
26,318
70,447
275,736
456,078
– corporate and commercial
101,684
55,009
51,755
31,529
28,553
76,225
125,393
47,446
517,594
– financial
18,911
6,092
6,165
5,593
3,020
9,897
10,608
4,029
64,315
Reverse repurchase agreements
– non-trading
157,234
44,658
16,655
5,113
1,324
3,058
2,586
—
230,628
Financial investments
47,270
77,450
44,255
14,523
24,112
48,741
100,007
134,335
490,693
Accrued income and other financial assets
93,118
5,951
2,743
475
458
267
444
2,107
105,563
Financial assets at 31 Dec 2020
1,408,631
212,121
136,067
67,982
67,319
171,074
315,734
501,823
2,880,751
Non-financial assets
—
—
—
—
—
—
—
103,413
103,413
Total assets at 31 Dec 2020
1,408,631
212,121
136,067
67,982
67,319
171,074
315,734
605,236
2,984,164
Off-balance sheet commitments received
Loan and other credit-related commitments
60,849
—
—
—
—
—
—
—
60,849
Financial liabilities
Hong Kong currency notes in circulation
40,420
—
—
—
—
—
—
—
40,420
Deposits by banks
60,973
1,396
714
695
197
718
16,757
630
82,080
Customer accounts
1,533,595
61,376
22,568
9,375
8,418
4,467
2,859
122
1,642,780
– personal
766,631
32,429
15,511
6,276
5,825
3,591
1,976
39
832,278
– corporate and commercial
588,887
22,856
5,963
2,966
2,058
627
777
37
624,171
– financial
178,077
6,091
1,094
133
535
249
106
46
186,331
Repurchase agreements – non-trading
102,633
3,979
2,165
386
675
16
1,035
1,012
111,901
Items in the course of transmission to other
banks
4,343
—
—
—
—
—
—
—
4,343
Trading liabilities
70,799
3,377
400
143
185
289
72
1
75,266
Financial liabilities designated at fair value
18,434
7,333
6,973
6,775
6,593
14,182
40,510
56,639
157,439
– debt securities in issue: covered bonds
—
—
—
—
—
1,239
2,918
—
4,157
– debt securities in issue: unsecured
10,762
4,470
5,522
5,604
5,530
10,455
31,710
42,825
116,878
– subordinated liabilities and preferred securities
—
—
—
—
—
—
3,912
6,932
10,844
– other
7,672
2,863
1,451
1,171
1,063
2,488
1,970
6,882
25,560
Derivatives
300,902
264
198
38
55
237
726
581
303,001
Debt securities in issue
6,552
12,329
14,964
9,764
3,878
9,215
16,618
22,172
95,492
– covered bonds
—
—
28
—
750
1,275
999
—
3,052
– otherwise secured
1,094
1,585
1,001
1,000
—
274
1,640
1,590
8,184
– unsecured
5,458
10,744
13,935
8,764
3,128
7,666
13,979
20,582
84,256
Accruals and other financial liabilities
96,821
9,794
3,886
692
1,174
1,742
3,179
3,053
120,341
Subordinated liabilities
619
—
237
—
12
12
2,658
18,413
21,951
Total financial liabilities at 31 Dec 2020
2,236,091
99,848
52,105
27,868
21,187
30,878
84,414
102,623
2,655,014
Non-financial liabilities
—
—
—
—
—
—
—
124,155
124,155
Total liabilities at 31 Dec 2020
2,236,091
99,848
52,105
27,868
21,187
30,878
84,414
226,778
2,779,169
Off-balance sheet commitments given
Loan and other credit-related commitments
842,974
435
172
243
296
180
299
171
844,770
– personal
235,606
172
27
47
115
125
288
171
236,551
– corporate and commercial
471,410
250
138
194
178
37
11
—
472,218
– financial
135,958
13
7
2
3
18
—
—
136,001
HSBC Holdings plc Annual Report and Accounts 2021
375
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
2,590
—
—
—
—
—
—
—
2,590
Derivatives
1,101
—
—
—
—
23
585
1,102
2,811
Loans and advances to HSBC undertakings
120
750
341
—
3,017
5,608
13,333
1,939
25,108
Financial assets with HSBC undertakings
designated and otherwise mandatorily measured
at fair value
—
1,759
250
1,019
—
5,987
19,455
22,938
51,408
Financial investments
8,377
7,166
3,014
1,346
3,026
3,265
—
—
26,194
Accrued income and other financial assets
129
874
108
58
4
—
—
—
1,173
Total financial assets at 31 Dec 2021
12,317
10,549
3,713
2,423
6,047
14,883
33,373
25,979
109,284
Non-financial assets
—
—
—
—
—
—
—
163,888
163,888
Total assets at 31 Dec 2021
12,317
10,549
3,713
2,423
6,047
14,883
33,373
189,867
273,172
Financial liabilities
Amounts owed to HSBC undertakings
—
111
—
—
—
—
—
—
111
Financial liabilities designated at fair value
397
2,484
—
—
—
1,364
11,276
16,897
32,418
– debt securities in issue
397
2,484
—
—
—
1,364
8,020
14,553
26,818
– subordinated liabilities and preferred securities
—
—
—
—
—
—
3,256
2,344
5,600
Derivatives
1,167
—
—
—
—
5
1
47
1,220
Debt securities in issue
1,051
—
—
—
—
8,525
29,889
28,018
67,483
Accruals and other financial liabilities
1,778
730
1,612
68
12
—
—
40
4,240
Subordinated liabilities
—
—
—
—
—
—
3,809
13,250
17,059
Total financial liabilities 31 Dec 2021
4,393
3,325
1,612
68
12
9,894
44,975
58,252
122,531
Non-financial liabilities
—
—
—
—
—
—
—
311
311
Total liabilities at 31 Dec 2021
4,393
3,325
1,612
68
12
9,894
44,975
58,563
122,842
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
2,913
—
—
—
—
—
—
—
2,913
Derivatives
1,473
—
5
—
—
9
1,131
2,080
4,698
Loans and advances to HSBC undertakings
—
600
120
—
—
312
6,027
3,384
10,443
Loans and advances to HSBC undertakings
designated at fair value
—
451
—
—
—
4,320
23,203
37,279
65,253
Financial investments in HSBC undertakings
3,701
3,769
2,924
799
3,528
2,764
—
—
17,485
Accrued income and other financial assets
1,015
275
100
33
22
—
—
—
1,445
Total financial assets at 31 Dec 2020
9,102
5,095
3,149
832
3,550
7,405
30,361
42,743
102,237
Non-financial assets
—
—
—
—
—
—
—
160,936
160,936
Total assets at 31 Dec 2020
9,102
5,095
3,149
832
3,550
7,405
30,361
203,679
263,173
Financial liabilities
Amounts owed to HSBC undertakings
—
330
—
—
—
—
—
—
330
Financial liabilities designated at fair value
—
984
859
—
—
3,088
3,810
16,923
25,664
– debt securities in issue
—
984
859
—
—
3,088
2,108
12,585
19,624
– subordinated liabilities and preferred securities
—
—
—
—
—
—
1,702
4,338
6,040
Derivatives
3,052
—
—
—
—
—
—
8
3,060
Debt securities in issue
—
503
1,621
563
—
2,186
24,489
34,667
64,029
Accruals and other financial liabilities
3,769
689
301
57
12
—
1
36
4,865
Subordinated liabilities
—
—
—
—
—
—
4,067
13,849
17,916
Total financial liabilities at 31 Dec 2020
6,821
2,506
2,781
620
12
5,274
32,367
65,483
115,864
Non-financial liabilities
—
—
—
—
—
—
—
509
509
Total liabilities at 31 Dec 2020
6,821
2,506
2,781
620
12
5,274
32,367
65,992
116,373
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 trading
liabilities and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with
those in our consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified
according to their contractual maturities. Trading liabilities and 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 and financial guarantees 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.
Notes on the financial statements
376
HSBC Holdings plc Annual Report and Accounts 2021
Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Due not more
than 1 month
Due over
1 month but
not more than
3 months
Due over
3 months but
not more than
1 year
Due over
1 year but not
more than
5 years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
Deposits by banks
63,684
2,712
2,800
31,294
643
101,133
Customer accounts
1,613,065
54,092
37,219
7,093
138
1,711,607
Repurchase agreements – non-trading
117,643
4,615
2,157
1,359
935
126,709
Trading liabilities
84,904
—
—
—
—
84,904
Financial liabilities designated at fair value
18,335
9,760
13,606
63,834
50,953
156,488
Derivatives
190,354
192
190
1,792
1,332
193,860
Debt securities in issue
7,149
7,958
15,142
32,651
21,911
84,811
Subordinated liabilities
119
168
848
6,741
28,347
36,223
Other financial liabilities
129,706
9,842
7,664
4,577
2,697
154,486
2,224,959
89,339
79,626
149,341
106,956
2,650,221
Loan and other credit-related commitments
813,471
121
615
1,029
238
815,474
Financial guarantees 1
27,774
6
9
6
—
27,795
At 31 Dec 2021
3,066,204
89,466
80,250
150,376
107,194
3,493,490
Proportion of cash flows payable in period
88%
3%
2%
4%
3%
Deposits by banks
61,001
1,442
1,639
17,352
632
82,066
Customer accounts
1,530,584
64,809
40,755
7,720
153
1,644,021
Repurchase agreements – non-trading
102,664
3,984
3,257
1,058
1,017
111,980
Trading liabilities
75,266
—
—
—
—
75,266
Financial liabilities designated at fair value
18,815
7,556
19,243
59,835
55,475
160,924
Derivatives
300,158
356
579
1,830
2,128
305,051
Debt securities in issue
6,551
12,709
29,520
28,787
24,075
101,642
Subordinated liabilities
739
170
1,102
7,024
28,812
37,847
Other financial liabilities
140,094
9,120
5,113
5,030
2,887
162,244
2,235,872
100,146
101,208
128,636
115,179
2,681,041
Loan and other credit-related commitments
842,945
434
740
480
171
844,770
Financial guarantees 1
18,200
13
93
37
41
18,384
At 31 Dec 2020
3,097,017
100,593
102,041
129,153
115,391
3,544,195
Proportion of cash flows payable in period
87%
3%
3%
4%
3%
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
HSBC Holdings
HSBC Holdings’ primary sources of liquidity are dividends received from subsidiaries, interest on and repayment of intra-Group loans and
securities, and interest earned on its own liquid funds. HSBC Holdings also raises funds in the debt capital markets to meet the Group’s
minimum requirement for own funds and eligible liabilities. HSBC Holdings uses this liquidity to meet its obligations, including interest
and principal repayments on external debt liabilities, operating expenses and collateral on derivative transactions.
HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts
issued relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to
finance the commitments and guarantees and the likelihood of the need arising.
HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level.
During 2021, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying
dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or
payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things,
their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating
performance.
HSBC Holdings currently has sufficient liquidity to meet its present requirements.
Liquidity risk in HSBC Holdings is overseen by Holdings ALCO. This risk arises because of HSBC Holdings’ obligation to make payments
to debt holders as they fall due and to pay its operating expenses. The liquidity risk related to these cash flows is managed by matching
external debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by Holdings
ALCO.
The balances in the following table are not directly comparable with those on the balance sheet of HSBC Holdings as the table
incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated
as hedging derivatives). 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 ‘On demand’ time bucket.
In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The
undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest
date on which they can be called.
HSBC Holdings plc Annual Report and Accounts 2021
377
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
Due not more
than 1 month
Due over 1
month but not
more than 3
months
Due over 3
months but
not more than
1 year
Due over 1
year but not
more than 5
years
Due over
5 years
Total
$m
$m
$m
$m
$m
$m
Amounts owed to HSBC undertakings
—
111
—
—
—
111
Financial liabilities designated at fair value
473
2,611
621
15,017
17,557
36,279
Derivatives
1,223
9
51
414
585
2,282
Debt securities in issue
1,196
276
1,286
43,360
30,800
76,918
Subordinated liabilities
81
155
722
7,222
20,777
28,957
Other financial liabilities
1,778
730
1,692
—
40
4,240
4,751
3,892
4,372
66,013
69,759
148,787
Loan commitments
—
—
—
—
—
—
Financial guarantees 1
13,746
—
—
—
—
13,746
At 31 Dec 2021
18,497
3,892
4,372
66,013
69,759
162,533
Amounts owed to HSBC undertakings
—
330
—
—
—
330
Financial liabilities designated at fair value
70
1,109
1,412
9,110
16,104
27,805
Derivatives
3,085
—
2
—
—
3,087
Debt securities in issue
135
760
3,354
31,567
37,103
72,919
Subordinated liabilities
82
156
726
7,513
21,552
30,029
Other financial liabilities
3,769
690
370
—
36
4,865
7,141
3,045
5,864
48,190
74,795
139,035
Loan commitments
—
—
—
—
—
—
Financial guarantees 1
13,787
—
—
—
—
13,787
At 31 Dec 2020
20,928
3,045
5,864
48,190
74,795
152,822
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
30
Offsetting of financial assets and financial liabilities
In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:
•the counterparty has an offsetting exposure with HSBC 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
•in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
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 the legal right to set off remains appropriate.
Notes on the financial statements
378
HSBC Holdings plc Annual Report and Accounts 2021
Offsetting of financial assets and financial liabilities
Amounts subject to enforceable netting arrangements
Amounts not
subject to
enforceable
netting
arrangements 5
Total
Amounts not set off in the
balance sheet
Gross
amounts
Amounts
offset
Net
amounts in
the balance
sheet
Financial
instruments
Non-cash
collateral
Cash
collateral
Net
amount
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
Derivatives (Note 15)1
244,694
(53,378)
191,316
(139,945)
(11,359)
(36,581)
3,431
5,566
196,882
Reverse repos, stock borrowing
and similar agreements classified
as:2
– trading assets
21,568
(222)
21,346
(359)
(20,913)
(71)
3
1,729
23,075
– non-trading assets
353,066
(136,932)
216,134
(12,226)
(203,543)
(165)
200
25,731
241,865
Loans and advances to customers 3
27,045
(10,919)
16,126
(13,065)
—
—
3,061
327
16,453
At 31 Dec 2021
646,373
(201,451)
444,922
(165,595)
(235,815)
(36,817)
6,695
33,353
478,275
Derivatives (Note 15)1
368,057
(69,103)
298,954
(230,758)
(13,766)
(48,154)
6,276
8,772
307,726
Reverse repos, stock borrowing
and similar agreements classified
as:2
– trading assets
21,204
(461)
20,743
(709)
(20,030)
—
4
1,534
22,277
– non-trading assets
318,424
(115,678)
202,746
(13,936)
(188,646)
(73)
91
28,258
231,004
Loans and advances to customers 3
30,983
(10,882)
20,101
(17,031)
—
—
3,070
428
20,529
At 31 Dec 2020
738,668
(196,124)
542,544
(262,434)
(222,442)
(48,227)
9,441
38,992
581,536
Financial liabilities
Derivatives (Note 15)1
239,597
(53,378)
186,219
(139,945)
(23,414)
(18,225)
4,635
4,845
191,064
Repos, stock lending and similar
agreements classified as:2
– trading liabilities
13,540
(222)
13,318
(359)
(12,959)
—
—
17
13,335
– non-trading liabilities
235,042
(136,932)
98,110
(12,226)
(85,590)
(203)
91
28,560
126,670
Customer accounts 4
40,875
(10,919)
29,956
(13,065)
—
—
16,891
17
29,973
At 31 Dec 2021
529,054
(201,451)
327,603
(165,595)
(121,963)
(18,428)
21,617
33,439
361,042
Derivatives (Note 15)1
364,121
(69,103)
295,018
(230,758)
(21,387)
(37,343)
5,530
7,983
303,001
Repos, stock lending and similar
agreements classified as:2
– trading liabilities
16,626
(461)
16,165
(709)
(15,456)
—
—
159
16,324
– non-trading liabilities
200,999
(115,678)
85,321
(13,936)
(71,142)
(215)
28
26,580
111,901
Customer accounts 4
41,177
(10,882)
30,295
(17,031)
—
—
13,264
13
30,308
At 31 Dec 2020
622,923
(196,124)
426,799
(262,434)
(107,985)
(37,558)
18,822
34,735
461,534
1 At 31 December 2021, the amount of cash margin received that had been offset against the gross derivatives assets was $4,469m
(2020: $7,899m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $9,479m (2020: $17,955m).
2 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading
assets’ $23,075m (2020: $22,277m) and ‘Trading liabilities’ $13,335m (2020: $16,324m), see the ‘Funding sources and uses’ table on page 197.
3 At 31 December 2021, the total amount of ‘Loans and advances to customers’ was $1,045,814m (2020: $1,037,987m), of which $16,126m (2020:
$20,101m) was subject to offsetting.
4 At 31 December 2021, the total amount of ‘Customer accounts’ was $1,710,574m (2020: $1,642,780m), of which $29,956m (2020: $30,295m)
was subject to offsetting.
5 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.
31
Called up share capital and other equity instruments
Called up share capital and share premium
HSBC Holdings ordinary shares of $0.50 each, issued and fully paid
2021
2020
Number
$m
Number
$m
At 1 Jan
20,693,621,100
10,347
20,638,524,545
10,319
Shares issued under HSBC employee share plans
58,266,053
29
55,096,555
28
Shares issued in lieu of dividends
—
—
—
—
Less: Shares repurchased and cancelled
120,366,714
60
—
—
At 31 Dec 1
20,631,520,439
10,316
20,693,621,100
10,347
HSBC Holdings plc Annual Report and Accounts 2021
379
HSBC Holdings 6.2% non-cumulative US dollar preference shares, Series A
2021
2020
Number
$m
Number
$m
At 1 Jan and 31 Dec 2
—
—
1,450,000
—
HSBC Holdings share premium
2021
2020
$m
$m
At 31 Dec
14,602
14,277
Total called up share capital and share premium
2021
2020
$m
$m
At 31 Dec
24,918
24,624
1 All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital,
dividends and voting.
2 In 2019 this security was included in the capital base of HSBC as additional tier 1 capital in accordance with the CRR II rules, by virtue of the
application of grandfathering provisions. This security was called by HSBC Holdings on 10 December 2020 and was redeemed and cancelled on
13 January 2021. Between the date of exercise of the call option and the redemption, this security was considered as an other liability.
HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01
The 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each were redeemed on 13 January 2021.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is
held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling
preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder
meetings of HSBC Holdings. These securities can be redeemed by HSBC Holdings at any time, subject to prior approval by the PRA.
Other equity instruments
HSBC Holdings has included three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and they
are the HSBC Holdings US dollar non-cumulative preference shares outlined above (which were redeemed in January 2021) and the
contingent convertible securities described below. These are accounted for as equity because HSBC does not have an obligation to
transfer cash or a variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 28 for
additional tier 1 securities accounted for as liabilities.
Additional tier 1 capital – contingent convertible securities
HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional
tier 1 capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors
and fund managers. The net proceeds of the issuances are typically used for HSBC Holdings’ general corporate purposes and to further
strengthen its capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates.
After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year
periods based on credit spreads, fixed at issuance, above prevailing market rates. Interest on the contingent convertible securities will be
due and payable only at the sole discretion of HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to cancel
for any reason (in whole or part) any interest payment that would otherwise be payable on any payment date. Distributions will not be
paid if they are prohibited under UK banking regulations or if the Group has insufficient reserves or fails to meet the solvency conditions
defined in the securities’ terms.
The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call
date or on any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain
regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings’
sterling preference shares and therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully
paid ordinary shares of HSBC Holdings at a predetermined price, should HSBC’s consolidated non-transitional CET1 ratio fall below 7.0%.
Therefore, in accordance with the terms of the securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the securities will
convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the relevant securities, subject to anti-
dilution adjustments.
Notes on the financial statements
380
HSBC Holdings plc Annual Report and Accounts 2021
HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity
First call
date
2021
2020
$m
$m
$2,000m
6.875% perpetual subordinated contingent convertible securities 1
Jun 2021
—
2,000
$2,250m
6.375% perpetual subordinated contingent convertible securities
Sep 2024
2,250
2,250
$2,450m
6.375% perpetual subordinated contingent convertible securities
Mar 2025
2,450
2,450
$3,000m
6.000% perpetual subordinated contingent convertible securities
May 2027
3,000
3,000
$2,350m
6.250% perpetual subordinated contingent convertible securities
Mar 2023
2,350
2,350
$1,800m
6.500% perpetual subordinated contingent convertible securities
Mar 2028
1,800
1,800
$1,500m
4.600% perpetual subordinated contingent convertible securities 2
Dec 2030
1,500
1,500
$1,000m
4.000% perpetual subordinated contingent convertible securities 3
Mar 2026
1,000
—
$1,000m
4.700% perpetual subordinated contingent convertible securities 4
Mar 2031
1,000
—
€1,500m
5.250% perpetual subordinated contingent convertible securities
Sep 2022
1,945
1,945
€1,000m
6.000% perpetual subordinated contingent convertible securities
Sep 2023
1,123
1,123
€1,250m
4.750% perpetual subordinated contingent convertible securities
Jul 2029
1,422
1,422
£1,000
5.875% perpetual subordinated contingent convertible securities
Sep 2026
1,301
1,301
SGD1,000m
4.700% perpetual subordinated contingent convertible securities
Jun 2022
723
723
SGD750m
5.000% perpetual subordinated contingent convertible securities
Sep 2023
550
550
At 31 Dec
22,414
22,414
1 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.
2 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.
3 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2026.
4 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2031.
Shares under option
For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Savings-Related Share
Option Plan (UK), see Note 5.
Aggregate options outstanding under these plans
31 Dec 2021
31 Dec 2020
Number of
HSBC Holdings
ordinary shares
Usual period of exercise
Exercise price
Number of
HSBC Holdings
ordinary shares
Usual period of exercise
Exercise price
123,196,850
2020 to 2027
£2.6270–£5.9640
130,952,539
2019 to 2026
£2.6270–£5.9640
Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2021, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and
the HSBC International Employee Share Purchase Plan, together with long-term incentive awards and deferred share awards granted
under the HSBC Share Plan 2011, was 224,974,433 (2020: 238,278,952). The total number of shares at 31 December 2021 held by
employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 9,297,415 (2020:
5,179,531).
32
Contingent liabilities, contractual commitments and guarantees
HSBC
HSBC Holdings 1
2021
2020
2021
2020
$m
$m
$m
$m
Guarantees and other contingent liabilities:
– financial guarantees
27,795
18,384
13,746
13,787
– performance and other guarantees
85,534
78,114
—
—
– other contingent liabilities
858
1,219
133
119
At 31 Dec
114,187
97,717
13,879
13,906
Commitments:2
– documentary credits and short-term trade-related transactions
8,827
7,178
—
—
– forward asset purchases and forward deposits placed
47,184
66,506
—
—
– standby facilities, credit lines and other commitments to lend
759,463
771,086
—
—
At 31 Dec
815,474
844,770
—
—
1 Guarantees by HSBC Holdings are all in favour of other Group entities.
2 Includes $627,637m of commitments at 31 December 2021 (31 December 2020: $659,783m), to which the impairment requirements in IFRS 9
are applied where HSBC 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
represent the maximum amounts at risk should the contracts be fully drawn upon and the 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 27.
HSBC Holdings plc Annual Report and Accounts 2021
381
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
HSBC’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 Notes 27 and 34.
Financial Services Compensation Scheme
T he Financial Services Compensation Scheme (‘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.
Associates
HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $63.5bn at 31 December 2021
(2020: $53.1bn). No matters arose where HSBC was severally liable.
33
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), 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.
2021
2020
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
finance
income
Present
value
$m
$m
$m
$m
$m
$m
Lease receivables:
No later than one year
3,298
(303)
2,995
3,108
(257)
2,851
One to two years
2,303
(242)
2,061
2,476
(196)
2,280
Two to three years
1,645
(192)
1,453
2,055
(143)
1,912
Three to four years
1,225
(146)
1,079
1,380
(109)
1,271
Four to five years
795
(113)
682
787
(80)
707
Later than one year and no later than five years
5,968
(693)
5,275
6,698
(528)
6,170
Later than five years
4,044
(528)
3,516
4,221
(451)
3,770
At 31 Dec
13,310
(1,524)
11,786
14,027
(1,236)
12,791
34
Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart
from the matters described below, HSBC 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 as at 31 December 2021 (see Note 27). Where an individual provision is material, the fact that a provision has been made is stated
and quantified, except to the extent that doing so would be seriously prejudicial. 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.
Bernard L. Madoff Investment Securities LLC
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the
US whose assets were invested with Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’). Based on information provided by
Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4b n, including fictitious profits reported
by Madoff. Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4b n. Various HSBC companies
have been named as defendants in lawsuits arising out of Madoff Securities’ fraud.
US litigation: The Madoff Securities Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy
Court for the Southern District of New York (the ‘US Bankruptcy Court’), seeking recovery of transfers from Madoff Securities to HSBC in
an amount not yet pleaded or determined. Following an initial dismissal of certain claims, which was later reversed on appeal, the cases
were remanded to the US Bankruptcy Court, where they are now pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, ‘Fairfield’) (in liquidation since July 2009) have
brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution
of redemption payments. In December 2018, the US Bankruptcy Court dismissed certain claims by the Fairfield liquidators and granted a
motion by the liquidators to file amended complaints. In May 2019, the liquidators appealed certain issues from the US Bankruptcy Court
to the US District Court for the Southern District of New York (the ’New York District Court’), and these appeals remain pending.
In January 2020, the Fairfield liquidators filed amended complaints on the claims remaining in the US Bankruptcy Court. In December
2020, the US Bankruptcy Court dismissed the majority of those claims. In March 2021, the liquidators and defendants appealed the US
Bankruptcy Court’s decision to the New York District Court, and these appeals are currently pending. Meanwhile, proceedings before the
US Bankruptcy Court with respect to the remaining claims that were not dismissed are ongoing.
UK litigation: The Madoff Securities Trustee has filed a claim against various HSBC companies in the High Court of England and Wales,
seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2022 for UK-based defendants and November 2022 for all other defendants.
Notes on the financial statements
382
HSBC Holdings plc Annual Report and Accounts 2021
Cayman Islands litigation: In February 2013, Primeo Fund (‘Primeo’) (in liquidation since April 2009) brought an action against HSBC
Securities Services Luxembourg (‘HSSL’) and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach
of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February 2017 and, in
August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the
Cayman Islands and, in June 2019, the Court of Appeal of the Cayman Islands dismissed Primeo’s appeal. In August 2019, Primeo filed a
notice of appeal to the UK Privy Council. Two hearings before the UK Privy Council took place during 2021. Judgment was given against
HSBC in respect of the first hearing and judgment is pending in respect of the second hearing.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in liquidation since July 2013) brought an action against HSSL before
the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities’ fraud,
or money damages. The Luxembourg District Court dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution
and money damages claims. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late
2018, Herald brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution
and damages.
In October 2009, Alpha Prime Fund Limited (‘Alpha Prime’) brought an action against HSSL before the Luxembourg District Court, seeking
the restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional claims before
the Luxembourg District Court seeking damages against various HSBC companies. These matters are currently pending before the
Luxembourg District Court.
In December 2014, Senator Fund SPC (‘Senator’) brought an action against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the
Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg branch before the Luxembourg District Court, seeking restitution
of Senator’s securities or money damages. These matters are currently pending before the Luxembourg District Court.
There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related
proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based
upon the information currently available, management’s estimate of the possible aggregate damages that might arise as a result of all
claims in the various Madoff-related proceedings is around $600m, excluding costs and interest. Due to uncertainties and limitations of
this estimate, any possible damages that might ultimately arise could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings entered into a number of agreements, including an undertaking with the UK Financial Services
Authority (replaced with a Direction issued by the UK Financial Conduct Authority (‘FCA’) in 2013 and again in 2020) as well as a cease-
and-desist order with the US Federal Reserve Board (‘FRB’), both of which contained certain forward-looking anti-money laundering
(‘AML’) and sanctions-related obligations. Over the past several years, HSBC has retained a Skilled Person under section 166 of the
Financial Services and Markets Act and an Independent Consultant under the FRB cease-and-desist order to produce periodic
assessments of the Group’s AML and sanctions compliance programme. The Skilled Person completed its engagement in the second
quarter of 2021, and the FCA has determined that no further Skilled Person work is required. Separately, the Independent Consultant
continues to work pursuant to the FRB cease-and-desist order. The roles of each of the FCA Skilled Person and the FRB Independent
Consultant are discussed on page 209.
In December 2021, the FCA concluded its investigation into HSBC’s compliance with UK money laundering regulations and financial
crime systems and control requirements. The FCA imposed a fine on HSBC Bank plc, which has been paid.
Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on
behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East. In each case, it is alleged that the defendants
aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Currently, nine actions
remain pending in federal courts in New York or the District of Columbia. The courts have granted HSBC’s motions to dismiss in five of
these cases; appeals remain pending in two cases, and the remaining three dismissals are also subject to appeal. The four remaining
actions are at an early stage.
Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or any possible
impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates and other benchmark interest rate
investigations and litigation
Euro interest rate derivatives: In December 2016, the European Commission (‘EC’) issued a decision finding that HSBC, among other
banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC imposed
a fine on HSBC based on a one-month infringement. In September 2019, the General Court of the European Union (the ‘General Court’)
issued a decision largely upholding the EC’s findings on liability but annulling the fine. HSBC and the EC both appealed the General
Court’s decision to the European Court of Justice (the ‘Court of Justice’). In June 2021, the EC adopted a new fining decision for an
amount that was 5% less than the previously annulled fine, and it subsequently withdrew its appeal to the Court of Justice. HSBC has
appealed the EC’s June 2021 fining decision to the General Court, and its appeal to the Court of Justice on liability also remains pending.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in
the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and
racketeering laws, the US Commodity Exchange Act (‘US CEA’) and state law. The lawsuits include individual and putative class actions,
most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court. HSBC has reached
class settlements with five groups of plaintiffs, and the court has approved these settlements. HSBC has also resolved several of the
individual actions, although a number of other US dollar Libor-related actions remain pending against HSBC in the New York District
Court.
Intercontinental Exchange (‘ICE’) Libor: Between January and March 2019, HSBC and other panel banks were named as defendants
in three putative class actions filed in the New York District Court on behalf of persons and entities who purchased instruments paying
interest indexed to US dollar ICE Libor from a panel bank. The complaints allege, among other things, misconduct related to the
suppression of this benchmark rate in violation of US antitrust and state law. In July 2019, the three putative class actions were
consolidated, and the plaintiffs filed a consolidated amended complaint. In March 2020, the court granted the defendants’ motion to
dismiss in its entirety and, in February 2022, the US Court of Appeals for the Second Circuit dismissed the plaintiffs’ appeal.
HSBC Holdings plc Annual Report and Accounts 2021
383
Singapore interbank offered rate (‘Sibor’), Singapore swap offer rate (‘SOR’) and Australia bank bill swap rate (‘BBSW’):
In July and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York
District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints
allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws,
and state law.
In the Sibor/SOR litigation, in October 2021, The Hongkong and Shanghai Banking Corporation Limited reached a settlement in principle
with the plaintiffs to resolve this action. The settlement remains subject to court approval.
In the BBSW litigation, in November 2018, the court dismissed all foreign defendants, including all HSBC entities, on personal jurisdiction
grounds. In April 2019, the plaintiffs filed an amended complaint, which the defendants moved to dismiss. In February 2020, the court
again dismissed the plaintiffs’ amended complaint against all HSBC entities.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
Foreign exchange-related investigations and litigation
In December 2021, the EC issued a settlement decision finding that a number of banks, including HSBC, had engaged in anti-competitive
practices in an online chatroom between 2011 and 2012 in the foreign exchange spot market. The EC imposed a €174.3m fine on HSBC in
connection with this matter, which is fully provisioned.
In January 2018, following the conclusion of the US Department of Justice’s (‘DoJ’) investigation into HSBC’s historical foreign exchange
activities, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the DoJ (the ‘FX DPA’),
regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. In January 2021, the FX DPA expired and,
in August 2021, the charges deferred by the FX DPA were dismissed.
In December 2016, Brazil’s Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange
market and identified a number of banks, including HSBC, as subjects of its investigation.
In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African
Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC
Bank USA, for alleged anti-competitive behaviour in the South African foreign exchange market. In December 2021, a hearing on HSBC
Bank plc’s and HSBC Bank USA’s applications to dismiss the revised complaint took place before the South African Competition Tribunal,
where a decision remains pending.
Beginning in 2013, various HSBC companies and other banks have been named as defendants in a number of putative class actions filed
in, or transferred to, the New York District Court arising from allegations that the defendants conspired to manipulate foreign exchange
rates. HSBC has reached class settlements with two groups of plaintiffs, including direct and indirect purchasers of foreign exchange
products, and the court has granted final approval of these settlements. A putative class action by a group of retail customers of foreign
exchange products remains pending.
In November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and
the High Court of England and Wales against HSBC and other defendants by certain plaintiffs that opted out of the direct purchaser class
action settlement in the US. These matters remain pending. Additionally, lawsuits alleging foreign exchange-related misconduct remain
pending against HSBC and other banks in courts in Brazil and Israel. It is possible that additional civil actions will be initiated against
HSBC in relation to its historical foreign exchange activities.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
Precious metals fix-related litigation
Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for
the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing
Limited as defendants. The complaints, which were consolidated in the New York District Court, allege that, from January 2004 to June
2013, the defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust
laws, the US CEA and New York state law. In October 2020, HSBC reached a settlement in principle with the plaintiffs to resolve the
consolidated action. The settlement remains subject to court approval.
Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts
of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January
2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian
Competition Act and common law. These actions are ongoing.
Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other
members of The London Silver Market Fixing Limited as defendants. The complaints allege that, from January 2007 to December 2013,
the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws,
the US CEA and New York state law. The actions were consolidated in the New York District Court and remain pending, following the
conclusion of pre-class certification discovery.
In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against
various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the
defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common
law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court,
naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege
that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals (‘PGM’) and PGM-
based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2020, the court granted the
defendants' motion to dismiss the plaintiffs’ third amended complaint but granted the plaintiffs leave to re-plead certain claims. The
plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the
timing or any possible impact on HSBC, which could be significant.
Notes on the financial statements
384
HSBC Holdings plc Annual Report and Accounts 2021
Film finance litigation
In July and November 2015, two actions were brought by individuals against HSBC Private Bank (UK) Limited (‘PBGB’) in the High Court
of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their
participation in certain Ingenious film finance schemes. In December 2018 and June 2019, two further actions were brought against PBGB
in the High Court of England and Wales by multiple claimants in connection with lending provided by PBGB to third parties in respect of
certain Ingenious film finance schemes in which the claimants participated. In January 2022, HSBC UK Bank plc (as successor to PBGB)
reached a settlement in principle with the claimant group to resolve these actions. The settlement remains subject to the negotiation of
definitive documentation.
In June 2020, two separate claims were issued against HSBC UK Bank plc (as successor to PBGB) in the High Court of England and Wales
by two separate groups of investors in Eclipse film finance schemes in connection with PBGB’s role in the development of such schemes.
These actions are ongoing.
In April 2021, HSBC UK Bank plc (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. This action is at an early stage.
It is possible that additional actions or investigations will be initiated against HSBC UK Bank plc as a result of PBGB’s historical
involvement in the provision of certain film finance-related services.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are 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:
•investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with
allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;
•an investigation by the US Commodity Futures Trading Commission regarding interest rate swap transactions related to bond
issuances, among other things, as well as the use of non-HSBC approved messaging platforms for business communications;
•an investigation by the PRA in connection with depositor protection arrangements in the UK;
•an investigation by the FCA in connection with collections and recoveries operations in the UK;
•an investigation by the UK Competition and Markets Authority concerning the financial services sector;
•a putative class action brought in the New York District Court relating to the Mexican government bond market;
•two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC Bank
plc’s role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and
•litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily
on (a) claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b)
claims against several HSBC companies seeking that the defendants repurchase various mortgage loans.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
35
Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC
employees, Key Management Personnel (‘KMP’) as defined by IAS 24, close family members of KMP and entities that are controlled or
jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for
planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute ‘senior management’ for the
purposes of the Hong Kong Listing Rules. In applying IAS 24, it was determined that for this financial reporting period all KMP included
Directors, former Directors and senior management listed on pages 220 to 226 except for the roles of Group Chief Legal Officer, Group
Head of Internal Audit, Group Chief Human Resources Officer, Group Chief Sustainability Officer, Group Head of Strategy, Group Chief
Communications Officer and Group Company Secretary and Chief Governance Officer who do not meet the criteria for KMP as provided
for in the standard.
Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts
outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and
outstanding balances during the year.
HSBC Holdings plc Annual Report and Accounts 2021
385
Key Management Personnel
Details of Directors’ remuneration and interests in shares are disclosed in the ‘Directors’ remuneration report’ on pages 254 to 287.
IAS 24 ‘Related Party Disclosures’ requires the following additional information for key management compensation.
Compensation of Key Management Personnel
2021
2020
2019
$m
$m
$m
Short-term employee benefits
50
39
64
Other long-term employee benefits
6
5
8
Share-based payments
27
20
27
Year ended 31 Dec
83
64
99
Shareholdings, options and other securities of Key Management Personnel
2021
2020
(000s)
(000s)
Number of options held over HSBC Holdings ordinary shares under employee share plans
35
27
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially
13,529
11,916
Number of other HSBC securities held 1
228
228
At 31 Dec
13,792
12,171
1 The disclosure includes other HSBC securities held by Key Management Personnel and comparatives for 2020 have now been presented.
Advances and credits, guarantees and deposit balances during the year with Key Management Personnel
2021
2020
Balance at
31 Dec
Highest amounts
outstanding
during year
Balance at
31 Dec
Highest amounts
outstanding
during year
$m
$m
$m
$m
Key Management Personnel
Advances and credits 1
373
401
221
357
Guarantees
25
45
30
55
Deposits
284
3,190
281
874
1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2021 with Directors and former Directors, disclosed pursuant to
section 413 of the Companies Act 2006, totalled $2.8m (2020: $4.7m).
Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange
of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. 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.
Associates and joint ventures
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-
interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 19.
Transactions and balances during the year with associates and joint ventures
2021
2020
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
$m
$m
$m
Unsubordinated amounts due from joint ventures
160
96
147
147
Unsubordinated amounts due from associates
4,527
4,188
4,330
2,942
Amounts due to associates
3,397
1,070
5,466
2,226
Amounts due to joint ventures
102
44
102
102
Guarantees and commitments
1,016
347
433
283
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
At 31 December 2021, $3.4 bn (2020: $3.5bn) of HSBC post-employment benefit plan assets were under management by HSBC
companies, earning management fees of $14m in 2021 (2020: $13m). At 31 December 2021, HSBC’s post-employment benefit plans had
placed deposits of $476m (2020: $452m) with its banking subsidiaries, earning interest payable to the schemes of nil (2020: nil). 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.
The combined HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to manage inflation and interest rate sensitivity
of its liabilities and selected assets. At 31 December 2021, the gross notional value of the swaps was $7.4bn (2020: $7.7bn). These swaps
had a positive fair value to the scheme of $1.0bn (2020: $1.0bn); and HSBC had delivered collateral of $1.0bn (2020: $1.0bn) to the
scheme in respect of these arrangements. All swaps were executed at prevailing market rates and within standard market bid/offer
spreads.
Notes on the financial statements
386
HSBC Holdings plc Annual Report and Accounts 2021
HSBC Holdings
Details of HSBC Holdings’ subsidiaries are shown in Note 38.
Transactions and balances during the year with subsidiaries
2021
2020
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
$m
$m
$m
Assets
Cash and balances with HSBC undertakings
3,397
2,590
5,476
2,913
Financial assets with HSBC undertakings designated and otherwise mandatorily
measured at fair value
64,686
51,408
65,253
65,253
Derivatives
4,187
2,811
5,784
4,698
Loans and advances to HSBC undertakings
27,142
25,108
10,785
10,443
Prepayments, accrued income and other assets
1,555
1,135
1,838
1,363
Investments in subsidiaries
163,211
163,211
161,546
160,660
Total related party assets at 31 Dec
264,178
246,263
250,682
245,330
Liabilities
Amounts owed to HSBC undertakings
340
111
581
330
Derivatives
2,872
1,220
3,376
3,060
Accruals, deferred income and other liabilities
2,036
1,732
2,737
1,936
Subordinated liabilities
900
900
892
892
Total related party liabilities at 31 Dec
6,148
3,963
7,586
6,218
Guarantees and commitments
16,477
13,746
15,661
13,787
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.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group
company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure
in relation to the scheme is made in Note 5.
36
Business disposals
In 2021, we accelerated the pace of execution on our strategic ambition to be the preferred international financial partner for our clients
with the announcements of the planned sale of our retail banking businesses in France, as well as the exit of domestic mass market retail
banking in the US.
Planned sale of the retail banking business in France
On 25 November 2021, HSBC Continental Europe signed a framework agreement with Promontoria MMB SAS (‘My Money Group’) and
its subsidiary Banque des Caraïbes SA, regarding the planned sale of HSBC Continental Europe’s retail banking business in France. This
followed the signing of a Memorandum of Understanding on 18 June 2021 and the conclusion of the information and consultation
processes of the parties with their respective works councils.
In parallel, several other agreements have been entered into aiming to ensure continuity of service for HSBC Continental Europe's retail
banking customers who hold asset management products with HSBC Global Asset Management (France) and HSBC REIM (France), and
protection and/or life-wrapped insurance products with HSBC Assurances Vie (France).
The sale, which is subject to regulatory approvals and the satisfaction of other relevant conditions, includes: HSBC Continental Europe’s
French retail banking business; the Crédit Commercial de France (‘CCF’) brand; and HSBC Continental Europe’s 100% ownership interest
in HSBC SFH (France) and its 3% ownership interest in Crédit Logement. The sale would generate an estimated loss before tax including
related transaction costs for the Group of $2.3b n, together with an additional $0.7b n impairment of goodwill.
The signing of the framework agreement for the planned sale of the French retail banking business resulted in a tax deduction (tax value
of $0.4b n) for a provision for loss on disposal, which was recorded in the French tax return. A deferred tax liability of the same amount
arises as a consequence of the temporary difference between the French tax return and IFRS in respect of this provision. There was no tax
impact in respect of goodwill impairment recognised in the Group financial statements for the year ended 31 December 2021. The vast
majority of the estimated loss for the write-down of the disposal group to fair value less costs to sell will be recognised when it is
classified as held for sale in accordance with IFRS 5, which is currently anticipated to be in 2022. Subsequently, the disposal group
classified as held for sale will be remeasured at the lower of carrying amount and fair value less costs to sell at each reporting period. Any
remaining gain or loss not previously recognised will be recognised at the date of derecognition, which is currently anticipated to be in
2023.
At 31 December 2021, the value of the total assets of the business to be sold was $27.4b n, including $24.9b n of loans and advances to
customers, and the value of customer accounts was $22.6b n.
US retail banking business
On 26 May 2021, we announced that we will exit our US mass market retail banking business, including our Personal and Advance
propositions, as well as retail business banking, and will rebrand approximately 20 to 25 of our retail branches into international wealth
centres to serve our Premier and Jade customers. In conjunction with the execution of this strategy, HSBC Bank USA, N.A. entered into
definitive sale agreements with Citizens Bank and Cathay Bank to sell approximately 90 of our retail branches along with substantially all
residential mortgage, unsecured and retail business banking loans and all deposits in our branch network not associated with our Premier,
Jade and Private Banking customers. Certain assets under management associated with our mass market retail banking business were
also transferred. The sale agreement with Cathay Bank completed on 4 February 2022 and the sale agreement with Citizens Bank
completed on 18 February 2022. The remaining branches not sold or rebranded will be closed.
At 31 December 2021, loans and advances to customers of $2.4bn and customer accounts of $8.8bn related to these transactions met the
criteria to be classified as held for sale.
HSBC Holdings plc Annual Report and Accounts 2021
387
37
Events after the balance sheet date
The following recently announced acquisitions form part of our strategy to grow our insurance business, helping to deliver on our
strategic priority to become a market leader in Asian wealth management.
•On 11 February 2022, following the completion of all regulatory approvals, HSBC Insurance (Asia-Pacific) Holdings Limited, a wholly-
owned subsidiary of the Group, acquired 100% of the issued share capital of AXA Insurance Pte Limited for $529m, subject to
adjustment for closing items. This will be reflected in our 2022 results by which time determination of the initial acquisition accounting
will have been completed.
•On 30 December 2021, approval was received from the China Banking and Insurance Regulatory Commission for HSBC Insurance
(Asia) Limited, a wholly-owned subsidiary of the Group, to acquire the remaining 50% equity interest in HSBC Life Insurance Company
Limited (HSBC Life China). Completion is expected to occur during the first half of 2022. Headquartered in Shanghai, HSBC Life China
offers a comprehensive range of insurance solutions covering annuity, whole life, critical illness and unit-linked insurance products and
in 2021 reported gross written premiums of approximately $0.4b n (2020: $0.3b n).
•On 28 January 2022, HSBC Insurance (Asia-Pacific) Holdings Limited notified the shareholders of Canara HSBC Oriental Bank of
Commerce Life Insurance Company Limited (‘CHOICe’) of its intention to increase its shareholding in CHOICe up to 49%. HSBC
currently has a 26% shareholding which is accounted for as an associate. Any increase in shareholding is subject to agreement with
other shareholders in CHOICe, as well as internal and regulatory approvals. Established in 2008, CHOICe is a life insurance company
based in India with reported gross written premiums of approximately $0.7b n for the year to 31 March 2021 (31 March 2020: $0.5b n).
In 2021 HSBC Bank USA, N.A. entered into definitive sale agreements with Citizens Bank and Cathay Bank to sell approximately 90 of our
retail branches along with substantially all residential mortgage, unsecured and retail business banking loans and all deposits in our
branch network not associated with our Premier, Jade and Private Banking customers. The sale agreement with Cathay Bank completed
on 4 February 2022 and the sale agreement with Citizens Bank completed on 18 February 2022. For further information on the
transactions refer to Note 36: Business disposals on page 387.
A second interim dividend for 2021 of $0.18 per ordinary share (a distribution of approximately $3,649m) was approved by the Directors
after 31 December 2021. HSBC Holdings called $2,500m 3.262% Fixed to Floating Rate Senior Unsecured Notes due March 2023 on
8 February 2022. The security will be redeemed and cancelled on 13 March 2022. These accounts were approved by the Board of
Directors on 22 February 2022 and authorised for issue.
38
HSBC Holdings’ subsidiaries, joint ventures and associates
In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the
registered office addresses and the effective percentages of equity owned at 31 December 2021 are disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership
percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.
Notes on the financial statements
388
HSBC Holdings plc Annual Report and Accounts 2021
Subsidiaries
Subsidiaries
% of share class
held by immediate
parent company (or
by the Group where
this varies)
Footnotes
452 TALF Plus ABS Opportunities SPV LLC
100.00
15
452 TALF SPV LLC
100.00
15
Almacenadora Banpacifico S.A. (In Liquidation)
99.99
16
Arcadia Financial Services (Asia) Limited
100.00
17
Assetfinance December (F) Limited
100.00
18
Assetfinance December (H) Limited
100.00
19
Assetfinance December (P) Limited
100.00
19
Assetfinance December (R) Limited
100.00
19
Assetfinance June (A) Limited
100.00
19
Assetfinance June (D) Limited
100.00
18
Assetfinance Limited
100.00
19
Assetfinance March (B) Limited
100.00
20
Assetfinance March (D) Limited
100.00
18
Assetfinance March (F) Limited
100.00
19
Assetfinance September (F) Limited
100.00
19
Assetfinance September (G) Limited
100.00
18
B&Q Financial Services Limited
100.00
19
Banco HSBC S.A.
100.00
21
Banco Nominees (Guernsey) Limited
100.00
22
Banco Nominees 2 (Guernsey) Limited
100.00
22
Banco Nominees Limited
100.00
21
Beau Soleil Limited Partnership
N/A
0, 24
Beijing Miyun HSBC Rural Bank Company
Limited
100.00
12, 25
BentallGreenOak China Real Estate
Investments LP
N/A
0, 145
Billingsgate Nominees Limited (In Liquidation)
100.00
26
Canada Crescent Nominees (UK) Limited
100.00
19
Canada Square Nominees (UK) Limited
100.00
19
Capco/Cove, Inc.
100.00
27
Card-Flo #1, Inc.
100.00
15
Card-Flo #3, Inc.
100.00
15
CC&H Holdings LLC
100.00
28
CCF HOLDING (LIBAN) S.A.L. (In Liquidation)
74.99
29
CCF & Partners Asset Management Limited
100.00
(99.99)
19
Charterhouse Administrators (D.T.) Limited
100.00
(99.99)
19
Charterhouse Management Services Limited
100.00
(99.99)
19
Charterhouse Pensions Limited
100.00
19
Chongqing Dazu HSBC Rural Bank Company
Limited
100.00
12, 30
Chongqing Fengdu HSBC Rural Bank Company
Limited
100.00
12, 30
Chongqing Rongchang HSBC Rural Bank
Company Limited
100.00
12, 32
COIF Nominees Limited
N/A
0, 19
Cordico Management AG (In Liquidation)
100.00
33
Corsair IV Financial Services Capital Partners-B,
LP
N/A
0, 34
Dalian Pulandian HSBC Rural Bank Company
Limited
100.00
12, 35
Decision One Mortgage Company, LLC
N/A
0, 36
Dem 9
100.00
(99.99)
4, 37
Dempar 1
100.00
(99.99)
4, 37
Desarrollo Turistico, S.A. de C.V. (In
Liquidation)
100.00
(99.99)
16
Electronic Data Process México, S.A. de C.V.
100.00
16
Eton Corporate Services Limited
100.00
22
Far East Leasing SA (In Dissolution)
100.00
38
Flandres Contentieux S.A.
100.00
(99.99)
37
Foncière Elysées
100.00
(99.99)
37
Fujian Yongan HSBC Rural Bank Company
Limited
100.00
12, 39
Fulcher Enterprises Company Limited
100.00
(62.14)
40
Fundacion HSBC, A.C.
100.00
(99.99)
11, 16
Giller Ltd.
100.00
27
GPIF Co-Investment, LLC
N/A
0, 15
Griffin International Limited
100.00
19
Grundstuecksgesellschaft Trinkausstrasse
Kommanditgesellschaft
N/A
0, 41
Grupo Financiero HSBC, S. A. de C. V.
99.99
16
Guangdong Enping HSBC Rural Bank
Company Limited
100.00
12, 42
Guangzhou HSBC Real Estate Company Ltd
100.00
12, 43
Hang Seng (Nominee) Limited
100.00
(62.14)
40
Hang Seng Bank (China) Limited
100.00
(62.14)
44
Hang Seng Bank (Trustee) Limited
100.00
(62.14)
40
Hang Seng Bank Limited
62.14
40
Hang Seng Bullion Company Limited
100.00
(62.14)
40
Hang Seng Credit Limited
100.00
(62.14)
40
Hang Seng Data Services Limited
100.00
(62.14)
40
Hang Seng Finance Limited
100.00
(62.14)
40
Hang Seng Financial Information Limited
100.00
(62.14)
40
Hang Seng Indexes (Netherlands) B.V.
100.00
(62.14)
45
Hang Seng Indexes Company Limited
100.00
(62.14)
40
Hang Seng Insurance Company Limited
100.00
(62.14)
40
Hang Seng Investment Management Limited
100.00
(62.14)
40
Hang Seng Investment Services Limited
100.00
(62.14)
40
Hang Seng Life Limited
100.00
(62.14)
40
Hang Seng Qianhai Fund Management
Company Limited
70.00
(43.49)
1, 12, 46
Hang Seng Real Estate Management Limited
100.00
(62.14)
40
Hang Seng Securities Limited
100.00
(62.14)
40
Hang Seng Security Management Limited
100.00
(62.14)
40
HASE Wealth Limited
100.00
(62.14)
40
Haseba Investment Company Limited
100.00
(62.14)
40
HFC Bank Limited (In Liquidation)
100.00
26
High Time Investments Limited
100.00
(62.14)
40
Honey Blue Enterprises Limited
100.00
47
Honey Green Enterprises Ltd.
100.00
48
Honey Grey Enterprises Limited
100.00
49
Honey Silver Enterprises Limited
100.00
49
Household International Europe Limited (In
Liquidation)
100.00
50
Household Pooling Corporation
100.00
51
Housing (USA) LLP
N/A
0, 52
HSBC (BGF) Investments Limited
100.00
19
HSBC (General Partner) Limited
100.00
2, 53
HSBC (Guernsey) GP PCC Limited
100.00
22
HSBC (Kuala Lumpur) Nominees Sdn Bhd
100.00
54
HSBC (Malaysia) Trustee Berhad
100.00
55
HSBC (Singapore) Nominees Pte Ltd
100.00
56
HSBC Agency (India) Private Limited
100.00
57
HSBC Alternative Credit Strategies General
Partner S.a r.l.
N/A
0, 58
HSBC Alternative Investments Limited
100.00
19
HSBC Amanah Malaysia Berhad
100.00
54
HSBC Americas Corporation (Delaware)
100.00
15
HSBC Argentina Holdings S.A.
100.00
59
HSBC Asia Holdings B.V.
100.00
19
HSBC Asia Holdings Limited
100.00
2, 49
HSBC Asia Pacific Holdings (UK) Limited
100.00
19
HSBC Asset Finance (UK) Limited
100.00
19
HSBC Asset Finance M.O.G. Holdings (UK)
Limited
100.00
19
HSBC Asset Management (Fund Services UK)
Limited
100.00
19
HSBC Asset Management (Japan) Limited
100.00
61
HSBC Asset Management (India) Private
Limited
100.00
60
HSBC Assurances Vie (France)
100.00
(99.99)
62
HSBC Australia Holdings Pty Limited
100.00
63
HSBC BANK (CHILE)
100.00
64
HSBC Bank (China) Company Limited
100.00
12, 65
HSBC Bank (General Partner) Limited
100.00
53
HSBC Bank (Mauritius) Limited
100.00
66
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
HSBC Holdings plc Annual Report and Accounts 2021
389
HSBC Bank (RR) (Limited Liability Company)
N/A
0, 13, 67
HSBC Bank (Singapore) Limited
100.00
56
HSBC Bank (Taiwan) Limited
100.00
68
HSBC Bank (Uruguay) S.A.
100.00
69
HSBC Bank (Vietnam) Ltd.
100.00
70
HSBC Bank A.S.
100.00
71
HSBC Bank Argentina S.A.
99.99
59
HSBC Bank Armenia cjsc
100.00
72
HSBC Bank Australia Limited
100.00
63
HSBC Bank Bermuda Limited
100.00
23
HSBC Bank Canada
100.00
73
HSBC Bank Capital Funding (Sterling 1) LP
N/A
0, 53
HSBC Bank Capital Funding (Sterling 2) LP
N/A
0, 53
HSBC Bank Egypt S.A.E
94.54
74
HSBC Bank Malaysia Berhad
100.00
54
HSBC Bank Malta p.l.c.
70.03
75
HSBC Bank Middle East Limited
100.00
5, 76
HSBC Bank Middle East Limited
Representative Office Morocco SARL (In
Liquidation)
100.00
77
HSBC Bank Oman S.A.O.G.
51.00
78
HSBC Bank Pension Trust (UK) Limited
100.00
19
HSBC Bank plc
100.00
2, 19
HSBC Bank USA, National Association
100.00
3, 79
HSBC Branch Nominee (UK) Limited
100.00
18
HSBC Brasil Holding S.A.
100.00
21
HSBC Broking Forex (Asia) Limited
100.00
49
HSBC Broking Futures (Asia) Limited
100.00
49
HSBC Broking Futures (Hong Kong) Limited
100.00
49
HSBC Broking Securities (Asia) Limited
100.00
49
HSBC Broking Securities (Hong Kong) Limited
100.00
49
HSBC Broking Services (Asia) Limited
100.00
49
HSBC Canadian Covered Bond (Legislative) GP
Inc.
100.00
80
HSBC Canadian Covered Bond (Legislative)
Guarantor Limited Partnership
N/A
0, 80
HSBC Capital (USA), Inc.
100.00
15
HSBC Capital Funding (Dollar 1) L.P.
N/A
0, 53
HSBC Card Services Inc.
100.00
15
HSBC Casa de Bolsa, S.A. de C.V., Grupo
Financiero HSBC
100.00
(99.99)
16
HSBC Cayman Limited
100.00
81
HSBC Cayman Services Limited
100.00
81
HSBC City Funding Holdings
100.00
19
HSBC Client Holdings Nominee (UK) Limited
100.00
19
HSBC Client Nominee (Jersey) Limited
100.00
82
HSBC Columbia Funding, LLC
N/A
0, 15
HSBC Continental Europe
99.99
37
HSBC Corporate Advisory (Malaysia) Sdn Bhd
100.00
54
HSBC Corporate Finance (Hong Kong) Limited
100.00
49
HSBC Corporate Secretary (UK) Limited
100.00
2, 83
HSBC Corporate Trustee Company (UK)
Limited
100.00
19
HSBC Custody Nominees (Australia) Limited
100.00
63
HSBC Custody Services (Guernsey) Limited
100.00
22
HSBC Daisy Investments (Mauritius) Limited
100.00
84
HSBC Diversified Loan Fund General Partner
Sarl
N/A
0, 85
HSBC Electronic Data Processing (Guangdong)
Limited
100.00
12, 86
HSBC Electronic Data Processing (Malaysia)
Sdn Bhd
100.00
87
HSBC Electronic Data Processing (Philippines),
Inc.
99.99
88
HSBC Electronic Data Processing India Private
Limited
100.00
89
HSBC Electronic Data Processing Lanka
(Private) Limited
100.00
90
HSBC Electronic Data Service Delivery (Egypt)
S.A.E.
100.00
91
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
HSBC Epargne Entreprise (France)
100.00
(99.99)
62
HSBC Equipment Finance (UK) Limited
100.00
18
HSBC Equity (UK) Limited
100.00
19
HSBC Europe B.V.
100.00
19
HSBC Executor & Trustee Company (UK)
Limited
100.00
18
HSBC Factoring (France)
100.00
(99.99)
37
HSBC Finance (Netherlands)
100.00
2, 19
HSBC Finance Corporation
100.00
15
HSBC Finance Limited
100.00
19
HSBC Finance Mortgages Inc.
100.00
92
HSBC Finance Transformation (UK) Limited
100.00
19
HSBC Financial Advisors Singapore Pte. Ltd.
100.00
56
HSBC Financial Services (Lebanon) s.a.l.
99.65
93
HSBC Financial Services (Uruguay) S.A. (In
Liquidation)
100.00
94
HSBC FinTech Services (Shanghai) Company
Limited
100.00
95
HSBC Germany Holdings GmbH
100.00
41
HSBC Global Asset Management (Bermuda)
Limited
100.00
3, 23
HSBC Global Asset Management (Canada)
Limited
100.00
73
HSBC Global Asset Management
(Deutschland) GmbH
100.00
41
HSBC Global Asset Management (France)
100.00
(99.99)
62
HSBC Global Asset Management (Hong Kong)
Limited
100.00
24
HSBC Global Asset Management
(International) Limited (In Liquidation)
100.00
96
HSBC Global Asset Management (Malta)
Limited
100.00
(70.03)
97
HSBC Global Asset Management (México),
S.A. de C.V., Sociedad Operadora de Fondos
de Inversión, Grupo Financiero HSBC
100.00
(99.99)
16
HSBC Global Asset Management (Oesterreich)
GmbH (In Liquidation)
100.00
(99.33)
6, 98
HSBC Global Asset Management (Singapore)
Limited
100.00
56
HSBC Global Asset Management (Switzerland)
AG
100.00
(99.66)
4, 99
HSBC Global Asset Management (Taiwan)
Limited
100.00
100
HSBC Global Asset Management (UK) Limited
100.00
19
HSBC Global Asset Management (USA) Inc.
100.00
101
HSBC Global Asset Management Argentina
S.A. Sociedad Gerente de Fondos Comunes de
Inversión
100.00
(99.99)
102
HSBC Global Asset Management Holdings
(Bahamas) Limited
100.00
103
HSBC Global Asset Management Limited
100.00
2, 19
HSBC Global Custody Nominee (UK) Limited
100.00
19
HSBC Global Custody Proprietary Nominee
(UK) Limited
100.00
1, 19
HSBC Global Services (Canada) Limited
100.00
92
HSBC Global Services (China) Holdings Limited
100.00
19
HSBC Global Services (Hong Kong) Limited
100.00
49
HSBC Global Services (UK) Limited
100.00
19
HSBC Global Services Limited
100.00
2, 19
HSBC Global Shared Services (India) Private
Limited (In Liquidation)
99.99
1, 57
HSBC Group Management Services Limited
100.00
19
HSBC Group Nominees UK Limited
100.00
2, 19
HSBC Holdings B.V.
100.00
19
HSBC IM Pension Trust Limited
100.00
19
HSBC Infrastructure Debt GP 1 S.à r.l.
N/A
0, 58
HSBC Infrastructure Debt GP 2 S.à r.l.
N/A
0, 58
HSBC Infrastructure Limited
100.00
19
HSBC INKA Investment-AG TGV
100.00
(99.33)
14, 41
HSBC Institutional Trust Services (Asia) Limited
100.00
49
HSBC Institutional Trust Services (Bermuda)
Limited
100.00
23
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
Notes on the financial statements
390
HSBC Holdings plc Annual Report and Accounts 2021
HSBC Institutional Trust Services (Mauritius)
Limited
100.00
66
HSBC Institutional Trust Services (Singapore)
Limited
100.00
56
HSBC Insurance (Asia) Limited
100.00
104
HSBC Insurance (Asia-Pacific) Holdings
Limited
100.00
105
HSBC Insurance (Bermuda) Limited
100.00
23
HSBC Insurance (Singapore) Pte. Limited
100.00
56
HSBC Insurance Agency (USA) Inc.
100.00
101
HSBC Insurance Brokers (Philippines) Inc
99.99
106
HSBC Insurance Holdings Limited
100.00
2, 19
HSBC Insurance SAC 1 (Bermuda) Limited
100.00
23
HSBC Insurance SAC 2 (Bermuda) Limited
100.00
23
HSBC Insurance Services (Lebanon) S.A.L. (In
Liquidation)
99.99
107
HSBC Insurance Services Holdings Limited
100.00
19
HSBC International Finance Corporation
(Delaware)
100.00
108
HSBC International Trustee (BVI) Limited
100.00
109
HSBC International Trustee (Holdings) Pte.
Limited
100.00
56
HSBC International Trustee Limited
100.00
110
HSBC Inversiones S.A.
100.00
64
HSBC InvestDirect (India) Private Limited
100.00
(99.98)
60
HSBC InvestDirect Financial Services (India)
Limited
99.99
(99.98)
60
HSBC InvestDirect Sales & Marketing (India)
Limited
98.99
(98.98)
57
HSBC InvestDirect Securities (India) Private
Limited
99.99
60
HSBC Investment Bank Holdings B.V.
100.00
19
HSBC Investment Bank Holdings Limited
100.00
19
HSBC Investment Company Limited
100.00
2, 19
HSBC Investment Funds (Canada) Inc.
100.00
111
HSBC Investment Funds (Hong Kong) Limited
100.00
24
HSBC Investment Funds (Luxembourg) SA
100.00
58
HSBC Invoice Finance (UK) Limited
100.00
112
HSBC Issuer Services Common Depositary
Nominee (UK) Limited
100.00
19
HSBC Issuer Services Depositary Nominee
(UK) Limited
100.00
19
HSBC Latin America B.V.
100.00
19
HSBC Latin America Holdings (UK) Limited
100.00
2, 19
HSBC Leasing (Asia) Limited
100.00
49
HSBC Leasing (France)
100.00
(99.99)
37
HSBC Life (Cornell Centre) Limited
100.00
104
HSBC Life (Edwick Centre) Limited
100.00
104
HSBC Life (International) Limited
100.00
23
HSBC Life (Property) Limited
100.00
104
HSBC Life (Tsing Yi Industrial) Limited
100.00
104
HSBC Life (UK) Limited
100.00
19
HSBC Life Assurance (Malta) Limited
100.00
(70.03)
97
HSBC Life Insurance Company Limited
50.00
113
HSBC LU Nominees Limited
100.00
19
HSBC Management (Guernsey) Limited
100.00
114
HSBC Markets (USA) Inc.
100.00
15
HSBC Marking Name Nominee (UK) Limited
100.00
19
HSBC Master Trust Trustee Limited
100.00
19
HSBC Mexico, S.A., Institucion de Banca
Multiple, Grupo Financiero HSBC
99.99
16
HSBC Middle East Asset Co. LLC
100.00
115
HSBC Middle East Holdings B.V.
100.00
2, 116
HSBC Middle East Leasing Partnership
N/A
0, 117
HSBC Middle East Securities L.L.C
100.00
118
HSBC Mortgage Corporation (Canada)
100.00
119
HSBC Mortgage Corporation (USA)
100.00
15
HSBC Nominees (Asing) Sdn Bhd
100.00
54
HSBC Nominees (Hong Kong) Limited
100.00
49
HSBC Nominees (New Zealand) Limited
100.00
120
HSBC Nominees (Tempatan) Sdn Bhd
100.00
54
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
HSBC North America Holdings Inc.
100.00
3, 15
HSBC Operational Services GmbH
80.00
41
HSBC Overseas Holdings (UK) Limited
100.00
2, 19
HSBC Overseas Investments Corporation (New
York)
100.00
121
HSBC Overseas Nominee (UK) Limited
100.00
19
HSBC Participaciones (Argentina) S.A.
100.00
(99.99)
59
HSBC PB Corporate Services 1 Limited
100.00
122
HSBC PB Services (Suisse) SA
100.00
123
HSBC Pension Trust (Ireland) DAC
100.00
124
HSBC Pensiones, S.A.
100.00
(99.99)
16
HSBC PI Holdings (Mauritius) Limited
100.00
66
HSBC Portfoy Yonetimi A.S.
100.00
125
HSBC Preferential LP (UK)
100.00
19
HSBC Private Bank (Luxembourg) S.A.
100.00
58
HSBC Private Bank (Suisse) SA
100.00
126
HSBC Private Bank (UK) Limited
100.00
19
HSBC Private Banking Holdings (Suisse) SA
100.00
123
HSBC Private Banking Nominee 3 (Jersey)
Limited
100.00
127
HSBC Private Equity Investments (UK) Limited
100.00
19
HSBC Private Trustee (Hong Kong) Limited
100.00
49
HSBC Private Investment Counsel (Canada)
Inc.
100.00
111
HSBC Private Markets Management SARL
N/A
0, 128
HSBC Professional Services (India) Private
Limited
100.00
129
HSBC Property (UK) Limited
100.00
19
HSBC Property Funds (Holding) Limited
100.00
19
HSBC Provident Fund Trustee (Hong Kong)
Limited
100.00
49
HSBC Qianhai Securities Limited
51.00
12, 130
HSBC Real Estate Leasing (France)
100.00
(99.99)
37
HSBC Realty Credit Corporation (USA)
100.00
15
HSBC REGIO Fund General Partner S.à r.l.
100.00
58
HSBC REIM (France)
100.00
(99.99)
62
HSBC Retirement Benefits Trustee (UK) Limited
100.00
1, 2, 19
HSBC Retirement Services Limited
100.00
1, 19
HSBC Saudi Arabia, a Saudi closed Joint Stock
Company
66.19
131
HSBC Savings Bank (Philippines) Inc.
99.99
132
HSBC Securities (Canada) Inc.
100.00
92
HSBC Securities (Egypt) S.A.E. (In Liquidation)
100.00
(94.65)
74
HSBC Securities (Japan) Limited
100.00
19
HSBC Securities (Singapore) Pte Limited
100.00
56
HSBC Securities (South Africa) (Pty) Limited
100.00
133
HSBC Securities (Taiwan) Corporation Limited
100.00
134
HSBC Securities (USA) Inc.
100.00
15
HSBC Securities and Capital Markets (India)
Private Limited
99.99
57
HSBC Securities Brokers (Asia) Limited
100.00
49
HSBC Securities Investments (Asia) Limited
100.00
49
HSBC Securities Preparatory (Japan) Co., Ltd.
100.00
61
HSBC Securities Services (Bermuda) Limited
100.00
23
HSBC Securities Services (Guernsey) Limited
100.00
22
HSBC Securities Services (Ireland) DAC
100.00
124
HSBC Securities Services (Luxembourg) S.A.
100.00
58
HSBC Securities Services Holdings (Ireland)
DAC
100.00
124
HSBC Securities Services Nominees Limited
100.00
49
HSBC Seguros de Retiro (Argentina) S.A.
100.00
(99.99)
59
HSBC Seguros de Vida (Argentina) S.A.
100.00
(99.99)
59
HSBC Seguros, S.A de C.V., Grupo Financiero
HSBC
100.00
(99.99)
3, 16
HSBC Service Company Germany GmbH
100.00
41
HSBC Service Delivery (Polska) Sp. z o.o.
100.00
135
HSBC Services (France)
100.00
(99.99)
37
HSBC Services Japan Limited
100.00
136
HSBC Services USA Inc.
100.00
137
HSBC Servicios Financieros, S.A. de C.V
100.00
(99.99)
16
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
HSBC Holdings plc Annual Report and Accounts 2021
391
HSBC Servicios, S.A. DE C.V., Grupo
Financiero HSBC
100.00
(99.99)
16
HSBC SFH (France)
100.00
(99.99)
4, 62
HSBC SFT (C.I.) Limited
100.00
22
HSBC Software Development (Guangdong)
Limited
100.00
138
HSBC Software Development (India) Private
Limited
100.00
187
HSBC Software Development (Malaysia) Sdn
Bhd
100.00
87
HSBC Specialist Investments Limited
100.00
19
HSBC Technology & Services (China) Limited
100.00
139
HSBC Technology & Services (USA) Inc.
100.00
15
HSBC Transaction Services GmbH
100.00
6, 41
HSBC Trinkaus & Burkhardt (International) S.A.
100.00
58
HSBC Trinkaus & Burkhardt AG
100.00
41
HSBC Trinkaus & Burkhardt Gesellschaft fur
Bankbeteiligungen mbH
100.00
41
HSBC Trinkaus Europa Immobilien-Fonds Nr. 5
GmbH
100.00
41
HSBC Trinkaus Family Office GmbH
100.00
6, 41
HSBC Trinkaus Real Estate GmbH
100.00
6, 41
HSBC Trust Company (Canada)
100.00
119
HSBC Trust Company (Delaware), National
Association
100.00
108
HSBC Trust Company (UK) Limited
100.00
19
HSBC Trust Company AG (In Liquidation)
100.00
33
HSBC Trustee (C.I.) Limited
100.00
127
HSBC Trustee (Cayman) Limited
100.00
140
HSBC Trustee (Guernsey) Limited
100.00
22
HSBC Trustee (Hong Kong) Limited
100.00
49
HSBC Trustee (Singapore) Limited
100.00
56
HSBC UK Bank plc
100.00
2, 18
HSBC UK Client Nominee Limited
100.00
18
HSBC UK Holdings Limited
100.00
2, 19
HSBC USA Inc.
100.00
121
HSBC Ventures USA Inc.
100.00
15
HSBC Violet Investments (Mauritius) Limited
100.00
84
HSBC Wealth Client Nominee Limited
100.00
1, 18
HSBC Yatirim Menkul Degerler A.S.
100.00
125
HSI Asset Securitization Corporation
100.00
15
HSI International Limited
100.00
(62.14)
40
HSIL Investments Limited
100.00
19
Hubei Macheng HSBC Rural Bank Company
Limited
100.00
141
Hubei Suizhou Cengdu HSBC Rural Bank
Company Limited
100.00
12, 142
Hubei Tianmen HSBC Rural Bank Company
Limited
100.00
143
Hunan Pingjiang HSBC Rural Bank Company
Limited
100.00
12, 144
Imenson Limited
100.00
(62.14)
40
INKA Internationale Kapitalanlagegesellschaft
mbH
100.00
41
Inmobiliaria Banci, S.A. de C.V.
100.00
(99.68)
16
Inmobiliaria Bisa, S.A. de C.V.
99.98
16
Inmobiliaria Grufin, S.A. de C.V.
100.00
(99.99)
16
Inmobiliaria Guatusi, S.A. de C.V.
100.00
(99.99)
16
James Capel & Co. Limited (In Liquidation)
100.00
19
James Capel (Nominees) Limited
100.00
19
James Capel (Taiwan) Nominees Limited
100.00
19
John Lewis Financial Services Limited
100.00
19
Keyser Ullmann Limited
100.00
(99.99)
19
Lion Corporate Services Limited
100.00
49
Lion International Corporate Services Limited
100.00
1, 110
Lion International Management Limited
100.00
110
Lion Management (Hong Kong) Limited
100.00
1, 49
Lyndholme Limited
100.00
49
Marks and Spencer Financial Services plc
100.00
146
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
Marks and Spencer Unit Trust Management
Limited
100.00
146
Maxima S.A. AFJP (In Liquidation)
99.98
59
Mexicana de Fomento, S.A. de C.V.
100.00
(99.90)
16
Midcorp Limited
100.00
19
Midland Bank (Branch Nominees) Limited
100.00
18
Midland Nominees Limited
100.00
18
MIL (Cayman) Limited
100.00
81
MW Gestion SA
100.00
59
Promocion en Bienes Raices, S.A. de C.V.
100.00
(99.99)
16
Prudential Client HSBC GIS Nominee (UK)
Limited
100.00
19
PT Bank HSBC Indonesia
99.99
(98.93)
147
PT HSBC Sekuritas Indonesia
85.00
148
R/CLIP Corp.
100.00
15
Real Estate Collateral Management Company
100.00
15
Republic Nominees Limited
100.00
22
Republic Overseas Capital Corporation
100.00
101
RLUKREF Nominees (UK) One Limited
100.00
1, 19
RLUKREF Nominees (UK) Two Limited
100.00
1, 19
S.A.P.C. - Ufipro Recouvrement
99.99
37
Saf Baiyun
100.00
(99.99)
4, 37
Saf Guangzhou
100.00
(99.99)
4, 37
SCI HSBC Assurances Immo
100.00
(99.99)
62
Serai Limited
100.00
1, 49
Serai Technology Development (Shanghai)
Limited
100.00
12, 149
SFM
100.00
(99.99)
37
SFSS Nominees (Pty) Limited
100.00
133
Shandong Rongcheng HSBC Rural Bank
Company Limited
100.00
12, 150
Shenzhen HSBC Development Company Ltd
100.00
12, 151
Sico Limited
100.00
152
SNC Dorique
99.99
1, 11, 153
SNC Les Oliviers D'Antibes
60.00
62
SNCB/M6 - 2008 A
100.00
(99.99)
37
SNCB/M6-2007 A
100.00
(99.99)
4, 37
SNCB/M6-2007 B
100.00
(99.99)
4, 37
Société Française et Suisse
100.00
(99.99)
37
Somers Dublin DAC
100.00
(99.99)
124
Somers Nominees (Far East) Limited
100.00
23
Sopingest
100.00
(99.99)
37
South Yorkshire Light Rail Limited
100.00
19
St Cross Trustees Limited
100.00
18
Sun Hung Kai Development (Lujiazui III)
Limited
100.00
12, 154
Swan National Limited
100.00
19
Tasfiye Halinde HSBC Odeme Sistemleri
Bilgisayar Teknolojileri Basin Yayin Ve Musteri
Hizmetleri (In Liquidation)
100.00
71
The Hongkong and Shanghai Banking
Corporation Limited
100.00
49
The Venture Catalysts Limited
100.00
19
Tooley Street View Limited
100.00
2, 19
Tower Investment Management
100.00
155
Trinkaus Australien Immobilien Fonds Nr. 1
Brisbane GmbH & Co. KG
100.00
41
Trinkaus Australien Immobilien-Fonds Nr. 1
Treuhand-GmbH
100.00
6, 41
Trinkaus Europa Immobilien-Fonds Nr.3 Objekt
Utrecht Verwaltungs-GmbH
100.00
41
Trinkaus Immobilien-Fonds
Geschaeftsfuehrungs-GmbH
100.00
6, 41
Trinkaus Immobilien-Fonds Verwaltungs-
GmbH
100.00
6, 41
Trinkaus Private Equity Management GmbH
100.00
41
Trinkaus Private Equity Verwaltungs GmbH
100.00
6, 41
Tropical Nominees Limited
100.00
81
Turnsonic (Nominees) Limited
100.00
18
Valeurs Mobilières Elysées
100.00
(99.99)
37
Wardley Limited
100.00
49
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
Notes on the financial statements
392
HSBC Holdings plc Annual Report and Accounts 2021
Wayfoong Nominees Limited
100.00
49
Wayhong (Bahamas) Limited (In Liquidation)
100.00
103
Westminster House, LLC
N/A
0, 15
Woodex Limited
100.00
23
Yan Nin Development Company Limited
100.00
(62.14)
40
Subsidiaries
% of share class held
by immediate parent
company (or by the
Group where this
varies)
Footnotes
J oint ventures
The undertakings below are joint ventures and equity accounted.
Joint ventures
% of share class
held by immediate
parent company (or
by the Group where
this varies)
Footnotes
Global Payments Technology Mexico S.A. De
C.V.
50.00
16
HCM Holdings Limited (In Liquidation)
50.99
28
House Network Sdn Bhd (In Liquidation)
25.00
156
HSBC Pollination Climate Asset Management
Limited
40.00
157
ProServe Bermuda Limited
50.00
158
The London Silver Market Fixing Limited
N/A
0, 1, 159
Vaultex UK Limited
50.00
160
Associates
The undertakings below are associates and equity accounted.
Associates
% of share class
held by immediate
parent company (or
by the Group where
this varies)
Footnotes
Bank of Communications Co., Ltd.
19.03
161
Barrowgate Limited
15.31
162
BGF Group PLC
24.61
163
Bud Financial Limited
10.89
1, 164
Canara HSBC Oriental Bank of Commerce Life
Insurance Company Limited
26.00
165
CFAC Payment Scheme Limited (In
Liquidation)
33.33
166
Contour Pte Ltd
12.60
167
Divido Financial Services Limited
5.60
168
Episode Six Limited
8.09
169
EPS Company (Hong Kong) Limited
38.66
49
EURO Secured Notes Issuer
16.66
170
GZHS Research Co Ltd
20.50
171
HSBC Jintrust Fund Management Company
Limited
49.00
172
HSBC UK Covered Bonds (LM) Limited
20.00
173
HSBC UK Covered Bonds LLP
N/A
0, 18
Icon Brickell LLC (In Liquidation)
N/A
0, 174
Liquidity Match LLC
N/A
0, 175
London Precious Metals Clearing Limited
25.00
176
MENA Infrastructure Fund (GP) Ltd
33.33
177
Quantexa Ltd
10.10
178
Services Epargne Entreprise
14.18
179
Simon Group LLC
N/A
0, 180
sino AG
24.94
181
The London Gold Market Fixing Limited
25.00
159
The Saudi British Bank
31.00
182
Trade Information Network Limited
16.67
183
Trinkaus Europa Immobilien-Fonds Nr. 7
Frankfurt Mertonviertel KG
N/A
0, 41
Vizolution Limited
17.95
1, 184
We Trade Innovation Designated Activity
Company
9.88
1, 185
Threadneedle Software Holdings Limited
6.60
186
HSBC Holdings plc Annual Report and Accounts 2021
393
Footnotes for Note 38
Description of Shares
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
Management has determined that these undertakings are
excluded from consolidation in the Group accounts as these
entities do not meet the definition of subsidiaries in accordance
with IFRS. HSBC’s consolidation policy is described in Note
1.2(a).
2
Directly held by HSBC Holdings plc
3
Preference Shares
4
Actions
5
Redeemable Preference Shares
6
GmbH Anteil
7
Limited and Unlimited Liability Shares
8
Liquidating Share Class
9
Nominal Shares
10
Non-Participating Voting Shares
11
Parts
12
Registered Capital Shares
13
Russian Limited Liability Company Shares
14
Stückaktien
15
c/o The Corporation Trust Company 1209 Orange Street,
Wilmington, Delaware, United States of America, 19801
16
Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500
17
Unit 232 & 233, Solo Offices, 343-347 King’s Road, North
Point, Hong Kong
18
1 Centenary Square, Birmingham, United Kingdom, B1 1HQ
19
8 Canada Square, London, United Kingdom, E14 5HQ
20
5 Donegal Square South, Northern Ireland, Belfast, United
Kingdom, BT1 5JP
21
1909 Avenida Presidente Juscelino Kubitschek, 19° andar,
Torre Norte, São Paulo Corporate Towers, São Paulo, Brazil,
04551-903
22
Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1
3NF
23
37 Front Street, Hamilton, Bermuda, HM 11
24
HSBC Main Building 1 Queen's Road Central, Hong Kong
25
First Floor, Xinhua Bookstore Xindong Road (SE of
roundabout), Miyun District, Beijing, China
26
156 Great Charles Street, Queensway, Birmingham, West
Midlands, United Kingdom, B3 3HN
27
95 Washington Street Buffalo, New York, United States of
America, 14203
28
Corporation Service Company 251 Little Falls Drive,
Wilmington, Delaware, United States of America, 19808
29
Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box
17 5476 Mar Michael, Beyrouth, Lebanon, 11042040
30
No 1, Bei Huan East Road Dazu County, Chongqing, China
31
No 107 Ping Du Avenue (E), Sanhe Town, Fengdu County,
Chongqing, China
32
No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang,
Chongqing, China, 402460
33
Bederstrasse 49, Zurich, Switzerland, CH-8002
34
c/o Walkers Corporate Services Limited Walker House, 87
Mary Street, George Town, Grand Cayman, Cayman Islands,
KY1-9005
35
First & Second Floor, No.3 Nanshan Road, Pulandian , Dalian,
Liaoning, China
Registered offices
36
160 Mine Lake CT, Ste 200, Raleigh, North Carolina, United
States Of America, 27615-6417
37
38 avenue Kléber, Paris, France, 75116
38
MMG Tower, 23 floor Ave. Paseo del Mar Urbanizacion Costa
del Este, Panama
39
No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China
40
83 Des Voeux Road Central, Hong Kong
41
Hansaallee 3, Düsseldorf, Germany, 40549
42
No.44 Xin Ping Road Central, Encheng, Enping, Guangdong,
China, 529400
43
Room 1701-010 Heung Kong Building, 37 Jin Long Rd,
Nansha District, Guangzhou, China
44
34/F and 36/F, Hang Seng Bank Tower 1000 Lujiazui Ring
Road, Pilot Free Trade Zone, Shanghai, Shanghai, China,
200120
45
Claude Debussylaan 10 Office Suite 20, 1082MD, Amsterdam,
Netherlands
46
Claude Debussylaan 10 Office Suite 20, 1082MD, Amsterdam,
Netherlands
47
1001, T2 Office Building, Qianhai Kerry Business Center,
Qianhai Avenue, Nanshan Street, Qianhai Shenzhen-Hong
Kong Cooperation Zone,, Shenzhen, Guangdong, China
48
Commerce House, Wickhams Cay 1, P.O. Box 3140, Road
Town, Tortola, British Virgin Islands, VG1110
49
1 Queen's Road Central, Hong Kong
50
Hill House 1 Little New Street, London, United Kingdom, EC4A
3TR
51
The Corporation Trust Company of Nevada 311 S. Division
Street, Carson City, Nevada, United States of America, 89703
52
Corporation Service Company 2711 Centerville Road, Suite
400, Wilmington, Delaware, United States of America, 19808
53
HSBC House Esplanade, St. Helier, Jersey, JE4 8UB
54
Level 21 Menara IQ, Lingkaran TRX, Tun Razak Exchange,
Kuala Lumpur, Malaysia, 55188
55
13th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur,
Malaysia, 50100
56
10 Marina Boulevard #48-01 Marina Bay Financial Centre,
Singapore, 018983
57
52/60 M G Road Fort, Mumbai, India, 400 001
58
16 Boulevard d'Avranches, Luxembourg, Luxembourg, L-1160
59
557 Bouchard Level 20, Ciudad de Buenos Aires, Capital
federal, Argentina, C1106ABG
60
9-11 Floors, NESCO IT Park Building No. 3 Western Express
Highway, Goregaon (East), Mumbai, India, 400063
61
Level 21 Menara IQ, Lingkaran TRX, Tun Razak Exchange,
Kuala Lumpur, Malaysia, 55188
62
Immeuble Cœur Défense 110 esplanade du Général de Gaulle,
Courbevoie, France, 92400
63
Level 36 Tower 1 International Towers Sydney, 100
Barangaroo Avenue, Sydney, New South Wales, Australia,
2000
64
Isidora Goyenechea 2800 23rd floor, Las Condes, Santiago,
Chile, 7550647
65
HSBC Building Shanghai ifc, 8 Century Avenue, Pudong,
Shanghai, China, 200120
66
6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201
67
2 Paveletskaya square building 2, Moscow, Russian
Federation, 115054
68
13F-14F, 333 Keelung Road, Sec.1, Taipei, 110, Taiwan
69
Rincón 391 Montevideo, CP 11.000, Uruguay, 11000
70
The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh
City, Viet Nam
71
Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Turkey,
34394
72
66 Teryan street, Yerevan, Armenia, 0009
Registered offices
Notes on the financial statements
394
HSBC Holdings plc Annual Report and Accounts 2021
73
885 West Georgia Street 3rd Floor, Vancouver, British
Columbia, Canada, V6C 3E9
74
306 Corniche El Nil, P.O. Box 124, Maadi, Egypt, 11728
75
116 Archbishop Street, Valletta, Malta
76
Level 1, Building No. 8, Gate Village Dubai International
Financial Centre, United Arab Emirates, P.O. Box 30444
77
Majer Consulting, Office 54/44, Building A1, Residence Ryad
Anfa, Boulevard Omar El Khayam, Casa Finance City (CFC),
Casablanca, Morocco
78
Al Khuwair Office PO Box 1727 PC111 CPO Seeb, Muscat,
Oman
79
1800 Tysons Boulevard Suite 50, Tysons, Virginia, United
States of America, 22102
80
66 Wellington Street West, Suite 5300, Toronto, Ontario,
Canada, M5K 1E6
81
P.O. Box 1109, Strathvale House, Ground floor, 90 North
Church Street, George Town, Grand Cayman, Cayman Islands,
KY1-1102
82
HSBC House Esplanade, St. Helier, Jersey, JE1 1HS
83
8 Canada Square, London, United Kingdom, E14 5HQ
84
c/o Rogers Capital St. Louis Business Centre, Cnr Desroches &
St Louis Streets, Port Louis, Mauritius
85
49 avenue J.F. Kennedy, Luxembourg, Luxembourg,
1855
86
4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian
He District, Guangzhou, Guangdong, China
87
Suite 1005, 10th Floor, Wisma Hamzah Kwong, Hing No. 1,
Leboh Ampang, Kuala Lumpur, Malaysia, 50100
88
HSBC, Filinvest One Bldg Northgate Cyberzone, Filinvest
Corporate City, Alabang, Muntinlupa City, Philippines, 1781
89
HSBC House Plot No.8 Survey No.64 (Part), Hightec City
Layout Madhapur, Hyderabad, India, 500081
90
439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya,
Colombo, Sri Lanka
91
Smart Village 28th Km Cairo- Alexandria Desert Road Building,
Cairo, Egypt
92
16 York Street, 6th Floor, Toronto, Ontario, Canada, M5J 0E6
93
Centre Ville 1341 Building - 4th Floor Patriarche Howayek
Street (facing Beirut Souks), PO Box Riad El Solh, Lebanon,
9597
94
World Trade Center Montevideo Avenida Luis Alberto de
Herrera 1248, Torre 1, Piso 15, Oficina 1502, Montevideo,
Uruguay, CP 11300
95
Room 655, Building A, No. 888, Huan Hu West Two Road, Lin
Gang New Area of Shanghai (Pilot) Free Trade Zone, China,
Shanghai, Shanghai, China
96
HSBC House Esplanade, St. Helier, Jersey, JE4 8WP
97
80 Mill Street, Qormi, Malta, QRM 3101
98
Herrengasse 1-3, Wien, Austria, 1010
99
26 Gartenstrasse, Zurich, Switzerland, 8002
100
24th Fl. 97-99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C.,
Taiwan
101
452 Fifth Avenue, New York, United States of America,
102
Bouchard 557, Piso 18°, Cdad. Autónoma de Buenos Aires,
Argentina, 1106
103
Mareva House 4 George Street, Nassau, Bahamas
104
18th Floor, Tower 1, HSBC Centre 1 Sham Mong Road,
Kowloon, Hong Kong
105
Level 32, HSBC Main Building 1 Queen's Road Central, Hong
Kong SAR, Hong Kong
106
7/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City,
Taguig City, Philippines
107
HSBC Building Minet El Hosn, Riad el Solh, Beirut 1107-2080,
Lebanon, P.O. Box 11-1380
108
300 Delaware Avenue Suite 1401, Wilmington, Delaware,
United States Of America, 19801
Registered offices
109
Woodbourne Hall, Road Town, Tortola, British Virgin Islands,
P.O. Box 916
110
Craigmuir Chambers, PO Box 71, Road Town, Tortola, British
Virgin Islands
111
300-885 West Georgia Street, Vancouver, British Columbia,
Canada, V6C 3E9
112
21 Farncombe Road Worthing, United Kingdom, BN11 2BW
113
Unit 1602 of 16/F,18/F, Unit 2101, 2113, 2113A, 2115 and
2116 of 21/F, HSBC Building, 8 Century Avenue, China
(Shanghai) Pilot Free Trade Zone, China
114
Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1
1WA
115
Plot No.312-878 Mezzanine Floor, Bldg. of Sheikh Hamdan Bin
Rashid, Dubai Creek, Dubai, United Arab Emirates
116
Level 1, Building No. 8, Gate Village Dubai International
Financial Centre, PO Box 30444, United Arab Emirates
117
Unit 101 Level 1, Gate Village Building No. 8 Dubai
International Financial Centre (DIFC), Dubai, United Arab
Emirates, PO Box 506553
118
Office No.16 Owned by HSBC Bank Middle East Limited,
Dubai Branch, Bur Dubai, Burj Khalifa, Dubai, United Arab
Emirates
119
885 West Georgia Street Suite 300, Vancouver, British
Columbia, Canada, V6C 3E9
120
HSBC Tower, Level 21, 188 Quay Street, Auckland, New
Zealand, 1010
121
The Corporation Trust Incorporated, 2405 York Road, Suite
201, Lutherville Timonium, Maryland, United States of America
122
HSBC House Esplanade, St. Helier, Jersey, JE1 1GT
123
Quai des Bergues 9-17, Geneva, Switzerland, 1201
124
1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland,
D02 P820
125
Büyükdere Caddesi No.128, Istanbul, Turkey, 34394
126
Quai des Bergues 9-17, Geneva, Switzerland, 1201
127
HSBC House Esplanade, St Helier, Jersey, JE1 1GT
128
5 rue Heienhaff, Senningerberg, Luxembourg, 1736
129
52/60 M G Road, Fort, Mumbai, India, 400 001
130
Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan
Yi Road, Shenzhen-Hong Kong Cooperation Zone, Shenzhen,
China, 518052
131
HSBC Building 7267 Olaya - Al Murrooj , Riyadh, Saudi Arabia,
12283 - 2255
132
Unit 1 GF The Commerical Complex Madrigal Avenue, Ayala
Alabang Village, Muntinlupa City, Philippines, 17
133
1 Mutual Place 107 Rivonia Road, Sandton, Sandton, Gauteng,
South Africa, 2196
134
13F 333 Keelung Road, Sec.1, Taipei, Taiwan, 110
135
Kapelanka 42A, Krakow, Poland, 30-347
136
MB&H Corporate Services Ltd Mareva House, 4 George Street,
Nassau, Bahamas
137
C T Corporation System 820 Bear Tavern Road, West Trenton,
New Jersey, United States Of America, 08628
138
L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe
District, Guangzhou, Guangdong, China
139
Level 19, HSBC Building, Shanghai ifc 8 Century Avenue
Pudong, Shanghai, China
140
P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,
KY1-1104
141
No. 56 Yu Rong Street, Macheng, China, 438300
142
No. 205 Lie Shan Road Suizhou, Hubei, China
143
Building 3, Yin Zuo Di Jing Wan Tianmen New City, Tianmen,
Hubei Province, China
144
RM101, 102 & 106 Sunshine Fairview, Sunshine Garden,
Pedestrian Walkway, Pingjiang, China
145
Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP
146
Kings Meadow Chester Business Park, Chester, United
Kingdom, CH99 9FB
Registered offices
HSBC Holdings plc Annual Report and Accounts 2021
395
147
World Trade Center 1, Floor 8-9 Jalan Jenderal Sudirman
Kavling 29 - 31, Jakarta, Indonesia, 12920
148
5th Floor, World Trade Center 1, Jl. Jend. Sudirman Kav.
29-31, Jakarta, Indonesia, 12920
149
Unit B02 20/F No. 168 Yin Cheng Zhong Road, Pilot Free Trade
Zone, Shanghai, China, 200120
150
No.198-2 Chengshan Avenue (E), Rongcheng, China, 264300
151
Room 1303-13062 Marine Center Main Tower, 59 Linhai Rd,
Nanshan District, Shenzhen, China
152
Woodbourne Hall, Road Town, Tortola, British Virgin Islands,
P.O. Box 3162
153
43 rue de Paris, Saint Denis, France, 97400
154
RM 2112, HSBC Building, Shanghai ifc No. 8 Century Road,
Pudong, Shanghai, China, 200120
155
25 Main St. P.O. Box 69, , Grand Cayman, Cayman Islands,
KY1-1107
156
No 5 Jalan Prof Khoo Kay Kim, Seksyen 13, Petaling Jaya,
Selangor, Malaysia, 46200
157
Office 1.01 21 Gloucester Place, London, United Kingdom,
158
c/o MUFG Fund Services (Bermuda) Limited The Belvedere
Building, 69 Pitts Bay Road, Pembroke, Bermuda, HM
159
c/o Hackwood Secretaries Limited One Silk Street, London,
United Kingdom, EC2Y 8HQ
160
All Saints Triangle Caledonian road, London, United Kingdom,
N19UT
161
No.188, Yin Cheng Zhong Road China (Shanghai), Pilot Free
Trade Zone, Shanghai, China
162
49/F The Lee Gardens, 33 Hysan Avenue, Hong Kong
163
13-15 York Buildings, London, United Kingdom, WC2N 6JU
164
Ground Floor, 25b Vyner Street, London, United Kingdom, E2
9DG
165
Unit No. 208, 2nd Floor, Kanchenjunga Building 18,
Barakhamba Road, New Delhi, India, 110001
166
65 Gresham Street 6th Floor, London, United Kingdom, EC2V
7NQ
167
50 Raffles Place, #32-01 Singapore Land Tower, Singapore,
168
Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M
7JN
169
9/F Amtel Bldg, 148 des Voeux Rd Central,, Central, Hong
Kong
170
3 avenue de l'Opera, Paris, France, 75001
171
Room 1303, 106 Feng Ze Dong Road, Nansha District,
Guangzhou, Guangdong, China
172
17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong,
Shanghai, China
173
10th Floor 5 Churchill Place, London, England, London, United
Kingdom, E14 5HU
174
C T Corporation System 1200 South Pine Island Road
Plantation, Florida, United States of America, 33324
175
100 Town Square Place, Suite 201 | Jersey City, NJ , United
States of America, 07310
176
1-2 Royal Exchange Buildings Royal Exchange, London, United
Kingdom, EC3V 3LF
177
Precinct Building 4, Level 3, Dubai International Financial
Centre, Dubai, United Arab Emirates, P.O. BOX 506553
178
75 Park Lane, Croydon, Surrey, United Kingdom, CR9 1XS
179
32 rue du Champ de Tir, Nantes, France, 44300
180
125 W 25th St. New York, New York, United States of
181
Ernst-Schneider-Platz 1, Duesseldorf, Germany, 40212
182
Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street, Riyadh,
Saudi Arabia
183
3 More London Riverside, London, United Kingdom, SE1 2AQ
184
Office Block A, Bay Studios Business Park, Fabian Way,
Swansea, Wales, United Kingdom, SA1 8QB
185
10 Earlsfort Terrace, Dublin, Ireland, D02 T380
Registered offices
186
34 Copse Wood Way, Northwood, Middlesex, United
Kingdom, HA6 2UA
187
Business Bay, Wing 2, Tower B, Survey no 103, Hissa no. 2,
Airport road, Yerwada Pune India 411006
Registered offices
Notes on the financial statements
396
HSBC Holdings plc Annual Report and Accounts 2021
Shareholder information
Page
Second Interim dividend for 2021
397
Interim dividends for 2022
397
Other equity instruments
397
2021 Annual General Meeting
397
Earnings releases and interim results
398
Shareholder enquiries and communications
398
Stock symbols
399
Investor relations
399
Where more information about HSBC is available
399
Taxation of shares and dividends
400
Approach to ESG reporting
401
Cautionary statement regarding forward-looking statements
402
Certain defined terms
404
Abbreviations
405
This section gives important information for our shareholders, including contact information. It also includes an overview of key
abbreviations and terminology used throughout the Annual Report and Accounts.
A glossary of terms used in the Annual Report and Accounts can be found in the Investors section of www.hsbc.com.
Second interim dividend for 2021
The Directors have approved a second interim dividend for 2021 of $0.18 per ordinary share. Information on the currencies in which
shareholders may elect to have the cash dividend paid will be sent to shareholders on or about 25 March 2022. The interim dividend will
be paid in cash. The timetable for the interim dividend is:
Announcement
22 February 2022
Shares quoted ex-dividend in London, Hong Kong and Bermuda and American Depositary Shares (‘ADS’) quoted ex-dividend
in New York
10 March 2022
Record date – London, Hong Kong, New York, Bermuda 1
11 March 2022
Mailing of Annual Report and Accounts 2021 and/or Strategic Report 2021 and dividend documentation
25 March 2022
Final date for receipt by registrars of forms of election, Investor Centre electronic instructions and revocations of standing instructions for
dividend elections
13 April 2022
Exchange rate determined for payment of dividends in sterling and Hong Kong dollars
19 April 2022
Payment date
28 April 2022
1 Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.
Interim dividends for 2022
The Group has reviewed whether it will revert to paying quarterly dividends and is currently not intending to pay quarterly dividends
during 2022. The Group will continue to review whether to revert to paying quarterly dividends in future years, and a further update will
be given at or ahead of the 2022 results announcement in February 2023.
For the financial year 2021, we are at the lower end of our target dividend payout ratio range of between 40% and 55% of reported
earnings per ordinary share (‘EPS’), driven by ECL releases and higher restructure costs. The dividend policy has the flexibility to adjust
EPS for non-cash significant items such as goodwill or intangibles impairments and may be supplemented from time to time by buy-
backs or special dividends, should the Group find itself in an excess capital position absent compelling investment opportunities to
deploy that excess.
Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars,
pounds sterling and Hong Kong dollars.
Other equity instruments
Additional tier 1 capital – contingent convertible securities
HSBC continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1
capital securities. For further details on these securities, please refer to Note 31 on the financial statements.
HSBC issued $1,000m 4.000% and $1,000m 4.700% Perpetual Contingent Convertible Securities on 9 March 2021.
2021 Annual General Meeting
With the exception of the shareholder requisitioned Resolution 16, which the Board recommended that shareholders vote against, all
resolutions considered at the 2021 Annual General Meeting held at 11:00am on 28 May 2021 at Queen Elizabeth Hall, Southbank Centre,
Belvedere Road, London SE1 8XX, UK were passed on a poll.
HSBC Holdings plc Annual Report and Accounts 2021
397
Earnings releases and interim results
First and third quarter results for 2022 will be released on 26 April 2022 and 25 October 2022 respectively. The interim results for the six
months to 30 June 2022 will be issued on 1 August 2022.
Shareholder enquiries and communications
Enquiries
Any enquiries relating to shareholdings on the share register (for example, transfers of shares, changes of name or address, lost share
certificates or dividend cheques) should be sent to the Registrars at the address given below. The Registrars offer an online facility,
Investor Centre, which enables shareholders to manage their shareholding electronically.
Principal Register:
Hong Kong Overseas Branch Register:
Bermuda Overseas Branch Register:
Computershare Investor Services PLC
Computershare Hong Kong Investor
Investor Relations Team
The Pavilions
Services Limited
HSBC Bank Bermuda Limited
Bridgwater Road
Rooms 1712-1716, 17th Floor
37 Front Street
Bristol BS99 6ZZ
Hopewell Centre
Hamilton HM 11
United Kingdom
183 Queen’s Road East
Bermuda
Telephone: +44 (0) 370 702 0137
Hong Kong
Telephone: +1 441 299 6737
Email via website:
Telephone: +852 2862 8555
Email: hbbm.shareholder.services@hsbc.bm
www.investorcentre.co.uk/contactus
Email: hsbc.ecom@computershare.com.hk
Investor Centre:
Investor Centre:
Investor Centre:
www.investorcentre.co.uk
www.investorcentre.com/hk
www.investorcentre.com/bm
Any enquiries relating to ADSs should be sent to the depositary:
The Bank of New York Mellon
Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
USA
Telephone (US): +1 877 283 5786
Telephone (International): +1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
If you have elected to receive general shareholder communications directly from HSBC Holdings, it is important to remember that your
main contact for all matters relating to your investment remains the registered shareholder, or custodian or broker, who administers the
investment on your behalf. Therefore, any changes or queries relating to your personal details and holding (including any administration
of it) must continue to be directed to your existing contact at your investment manager or custodian or broker. HSBC Holdings cannot
guarantee dealing with matters directed to it in error.
Shareholders who wish to receive a hard copy of the Annual Report and Accounts 2021 should contact HSBC’s Registrars. Please visit
www.hsbc.com/investors/investor-contacts for further information. You can also download an online version of the report from
www.hsbc.com.
Electronic communications
Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability
on HSBC’s website. To receive notifications of the availability of a corporate communication on HSBC’s website by email, or revoke or
amend an instruction to receive such notifications by email, go to www.hsbc.com/investors/shareholder-information/manage-your-
shareholding. If you provide an email address to receive electronic communications from HSBC, we will also send notifications of your
dividend entitlements by email. If you received a notification of the availability of this document on HSBC’s website and would like to
receive a printed copy, or if you would like to receive future corporate communications in printed form, please write or send an email
(quoting your shareholder reference number) to the appropriate Registrars at the address given above. Printed copies will be provided
without charge.
Additional information
398
HSBC Holdings plc Annual Report and Accounts 2021
Chinese translation
A Chinese translation of the Annual Report and Accounts 2021 will be available upon request after 25 March 2022 from the Registrars:
Computershare Hong Kong Investor Services Limited
Computershare Investor Services PLC
Rooms 1712-1716, 17th Floor
The Pavilions
Hopewell Centre
Bridgwater Road
183 Queen’s Road East
Bristol BS99 6ZZ
Hong Kong
United Kingdom
Please also contact the Registrars if you wish to receive Chinese translations of future documents, or if you have received a Chinese
translation of this document and do not wish to receive them in future.
Stock symbols
HSBC Holdings ordinary shares trade under the following stock symbols:
London Stock Exchange
HSBA*
New York Stock Exchange (ADS)
HSBC
Hong Kong Stock Exchange
5
Bermuda Stock Exchange
HSBC.BH
*HSBC’s Primary market
Investor relations
Enquiries relating to HSBC’s strategy or operations may be directed to:
Richard O’Connor, Global Head of Investor Relations
Mark Phin, Head of Investor Relations, Asia-Pacific
HSBC Holdings plc
The Hongkong and Shanghai Banking
8 Canada Square
Corporation Limited
London E14 5HQ
1 Queen’s Road Central
United Kingdom
Hong Kong
Telephone: +44 (0) 20 7991 6590
Telephone: 852 2822 4908
Email: investorrelations@hsbc.com
Email: investorrelations@hsbc.com.hk
Where more information about HSBC is available
This Annual Report and Accounts 2021 and other information on HSBC may be downloaded from HSBC’s website: www.hsbc.com.
Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at
www.sec.gov. Investors can also request hard copies of these documents upon payment of a duplicating fee by writing to the SEC at the
Office of Investor Education and Advocacy, 100 F Street N.E., Washington, DC 20549-0213 or by emailing PublicInfo@sec.gov. Investors
should call the Commission at (1) 202 551 8090 if they require further assistance. Investors may also obtain the reports and other
information that HSBC Holdings files at www.nyse.com (telephone number (1) 212 656 3000).
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country Reporting
Regulations 2013. The legislation requires HSBC Holdings to publish additional information in respect of the year ended 31 December
2021 by 31 December 2022. This information will be available on HSBC’s website: www.hsbc.com/tax.
HSBC Holdings plc Annual Report and Accounts 2021
399
Taxation of shares and dividends
Taxation – UK residents
The following is a summary, under current law and the current
published practice of HM Revenue and Customs (‘HMRC’), of
certain UK tax considerations that are likely to be material to the
ownership and disposition of HSBC Holdings ordinary shares. The
summary does not purport to be a comprehensive description of
all the tax considerations that may be relevant to a holder of
shares. In particular, the summary deals with shareholders who
are resident solely in the UK for UK tax purposes and only with
holders who hold the shares as investments and who are the
beneficial owners of the shares, and does not address the tax
treatment of certain classes of holders such as dealers in
securities. Holders and prospective purchasers should consult
their own advisers regarding the tax consequences of an
investment in shares in light of their particular circumstances,
including the effect of any national, state or local laws.
Taxation of dividends
Currently, no tax is withheld from dividends paid by
HSBC Holdings.
UK resident individuals
UK resident individuals are generally entitled to a tax-free annual
allowance in respect of dividends received. The amount of the
allowance for the tax year beginning 6 April 2021 is £2,000. To the
extent that dividend income received by an individual in the
relevant tax year does not exceed the allowance, a nil tax rate will
apply. Dividend income in excess of this allowance will be taxed at
7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and
38.1% for additional rate taxpayers. From 6 April 2022, these rates
will each be increased by 1.25% to 8.75%, 33.75% and 39.35%
respectively.
UK resident companies
Shareholders that are within the charge to UK corporation
tax should generally be entitled to an exemption from UK
corporation tax on any dividends received from HSBC Holdings.
However, the exemptions are not comprehensive and are subject
to anti-avoidance rules.
If the conditions for exemption are not met or cease to be
satisfied, or a shareholder within the charge to UK corporation tax
elects for an otherwise exempt dividend to be taxable, the
shareholder will be subject to UK corporation tax on dividends
received from HSBC Holdings at the rate of corporation tax
applicable to that shareholder.
Scrip dividends
There were no scrip dividends issued during the year. As
announced on 23 February 2021, the Group has decided to
discontinue the scrip dividend option.
Taxation of capital gains
The computation of the capital gains tax liability arising on
disposals of shares in HSBC Holdings by shareholders subject to
UK tax on capital gains can be complex, partly depending on
whether, for example, the shares were purchased since April 1991,
acquired in 1991 in exchange for shares in The Hongkong and
Shanghai Banking Corporation Limited, or acquired subsequent to
1991 in exchange for shares in other companies.
For capital gains tax purposes, the acquisition cost for ordinary
shares is adjusted to take account of subsequent rights and
capitalisation issues. Any capital gain arising on a disposal of
shares in HSBC Holdings by a UK company may also be adjusted
to take account of indexation allowance if the shares were
acquired before 1 January 2018, although the level of indexation
allowance that is given in calculating the gain would be frozen at
the value that would be applied to a disposal of those shares in
December 2017. If in doubt, shareholders are recommended to
consult their professional advisers.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer generally
will be subject to UK stamp duty at the rate of 0.5% of the
consideration paid for the transfer (rounded up to the next £5), and
such stamp duty is generally payable by the transferee. An
agreement to transfer shares, or any interest therein, normally will
give rise to a charge to stamp duty reserve tax at the rate of 0.5%
of the consideration. However, provided an instrument of transfer
of the shares is executed pursuant to the agreement and duly
stamped before the date on which the stamp duty reserve tax
becomes payable, under the current published practice of HMRC it
will not be necessary to pay the stamp duty reserve tax, nor to
apply for such tax to be cancelled. Stamp duty reserve tax is
generally payable by the transferee.
Paperless transfers of shares within CREST, the UK’s paperless
share transfer system, are liable to stamp duty reserve tax at the
rate of 0.5% of the consideration. In CREST transactions, the tax is
calculated and payment made automatically. Deposits of shares
into CREST generally will not be subject to stamp duty reserve tax,
unless the transfer into CREST is itself for consideration. Following
the case HSBC pursued before the European Court of Justice
(Case C-569/07 HSBC Holdings plc and Vidacos Nominees Ltd v
The Commissioners for HM Revenue and Customs) and a
subsequent case in relation to depositary receipts, HMRC
accepted that the charge to stamp duty reserve tax at 1.5% on the
issue of shares (and transfers integral to capital raising) to a
depositary receipt issuer or a clearance service was incompatible
with European Union law, and would not be imposed.
Following the UK’s departure from the European Union and the
expiry of the transition period, the 1.5% stamp duty reserve tax
charge on issues of shares to overseas clearance services and
depositary receipt issuers is still disapplied, but no assurance can
be given that legislation will not be amended in the future to
reintroduce the charge.
Taxation – US residents
The following is a summary, under current law, of the principal UK
tax and US federal income tax considerations that are likely to be
material to the ownership and disposition of shares or American
Depositary Shares (‘ADSs’) by a holder that is a US holder, as
defined below, and who is not resident in the UK for UK tax
purposes.
The summary does not purport to be a comprehensive description
of all of the tax considerations that may be relevant to a holder of
shares or ADSs. In particular, the summary deals only with US
holders that hold shares or ADSs as capital assets, and does not
address the tax treatment of holders that are subject to special tax
rules. These include banks, tax-exempt entities, insurance
companies, dealers in securities or currencies, persons that hold
shares or ADSs as part of an integrated investment (including a
‘straddle’ or ‘hedge’) comprised of a share or ADS and one or
more other positions, and persons that own directly or indirectly
10% or more (by vote or value) of the stock of HSBC Holdings.
This discussion is based on laws, treaties, judicial decisions and
regulatory interpretations in effect on the date hereof, all of which
are subject to change.
For the purposes of this discussion, a ‘US holder’ is a beneficial
holder that is a citizen or resident of the United States, a US
domestic corporation or otherwise is subject to US federal income
taxes on a net income basis in respect thereof.
Holders and prospective purchasers should consult their own
advisers regarding the tax consequences of an investment in
shares or ADSs in light of their particular circumstances, including
the effect of any national, state or local laws.
Any US federal tax advice included in the Annual Report and
Accounts 2021 is for informational purposes only. It was not
intended or written to be used, and cannot be used, for the
purpose of avoiding US federal tax penalties.
Additional information
400
HSBC Holdings plc Annual Report and Accounts 2021
Taxation of dividends
Currently, no tax is withheld from dividends paid by HSBC
Holdings. For US tax purposes, a US holder must include cash
dividends paid on the shares or ADSs in ordinary income on the
date that such holder or the ADS depositary receives them,
translating dividends paid in UK pounds sterling into US dollars
using the exchange rate in effect on the date of receipt. A US
holder that elects to receive shares in lieu of a cash dividend must
include in ordinary income the fair market value of such shares on
the dividend payment date, and the tax basis of those shares will
equal such fair market value.
Subject to certain exceptions for positions that are held for less
than 61 days, and subject to a foreign corporation being
considered a ‘qualified foreign corporation’ (which includes not
being classified for US federal income tax purposes as a passive
foreign investment company), certain dividends (‘qualified
dividends’) received by an individual US holder generally will be
subject to US taxation at preferential rates. Based on the
company’s audited financial statements and relevant market and
shareholder data, HSBC Holdings was not and does not anticipate
being classified as a passive foreign investment company.
Accordingly, dividends paid on the shares or ADSs generally
should be treated as qualified dividends.
Taxation of capital gains
Gains realised by a US holder on the sale or other disposition of
shares or ADSs normally will not be subject to UK taxation unless
at the time of the sale or other disposition the holder carries on a
trade, profession or vocation in the UK through a branch or agency
or permanent establishment and the shares or ADSs are or have
been used, held or acquired for the purposes of such trade,
profession, vocation, branch or agency or permanent
establishment. Such gains will be included in income for US tax
purposes, and will be long-term capital gains if the shares or ADSs
were held for more than one year. A long-term capital gain
realised by an individual US holder generally will be subject to US
tax at preferential rates.
Inheritance tax
Shares or ADSs held by an individual whose domicile is
determined to be the US for the purposes of the United States –
United Kingdom Double Taxation Convention relating to estate
and gift taxes (the ‘Estate Tax Treaty’) and who is not for such
purposes a national of the UK will not, provided any US federal
estate or gift tax chargeable has been paid, be subject to UK
inheritance tax on the individual’s death or on a lifetime transfer of
shares or ADSs except in certain cases where the shares or ADSs
(i) are comprised in a settlement (unless, at the time of the
settlement, the settlor was domiciled in the US and was not a
national of the UK), (ii) are part of the business property of a UK
permanent establishment of an enterprise, or (iii) pertain to a UK
fixed base of an individual used for the performance of
independent personal services. In such cases, the Estate Tax
Treaty generally provides a credit against US federal tax liability for
the amount of any tax paid in the UK in a case where the shares or
ADSs are subject to both UK inheritance tax and to US federal
estate or gift tax.
Stamp duty and stamp duty reserve tax – ADSs
If shares are transferred to a clearance service or American
Depositary Receipt (‘ADR’) issuer (which will include a transfer of
shares to the depositary) under the current published HMRC
practice, UK stamp duty and/or stamp duty reserve tax will be
payable. The stamp duty or stamp duty reserve tax is generally
payable on the consideration for the transfer and is payable at the
aggregate rate of 1.5%.
The amount of stamp duty reserve tax payable on such a transfer
will be reduced by any stamp duty paid in connection with the
same transfer.
No stamp duty will be payable on the transfer of, or agreement to
transfer, an ADS, provided that the ADR and any separate
instrument of transfer or written agreement to transfer remain at
all times outside the UK, and provided further that any such
transfer or written agreement to transfer is not executed in the UK.
No stamp duty reserve tax will be payable on a transfer of, or
agreement to transfer, an ADS effected by the transfer of an ADR.
US information reporting and backup withholding tax
Distributions made on shares or ADSs and proceeds from the sale
of shares or ADSs that are paid within the US, or through certain
financial intermediaries to US holders, are subject to US
information reporting and may be subject to a US ‘backup’
withholding tax. General exceptions to this rule happen when the
US holder: establishes that it is a corporation (other than an S
corporation) or other exempt holder; or provides a correct taxpayer
identification number, certifies that no loss of exemption from
backup withholding has occurred and otherwise complies with the
applicable requirements of the backup withholding rules. Holders
that are not US taxpayers generally are not subject to US
information reporting or backup withholding tax, but may be
required to comply with applicable certification procedures to
establish that they are not US taxpayers in order to avoid the
application of such US information reporting requirements or
backup withholding tax to payments received within the US or
through certain financial intermediaries.
Approach to ESG reporting
The information set out in the ESG review on pages 42 to 88,
taken together with other information relating to ESG issues
included in this Annual Report and Accounts 2021, aims to provide
key ESG information and data relevant to our operations for the
year ended 31 December 2021. The data is compiled for the
financial year 1 January to 31 December 2021 unless otherwise
specified. Measurement techniques and calculations are explained
next to data tables where necessary. There are no significant
changes from the previous reporting period in terms of scope,
boundary or measurement of our reporting of ESG matters. Where
relevant, rationale is provided for any restatement of information
or data that has been previously published. We have also
considered our obligations under the Environmental, Social and
Governance Reporting Guide contained in Appendix 27 to The
Rules Governing the Listing of Securities on the Stock Exchange of
Hong Kong Limited (‘ESG Guide’) and under LR9.8.6R(8) of the
Financial Conduct Authority’s (‘FCA’) Listing Rules. We will
continue to develop and refine our reporting and disclosures on
ESG matters in line with feedback received from our investors and
other stakeholders, and in view of our obligations under the ESG
Guide and the FCA’s Listing Rules.
ESG Guide
We comply with the ‘comply or explain’ provisions in the ESG
Guide, save for certain items, which we describe in more detail
below:
•A1(b) on relevant laws/regulations relating to air and
greenhouse gas emissions, discharges into water and land, and
generation of hazardous and non-hazardous waste: Taking into
account the nature of our business, we do not believe that
there are relevant laws and regulations in these areas that have
significant impacts on HSBC.
•A1.3 on total hazardous waste produced, A1.4 on total non-
hazardous waste produced: Taking into account the nature of
our business, we do not consider hazardous waste to be a
material issue for our stakeholders. As such, we report only on
total waste produced, which includes hazardous and non-
hazardous waste.
•A1.6 on handling hazardous and non-hazardous waste: Taking
into account the nature of our business, we do not consider this
to be a material issue for our stakeholders. Notwithstanding
this, we continue to focus on the reduction and recycling of all
waste. Building on the success of our previous operational
environmental strategy, we are identifying key opportunities
where we can lessen our wider environmental impact,
including waste management. For further details, please see
our ESG review on page 51.
•A2.4 on sourcing water issue: Taking into account the nature of
our business, we do not consider this to be a material issue for
HSBC Holdings plc Annual Report and Accounts 2021
401
our stakeholders. Notwithstanding this, we have implemented
measures to further reduce water consumption through the
installation of flow restrictors, auto-taps and low or zero flush
sanitary fittings and continue to track our water consumption.
•A2.5 on packaging material, B2.2 on lost days due to work
injury, B6(b) on issues related to health and safety and labelling
relating to products and services provided, B6.1 on percentage
of total products sold or shipped subject to recalls for safety
and health reasons and B6.4 in recall procedures: Taking into
account the nature of our business, we do not consider these to
be material issues for our stakeholders.
This is aligned with the materiality reporting principle that is set
out in the ESG Guide. See ‘How we decide what to measure’ on
page 44 for further information on how we determine what
matters are material to our stakeholders.
TCFD recommendations and recommended
disclosures
As noted on page 19, we have considered our ‘comply or explain’
obligation under the FCA’s Listing Rules, and confirm that we have
made disclosures consistent with the TCFD Recommendations
and Recommended Disclosures in this Annual Report and
Accounts 2021 save for certain items, which we describe below:
Targets setting
Metrics and targets (c) relating to short-term targets: Given that
climate scenarios are mainly focused on medium- to long-term
horizons, rather than short term, we have set interim 2030 targets
for on-balance sheet financed emissions for the oil and gas, and
power and utilities sectors. HSBC intends to review the financed
emissions baseline and targets annually, where relevant, to help
ensure that they are aligned with market practice and current
climate science.
Impacts on financial planning and performance
Strategy (b) relating to financial planning and performance: We do
not currently fully disclose the impacts of climate-related issues on
financial planning, how these serve as an input to the financial
planning process, the impact of climate-related issues on our
financial performance (for example, revenues and costs) and
financial position (for example, assets and liabilities), in each case
due to transitional challenges including data and system
limitations.
Metrics and targets (a) relating to internal carbon prices and
climate-related opportunities metrics: We do not currently fully
disclose the proportion of revenue or proportion of assets, or other
business activities aligned with climate-related opportunities,
including revenue from products and services, forward-looking
metrics consistent with our business or strategic planning time
horizons, or internal carbon prices, in each case due to transitional
challenges including data and system limitations.
We expect the data and system limitations related to financial
planning and performance, internal carbon prices and climate-
related opportunities metrics to be addressed in the medium term
as more reliable data becomes available and technology solutions
are implemented.
Impacts of transition and physical risk
Strategy (c) relating to quantitative scenario analysis: We do not
currently fully disclose the impacts of transition and physical risk
quantitatively, due to transitional challenges including data
limitations and evolving science and methodologies.
Metrics and targets (a) relating to detailed climate-related risk
exposure metrics for retail and wholesale: We do not fully disclose
metrics used to assess the impact of climate-related risks on retail
lending, parts of wholesale lending and other financial
intermediary business activities (specifically credit exposure,
equity and debt holdings, or trading positions, each broken down
by industry, geography, credit quality, average tenor). This is due
to transitional challenges including data limitations.
Metrics and targets (c) on targets related to physical risk: We do
not currently disclose targets used to measure and manage
physical risk. This is due to transitional challenges including data
limitations.
We expect the data limitations related to quantitative scenario
analysis, specific risk metrics and physical risk targets to be
addressed in the medium term as more reliable data becomes
available and technology solutions are implemented.
Scope 3 emissions disclosure
Metrics and targets (b) relating to scope 3 emissions metrics: We
currently disclose partial scope 3 greenhouse gas emissions
including business travel and financed emissions. In relation to
financed emissions, we are disclosing scope 3 greenhouse gas
emissions for the oil and gas, and the power and utilities sectors.
Future disclosure on scope 3 financed emissions (customers) and
supply chain emissions (suppliers), and related risks is reliant on
both our customers and suppliers publicly disclosing their carbon
emissions and related risks. We aim to disclose financed
emissions for additional sectors by 2023.
Our approach to disclosure of financed emissions for additional
sectors can be found on: www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
Other matters
Strategy (b) relating to acquisitions/divestments and access to
capital: We have considered the impact of climate-related issues
on our businesses, strategy, and financial planning, but not
specifically in relation to acquisitions/divestments or access to
capital. Due to transitional challenges such as process limitations,
we do not disclose the climate-related impact in these areas. We
will aim to further enhance our processes in relation to
acquisitions/divestments and access to capital in the medium
term.
Metrics and targets (c) relating to water usage target: We have
described the targets used by the organisation to manage climate-
related risks and opportunities and performance against targets.
However, taking into account the nature of our business, we do
not consider water usage to be a material target for our business
and, therefore, we have not included a target in this year’s
disclosure.
With respect to our obligations under LR9.8.6R(8) of the FCA’s
Listing Rules, as part of considering what to measure and publicly
report, we perform an assessment to ascertain the appropriate
level of detail to be included in the climate-related financial
disclosures that are set out in our Annual Report and Accounts.
Our assessment takes into account factors such as the level of our
exposure to climate-related risks and opportunities, the scope and
objectives of our climate-related strategy, transitional challenges,
and the nature, size and complexity of our business. See ‘How we
decide what to measure’ on page 44 for further information.
Cautionary statement regarding forward-
looking statements
The Annual Report and Accounts 2021 contains certain forward-
looking statements with respect to HSBC’s financial condition;
results of operations and business, including the strategic
priorities; financial, investment and capital targets; and ESG
targets, commitments and ambitions described herein.
Statements that are not historical facts, including statements
about HSBC’s beliefs and expectations, are forward-looking
statements. Words such as ‘may’, ‘will’, ‘should’, ‘expects’,
‘targets’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’,
‘estimates’, ‘potential’ and ‘reasonably possible’, or the negative
thereof, other variations thereon or similar expressions are
intended to identify forward-looking statements. These statements
are based on current plans, information, data, estimates and
projections, and therefore undue reliance should not be placed on
them. Forward-looking statements speak only as of the date they
are made. HSBC makes no commitment to revise or update any
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking
statements. Written and/or oral forward-looking statements may
also be made in the periodic reports to the US Securities and
Additional information
402
HSBC Holdings plc Annual Report and Accounts 2021
Exchange Commission, summary financial statements to
shareholders, proxy statements, offering circulars and
prospectuses, press releases and other written materials, and in
oral statements made by HSBC’s Directors, officers or employees
to third parties, including financial analysts. Forward-looking
statements involve inherent risks and uncertainties. Readers are
cautioned that a number of factors could cause actual results to
differ, in some instances materially, from those anticipated or
implied in any forward-looking statement. These include, but are
not limited to:
•changes in general economic conditions in the markets in
which we operate, such as new recessions and fluctuations in
employment and creditworthy customers beyond those
factored into consensus forecasts (including, without limitation,
as a result of the Covid-19 pandemic); the Covid-19 pandemic,
which may continue to have adverse impacts on our income
due to lower lending and transaction volumes, lower wealth
and insurance manufacturing revenue, and volatile interest
rates in markets where we operate, as well as, more generally,
the potential for material adverse impacts on our financial
condition, results of operations, prospects, liquidity, capital
position and credit ratings; deviations from the market and
economic assumptions that form the basis for our ECL
measurements (including, without limitation, as a result of the
Covid-19 pandemic); potential changes in HSBC’s dividend
policy; changes in foreign exchange rates and interest rates,
including the accounting impact resulting from financial
reporting in respect of hyperinflationary economies; volatility in
equity markets; lack of liquidity in wholesale funding or capital
markets, which may affect our ability to meet our obligations
under financing facilities or to fund new loans, investments and
businesses; geopolitical tensions or diplomatic developments
producing social instability or legal uncertainty, such as
diplomatic tensions, including between China and the US, the
UK, the EU, India and other countries, and developments in
Hong Kong and Taiwan, alongside other potential areas of
tension, which may affect the Group by creating regulatory,
reputational and market risks; the efficacy of government,
customer, and HSBC's actions in managing and mitigating ESG
risks, in particular climate risk, nature-related risks and human
rights risks, each of which can impact HSBC both directly and
indirectly through our customers and which may result in
potential financial and non-financial impacts; illiquidity and
downward price pressure in national real estate markets;
adverse changes in central banks’ policies with respect to the
provision of liquidity support to financial markets; heightened
market concerns over sovereign creditworthiness in over-
indebted countries; adverse changes in the funding status of
public or private defined benefit pensions; societal shifts in
customer financing and investment needs, including consumer
perception as to the continuing availability of credit; exposure
to counterparty risk, including third parties using us as a
conduit for illegal activities without our knowledge; the
discontinuation of certain key Ibors and the development of
near risk-free benchmark rates, as well as the transition of
legacy Ibor contracts to near risk free benchmark rates, which
exposes HSBC to material execution risks, and increases some
financial and non-financial risks; and price competition in the
market segments we serve;
•changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities in the principal markets in which
we operate and the consequences thereof (including, without
limitation, actions taken as a result of the Covid-19 pandemic);
initiatives to change the size, scope of activities and
interconnectedness of financial institutions in connection with
the implementation of stricter regulation of financial institutions
in key markets worldwide; revised capital and liquidity
benchmarks, which could serve to deleverage bank balance
sheets and lower returns available from the current business
model and portfolio mix; changes to tax laws and tax rates
applicable to HSBC, including the imposition of levies or taxes
designed to change business mix and risk appetite; the
practices, pricing or responsibilities of financial institutions
serving their consumer markets; expropriation, nationalisation,
confiscation of assets and changes in legislation relating to
foreign ownership; the UK’s relationship with the EU following
the UK’s withdrawal from the EU, which may continue to be
characterised by uncertainty, particularly with respect to the
regulation of financial services, despite the signing of the
Trade and Cooperation Agreement between the UK and the EU;
passage of the Hong Kong national security law and
restrictions on telecommunications, as well as the US Hong
Kong Autonomy Act, which have caused tensions between
China, the US and the UK; general changes in government
policy that may significantly influence investor decisions; the
costs, effects and outcomes of regulatory reviews, actions or
litigation, including any additional compliance requirements;
and the effects of competition in the markets where we operate
including increased competition from non-bank financial
services companies; and
•factors specific to HSBC, including our success in adequately
identifying the risks we face, such as the incidence of loan
losses or delinquency, and managing those risks (through
account management, hedging and other techniques); our
ability to achieve our financial, investment, capital and ESG
targets, commitments and ambitions (including with respect to
the commitments set forth in our thermal coal phase-out policy
and our targets to reduce our on-balance sheet financed
emissions in the oil and gas and power and utilities sectors),
which may result in our failure to achieve any of the expected
benefits of our strategic priorities; model limitations or failure,
including, without limitation, the impact that the consequences
of the Covid-19 pandemic have had on the performance and
usage of financial models, which may require us to hold
additional capital, incur losses and/or use compensating
controls, such as judgemental post model adjustments, to
address model limitations; changes to the judgements,
estimates and assumptions we base our financial statements
on; changes in our ability to meet the requirements of
regulatory stress tests; a reduction in the credit ratings
assigned to us or any of our subsidiaries, which could increase
the cost or decrease the availability of our funding and affect
our liquidity position and net interest margin; changes to the
reliability and security of our data management, data privacy,
information and technology infrastructure, including threats
from cyber-attacks, which may impact our ability to service
clients and may result in financial loss, business disruption and/
or loss of customer services and data; changes in insurance
customer behaviour and insurance claim rates; our dependence
on loan payments and dividends from subsidiaries to meet our
obligations; changes in accounting standards, including the
implementation of IFRS 17 ‘Insurance Contracts’, which may
have a material impact on the way we prepare our financial
statements and (with respect to IFRS 17) may negatively affect
the profitability of HSBC’s insurance business; changes in our
ability to manage third-party, fraud and reputational risks
inherent in our operations; employee misconduct, which may
result in regulatory sanctions and/or reputational or financial
harm; changes in skill requirements, ways of working and
talent shortages, which may affect our ability to recruit and
retain senior management and diverse and skilled personnel;
and changes in our ability to develop sustainable finance and
climate-related products consistent with the evolving
expectations of our regulators, and our capacity to measure the
climate impact from our financing activity (including as a result
of data limitations and changes in methodologies), which may
affect our ability to achieve our climate ambition, our targets to
reduce financed emissions in our oil and gas and power and
utilities portfolio and the commitments set forth in our thermal
coal phase-out policy, and increase the risk of greenwashing.
Effective risk management depends on, among other things,
our ability through stress testing and other techniques to
prepare for events that cannot be captured by the statistical
models it uses; our success in addressing operational, legal and
regulatory, and litigation challenges; and other risks and
uncertainties we identify in ‘Top and emerging risks’ on pages
124 to 131.
HSBC Holdings plc Annual Report and Accounts 2021
403
Certain defined terms
Unless the context requires otherwise, ‘HSBC Holdings’ means
HSBC Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’
refer to HSBC Holdings together with its subsidiaries. Within this
document the Hong Kong Special Administrative Region of the
People’s Republic of China is referred to as ‘Hong Kong’. When
used in the terms ‘shareholders’ equity’ and ‘total shareholders’
equity’, ‘shareholders’ means holders of HSBC Holdings ordinary
shares and those preference shares and capital securities issued
by HSBC Holdings classified as equity. The abbreviations ‘$m’,
‘$bn’ and ‘$tn’ represent millions, billions (thousands of millions)
and trillions of US dollars, respectively.
Additional information
404
HSBC Holdings plc Annual Report and Accounts 2021
Abbreviations
Currencies
£
British pound sterling
CA$
Canadian dollar
€
Euro
HK$
Hong Kong dollar
MXN
Mexican peso
RMB
Chinese renminbi
SGD
Singapore dollar
$
United States dollar
A
ABS¹
Asset-backed security
ADR
American Depositary Receipt
ADS
American Depositary Share
AGM
Annual General Meeting
AI
Artificial intelligence
AIEA
Average interest-earning assets
ALCO
Asset and Liability Management Committee
AML
Anti-money laundering
AML DPA
Five-year deferred prosecution agreement with the US
Department of Justice, entered into in December 2012
ASEAN
Association of Southeast Asian Nations
AT1
Additional tier 1
B
Basel Committee
Basel Committee on Banking Supervision
Basel II¹
2006 Basel Capital Accord
Basel III¹
Basel Committee’s reforms to strengthen global capital and
liquidity rules
BGF
Business Growth Fund, an investment firm that provides
growth capital for small and mid-sized businesses in the UK
and Ireland
BoCom
Bank of Communications Co., Limited, one of China’s largest
banks
BoE
Bank of England
Bps¹
Basis points. One basis point is equal to one-hundredth of a
percentage point
BVI
British Virgin Islands
C
CAPM
Capital asset pricing model
CDS¹
Credit default swap
CEA
Commodity Exchange Act (US)
CET1¹
Common equity tier 1
CGUs
Cash-generating units
CMB
Commercial Banking, a global business
CMC
Capital maintenance charge
CODM
Chief Operating Decision Maker
COSO
2013 Committee of the Sponsors of the Treadway
Commission (US)
CP¹
Commercial paper
CRD IV¹
Capital Requirements Regulation and Directive
CRR¹
Customer risk rating
CRR II¹
Revised Capital Requirements Regulation and Directive, as
implemented
CSA
Credit support annex
CSM
Contractual service margin
CVA¹
Credit valuation adjustment
D
Deferred Shares
Awards of deferred shares define the number of HSBC
Holdings ordinary shares to which the employee will become
entitled, generally between one and seven years from the
date of the award, and normally subject to the individual
remaining in employment
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer Protection Act
(US)
DoJ
US Department of Justice
DPD
Days past due
DPF
Discretionary participation feature of insurance and
investment contracts
DVA¹
Debt valuation adjustment
E
EAD¹
Exposure at default
EBA
European Banking Authority
EC
European Commission
ECB
European Central Bank
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
EEA
European Economic Area
Eonia
Euro Overnight Index Average
EPC
Energy performance certificate
EPS
Earnings per ordinary share
ESG
Environmental, social and governance
EU
European Union
Euribor
Euro interbank offered rate
EVE
Economic value of equity
F
FAST-Infra
Finance to Accelerate the Sustainable Transition-
Infrastructure
FCA
Financial Conduct Authority (UK)
FFVA
Funding fair value adjustment estimation methodology on
derivative contracts
FPA
Fixed pay allowance
FRB
Federal Reserve Board (US)
FRC
Financial Reporting Council
FSB
Financial Stability Board
FSCS
Financial Services Compensation Scheme
FTE
Full-time equivalent staff
FTSE
Financial Times Stock Exchange index
FVOCI¹
Fair value through other comprehensive income
FVPL¹
Fair value through profit or loss
FX
Foreign exchange
FX DPA
Three-year deferred prosecution agreement with the US
Department of Justice, entered into in January 2018
G
GAAP
Generally accepted accounting principles
GAC
Group Audit Committee
GBM
Global Banking and Markets, a global business
GDP
Gross domestic product
GEC
Group Executive Committee
GLCM
Global Liquidity and Cash Management
GMP
Guaranteed minimum pension
GPSP
Group Performance Share Plan
GRC
Group Risk Committee
Group
HSBC Holdings together with its subsidiary undertakings
GTRF
Global Trade and Receivables Finance
H
Hang Seng Bank
Hang Seng Bank Limited, one of Hong Kong’s largest banks
HKEx
The Stock Exchange of Hong Kong Limited
HKMA
Hong Kong Monetary Authority
HMRC
HM Revenue and Customs
HNAH
HSBC North America Holdings Inc.
Holdings ALCO
HSBC Holdings Asset and Liability Management Committee
Hong Kong
Hong Kong Special Administrative Region of the People’s
Republic of China
HQLA
High-quality liquid assets
HSBC
HSBC Holdings together with its subsidiary undertakings
HSBC Bank
HSBC Bank plc, also known as the non-ring-fenced bank
HSBC Bank
Middle East
HSBC Bank Middle East Limited
HSBC Bank USA
HSBC Bank USA, N.A., HSBC’s retail bank in the US
HSBC Canada
The sub-group, HSBC Bank Canada, HSBC Trust Company
Canada, HSBC Mortgage Corporation Canada and HSBC
Securities Canada, consolidated for liquidity purposes
HSBC
Continental
Europe
HSBC Continental Europe
HSBC Holdings plc Annual Report and Accounts 2021
405
HSBC Finance
HSBC Finance Corporation, the US consumer finance
company (formerly Household International, Inc.)
HSBC Holdings
HSBC Holdings plc, the parent company of HSBC
HSBC Private
Bank (Suisse)
HSBC Private Bank (Suisse) SA, HSBC’s private bank in
Switzerland
HSBC UK
HSBC UK Bank plc, also known as the ring-fenced bank
HSBC USA
The sub-group, HSBC USA Inc (the holding company of
HSBC Bank USA) and HSBC Bank USA, consolidated for
liquidity purposes
HSI
HSBC Securities (USA) Inc.
HSSL
HSBC Securities Services (Luxembourg)
HTIE
HSBC International Trust Services (Ireland) Limited
I
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IBA
ICE Benchmark Administration
Ibor
Interbank offered rate
ICAAP
Internal capital adequacy assessment process
IEA
International Energy Agency
IFRSs
International Financial Reporting Standards
ILAAP
Internal liquidity adequacy assessment process
IMA
Internal model approach
IMM
Internal model method
IRB¹
Internal ratings-based
ISDA
International Swaps and Derivatives Association
J
JV
Joint venture
K
KMP
Key Management Personnel
L
LCR
Liquidity coverage ratio
LGBT+
Lesbian, gay, bisexual and transgender. The plus sign
denotes other non-mainstream groups on the spectrums of
sexual orientation and gender identity
LGD¹
Loss given default
Libor
London interbank offered rate
Long term
For our strategic goals, we define long term as five to six
years, commencing 1 January 2020
LTI
Long-term incentive
LTV¹
Loan to value
M
Mainland China
People’s Republic of China excluding Hong Kong and Macau
Medium term
For our strategic goals, we define medium term as three to
five years, commencing 1 January 2020
MENA
Middle East and North Africa
MREL
Minimum requirement for own funds and eligible liabilities
MRT¹
Material Risk Taker
MSS
Markets and Securities Services, HSBC’s capital markets and
securities services businesses in Global Banking and Markets
N
Net operating
income
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
NGO
Non-governmental organisation
NII
Net interest income
NIM
Net interest margin
NPS
Net promoter score
NSFR
Net stable funding ratio
NYSE
New York Stock Exchange
NZBA
Net-Zero Banking Alliance
O
OCI
Other comprehensive income
OECD
Organisation of Economic Co-operation and Development
OTC¹
Over-the-counter
P
PACTA
Paris Agreement Capital Transition Assessment
PBT
Profit before tax
PCAF
Partnership for Carbon Accounting Financials
PD¹
Probability of default
Performance
shares¹
Awards of HSBC Holdings ordinary shares under employee
share plans that are subject to corporate performance
conditions
Ping An
Ping An Insurance (Group) Company of China, Ltd, the
second-largest life insurer in the PRC
POCI
Purchased or originated credit-impaired financial assets
PPI
Payment protection insurance
PRA
Prudential Regulation Authority (UK)
PRC
People’s Republic of China
Principal plan
HSBC Bank (UK) Pension Scheme
PVIF
Present value of in-force long-term insurance business and
long-term investment contracts with DPF
PwC
The member firms of the PwC network, including
PricewaterhouseCoopers LLP
R
RAS
Risk appetite statement
Repo¹
Sale and repurchase transaction
Reverse repo
Security purchased under commitments to sell
RFR
Risk-free rate
RMM
Group Risk Management Meeting
RNIV
Risk not in VaR
RoE
Return on average ordinary shareholders’ equity
RoTE
Return on average tangible equity
RWA¹
Risk-weighted asset
S
SABB
The Saudi British Bank
SAPS
Self-administered pension scheme
SASB
Sustainability Accounting Standards Board
SBTi
Science Based Targets initiative
SDG
United Nation’s Sustainable Development Goals
SEC
Securities and Exchange Commission (US)
ServCo group
Separately incorporated group of service companies
established in response to UK ring-fencing requirements
Sibor
Singapore interbank offered rate
SIC
Securities investment conduit
SME
Small and medium-sized enterprise
SOFR
Secured Overnight Financing Rate
Solitaire
Solitaire Funding Limited, a special purpose entity managed
by HSBC
Sonia
Sterling Overnight Index Average
SPE¹
Special purpose entity
T
TCFD¹
Task Force on Climate-related Financial Disclosures
THBFIX
Thai Baht Interest Rate Fixing
TNFD
Taskforce on Nature-related Financial Disclosures
TSR¹
Total shareholder return
U
UAE
United Arab Emirates
UK
United Kingdom
UN
United Nations
US
United States of America
V
VaR¹
Value at risk
VIU
Value in use
W
WEF
World Economic Forum
WPB
Wealth and Personal Banking, a global business
1 A full definition is included in the glossary to the Annual Report and
Accounts 2021 which is available at www.hsbc.com/investors.
Additional information
406
HSBC Holdings plc Annual Report and Accounts 2021
HSBC Holdings plc
Incorporated in England on 1 January 1959 with
limited liability under the UK Companies Act
Registered in England: number 617987
Registered Office and Group Head Office
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
Facsimile: 44 020 7992 4880
Web: www.hsbc.com
Registrars
Principal Register
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: 44 0370 702 0137
Email: via website
Web: www.investorcentre.co.uk/contactus
Hong Kong Overseas Branch Register
Computershare Hong Kong Investor Services
Limited
Rooms 1712-1716, 17th floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Web: www.investorcentre.com/hk
Bermuda Overseas Branch Register
Investor Relations Team
HSBC Bank Bermuda Limited
37 Front Street
Hamilton HM11
Bermuda
Telephone: 1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Web: www.investorcentre.com/bm
ADR Depositary
The Bank of New York Mellon
Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
USA
Telephone (US): 1 877 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Web: www.mybnymdr.com
Corporate Brokers
Morgan Stanley & Co. International plc
25 Cabot Square
London E14 4QA
United Kingdom
Bank of America Securities
2 King Edward Street
London EC1A 1HQ
United Kingdom
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
© Copyright HSBC Holdings plc 2022
All rights reserved
No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the
prior written permission of HSBC Holdings plc
Published by Global Finance, HSBC Holdings plc, London
Designed by Superunion, London (Strategic Report and ESG
review) and by Global Finance with Superunion (rest of Annual
Report and Accounts)
HSBC Holdings plc Annual Report and Accounts 2021
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