Half-year Report (2 of 3)

RNS Number : 0391I

HSBC Holdings PLC

25 August 2016

Financial summary



Financial summary

Use of non-GAAP financial measures	18
Adjusted performance	18
Foreign currency translation differences	18
Significant items	18
Consolidated income statement	19
Group performance by income and expense item	20
Net interest income	20
Net fee income	21
Net trading income	22
Net income from financial instruments designated at fair value	23
Gains less losses from financial investments	24
Net insurance premium income	24
Other operating income	25
Net insurance claims and benefits paid and movement in liabilities to policyholders	26
Loan impairment charges and other credit risk provisions	27
Operating expenses	28
Share of profit in associates and joint ventures	30
Tax expense	30
Consolidated balance sheet	31
Movement from 31 December 2015 to 30 June 2016	32
Reconciliation of RoRWA measures	34

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 101. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures.

Non-GAAP financial measures that we use throughout this Interim Report 2016 are described below. Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items which distort period-on-period comparisons.

We use 'significant items' to collectively describe the group of individual adjustments that are excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance in order to better understand underlying trends in the business.

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant and providing insight into how management assesses period-on-period performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies for 1H16. We exclude the translation differences when deriving constant currency data because using these data allows us to assess balance sheet and income statement performance on a like-for-like basis to better understand the underlying trends in the business.

Foreign currency translation differences

Foreign currency translation differences for the half-years to 30 June 2015 and 31 December 2015 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

•

the income statements for the half-years to 30 June 2015 and 31 December 2015 at the average rates of exchange for the half‑year to 30 June 2016; and

•

the balance sheets at 30 June 2015 and 31 December 2015 at the prevailing rates of exchange on 30 June 2016.

No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Significant items

The tables on pages 53 to 58 detail the effect of significant items on each of our geographical segments and global businesses during 1H16 and the two halves of 2015.

HSBC HOLDINGS PLC

Financial summary (continued)

Consolidated income statement

Summary consolidated income statement



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m

Net interest income	15,760		16,444		16,087
Net fee income	6,586		7,725		6,980
Net trading income	5,324		4,573		4,150
Net income/(expense) from financial instruments designated at fair value	561		2,666		(1,134	)
Gains less losses from financial investments	965		1,874		194
Dividend income	64		68		55
Net insurance premium income	5,356		5,607		4,748
Other operating income	644		836		219

Total operating income	35,260		39,793		31,299

Net insurance claims and benefits paid and movement in liabilities to policyholders	(5,790	)	(6,850	)	(4,442	)

Net operating income before loan impairment charges and other credit risk provisions	29,470		32,943		26,857

Loan impairment charges and other credit risk provisions	(2,366	)	(1,439	)	(2,282	)

Net operating income	27,104		31,504		24,575

Total operating expenses	(18,628	)	(19,187	)	(20,581	)

Operating profit	8,476		12,317		3,994

Share of profit in associates and joint ventures	1,238		1,311		1,245

Profit before tax	9,714		13,628		5,239

Tax expense	(2,291	)	(2,907	)	(864	)

Profit for the period	7,423		10,721		4,375

Profit attributable to shareholders of the parent company	6,912		9,618		3,904
Profit attributable to non-controlling interests	511		1,103		471

Average foreign exchange translation rates to $:
$1: £	0.698		0.657		0.652
$1: €	0.896		0.897		0.906

HSBC HOLDINGS PLC

Group performance by income and expense item

For further financial performance data for each geographical region and global business, see pages 35 to 45 and 46 to 58, respectively.

Net interest income



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Interest income		23,011		24,019		23,170
Interest expense		(7,251	)	(7,575	)	(7,083	)

Net interest income	1	15,760		16,444		16,087

Average interest-earning assets		1,733,961		1,730,663		1,723,296

Gross interest yield	2	2.67	%	2.80	%	2.67	%
Cost of funds		(1.01	%)	(1.03	%)	(0.97	%)
Net interest spread	3	1.66	%	1.77	%	1.70	%
Net interest margin	4	1.83	%	1.92	%	1.85	%
Net interest margin excluding Brazil		1.75	%	1.82	%	1.77	%

For footnotes, see page 59.

In 1H16, we recorded $974m of net interest income in Brazil (1H15: $1,214m; 2H15: $1,011m) and average interest earning assets were $37,390m (1H15: $43,684m; 2H15: $36,409m).

Reported net interest income of $15.8bn decreased by $0.7bn or 4% compared with 1H15. This included the significant items and currency translation summarised in the table below.

On a reported basis, net interest margin of 1.83% fell by 9 basis points ('bps'), driven by currency movements. On

1 July 2016, we completed the sale of our operations in Brazil. During 1H16, our net interest margin excluding our operations in Brazil was 1.75%, 8 basis points ('bps') lower than the group's total net interest margin for this period, reflecting the impact of relatively higher interest rates in Brazil compared with the rest of our portfolio.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items
- releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act	2	12	(22	)

	2	12	(22	)
Currency translation		946	457

Total	2	958	435

Excluding the currency impact tabulated above, net interest income rose $0.3bn, as increases in Hong Kong, Mexico and Argentina were partly offset by a reduction in the UK and mainland China. However, net interest spread and margin decreased slightly. This was due to a number of factors, including reduced yields on customer lending in Europe and increased costs of debt issued by HSBC Holdings, although we benefited from lower costs of funds on customer accounts in Hong Kong and increased yields in Mexico and Argentina.

Interest income

Reported interest income fell by $1.0bn compared with 1H15, notably driven by currency movements in Latin

America and Europe. Excluding these, total interest income rose by $0.6bn, notably in Mexico, Argentina and the US. Interest income also rose in our operations in Brazil, although this was more than offset by an increase in interest expense.

Interest income on loans and advances to customers was higher. In Mexico and Argentina, this was due to higher yields following central bank interest rate rises. In Europe, the increase was mainly driven by balance growth in term lending in the UK despite lower yields on mortgages in line with competitive pricing, and the effect of downward movements in market interest rates in the eurozone. In Asia, although yields on lending increased marginally in Hong Kong and Singapore, customer lending income was broadly unchanged as the increase in yields was offset by the impact

HSBC HOLDINGS PLC

Financial summary (continued)

of central bank rate decreases in various countries, notably mainland China, and from a decrease in average balances. However, in North America, interest income from customer lending fell from continued run-off and sales in the US CML run-off portfolio.

Interest income on short-term funds and financial investments marginally increased. This was driven by a change in product mix in North America towards higher-yielding, mortgage-backed securities in order to maximise the effectiveness of the portfolio and, to a lesser extent, in Argentina from balance growth. These increases were partly offset by reductions in Europe from lower yields.

Interest income on reverse repurchase agreements - non‑trading was higher, driven by higher balances and market rates in North America.

Interest expense

Reported interest expense fell by $0.3bn compared with 1H15 driven by currency translation, primarily in Latin America and Europe.

Excluding this, interest expense rose $0.4bn as decreases in Asia were partly offset by an increase in cost in North America, Europe and Argentina.

Interest expense on customer accounts fell despite growth in average balances. This reflected a change in mix towards lower cost accounts in Hong Kong and central bank rate reductions in a number of markets, notably mainland China and Australia. This was partly offset by higher interest expense on customer accounts in North America, in line with promotional deposit offerings, and in Argentina from central bank rate rises.

Interest expense on debt issued rose, due to a rise in the cost of funds, despite a fall in average balances as redemptions across the Group were more than offset by issuances of senior debt from HSBC Holdings plc. The increase in the cost of debt was driven by a combination of market sentiment as well as longer maturities and the structural subordination of our new issuances. In addition, Interest expense rose on repos, notably in North America, reflecting higher balances and market rates.

Net fee income



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m

Account services	1,310		1,383		1,362
Funds under management	1,172		1,310		1,260
Cards	1,010		1,120		1,161
Credit facilities	908		989		930
Broking income	530		817		624
Imports/exports	436		485		486
Unit trusts	412		595		412
Underwriting	372		450		312
Remittances	371		387		385
Global custody	330		371		350
Insurance agency commission	228		284		235
Other	1,123		1,181		1,127

Fee income	8,202		9,372		8,644

Less: fee expense	(1,616	)	(1,647	)	(1,664	)

Net fee income	6,586		7,725		6,980

Reported net fee income fell by $1.1bn compared with 1H15, partly reflecting the adverse effects of currency

translation between the periods of $0.3bn, notably in Asia and Europe.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items	-	-	-

Currency translation		295	132

Total	-	295	132

On an adjusted basis, net fee income decreased by $844m, driven by a reduction in Hong Kong, primarily within RBWM. This partly reflected the effect of weaker equity markets and

risk-averse investor sentiment in Asia. Net fee income also decreased in Switzerland within GPB.

HSBC HOLDINGS PLC

Fee income from broking and unit trusts fell by $443m, compared with a strong performance in 1H15. The decrease was mainly in Hong Kong, driven by lower securities broking income and falling fund sales in RBWM, in part reflecting a reduction in stock market turnover of 46%.

Fee income from funds under management also decreased, by $108m. This was partly driven by lower fees in our Global Asset Management business in RBWM following a reduction in funds under management balances as a result of adverse market conditions, notably in Europe. Fee income from funds under management also decreased in Switzerland in GPB.

Net trading income



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m

Trading activities	5,020		3,553		3,732
Net interest income on trading activities	730		1,053		722
Loss on termination of hedges	-		(8	)	(3	)
Other trading income/(expense) - hedge ineffectiveness:
- on cash flow hedges	4		4		11
- on fair value hedges	(41	)	26		(37	)
Fair value movement on non-qualifying hedges	(389	)	(55	)	(275	)

Net trading income	5,324		4,573		4,150

Reported net trading income of $5.3bn was $0.8bn higher than in 1H15. This included significant items and currency translation summarised in the table below.

Significant items and currency translation



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
Included within trading activities:
- favourable debit valuation adjustment on derivative contracts	151		165		65
Other significant items:
- adverse fair value movements on non-qualifying hedges	(397	)	(45	)	(282	)

	(246	)	120		(217	)
Currency translation			237		210

Total	(246	)	357		(7	)

On an adjusted basis, net trading income from trading activities increased by $1.4bn, primarily driven by favourable movements of $1.3bn in the period compared with adverse movements of $0.6bn in 1H15 on assets held as economic hedges of foreign currency debt designated at fair value. Both these movements were offset by adverse movements on foreign currency debt designated at fair value in 'Net income from financial instruments designated at fair value'.

Excluding these movements, trading income decreased by $0.6bn, primarily in GB&M. Income decreased in Equities and Foreign Exchange, due to market volatility that led to reduced client activity. This was partly offset by an increase in revenue from our Rates business which benefited from increased client activity.

HSBC HOLDINGS PLC

Financial summary (continued)

Net income from financial instruments designated at fair value



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
Net income/(expense) arising from:
- financial assets held to meet liabilities under insurance and investment contracts	209		1,615		(1,084	)
- liabilities to customers under investment contracts	30		(301	)	335
- HSBC's long-term debt issued and related derivatives	270		1,324		(461	)
- change in own credit spread on long-term debt (significant item)	1,226		650		352
- other changes in fair value	(956	)	674		(813	)

- other instruments designated at fair value and related derivatives	52		28		76

Net income from financial instruments designated at fair value	561		2,666		(1,134	)

Assets and liabilities from which net income from financial instruments designated at fair value arose



	At
	30 Jun	31 Dec
	2016	2015
	$m	$m

Financial assets designated at fair value	23,901	23,852
Financial liabilities designated at fair value	78,882	66,408

Including:
Financial assets held to meet liabilities under:
- insurance contracts and investment contracts with DPF	11,438	11,119
- unit-linked insurance and other insurance and investment contracts	11,206	11,153
Long-term debt issues designated at fair value	72,660	60,188

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.

These liabilities are discussed further on page 359 of the Annual Report and Accounts 2015.

Reported net income from financial instruments designated at fair value was $0.6bn in 1H16, compared with $2.7bn in 1H15. The former included favourable movements in the fair value of our own long-term debt of $1.2bn due to changes in credit spread, compared with favourable movements of $650m in 1H15.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items
- own credit spread	1,226	650	352

Currency translation		152	(60	)

Total	1,226	802	292

On an adjusted basis, which excludes changes in our own credit spread and the net adverse effect of currency translation shown above, net income from financial instruments designated at fair value decreased by $2.5bn.

Net income from financial assets held to meet liabilities under insurance and investment contracts of $209m was $1.4bn lower than in 1H15. This was primarily driven by weaker equity markets in France, Hong Kong and the UK.

The $1.4bn change was, however, broadly offset by 'liabilities to customers under investment contracts', and by 'Net insurance claims and benefits paid and movements in liabilities to policyholders' which are described on page 26.

Investment gains or losses arising from equity markets result in a corresponding movement in liabilities to customers. This reflects the extent to which unit-linked policyholders, in particular, participate in the investment performance of the associated asset portfolio.

Where the gains or losses are recorded depends on the contract type. When gains or losses relate to assets held to back investment contracts, the corresponding movement in liabilities to customers is recorded in 'Net income/(expense) from financial instruments designated at fair value'.

When gains or losses related to assets held to back insurance contracts or investment contracts with discretionary participation features ('DPF'), any corresponding movement

HSBC HOLDINGS PLC

in liabilities to customers is recorded in 'Net insurance claims and benefits paid and movement in liabilities to policyholders', which is detailed on page 26.

Other changes in fair value on our long-term debt and related derivatives primarily reflected:


•	In GB&M, adverse movements of $1.3bn, compared to favourable movements of $0.6bn in 1H15, on foreign

currency debt designated at fair value and issued as part of our overall funding strategy (offset by assets held as economic hedges in 'Net trading income').

This was partly offset by:


•	In 'Other', favourable fair value movements of $0.4bn, compared with minimal movements in 1H15, relating to the economic hedging of interest and exchange rate risk on our long-term debt.

Gains less losses from financial investments



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
Net gains from disposal of:
- debt securities	280		310		35
- equity securities	693		1,578		251
- other financial investments	4		4		1

	977		1,892		287
Impairment of available-for-sale equity securities	(12	)	(18	)	(93	)

Gains less losses from financial investments	965		1,874		194

In 1H16, gains less losses from financial investments decreased by $0.9bn on a reported basis compared with 1H15. This was driven by the significant items and currency translation tabulated below, notably the non-recurrence of

the gain on the partial sale of our shareholding in Industrial Bank of $1.4bn in 1H15, and in 1H16 a gain on disposal of our membership interest in Visa Europe.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items
- gain on disposal of our membership interest in Visa Europe	584	-	-
- gain on the partial sale of shareholding in Industrial Bank	-	1,372	-
	584	1,372	-

Currency translation		19	8

Total	584	1,391	8

On an adjusted basis, excluding all significant items and currency translation tabulated above, gains less losses from financial investments decreased by $102m, driven by GB&M.

This was primarily driven by lower gains on equity securities in both Markets and Principal Investments.

Net insurance premium income



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m

Gross insurance premium income	5,728		5,855		5,157
Reinsurance premiums	(372	)	(248	)	(409	)

Net insurance premium income	5,356		5,607		4,748

Reported net insurance premium income was $0.3bn lower than in 1H15, largely due to adverse effects of currency translation $159m.

HSBC HOLDINGS PLC

Financial summary (continued)

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items	-	-	-
Currency translation		159	20

Total	-	159	20

On an adjusted basis, excluding the effects of currency translation, net insurance premium income fell by $92m or 2%. This was largely driven by the disposal of our UK pensions business in 2H15, following our decision to exit the UK commercial pension market in 2014, and lower participating contract premiums in France.

In Asia, increased premiums in Singapore and Hong Kong on participating contracts were partly offset by the impact of new reinsurance agreements in Hong Kong.

Other operating income



	Half-year to
	30 Jun		30 Jun	31 Dec
	2016		2015	2015
	$m		$m	$m

Rent received	82		84	87
Gains/(losses) recognised on assets held for sale	57		34	(278	)
(Losses)/gains on investment properties	(3	)	33	28
Gains on disposal of property, plant and equipment, intangible assets and non-financial investments	28		26	27
Change in present value of in-force long-term insurance business	351		438	361
Other	129		221	(6	)

Other operating income	644		836	219

Change in present value of in-force long-term insurance business



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m

Value of new business	458		438		371
Expected return	(266	)	(279	)	(273	)
Assumption changes and experience variances	172		241		263
Other adjustments	(13	)	38		-

Change in present value of in-force long-term insurance business	351		438		361

Reported other operating income decreased by $192m from 1H15. This included the effects of the significant items recorded in the table below.

Significant items and currency translation



	Half-year to
	30 Jun		30 Jun	31 Dec
	2016		2015	2015
	$m		$m	$m
Significant items
Included within gains recognised on assets held for sale:	36		17	(249	)
- disposal costs of Brazilian operations	(32	)	-	(18	)
- gain/(loss) on sale of several tranches of real estate secured accounts in the US	68		17	(231	)
Currency translation			39	23

Total	36		56	(226	)

HSBC HOLDINGS PLC

Excluding the significant items and currency translation tabulated above, other operating income decreased by $172m compared with 1H15. This was primarily from lower favourable movements in present value of in-force ('PVIF') long-term insurance business and minimal movement in valuations on investment properties compared with gains in 1H15, mainly in Asia.

The lower favourable movement in PVIF in 2016 was primarily driven by decreasing yields in France, partly offset by the favourable effects of changes to interest rate assumptions in Singapore.

In addition, 1H15 included a change in interest rate assumption in France which had the effect of increasing PVIF.

Net insurance claims and benefits paid and movement in liabilities to policyholders



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
Insurance claims and benefits paid and movement in liabilities to policyholders:
- gross	6,192		7,099		4,773
- reinsurers' share	(402	)	(249	)	(331	)

Net total	5,790		6,850		4,442

Reported net insurance claims and benefits paid and movement in liabilities to policy holders were $1.1bn lower

than in 1H15, in part reflecting the currency translation movements of $0.2bn.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items	-	-	-

Currency translation		217	19

Total	-	217	19

Excluding the effects of currency translation, net insurance claims and benefits paid and movements in liabilities to policyholders were $0.8bn lower than in 1H15.

This reduction was primarily in Europe, and to a lesser extent Hong Kong, reflecting a decrease in returns on financial assets supporting liabilities to policyholders where the policyholder is exposed to investment risk. This decrease in returns reflected weaker equity market performance in France, Hong Kong and the UK.

Other drivers were reduced surrenders in Hong Kong and the impact of the sale of the UK pensions business in 2015. These reductions were partly offset by increases in liabilities to policyholders in Singapore, as a result of changes to interest rate assumptions.

The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income from financial instruments designated at fair value' on page 23.

HSBC HOLDINGS PLC

Financial summary (continued)

Loan impairment charges and other credit risk provisions



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
Loan impairment charges
- new allowances net of allowance releases	2,623		1,797		2,603
- recoveries of amounts previously written off	(340	)	(350	)	(458	)

	2,283		1,447		2,145

- individually assessed allowances	1,263		480		1,025
- collectively assessed allowances	1,020		967		1,120
Impairment allowances/(release) of available-for-sale debt securities	34		(38	)	21
Other credit risk provisions	49		30		116

Loan impairment charges and other credit risk provisions	2,366		1,439		2,282

	%		%		%
Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers (annualised)	0.52		0.31		0.47

Reported loan impairment charges and other credit risk provisions ('LICs') of $2.4bn were $927m higher than

in 1H15. This included favourable currency translation of $160m.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items	-	-	-

Currency translation		160	19

Total	-	160	19

Excluding the effects of currency translation, LICs were $1.1bn higher than in 1H15. This was due to an increase in Brazil (up by $346m) reflecting a deterioration in local economic conditions, as well as higher individually assessed charges in a small number of countries, notably in the oil and gas sector.

On an adjusted basis, individually assessed LICs were $1.3bn, an increase of $822m compared with 1H15. This primarily reflected increases in our GB&M and CMB businesses and included the following:


•	In North America (up by $495m), individually assessed LICs increased in our GB&M business in the US. This was primarily related to a significant specific charge on a mining related corporate exposure, as well as charges in the oil and gas sector. In addition, individually assessed LICs also increased in CMB in both Canada and the US, mainly in the oil and gas sector.


•	In Asia (up by $125m), individually assessed charges increased, notably in our GB&M business in Australia, primarily driven by a small number of charges related to metals and mining exposures. In addition, the comparative period benefited from a release of allowances in Hong Kong.


•	In Europe (up by $140m), individually assessed charges increased. This was mainly in the UK in our RBWM business due to net charges on individually assessed mortgage balances, compared with a net release in 1H15. Also, in Spain there were higher charges in CMB related to the construction sector.


•	In Latin America (up by $47m), individually assessed charges increased, primarily in Brazil due to the deterioration of economic conditions.

On an adjusted basis, collectively assessed LICs rose by $173m, mainly in RBWM and, to a lesser extent, in CMB. The increase arose from:


•	In Latin America collectively assessed LICs increased by $281m. This was mainly in Brazil (up by $217m) in both our RBWM and CMB businesses, where delinquency rates increased following the deterioration of economic conditions. In addition, LICs rose in Mexico in our RBWM business in line with our strategic focus on growing unsecured lending.

This was partly offset by:


•	In North America (down by $45m) LICs decreased in our CMB and GB&M businesses as collectively assessed provisions related to the oil and gas sector were replaced with individually assessed LICs against specific clients in this sector (as discussed earlier). This was partly offset by an increase in our RBWM US CML run-off portfolio.


•	In Europe, collectively assessed LICs decreased by $26m, mainly our RBWM business. This reflected a reduction in Turkey from favourable credit performance on unsecured lending, as well as net release of allowances in Greece. This was partly offset by an increase in our CMB business in the UK, primarily reflecting new allowances against exposures in the oil and gas sector.

HSBC HOLDINGS PLC

In 1H16, we recorded net impairment allowances on available-for-sale debt securities compared with net releases

in 1H15. Both primarily related to asset-backed securities ('ABSs') in our UK GB&M business.

Operating expenses




In addition to detailing operating expense items by category, as set out in the table below, we also categorise adjusted expenses as follows: • 'Run-the-bank' costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses ('front office') supported by global functions ('back office'). • 'Change-the-bank' costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change		business-as-usual activity to enhance future operating capabilities. • 'Costs-to-achieve' comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017 and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs-to-achieve are included within significant items and incorporate restructuring costs which were identified as a separate significant item prior to 1 July 2015. • The UK bank levy is reported as a separate category.



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
By expense category
Employee compensation and benefits	9,354	10,041	9,859
Premises and equipment (excluding depreciation and impairment)	1,901	1,939	1,891
General and administrative expenses	5,566	6,190	7,642

Administrative expenses	16,821	18,170	19,392
Depreciation and impairment of property, plant and equipment	605	604	665
Amortisation and impairment of intangible assets and goodwill	1,202	413	524

Operating expenses	18,628	19,187	20,581



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$m		$m		$m
By expense group
Run-the-bank - front office	7,583		7,756		7,511
Run-the-bank - back office	7,036		7,161		7,307
Change-the-bank	1,454		1,733		1,739
Bank levy	(128	)	(44	)	1,465
Significant items	2,683		1,544		2,040
Currency translation			1,037		519

Operating expenses	18,628		19,187		20,581

Staff numbers (full-time equivalents)



	At
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
Geographical regions
Europe	65,387	69,867	67,509
Asia	119,699	120,588	120,144
Middle East and North Africa	7,693	8,208	8,066
North America	18,838	20,338	19,656
Latin America	39,719	40,787	39,828

Staff numbers	251,336	259,788	255,203

HSBC HOLDINGS PLC

Financial summary (continued)

Reported operating expenses of $18.6bn were $0.6bn or 3% lower than in 1H15, which included an impairment of $0.8bn relating to the goodwill in our GPB business in Europe (please see Note 20 for further details). The lower operating

expenses benefited from the favourable effects of currency translation of $1.0bn, partly offset by a $1.1bn increase in significant items.

Significant items and currency translation



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m
Significant items
- costs-to-achieve	1,018	-	908
- costs to establish UK ring-fenced bank	94	-	89
- disposal costs of Brazilian operations	11	-	110
- impairment of Global Private Banking - Europe goodwill	800	-	-
- regulatory provisions in GPB	4	147	25
- restructuring and other related costs	-	117	-
- settlements and provisions in connection with legal matters	723	1,144	505
- UK customer redress programmes	33	137	404

	2,683	1,545	2,041
Currency translation		1,037	519

Total	2,683	2,582	2,560

On an adjusted basis, operating expenses of $15.9bn were $0.7bn lower than in 1H15, despite inflationary pressures and increases in regulatory programmes and compliance costs. This primarily reflected transformational cost savings of $0.9bn achieved in 1H16. On a run-rate basis, we are now approximately 40% of the way towards achieving the cost savings target we committed to in our Investor Update in June 2015.

Run-the-bank costs of $14.6bn were $0.3bn lower than in 1H15 and change-the-bank costs of $1.5bn were $0.3bn lower than in 1H15. This reflected the following factors:


•	In RBWM, costs were $0.3bn lower, reflecting the effects of our transformational cost initiatives, which included our branch optimisation programme.


•	In GB&M, costs were $0.2bn lower, reflecting lower performance-related costs, primarily in Europe and Asia, and the effects of our transformational cost initiatives, including significantly lower headcount and better use of our shared global service centres.


•	In GPB, costs were $0.1bn lower, reflecting a fall in staff costs from lower FTEs, primarily in Europe and Asia.


•	In CMB, costs remained broadly unchanged due to strong cost discipline and delivery of transformation initiatives, including a more simplified organisation structure and process optimisation within our lending, on-boarding and servicing platforms.


•	The cost savings in the global businesses noted above were also supported by the benefits of transformational activities in our technology, operations and other functions, primarily from process automation and organisational re-design.

Included within the above, our total expenditure on regulatory programmes and compliance, comprising both run-the-bank and change-the-bank elements, was $1.5bn, up $0.2bn or 14% from 1H15. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.

Excluding investment in regulatory programmes and compliance, and credits relating to the prior year bank levy in both periods, adjusted operating expenses declined by $0.8bn or 5% compared with 1H15.

The number of employees expressed in FTEs at 30 June 2016 was 251,336, a decrease of 3,867 from 31 December 2015. This was driven by reductions in global businesses and global functions, partly offset by investment related to financial crime risk of 540 FTEs, and cost-to-achieve FTEs of 3,918.

HSBC HOLDINGS PLC

Reported cost efficiency ratios



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	%	%	%

HSBC	63.2	58.2	76.6

Geographical regions
Europe	82.2	78.3	112.2
Asia	44.6	38.8	48.3
Middle East and North Africa	41.9	48.4	47.8
North America	83.1	79.7	91.0
Latin America	68.8	67.6	78.5

Global businesses
Retail Banking and Wealth Management	70.2	67.1	78.3
Commercial Banking	41.9	44.1	46.7
Global Banking and Markets	53.3	56.4	63.3
Global Private Banking	158.8	85.0	83.5

Share of profit in associates and joint ventures



	Half-year to
	30 Jun	30 Jun	31 Dec
	2016	2015	2015
	$m	$m	$m

Associates
Bank of Communications Co., Limited	974	1,021	990
The Saudi British Bank	244	240	222
Other	8	25	20

Share of profit in associates	1,226	1,286	1,232
Share of profit in joint ventures	12	25	13

Share of profit in associates and joint ventures	1,238	1,311	1,245

Our reported share of profit in associates and joint ventures was $1.2bn, a decrease of $73m or 6%, largely from adverse effects of currency translation of $55m.

On an adjusted basis, share of profit in associates and joint ventures fell by $18m or 1%, primarily relating to HSBC Saudi Arabia, reflecting challenging stock market and economic conditions.

Tax expense



	Half-year to
	30 Jun		30 Jun	31 Dec
	2016		2015	2015
	$m		$m	$m

Profit before tax	9,714		13,628	5,239
Tax expense	(2,291	)	(2,907)	(864	)

Profit after tax	7,423		10,721	4,375

Effective tax rate	23.6	%	21.3%	16.5	%

The effective tax rate for 1H16 of 23.6% was higher than the 21.3% in 1H15, principally due to the 8% surcharge on UK banking profits.

HSBC HOLDINGS PLC

Financial summary (continued)

Consolidated balance sheet

Summary consolidated balance sheet



	At
	30 Jun 2016	31 Dec 2015
	$m	$m
Assets
Cash and balances at central banks	128,272	98,934
Trading assets	280,295	224,837
Financial assets designated at fair value	23,901	23,852
Derivatives	369,942	288,476
Loans and advances to banks	92,199	90,401
Loans and advances to customers	887,556	924,454
Reverse repurchase agreements - non-trading	187,826	146,255
Financial investments	441,399	428,955
Assets held for sale	50,305	43,900
Other assets	146,454	139,592

Total assets	2,608,149	2,409,656

Liabilities and equity
Liabilities
Deposits by banks	69,900	54,371
Customer accounts	1,290,958	1,289,586
Repurchase agreements - non-trading	98,342	80,400
Trading liabilities	188,698	141,614
Financial liabilities designated at fair value	78,882	66,408
Derivatives	368,414	281,071
Debt securities in issue	87,673	88,949
Liabilities under insurance contracts	73,416	69,938
Liabilities of disposal groups held for sale	43,705	36,840
Other liabilities	109,864	102,961

Total liabilities	2,409,852	2,212,138

Equity
Total shareholders' equity	191,257	188,460
Non-controlling interests	7,040	9,058

Total equity	198,297	197,518

Total liabilities and equity	2,608,149	2,409,656

HSBC HOLDINGS PLC

Selected financial information



	At
	30 Jun	31 Dec
	2016	2015
	$m	$m

Called up share capital	9,906	9,842
Capital resources	186,793	189,833
Undated subordinated loan capital	1,968	2,368
Preferred securities and dated subordinated loan capital	42,170	42,844
Risk-weighted assets	1,082,184	1,102,995

Financial statistics
Loans and advances to customers as a percentage of customer accounts	68.8	71.7
Average total shareholders' equity to average total assets	7.44	7.31
Net asset value per ordinary share at period end($)	8.75	8.73
Number of $0.50 ordinary shares in issue (millions)	19,813	19,685

Closing foreign exchange translation rates to $:
$1: £	0.744	0.675
$1: €	0.900	0.919

A more detailed consolidated balance sheet is contained in the Financial Statements on page 101.

Combined view of customer lending and customer deposits



		At
		30 Jun	31 Dec
		2016	2015
	Footnotes	$m	$m

Loans and advances to customers		887,556	924,454
Loans and advances to customers reported in 'Assets held for sale'		20,711	19,021
- Brazil	5	19,203	17,001
- other		1,508	2,020


Combined customer lending		908,267	943,475

Customer accounts		1,290,958	1,289,586
Customer accounts reported in 'Liabilities of disposal groups held for sale'		20,531	16,682
- Brazil	5	19,357	15,094
- other		1,174	1,588


Combined customer deposits		1,311,489	1,306,268

For footnote, see page 59.

Movement from 31 December 2015 to 30 June 2016

Total reported assets of $2.6tn were 8% higher than at 31 December 2015 on a reported basis and 11% higher on a constant currency basis. This was driven by increased derivative assets and trading assets, notably settlement accounts.

Our ratio of customer advances to customer accounts was 69%. Loans and advances to customers fell on a reported basis while customer accounts increased on a reported basis. These changes included:


•	adverse currency translation movement of $24bn on loans and advances to customers and $31bn on customer accounts; and


•	an $8bn reduction in corporate overdraft and current account balances relating to a small number of clients in our Global Liquidity and Cash Management business in the UK who settled their overdraft and deposit balances on a net basis, with these customers increasing the frequency with which they settled their positions.

Excluding these movements, customer lending decreased by $5bn, partly due to reductions in our legacy portfolios.

Assets

Derivative assets increased by $81bn or 28%, driven by valuation movements in interest rate contracts, reflecting downward shifts in major yield curves, notably in the UK and to a lesser extent in France.

Trading assets increased by $55bn, driven by higher settlement account balances in Europe and North America and an increase in holding of debt securities, primarily in Asia. By contrast, Europe was affected by decreases in equity securities.

Reverse repurchase agreements - non-trading increased by $42bn, notably in Europe and North America, the latter reflecting deployment of surplus liquidity from cash balances.

Loans and advances to customers decreased by $37bn on a reported basis, driven by Europe and to a lesser extent Asia. This included:

HSBC HOLDINGS PLC

Financial summary (continued)


•	adverse currency translation movements of $24bn; and


•	an $8bn reduction in corporate overdraft balances in Europe, with a corresponding fall in corporate customer accounts.

Excluding these factors, customer lending balances decreased by $5bn, partly reflecting our strategic focus on reducing our legacy portfolio. In North America this included a $5.7bn transfer to 'Assets held for sale' of US first lien mortgage balances in RBWM. We disposed of most of these transferred loans during 1H16.

Balances also fell in Asia by $6bn, although they stabilised in the second quarter of 2016. Lending fell in CMB by $5bn, notably in Hong Kong and Singapore, particularly in trade lending. The fall in Hong Kong reflected weakened client demand and corporates in mainland China reverting back to mainland China from Hong Kong for financing as interest rates between Hong Kong and mainland China narrowed. By contrast, balances increased in Europe by $8bn, primarily reflecting higher term lending in CMB and GB&M, notably in the UK.

Liabilities

Derivative liabilities increased by $87bn in line with the movements of derivative assets as the underlying risk was broadly matched.

Trading liabilities increased by $47bn, primarily in Europe and North America, partly driven by an increase in settlement accounts.

Customer accounts were broadly in line with balances at 31 December 2015 and included:


•	adverse currency translation movements of $31bn; and


•	an $8bn reduction in corporate current account balances, in line with a fall in corporate overdraft positions.

Excluding these factors, customer accounts grew by $38bn, mainly in the UK, driven by increases in GB&M and RBWM, and in Hong Kong, notably in RBWM.

Equity

Total shareholders' equity was broadly unchanged. The effects of profits generated in the period and the issue of new contingent convertible securities of $2.0bn were broadly offset by the effects of dividends paid and an increase in accumulated foreign exchange losses. Movements in the foreign exchange reserves reflected the depreciation of sterling against the US dollar, although this was partly offset by appreciation in other currencies, including the euro and Canadian dollar.

Customer accounts by country



	At
	30 Jun	31 Dec
	2016	2015
	$m	$m

Europe	482,992	497,876
- UK	383,958	404,084
- France	39,896	35,635
- Germany	16,141	13,873
- Switzerland	8,820	10,448
- other	34,177	33,836

Asia	610,200	598,620
- Hong Kong	433,136	421,538
- Australia	18,655	17,703
- India	12,159	11,795
- Indonesia	5,738	5,366
- Mainland China	41,897	46,177
- Malaysia	14,233	14,114
- Singapore	43,578	41,307
- Taiwan	12,321	11,812
- other	28,483	28,808

Middle East and North Africa (excluding Saudi Arabia)	35,094	36,468
- Egypt	6,255	6,602
- United Arab Emirates	17,641	18,281
- other	11,198	11,585

North America	142,152	135,152
- US	90,646	86,322
- Canada	42,355	39,727
- other	9,151	9,103

Latin America	20,520	21,470
- Mexico	14,854	15,798
- other	5,666	5,672


At end of period	1,290,958	1,289,586

Risk-weighted assets

Risk-weighted assets totalled $1,082bn at 30 June 2016, a decrease of $21bn or 2% from 31 December 2015, reflecting targeted RWA initiatives and the effects of currency translation, partly offset by balance sheet growth and RWA increases as a result of credit quality deterioration. In 1H16, RWA initiatives resulted in a reduction of $48bn and included asset sales in the GB&M legacy and US CML run-off portfolios, reduced exposures, refined calculations and process improvements.

HSBC HOLDINGS PLC

Reconciliation of RoRWA measures

Performance management

We target a return on average ordinary shareholders' equity of greater than 10%. For internal management purposes we monitor global businesses and geographical regions by pre-tax return on average risk-weighted assets ('RoRWA'), a metric which combines return on equity and regulatory capital efficiency objectives. This metric is calibrated against return on equity ('ROE') and capital requirements to ensure that we are best placed to achieve capital strength and business profitability combined with regulatory capital efficiency objectives.

In addition to the pre-tax return on average risk-weighted assets ('RoRWA'), we measure our performance internally using the non-GAAP measure of adjusted RoRWA, which is adjusted profit before tax as a percentage of average risk-weighted assets adjusted for the effects of foreign currency translation differences and significant items. Excluded from adjusted RoRWA are certain items which distort period-on-period performance as explained on page 18.

Reconciliation of adjusted RoRWA



		Half-year to 30 Jun 2016
		Pre-tax return	Average RWAs	RoRWA₆
	Footnotes	$m	$bn	%

Reported		9,714	1,100	1.8

Adjusted	6	10,795	1,100	2.0



		Half-year to 30 Jun 2015			Half-year to 31 Dec 2015
		Pre-tax return	Average RWAs	RoRWA₆	Pre-tax return	Average RWAs	RoRWA₆
	Footnotes	$m	$bn	%	$m	$bn	%

Reported		13,628	1,208	2.3	5,239	1,147	0.9

Adjusted	6	12,550	1,163	2.2	7,161	1,129	1.3

For footnote, see page 59.

Reconciliation of reported and adjusted average risk-weighted assets



		Half-year to
		30 Jun	30 Jun				30 Jun	31 Dec
		2016	2015		Change		2016	2015		Change
	Footnotes	$bn	$bn		%		$bn	$bn		%

Average reported RWAs		1,100	1,208		(9	)	1,100	1,147		(4	)
Currency translation adjustment	7	-	(40	)			-	(18	)
Acquisitions, disposals and dilutions		-	(5	)			-	-

Average adjusted RWAs		1,100	1,163		(5	)	1,100	1,129		(3	)

For footnote, see page 59.

HSBC HOLDINGS PLC

Global businesses



Global businesses

Summary	35
Retail Banking and Wealth Management	36
Commercial Banking	38
Global Banking and Markets	39
Global Private Banking	41
Other	42

Summary

HSBC reviews operating activity on a number of bases, including by geographical region and by global business.

We present global businesses followed by geographical regions because certain strategic themes, business initiatives and trends affect more than one geographical region.

Basis of preparation

The results of our global businesses are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated and, accordingly, the presentation of global business data includes internal allocations of certain items of income and expense. These allocations include the costs of some support services and global functions to the extent that they can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Those costs which are not allocated to global businesses are included in 'Other'.

Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms.

The expense of the UK bank levy is included in the Europe geographical region as we regard the levy as a cost of being headquartered in the UK. For the purposes of the segmentation by global businesses, the cost of the levy is included in 'Other'.

Profit/(loss) before tax



						Half-year to
		30 Jun 2016				30 Jun 2015		31 Dec 2015
	Footnotes	$m		%		$m	%	$m		%

Retail Banking and Wealth Management		2,382		24.5		3,362	24.7	1,605		30.6
Commercial Banking		4,304		44.3		4,523	33.2	3,450		65.9
Global Banking and Markets		4,006		41.2		4,754	34.9	3,156		60.2
Global Private Banking		(557	)	(5.7	)	180	1.3	164		3.1
Other	8	(421	)	(4.3	)	809	5.9	(3,136	)	(59.8	)

		9,714		100.0		13,628	100.0	5,239		100.0

Total assets⁹



	At
	30 Jun 2016				31 Dec 2015
	$m		%		$m		%

Retail Banking and Wealth Management	470,245		18.0		473,284		19.6
Commercial Banking	355,388		13.6		365,290		15.2
Global Banking and Markets	1,873,474		71.8		1,616,704		67.1
Global Private Banking	79,068		3.0		81,448		3.4
Other	179,853		7.0		147,417		6.1
Intra-HSBC items	(349,879	)	(13.4	)	(274,487	)	(11.4	)

	2,608,149		100.0		2,409,656		100.0

Risk-weighted assets



	At
	30 Jun 2016		31 Dec 2015
	$bn	%	$bn	%

Retail Banking and Wealth Management	176.1	16.3	189.5	17.2
Commercial Banking	414.8	38.3	421.0	38.2
Global Banking and Markets	437.1	40.4	440.6	39.9
Global Private Banking	18.5	1.7	19.3	1.7
Other	35.7	3.3	32.6	3.0

	1,082.2	100.0	1,103.0	100.0

For footnotes, see page 59.

HSBC HOLDINGS PLC

Retail Banking and Wealth Management

RBWM provides banking and wealth management services for our personal customers to help them secure their future prosperity and realise their ambitions.



								Principal RBWM consists of
		Total RBWM		US run-off portfolio		Principal RBWM₁₀		Banking operations		Insurance manufacturing		Asset management
	Footnotes	$m		$m		$m		$m		$m		$m
Half-year to 30 Jun 2016
Net interest income		7,724		388		7,336		6,433		901		2
Net fee income/(expense)		2,576		(2	)	2,578		2,418		(304	)	464
Other income/(loss)	11	817		(19	)	836		769		46		21

Net operating income	12	11,117		367		10,750		9,620		643		487
LICs	13	(1,120	)	(97	)	(1,023	)	(1,023	)	-		-

Net operating income		9,997		270		9,727		8,597		643		487
Total operating expenses		(7,808	)	(846	)	(6,962	)	(6,413	)	(210	)	(339	)

Operating profit/(loss)		2,189		(576	)	2,765		2,184		433		148
Income from associates	14	193		-		193		173		14		6

Profit/(loss) before tax		2,382		(576	)	2,958		2,357		447		154

RoRWA		2.6	%	(3.3	)%	4.0	%

Half-year to 30 Jun 2015
Net interest income		8,054		536		7,518		6,664		850		4
Net fee income/(expense)		3,334		(2	)	3,336		3,079		(282	)	539
Other income	11	1,054		46		1,008		397		595		16

Net operating income	12	12,442		580		11,862		10,140		1,163		559
LICs	13	(934	)	(47	)	(887	)	(887	)	-		-

Net operating income		11,508		533		10,975		9,253		1,163		559
Total operating expenses		(8,354	)	(688	)	(7,666	)	(7,076	)	(219	)	(371	)

Operating profit/(loss)		3,154		(155	)	3,309		2,177		944		188
Income from associates	14	208		-		208		178		11		19

Profit/(loss) before tax		3,362		(155	)	3,517		2,355		955		207

RoRWA		3.3	%	(0.6	)%	4.6	%

Half-year to 31 Dec 2015
Net interest income		7,872		497		7,375		6,463		907		5
Net fee income/(expense)		2,884		(2	)	2,886		2,647		(278	)	517
Other income/(loss)	11	318		(249	)	567		479		85		3

Net operating income	12	11,074		246		10,828		9,589		714		525
LICs	13	(1,005	)	(15	)	(990	)	(990	)	-		-

Net operating income		10,069		231		9,838		8,599		714		525
Total operating expenses		(8,666	)	(696	)	(7,970	)	(7,383	)	(213	)	(374	)

Operating profit/(loss)		1,403		(465	)	1,868		1,216		501		151
Income from associates	14	202		-		202		180		13		9

Profit/(loss) before tax		1,605		(465	)	2,070		1,396		514		160

RoRWA		1.6	%	(2.0	)%	2.7	%

For footnotes, see page 59.

RBWM comprises the Principal RBWM business and the US run-off portfolio. We believe that highlighting Principal RBWM (and its constituent business streams, Banking Operations, Insurance Manufacturing and Asset Management) allows management to identify more readily the causes of material changes from year to year in the

ongoing business and to assess the factors and trends that are expected to have a material effect on the business in future years.

Insurance manufacturing for RBWM excludes other global businesses which contribute net operating income of $199m in 1H16 (1H15: $189m; 2H15: $97m) and profit before tax of

HSBC HOLDINGS PLC

Global businesses (continued)

$159m (1H15: $144m); 2H15: $57m) to overall insurance manufacturing. In 1H16, insurance manufacturing net operating income for RBWM included $575m within Wealth

Management (1H15: $1,080m) and $58m within other products (1H15: $83m).

Principal RBWM¹⁰ performance

Management view of adjusted revenue¹²



		Half-year to
		30 Jun	30 Jun	31 Dec
		2016	2015	2015
	Footnotes	$m	$m	$m

Current accounts, savings and deposits		2,856	2,633	2,668
Wealth Management products		2,578	3,485	2,620
- investment distribution		1,516	1,909	1,522
- life insurance manufacturing		575	1,038	581
- asset management		487	538	517

Personal lending		4,668	4,704	4,731
- mortgages		1,349	1,372	1,390
- credit cards		1,767	1,850	1,811
- other personal lending		1,552	1,482	1,530

Other		321	295	497

Net operating income	12	10,423	11,116	10,516

For footnotes, see page 59.

HSBC HOLDINGS PLC

Commercial Banking

CMB serves approximately two million customers in 55 countries and territories. Our customers range from small enterprises focused primarily on their domestic markets through to corporates operating globally.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		4,809		4,892		4,967
Net fee income		1,965		2,168		2,022
Other income	11	735		474		347

Net operating income	12	7,509		7,534		7,336

LICs	13	(833	)	(511	)	(1,259	)

Net operating income		6,676		7,023		6,077

Total operating expenses		(3,143	)	(3,321	)	(3,423	)

Operating profit		3,533		3,702		2,654

Income from associates	14	771		821		796

Profit before tax		4,304		4,523		3,450

RoRWA		2.1	%	2.1	%	1.6	%

Management view of adjusted revenue¹²



		Half-year to
		30 Jun	30 Jun	31 Dec
		2016	2015	2015
	Footnotes	$m	$m	$m

Global Trade and Receivables Finance		1,071	1,167	1,156
Credit and Lending		2,821	2,747	2,864
Global Liquidity and Cash Management		2,332	2,215	2,302
Markets products, Insurance and Investments and Other		1,055	1,012	818

Net operating income	12	7,279	7,141	7,140

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

Global businesses (continued)

Global Banking and Markets

GB&M supports major government, corporate and institutional clients worldwide in achieving their long-term strategic goals through tailored and innovative solutions.



		Total GB&M		Legacy		GB&M client-facing and BSM
	Footnotes	$m		$m		$m
Half-year to 30 Jun 2016

Net interest income		3,434		2		3,432
Net fee income/(expense)		1,641		(3	)	1,644
Net trading income/(expense)	1	4,760		(65	)	4,825
Other expense	11	(922	)	(34	)	(888	)

Net operating income/(loss)	12	8,913		(100	)	9,013

LICs	13	(425	)	12		(437	)

Net operating income/(loss)		8,488		(88	)	8,576

Total operating expenses		(4,749	)	(38	)	(4,711	)

Operating profit/(loss)		3,739		(126	)	3,865
						-
Income from associates	14	267

Profit before tax		4,006

RoRWA		1.8	%	(1.0	)%	2.0	%

Half-year to 30 Jun 2015

Net interest income		3,629		114		3,515
Net fee income/(expense)		1,711		(6	)	1,717
Net trading income/(expense)	1	3,743		(1	)	3,744
Other income/(expense)	11	1,178		(10	)	1,188

Net operating income	12	10,261		97		10,164

LICs	13	11		15		(4	)

Net operating income		10,272		112		10,160

Total operating expenses		(5,790	)	(41	)	(5,749	)

Operating profit		4,482		71		4,411

Income from associates	14	272

Profit before tax		4,754

RoRWA		1.9	%	0.4	%	2.0	%

Half-year to 31 Dec 2015

Net interest income		3,302		13		3,289
Net fee income/(expense)		1,664		(5	)	1,669
Net trading income	1	3,426		10		3,416
Other expense	11	(420	)	(54	)	(366	)

Net operating income/(loss)	12	7,972		(36	)	8,008

LICs	13	(11	)	22		(33	)

Net operating income/(loss)		7,961		(14	)	7,975

Total operating expenses		(5,044	)	(62	)	(4,982	)

Operating profit/(loss)		2,917		(76	)	2,993

Income from associates	14	239

Profit before tax		3,156

RoRWA		1.4	%	(0.5	)%	1.5	%

For footnotes, see page 59.

The GB&M client-facing and Balance Sheet Management ('BSM') businesses measure excludes the effects of the legacy credit portfolio and income from associates. This allows GB&M management to identify more readily the cause of material changes from year to year in the ongoing businesses and assess the factors and trends that are expected to have a material effect on the businesses in future years.

HSBC HOLDINGS PLC

Management view of adjusted revenue¹²



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Global Markets		3,588		4,188		2,448
- Legacy credit		(100	)	96		(32	)
- Credit		506		478		164
- Rates		1,116		961		612
- Foreign Exchange		1,491		1,584		1,227
- Equities		575		1,069		477

Global Banking		1,776		1,813		1,859
Global Liquidity and Cash Management		924		854		876
Securities Services		786		835		818
Global Trade and Receivables Finance		352		349		344
Balance Sheet Management		1,448		1,506		1,312
Principal Investments		(5	)	125		109
Other	16	(87	)	(16	)	(57	)

Net operating income	12	8,782		9,654		7,709

For footnotes, see page 59.

HSBC HOLDINGS PLC

Global businesses (continued)

Global Private Banking

GPB serves high net worth individuals and families with complex and international needs within the Group's priority markets.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		395		454		416
Net fee income		386		527		432
Other income	11	192		196		147

Net operating income	12	973		1,177		995

LICs	13	11		(5	)	(7	)

Net operating income		984		1,172		988

Total operating expenses		(1,545	)	(1,001	)	(831	)

Operating (loss)/profit		(561	)	171		157

Income from associates	14	4		9		7

Profit before tax		(557	)	180		164

RoRWA		(5.9	)%	1.8	%	1.6	%

Client assets¹⁷



	Half-year to
	30 Jun		30 Jun		31 Dec
	2016		2015		2015
	$bn		$bn		$bn

At beginning of period	349		365		370
Net new money	(7	)	(1	)	1
Of which: areas targeted for growth	5		7		7

Value change	(6	)	9		(8	)
Exchange and other	(19	)	(3	)	(14	)

At end of period	317		370		349

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

Other⁸

'Other' contains the results of HSBC's holding company and financing operations, central support and functional costs with associated recoveries, unallocated investment activities, centrally held investment companies, certain property transactions, movements in fair value of own debt and the UK bank levy.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest expense		(392	)	(397	)	(313	)
Net fee income/(expense)		18		(15	)	(22	)
Net trading expense		(146	)	(123	)	(69	)

Changes in fair value of long-term debt issued and related derivatives		270		1,324		(461	)
Changes in other financial instruments designated at fair value		1,320		(661	)	722
Net income from financial instruments designated at fair value		1,590		663		261
Other income		2,959		4,559		3,060

Net operating income		4,029		4,687		2,917

Total operating expenses		(4,453	)	(3,879	)	(6,054	)

Operating (loss)/profit		(424	)	808		(3,137	)

Income from associates	14	3		1		1

(Loss)/profit before tax		(421	)	809		(3,136	)

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

Global businesses (continued)

Analysis by global business

HSBC profit/(loss) before tax and balance sheet data



		Half-year to 30 Jun 2016
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Other₈		Inter- segment elimination₁₈		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Profit/(loss) before tax

Net interest income/(expense)		7,724		4,809		3,434		395		(392	)	(210	)	15,760

Net fee income		2,576		1,965		1,641		386		18		-		6,586

Trading income/(expense) excluding net interest income		73		286		4,228		157		(150	)	-		4,594
Net interest (expense)/income on trading activities		(8	)	(8	)	532		-		4		210		730

Net trading income/(expense)	1	65		278		4,760		157		(146	)	210		5,324
Net income/(expense) from financial instruments designated at fair value		185		74		(1,283	)	(5	)	1,590		-		561
Gains less losses from financial investments		383		264		307		11		-		-		965
Dividend income		10		8		16		3		27		-		64
Net insurance premium income/(expense)		4,748		601		2		8		(3	)	-		5,356
Other operating income/(expense)		503		214		36		24		2,937		(3,070	)	644

Total operating income/(expense)		16,194		8,213		8,913		979		4,031		(3,070	)	35,260

Net insurance claims	19	(5,077	)	(704	)	-		(6	)	(3	)	-		(5,790	)

Net operating income/(expense)	12	11,117		7,509		8,913		973		4,028		(3,070	)	29,470

Loan impairment (charges)/recoveries and other credit risk provisions		(1,120	)	(833	)	(425	)	11		1		-		(2,366	)

Net operating income/(expense)		9,997		6,676		8,488		984		4,029		(3,070	)	27,104

Employee expenses	20	(2,353	)	(1,117	)	(1,785	)	(309	)	(3,790	)	-		(9,354	)
Other operating expenses		(5,455	)	(2,026	)	(2,964	)	(1,236	)	(663	)	3,070		(9,274	)

Total operating (expense)/income		(7,808	)	(3,143	)	(4,749	)	(1,545	)	(4,453	)	3,070		(18,628	)

Operating profit/(loss)		2,189		3,533		3,739		(561	)	(424	)	-		8,476

Share of profit in associates and joint ventures		193		771		267		4		3		-		1,238

Profit/(loss) before tax		2,382		4,304		4,006		(557	)	(421	)	-		9,714

		%		%		%		%		%				%
Share of HSBC's profit before tax		24.5		44.3		41.2		(5.7	)	(4.3	)			100.0
Cost efficiency ratio		70.2		41.9		53.3		158.8		110.6				63.2

Balance sheet data	9
		$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		326,699		298,641		219,186		39,923		3,107				887,556
Reported in held for sale		7,304		8,472		4,279		623		33				20,711

Total assets		470,245		355,388		1,873,474		79,068		179,853		(349,879	)	2,608,149
Customer accounts		588,864		347,842		274,095		77,981		2,176				1,290,958
Reported in held for sale		9,749		4,446		3,467		2,869		-				20,531

HSBC HOLDINGS PLC

HSBC profit/(loss) before tax and balance sheet data (continued)



		Half-year to 30 Jun 2015
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Other₈		Inter- segment elimination₁₈		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Profit/(loss) before tax

Net interest income/(expense)		8,054		4,892		3,629		454		(397	)	(188	)	16,444

Net fee income/(expense)		3,334		2,168		1,711		527		(15	)	-		7,725

Trading income/(expense) excluding net interest income		295		308		2,880		175		(138	)	-		3,520
Net interest (expense)/income on trading activities		(5	)	(7	)	863		(1	)	15		188		1,053

Net trading income/(expense)	1	290		301		3,743		174		(123	)	188		4,573
Net income from financial instruments designated at fair value		1,237		128		638		-		663		-		2,666
Gains less losses from financial investments		51		27		402		24		1,370		-		1,874
Dividend income		11		10		17		4		26		-		68
Net insurance premium income		4,950		624		3		30		-		-		5,607
Other operating income/(expense)		609		100		120		2		3,163		(3,158	)	836

Total operating income/(expense)		18,536		8,250		10,263		1,215		4,687		(3,158	)	39,793

Net insurance claims	19	(6,094	)	(716	)	(2	)	(38	)	-		-		(6,850	)

Net operating income/(expense)	12	12,442		7,534		10,261		1,177		4,687		(3,158	)	32,943

Loan impairment (charges)/recoveries and other credit risk provisions		(934	)	(511	)	11		(5	)	-		-		(1,439	)

Net operating income/(expense)		11,508		7,023		10,272		1,172		4,687		(3,158	)	31,504

Employee expenses	20	(2,571	)	(1,171	)	(1,994	)	(350	)	(3,955	)	-		(10,041	)
Other operating expenses		(5,783	)	(2,150	)	(3,796	)	(651	)	76		3,158		(9,146	)

Total operating (expense)/income		(8,354	)	(3,321	)	(5,790	)	(1,001	)	(3,879	)	3,158		(19,187	)

Operating profit		3,154		3,702		4,482		171		808		-		12,317

Share of profit in associates and joint ventures		208		821		272		9		1		-		1,311

Profit before tax		3,362		4,523		4,754		180		809		-		13,628

		%		%		%		%		%				%
Share of HSBC's profit before tax		24.7		33.2		34.9		1.3		5.9				100.0
Cost efficiency ratio		67.1		44.1		56.4		85.0		82.8				58.2

Balance sheet data	9
		$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		352,189		310,256		244,321		44,242		2,977				953,985
Reported in held for sale		6,640		10,325		4,016		43		-				21,024

Total assets		497,199		378,641		1,790,461		85,740		167,946		(348,274	)	2,571,713
Customer accounts		589,715		362,069		299,181		82,878		1,957				1,335,800
Reported in held for sale		9,549		4,694		3,438		1,751		-				19,432

HSBC HOLDINGS PLC

Global businesses (continued)



		Half-year to 31 Dec 2015
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Other₈		Inter- segment elimination₁₈		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Profit/(loss) before tax

Net interest income/(expense)		7,872		4,967		3,302		416		(313	)	(157	)	16,087

Net fee income/(expense)		2,884		2,022		1,664		432		(22	)	-		6,980

Trading income/(expense) excluding net interest income		245		263		2,834		152		(66	)	-		3,428
Net interest (expense)/income on trading activities		(14	)	(9	)	592		(1	)	(3	)	157		722

Net trading income/(expense)	1	231		254		3,426		151		(69	)	157		4,150
Net (expense)/income from financial instruments designated at fair value		(681	)	(18	)	(696	)	-		261		-		(1,134	)
Gains less losses from financial investments		17		10		196		(1	)	(28	)	-		194
Dividend income		12		6		23		7		7		-		55
Net insurance premium income/(expense)		4,254		482		2		12		(2	)	-		4,748
Other operating income/(expense)		363		152		57		1		3,083		(3,437	)	219

Total operating income/(expense)		14,952		7,875		7,974		1,018		2,917		(3,437	)	31,299

Net insurance claims	19	(3,878	)	(539	)	(2	)	(23	)	-		-		(4,442	)

Net operating income/(expense)	12	11,074		7,336		7,972		995		2,917		(3,437	)	26,857

Loan impairment (charges)/recoveries and other credit risk provisions		(1,005	)	(1,259	)	(11	)	(7	)	-		-		(2,282	)

Net operating income/(expense)		10,069		6,077		7,961		988		2,917		(3,437	)	24,575

Employee expenses	20	(2,395	)	(1,272	)	(1,741	)	(304	)	(4,147	)	-		(9,859	)
Other operating expenses		(6,271	)	(2,151	)	(3,303	)	(527	)	(1,907	)	3,437		(10,722	)

Total operating (expense)/income		(8,666	)	(3,423	)	(5,044	)	(831	)	(6,054	)	3,437		(20,581	)

Operating profit/(loss)		1,403		2,654		2,917		157		(3,137	)	-		3,994

Share of profit in associates and joint ventures		202		796		239		7		1		-		1,245

Profit/(loss) before tax		1,605		3,450		3,156		164		(3,136	)	-		5,239

		%		%		%		%		%				%

Share of HSBC's profit before tax		30.6		65.9		60.2		3.1		(59.8	)			100.0
Cost efficiency ratio		78.3		46.7		63.3		83.5		207.5				76.6

Balance sheet data	9
		$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		340,009		302,240		236,932		42,942		2,331				924,454
Reported in held for sale		5,258		8,010		3,689		85		1,979				19,021

Total assets		473,284		365,290		1,616,704		81,448		147,417		(274,487	)	2,409,656
Customer accounts		584,872		361,701		261,728		80,404		881				1,289,586
Reported in held for sale		7,758		3,363		2,551		3,010		-				16,682

For footnotes, see page 59.

HSBC HOLDINGS PLC

Geographical regions



Geographical regions

Summary	46
Europe	47
Asia	47
Middle East and North Africa	48
North America	48
Latin America	49
Analysis by country	50

Summary

HSBC reviews operating activity on a number of bases, including by geographical region and by global business.

In the analysis of profit and loss by geographical region that follows, operating income and operating expenses include intra-HSBC items of $1,615m (1H15: $1,564m; 2H15: $1,811m).

All tables are on a reported basis unless otherwise stated.

Basis of preparation

The results of the geographical regions are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated, and accordingly, the presentation of the geographical data includes internal allocation of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to geographical regions. While such allocations have been done on a systematic and consistent basis, they necessarily involve a degree of subjectivity.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company transactions. All such transactions are undertaken on an arm's length basis.

The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK.

Profit/(loss) before tax



	Half-year to
	30 Jun 2016				30 Jun 2015		31 Dec 2015
	$m		%		$m	%	$m		%

Europe	1,579		16.3		2,205	16.2	(1,562	)	(29.8	)
Asia	7,155		73.7		9,400	69.0	6,363		121.5
Middle East and North Africa	985		10.1		901	6.6	636		12.1
North America	50		0.5		690	5.1	(76	)	(1.5	)
Latin America	(55	)	(0.6	)	432	3.1	(122	)	(2.3	)

Profit before tax	9,714		100.0		13,628	100.0	5,239		100.0

Total assets⁹



	At 30 Jun 2016				At 31 Dec 2015
	$m		%		$m		%

Europe	1,251,513		47.9		1,129,365		46.9
Asia	946,998		36.3		889,747		36.9
Middle East and North Africa	58,802		2.3		59,236		2.5
North America	438,658		16.8		393,960		16.3
Latin America	93,067		3.6		86,262		3.6
Intra-HSBC items	(180,889	)	(6.9	)	(148,914	)	(6.2	)

Total assets	2,608,149		100.0		2,409,656		100.0

Risk-weighted assets²¹



	At 30 Jun 2016		At 31 Dec 2015
	$bn	%	$bn	%

Total RWAs	1082.2	100.0	1,103.0	100.0

Europe	331.2	30.6	337.4	30.6
Asia	462.3	42.7	459.7	41.7
Middle East and North Africa	59.7	5.5	60.4	5.5
North America	175.1	16.2	191.6	17.4
Latin America	78.6	7.3	73.4	6.7

For footnotes, see page 59.

HSBC HOLDINGS PLC

Geographical regions (continued)

Europe

Our principal banking operations in Europe are HSBC Bank plc in the UK, HSBC France, HSBC Private Bank (Suisse) SA and HSBC Trinkaus & Burkhardt AG in Germany. Through these operations we provide a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.

In total, we operate in 24 countries and territories in Europe.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		4,653		5,115		4,890
Net fee income		2,250		2,447		2,444
Net trading income		2,886		1,913		2,147
Other income		1,333		1,994		108

Net operating income	12	11,122		11,469		9,589

LICs	13	(398	)	(288	)	(402	)

Net operating income		10,724		11,181		9,187

Total operating expenses		(9,144	)	(8,978	)	(10,755	)

Operating profit/(loss)		1,580		2,203		(1,568	)

Income from associates	14	(1	)	2		6

Profit/(loss) before tax		1,579		2,205		(1,562	)

Loans and advances to customers (net)		365,325		400,452		392,041
Customer accounts		482,992		536,251		497,876
RoRWA		0.9	%	1.2	%	(0.9	)%
Cost efficiency ratio		82.2	%	78.3	%	112.2	%
Period-end staff numbers		65,387		69,867		67,509

For footnotes, see page 59.

Asia

Our principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited, and Hang Seng Bank Limited. The former is the largest bank incorporated in Hong Kong and is our flagship bank in Asia.

We offer a wide range of banking and financial services in mainland China through our local subsidiaries, HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications Co., Limited ('BoCom').

Outside Hong Kong and mainland China, we conduct business in 18 countries and territories in Asia, with particularly strong coverage in Australia, India, Indonesia, Malaysia, Singapore and Taiwan.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		6,141		6,060		6,124
Net fee income		2,571		3,291		2,741
Net trading income		1,703		1,779		1,311
Other income		1,337		2,935		1,062

Net operating income	12	11,752		14,065		11,238

LICs	13	(344	)	(246	)	(447	)

Net operating income		11,408		13,819		10,791

Total operating expenses		(5,245	)	(5,457	)	(5,432	)

Operating profit		6,163		8,362		5,359

Income from associates	14	992		1,038		1,004

Profit before tax		7,155		9,400		6,363

Loans and advances to customers (net)		352,404		371,639		356,375
Customer accounts		610,200		599,940		598,620
RoRWA		3.1	%	3.8	%	2.7	%
Cost efficiency ratio		44.6	%	38.8	%	48.3	%
Period-end staff numbers		119,699		120,588		120,144

For footnotes, see page 59.

HSBC HOLDINGS PLC

Middle East and North Africa

The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us wide coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the Kingdom's sixth largest bank by total assets.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		786		758		773
Net fee income		311		325		308
Net trading income		185		167		158
Other income		52		39		37

Net operating income	12	1,334		1,289		1,276

LICs	13	(40	)	(31	)	(268	)

Net operating income		1,294		1,258		1,008

Total operating expenses		(559	)	(624	)	(610	)

Operating profit		735		634		398

Income from associates	14	250		267		238

Profit before tax		985		901		636

Loans and advances to customers (net)		29,774		31,207		29,894
Customer accounts		35,094		38,186		36,468
RoRWA		3.3	%	2.9	%	2.0	%
Cost efficiency ratio		41.9	%	48.4	%	47.8	%
Period-end staff numbers		7,693		8,208		8,066

For footnotes, see page 59.

North America

Our North American businesses are principally located in the US and Canada. Operations in the US are primarily conducted through HSBC Bank USA, N.A. and HSBC Finance Corporation, a national consumer finance company. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC Securities (USA) Inc. Canadian operations are conducted through HSBC Bank Canada.



		Half-year to
		30 Jun		30 Jun		31 Dec
		2016		2015		2015
	Footnotes	$m		$m		$m

Net interest income		2,236		2,278		2,254
Net fee income		970		1,057		961
Net trading income		221		296		249
Other income		525		495		67

Net operating income	12	3,952		4,126		3,531

LICs	13	(617	)	(153	)	(391	)

Net operating income		3,335		3,973		3,140

Total operating expenses		(3,283	)	(3,287	)	(3,214	)

Operating profit/(loss)		52		686		(74	)

Income from associates	14	(2	)	4		(2	)

Profit/(loss) before tax		50		690		(76	)

Loans and advances to customers (net)		122,509		132,340		128,851
Customer accounts		142,152		137,296		135,152
RoRWA		0.1	%	0.6	%	(0.1	)%
Cost efficiency ratio		83.1	%	79.7	%	91.0	%
Period-end staff numbers		18,838		20,338		19,656

For footnotes, see page 59.

HSBC HOLDINGS PLC

Geographical regions (continued)

Latin America

In 1H16, our operations in Latin America principally comprised HSBC Bank Brasil S.A.-Banco Múltiplo and HSBC México, S.A. In addition to banking services, we operated insurance businesses in Brazil, Mexico and Argentina. During 2015 our operations in Brazil were classified as held for sale. On 1 July, we completed the sale of our operations in Brazil.



		Half-year to
		30 Jun 2016						30 Jun 2015						31 Dec 2015
		Total Latin America		Brazil		Other Latin America		Total Latin America		Brazil		Other Latin America		Total Latin America		Brazil		Other Latin America
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m		$m
Net interest income		1,976		974		1,002		2,249		1,214		1,035		2,069		1,011		1,058
Net fee income		484		233		251		605		307		298		526		253		273
Net trading income		297		144		153		402		242		160		262		128		134
Other income		168		112		56		302		279		23		177		150		27

Net operating income	12	2,925		1,463		1,462		3,558		2,042		1,516		3,034		1,542		1,492

LICs	13	(967	)	(748	)	(219	)	(721	)	(498	)	(223	)	(774	)	(467	)	(307	)

Net operating income		1,958		715		1,243		2,837		1,544		1,293		2,260		1,075		1,185

Total operating expenses		(2,012	)	(1,070	)	(942	)	(2,405	)	(1,353	)	(1,052	)	(2,381	)	(1,260	)	(1,121	)

Operating (loss)/profit		(54	)	(355	)	301		432		191		241		(121	)	(185	)	64

Income from associates	14	(1	)	(1	)	-		-		-		-		(1	)	(1	)	-

(Loss)/profit before tax		(55	)	(356	)	301		432		191		241		(122	)	(186	)	64

Loans and advances to customers (net)		17,544		-		17,544		18,347		-		18,347		17,293		-		17,293
- reported in held for sale		19,203		19,203		-		20,827		20,827		-		17,001		17,001		-
Customer accounts		20,520		-		20,520		24,127		-		24,127		21,470		-		21,470
- reported in held for sale		19,357		19,357		-		19,432		19,432		-		15,094		15,094		-
RoRWA		(0.1	)%	(1.6	)%	1.9	%	1.0	%	0.8	%	1.3	%	(0.3	)%	(0.9	)%	0.4	%
Cost efficiency ratio		68.8	%	73.1	%	64.4	%	67.6	%	66.3	%	69.4	%	78.5	%	81.7	%	75.1	%
Period-end staff numbers		39,719		18,835		20,884		40,787		19,641		21,146		39,828		19,145		20,683

For footnotes, see page 59.

HSBC HOLDINGS PLC

Analysis by country

Profit/(loss) before tax by priority growth markets within global businesses



		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Other		Total
	Footnotes	$m		$m		$m		$m		$m		$m

Europe		853		1,326		594		(744	)	(450	)	1,579
- UK		872		1,136		196		87		(314	)	1,977
- France		8		138		134		4		(72	)	212
- Germany		10		36		94		5		(16	)	129
- Switzerland		-		-		-		(53	)	(23	)	(76	)
- other		(37	)	16		170		(787	)	(25	)	(663	)

Asia		2,081		2,356		2,512		123		83		7,155
- Hong Kong		1,811		1,198		1,092		91		(22	)	4,170
- Australia		50		25		59		-		(2	)	132
- India		11		81		236		6		68		402
- Indonesia		(3	)	51		67		-		(6	)	109
- Mainland China		112		754		459		(2	)	49		1,372
- Malaysia		29		44		107		-		11		191
- Singapore		26		63		145		28		(2	)	260
- Taiwan		14		10		62		-		(2	)	84
- other		31		130		285		-		(11	)	435

Middle East and North Africa		161		322		506		5		(9	)	985
- Egypt		34		62		139		-		-		235
- UAE		72		114		184		-		(10	)	360
- Saudi Arabia		45		79		119		5		3		251
- other		10		67		64		-		(2	)	139

North America		(515	)	310		159		53		43		50
- US		(571	)	204		(18	)	31		64		(290	)
- Canada		27		93		148		-		(23	)	245
- other		29		13		29		22		2		95

Latin America		(198	)	(10	)	235		6		(88	)	(55	)
- Mexico		47		52		51		1		(21	)	130
- other		(245	)	(62	)	184		5		(67	)	(185	)
included in other: Brazil	5	(281	)	(140	)	111		4		(51	)	(357	)

Half-year to 30 Jun 2016		2,382		4,304		4,006		(557	)	(421	)	9,714

Europe		863		1,287		905		(23	)	(827	)	2,205
- UK		633		1,115		398		100		(821	)	1,425
- France		284		83		241		10		5		623
- Germany		12		30		74		12		(14	)	114
- Switzerland		-		3		1		(162	)	-		(158	)
- other		(66	)	56		191		17		3		201

Asia		2,531		2,404		2,683		156		1,626		9,400
- Hong Kong		2,172		1,239		1,238		120		1,464		6,233
- Australia		24		61		128		-		(7	)	206
- India		(3	)	46		195		7		90		335
- Indonesia		-		(29	)	38		-		17		26
- Mainland China		184		817		544		(1	)	38		1,582
- Malaysia		67		60		105		-		8		240
- Singapore		45		63		139		31		(17	)	261
- Taiwan		11		12		66		-		(5	)	84
- other		31		135		230		(1	)	38		433

HSBC HOLDINGS PLC

Geographical regions (continued)



		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Other		Total
		$m		$m		$m		$m		$m		$m

Middle East and North Africa	Footnotes	172		273		470		8		(22	)	901
- Egypt		26		50		128		-		(1	)	203
- UAE		83		76		157		(1	)	(21	)	294
- Saudi Arabia		54		82		118		10		-		264
- other		9		65		67		(1	)	-		140

North America		(172	)	423		356		37		46		690
- US		(219	)	204		190		37		70		282
- Canada		33		206		142		-		(17	)	364
- other		14		13		24		-		(7	)	44

Latin America		(32	)	136		340		2		(14	)	432
- Mexico		33		28		56		-		1		118
- other		(65	)	108		284		2		(15	)	314
included in other: Brazil	5	(74	)	32		208		2		23		191

Half-year to 30 Jun 2015		3,362		4,523		4,754		180		809		13,628

Europe		331		1,032		143		37		(3,105	)	(1,562	)
- UK		331		925		(14	)	69		(3,036	)	(1,725	)
- France		104		69		(129	)	4		(32	)	16
- Germany		11		36		83		8		(13	)	125
- Switzerland		-		5		(1	)	(58	)	(4	)	(58	)
- other		(115	)	(3	)	204		14		(20	)	80

Asia		1,855		2,104		2,251		96		57		6,363
- Hong Kong		1,627		1,145		881		57		(137	)	3,573
- Australia		37		18		110		-		2		167
- India		(22	)	51		184		7		51		271
- Indonesia		(6	)	(83	)	42		-		14		(33	)
- Mainland China		113		752		518		(2	)	97		1,478
- Malaysia		52		35		110		-		5		202
- Singapore		35		59		120		34		(2	)	246
- Taiwan		-		12		67		-		(8	)	71
- other		19		115		219		-		35		388

Middle East and North Africa		100		135		403		8		(10	)	636
- Egypt		24		51		128		-		4		207
- UAE		8		(57	)	135		1		(14	)	73
- Saudi Arabia		58		87		84		6		1		236
- other		10		54		56		1		(1	)	120

North America		(473	)	150		237		22		(12	)	(76	)
- US		(517	)	98		165		28		(15	)	(241	)
- Canada		25		53		47		-		(4	)	121
- other		19		(1	)	25		(6	)	7		44

Latin America		(208	)	29		122		1		(66	)	(122	)
- Mexico		40		(33	)	(71	)	(3	)	(19	)	(86	)
- other		(248	)	62		193		4		(47	)	(36	)
included in other: Brazil	5	(270	)	(21	)	128		4		(27	)	(186	)

Half-year to 31 Dec 2015		1,605		3,450		3,156		164		(3,136	)	5,239

For footnote, see page 59.

HSBC HOLDINGS PLC

Other information

Funds under management



	Half-year to
	30 Jun 2016		30 Jun 2015		31 Dec 2015
	$bn		$bn		$bn
Funds under management by business
Global Asset Management	426		440		419
Global Private Banking	232		280		261
Affiliates	3		6		4
Other	209		237		212

	870		963		896

At beginning of period	896		954		963
Net new money	(8	)	3		(6	)
Value change	6		32		(30	)
Exchange and other	(24	)	(26	)	(31	)

At end of period	870		963		896

HSBC HOLDINGS PLC

Other information (continued)

Reconciliation of reported results to adjusted performance

Reconciliation of reported results to adjusted performance - geographical regions



		Half-year to 30 Jun 2016
		Europe		Asia		MENA		North America		Latin America		Total		UK		Hong Kong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	11,122		11,752		1,334		3,952		2,925		29,470		8,450		7,061
Significant items		(1,522	)	(66	)	(5	)	(74	)	65		(1,602	)	(1,391	)	(22	)
- debit valuation adjustment ('DVA') on derivative contracts		(110	)	(63	)	-		(13	)	35		(151	)	(100	)	(25	)
- disposal costs of Brazilian operations		-		-		-		-		32		32		-		-
- fair value movements on non-qualifying hedges	22	277		13		-		109		(2	)	397		239		16
- gain on sale of several tranches of real estate secured accounts in the US		-		-		-		(68	)	-		(68	)	-		-
- gain on disposal of our membership interest in Visa Europe		(584	)	-		-		-		-		(584	)	(441	)	-
- own credit spread	23	(1,103	)	(16	)	(5	)	(102	)	-		(1,226	)	(1,087	)	(13	)
- releases arising from the ongoing review of compliance with the UK Consumer Credit Act		(2	)	-		-		-		-		(2	)	(2	)	-

Adjusted	15	9,600		11,686		1,329		3,878		2,990		27,868		7,059		7,039

LICs	13
Reported		(398	)	(344	)	(40	)	(617	)	(967	)	(2,366	)	(261	)	(143	)

Adjusted		(398	)	(344	)	(40	)	(617	)	(967	)	(2,366	)	(261	)	(143	)

Operating expenses
Reported	15	(9,144	)	(5,245	)	(559	)	(3,283	)	(2,012	)	(18,628	)	(6,210	)	(2,760	)
Significant items		1,841		114		3		708		17		2,683		873		62
- costs-to-achieve		774		114		3		121		6		1,018		674		62
- costs to establish UK ring-fenced bank		94		-		-		-		-		94		94		-
- disposal costs of Brazilian operations		-		-		-		-		11		11		-		-
- impairment of Global Private Banking - Europe goodwill		800		-		-		-		-		800		-		-
- regulatory provisions in GPB		4		-		-		-		-		4		-		-
- settlements and provisions in connection with legal matters		136		-		-		587		-		723		72		-
- UK customer redress programmes		33		-		-		-		-		33		33		-

Adjusted	15	(7,303	)	(5,131	)	(556	)	(2,575	)	(1,995	)	(15,945	)	(5,337	)	(2,698	)

Share of profit in associates and joint ventures
Reported		(1	)	992		250		(2	)	(1	)	1,238		(2	)	12

Adjusted		(1	)	992		250		(2	)	(1	)	1,238		(2	)	12

Profit before tax
Reported		1,579		7,155		985		50		(55	)	9,714		1,977		4,170
Significant items		319		48		(2	)	634		82		1,081		(518	)	40
- revenue		(1,522	)	(66	)	(5	)	(74	)	65		(1,602	)	(1,391	)	(22	)
- operating expenses		1,841		114		3		708		17		2,683		873		62

Adjusted		1,898		7,203		983		684		27		10,795		1,459		4,210

HSBC HOLDINGS PLC



		Half-year to 30 Jun 2015
		Europe		Asia		MENA		North America		Latin America		Total		UK		Hong Kong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	11,469		14,065		1,289		4,126		3,558		32,943		8,246		9,130
Currency translation	15	(523	)	(252	)	(33	)	(61	)	(758	)	(1,594	)	(449	)	(16	)
Significant items		(580	)	(1,419	)	(3	)	(157	)	(12	)	(2,171	)	(539	)	(1,380	)
- DVA on derivative contracts		(79	)	(50	)	(1	)	(22	)	(13	)	(165	)	(67	)	(14	)
- fair value movements on non-qualifying hedges	22	23		-		-		21		1		45		44		5
- gain on sale of several tranches of real estate secured accounts in the US		-		-		-		(17	)	-		(17	)	-		-
- gain on the partial sale of shareholding in Industrial Bank		-		(1,372	)	-		-		-		(1,372	)	-		(1,372	)
- own credit spread	23	(512	)	3		(2	)	(139	)	-		(650	)	(504	)	1
- releases arising from the ongoing review of compliance with the UK Consumer Credit Act		(12	)	-		-		-		-		(12	)	(12	)	-

Adjusted	15	10,366		12,394		1,253		3,908		2,788		29,178		7,258		7,734

LICs	13
Reported		(288	)	(246	)	(31	)	(153	)	(721	)	(1,439	)	(72	)	(58	)
Currency translation		13		8		-		3		136		160		6		1

Adjusted		(275	)	(238	)	(31	)	(150	)	(585	)	(1,279	)	(66	)	(57	)

Operating expenses
Reported	15	(8,978	)	(5,457	)	(624	)	(3,287	)	(2,405	)	(19,187	)	(6,753	)	(2,855	)
Currency translation	15	387		144		9		32		498		1,037		327		5
Significant items		1,132		8		1		398		6		1,545		967		6
- regulatory provisions in GPB		147		-		-		-		-		147		-		-
- restructuring and other related costs		68		8		1		34		6		117		50		6
- settlement and provisions in connection with legal matters		780		-		-		364		-		1,144		780		-
- UK customer redress programmes		137		-		-		-		-		137		137		-

Adjusted	15	(7,459	)	(5,305	)	(614	)	(2,857	)	(1,901	)	(16,605	)	(5,459	)	(2,844	)

Share of profit in associates and joint ventures
Reported		2		1,038		267		4		-		1,311		4		16
Currency translation		2		(55	)	-		(1	)	(1	)	(55	)	(1	)	-

Adjusted		4		983		267		3		(1	)	1,256		3		16

Profit before tax
Reported		2,205		9,400		901		690		432		13,628		1,425		6,233
Currency translation		(121	)	(155	)	(24	)	(27	)	(125	)	(452	)	(117	)	(10	)
Significant items		552		(1,411	)	(2	)	241		(6	)	(626	)	428		(1,374	)
- revenue		(580	)	(1,419	)	(3	)	(157	)	(12	)	(2,171	)	(539	)	(1,380	)
- operating expenses		1,132		8		1		398		6		1,545		967		6

Adjusted		2,636		7,834		875		904		301		12,550		1,736		4,849

HSBC HOLDINGS PLC

Other information (continued)

Reconciliation of reported results to adjusted performance - geographical regions (continued)



		Half-year to 31 Dec 2015
		Europe		Asia		MENA		North America		Latin America		Total		UK		Hong Kong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	9,589		11,238		1,276		3,531		3,034		26,857		7,247		6,486
Currency translation	15	(439	)	(50	)	(21	)	(7	)	(267	)	(763	)	(446	)	(14	)
Significant items		(76	)	(12	)	(7	)	255		(24	)	136		(56	)	(3	)
- DVA on derivative contracts		(16	)	(8	)	-		1		(42	)	(65	)	(11	)	1
- disposal costs of Brazilian operations		-		-		-		-		18		18		-		-
- fair value movements on non-qualifying hedges	22	177		2		-		103		-		282		160		1
- loss on sale of several tranches of real estate secured accounts in the US		-		-		-		231		-		231		-		-
- own credit spread	23	(259	)	(6	)	(7	)	(80	)	-		(352	)	(227	)	(5	)
- provisions arising from the ongoing review of compliance with the UK Consumer Credit Act		22		-		-		-		-		22		22		-

Adjusted	15	9,074		11,176		1,248		3,779		2,743		26,230		6,745		6,469

LICs	13
Reported		(402	)	(447	)	(268	)	(391	)	(774	)	(2,282	)	(176	)	(97	)
Currency translation		7		(5	)	1		(3	)	19		19		9		-

Adjusted		(395	)	(452	)	(267	)	(394	)	(755	)	(2,263	)	(167	)	(97	)

Operating expenses
Reported	15	(10,755	)	(5,432	)	(610	)	(3,214	)	(2,381	)	(20,581	)	(8,802	)	(2,831	)
Currency translation	15	337		26		6		2		169		519		357		6
Significant items		1,273		122		14		453		179		2,041		1,184		43
- costs-to-achieve		600		122		14		103		69		908		536		43
- costs to establish UK ring-fenced bank		89		-		-		-		-		89		89		-
- disposal costs of Brazilian operations		-		-		-		-		110		110		-		-
- regulatory provisions in GPB		25		-		-		-		-		25		-		-
- settlements and provisions in connection with legal matters		155		-		-		350		-		505		155		-
- UK customer redress programmes		404		-		-		-		-		404		404		-

Adjusted	15	(9,145	)	(5,284	)	(590	)	(2,759	)	(2,033	)	(18,021	)	(7,261	)	(2,782	)

Share of profit in associates and joint ventures
Reported		6		1,004		238		(2	)	(1	)	1,245		6		15
Currency translation		-		(30	)	(1	)	-		1		(30	)	1		-

Adjusted		6		974		237		(2	)	-		1,215		7		15

Profit before tax
Reported		(1,562	)	6,363		636		(76	)	(122	)	5,239		(1,725	)	3,573
Currency translation		(95	)	(59	)	(15	)	(8	)	(78	)	(255	)	(79	)	(8	)
Significant items		1,197		110		7		708		155		2,177		1,128		40
- revenue		(76	)	(12	)	(7	)	255		(24	)	136		(56	)	(3	)
- operating expenses		1,273		122		14		453		179		2,041		1,184		43

Adjusted		(460	)	6,414		628		624		(45	)	7,161		(676	)	3,605

For footnotes, see page 59.

HSBC HOLDINGS PLC

Reconciliation of reported results to adjusted performance - global businesses



		Half-year to 30 Jun 2016
		RBWM		CMB		GB&M		GPB		Other		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	11,117		7,509		8,913		973		4,028		29,470
Significant items		(280	)	(230	)	(131	)	(2	)	(959	)	(1,602	)
- debit value adjustment ('DVA') on derivative contracts		-		-		(151	)	-		-		(151	)
- disposal costs of Brazilian operations		-		-		-		-		32		32
- fair value movements on non-qualifying hedges	22	142		-		20		-		235		397
- gain on sale of several tranches of real estate secured accounts in the US		(68	)	-		-		-		-		(68	)
- gain on disposal of our membership interest in Visa Europe		(354	)	(230	)	-		-		-		(584	)
- own credit spread	23	-		-		-		-		(1,226	)	(1,226	)
- releases arising from the ongoing review of compliance with the UK Consumer Credit Act		-		-		-		(2	)	-		(2	)

Adjusted	15	10,837		7,279		8,782		971		3,069		27,868

LICs	13
Reported		(1,120	)	(833	)	(425	)	11		1		(2,366	)

Adjusted		(1,120	)	(833	)	(425	)	11		1		(2,366	)

Operating expenses
Reported	15	(7,808	)	(3,143	)	(4,749	)	(1,545	)	(4,453	)	(18,628	)
Significant items		737		54		243		805		844		2,683
- costs-to-achieve		142		37		91		5		743		1,018
- costs to establish UK ring-fenced bank		-		-		-		-		94		94
- disposal costs of Brazilian operations		8		2		(2	)	-		3		11
- impairment of Global Private Banking - Europe goodwill		-		-		-		800		-		800
- regulatory provisions in GPB		-		-		-		-		4		4
- settlements and provisions in connection with legal matters		587		-		136		-		-		723
- UK customer redress programmes		-		15		18		-		-		33

Adjusted	15	(7,071	)	(3,089	)	(4,506	)	(740	)	(3,609	)	(15,945	)

Share of profit in associates and joint ventures
Reported		193		771		267		4		3		1,238

Adjusted		193		771		267		4		3		1,238

Profit before tax
Reported		2,382		4,304		4,006		(557	)	(421	)	9,714
Significant items		457		(176	)	112		803		(115	)	1,081
- revenue		(280	)	(230	)	(131	)	(2	)	(959	)	(1,602	)
- operating expenses		737		54		243		805		844		2,683

Adjusted		2,839		4,128		4,118		246		(536	)	10,795

HSBC HOLDINGS PLC

Other information (continued)

Reconciliation of reported results to adjusted performance - global businesses (continued)



		Half-year to 30 Jun 2015
		RBWM		CMB		GB&M		GPB		Other		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	12,442		7,534		10,261		1,177		4,687		32,943
Currency translation	15	(726	)	(393	)	(464	)	(28	)	(61	)	(1,594	)
Significant items		(23	)	-		(143	)	(24	)	(1,981	)	(2,171	)
- DVA on derivative contracts		-		-		(165	)	-		-		(165	)
- fair value movement on non-qualifying hedges	22	(18	)	-		22		-		41		45
- gain on sale of several tranches of real estate secured accounts in the US		(17	)	-		-		-		-		(17	)
- gain on the partial sale of shareholding in Industrial Bank		-		-		-		-		(1,372	)	(1,372	)
- own credit spread	23	-		-		-		-		(650	)	(650	)
- provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act		12		-		-		(24	)	-		(12	)

Adjusted	15	11,693		7,141		9,654		1,125		2,645		29,178

LICs	13
Reported		(934	)	(511	)	11		(5	)	-		(1,439	)
Currency translation		118		42		-		-		-		160

Adjusted		(816	)	(469	)	11		(5	)	-		(1,279	)

Operating expenses
Reported	15	(8,354	)	(3,321	)	(5,790	)	(1,001	)	(3,879	)	(19,187	)
Currency translation	15	556		187		250		27		95		1,037
Significant items		472		52		816		165		40		1,545
- regulatory provisions in GBP		-		-		-		147		-		147
- restructuring and other related costs		32		5		22		18		40		117
- settlements and provisions in connection with legal matters		350		-		794		-		-		1,144
- UK customer redress programmes		90		47		-		-		-		137

Adjusted	15	(7,326	)	(3,082	)	(4,724	)	(809	)	(3,744	)	(16,605	)

Share of profit in associates and joint ventures
Reported		208		821		272		9		1		1,311
Currency translation		(6	)	(40	)	(9	)	-		-		(55	)

Adjusted		202		781		263		9		1		1,256

Profit before tax
Reported		3,362		4,523		4,754		180		809		13,628
Currency translation		(58	)	(204	)	(223	)	(1	)	34		(452	)
Significant items		449		52		673		141		(1,941	)	(626	)
- revenue		(23	)	-		(143	)	(24	)	(1,981	)	(2,171	)
- operating expenses		472		52		816		165		40		1,545

Adjusted		3,753		4,371		5,204		320		(1,098	)	12,550

HSBC HOLDINGS PLC



		Half-year to 31 Dec 2015
		RBWM		CMB		GB&M		GPB		Other		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	12
Reported	15	11,074		7,336		7,972		995		2,917		26,857
Currency translation	15	(328	)	(213	)	(207	)	1		(18	)	(763	)
Significant items		349		17		(56	)	(7	)	(167	)	136
- disposal costs of Brazilian operations		-		-		-		-		18		18
- DVA on derivative contracts		-		-		(65	)	-		-		(65	)
- fair value movements on non-qualifying hedges	22	108		(1	)	9		(1	)	167		282
- loss on sale of several tranches of real estate secured accounts in the US		231		-		-		-		-		231
- own credit spread	23	-		-		-		-		(352	)	(352	)
- provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act		10		18		-		(6	)	-		22

Adjusted	15	11,095		7,140		7,709		989		2,732		26,230

LICs	13
Reported		(1,005	)	(1,259	)	(11	)	(7	)	-		(2,282	)
Currency translation		16		7		(4	)	-		-		19

Adjusted		(989	)	(1,252	)	(15	)	(7	)	-		(2,263	)

Operating expenses
Reported	15	(8,666	)	(3,423	)	(5,044	)	(831	)	(6,054	)	(20,581	)
Currency translation	15	260		92		149		(10	)	30		519
Significant items		1,065		150		219		41		566		2,041
- costs-to-achieve		198		163		69		16		462		908
- costs to establish UK ring-fenced bank		-		-		-		-		89		89
- disposal costs of Brazilian operations		66		16		14		1		13		110
- regulatory provisions in GPB		-		-		-		24		1		25
- settlements and provisions in connection with legal matters		350		-		155		-		-		505
- UK customer redress programmes		451		(29	)	(19	)	-		1		404

Adjusted	15	(7,341	)	(3,181	)	(4,676	)	(800	)	(5,458	)	(18,021	)

Share of profit in associates and joint ventures
Reported		202		796		239		7		1		1,245
Currency translation		(5	)	(21	)	(4	)	-		-		(30	)

Adjusted		197		775		235		7		1		1,215

Profit before tax
Reported		1,605		3,450		3,156		164		(3,136	)	5,239
Currency translation		(57	)	(135	)	(66	)	(9	)	12		(255	)
Significant items		1,414		167		163		34		399		2,177
- revenue		349		17		(56	)	(7	)	(167	)	136
- operating expenses		1,065		150		219		41		566		2,041

Adjusted		2,962		3,482		3,253		189		(2,725	)	7,161

For footnotes, see page 59.

HSBC HOLDINGS PLC

Other information (continued)

Footnotes to pages 2 to 58


1	Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within GB&M's net trading income as an interest expense. In the statutory presentation, internal interest income and expense are eliminated.


2	Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').


3	Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.


4	Net interest margin is net interest income expressed as an annualised percentage of AIEA.


5	Our operations in Brazil are classified as held for sale, with balance sheet accounts classified to 'assets held for sale' and 'liabilities of disposal groups held for sale'. There is no separate income statement classification.


6	Adjusted RoRWA is calculated using adjusted pre-tax return and adjusted average RWAs. RoRWAs are calculated using annualised PBT and an average of RWAs at quarter-year ends. A reconciliation between reported and adjusted performance is provided on page 53.


7	'Currency translation adjustment' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous period-end at the rates of exchange applicable at the current period-end.

The main items reported under 'Other' are the results of HSBC's holding company and financing operations, which include: net interest earned on free capital held centrally; operating costs incurred by the head office operations in providing stewardship and central management services to HSBC; costs incurred by the Group Service Centres and Shared Service Organisations, and their associated recoveries; the UK bank levy; unallocated investment activities; centrally held investment companies; gains arising from the dilution of interests in associates and joint ventures; and gains from certain property transactions. 'Other' also includes part of the movement in the fair value of long-term debt designated at fair value (the remainder of the Group's movement on own debt is included in GB&M).


9	Assets by geographical region and global businesses include intra-HSBC items. These items are eliminated under the headings 'Intra-HSBC items' or 'Inter-segment elimination', as appropriate.


10	The Principal RBWM business measure excludes the effects of the US run-off portfolio. We believe that looking at the Principal RBWM business allows management to more clearly discuss the cause of material changes from period to period in the ongoing business and to assess the factors and trends in the business that are expected to have a material effect in future years.


11	Other income/expense in this context comprises where applicable net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.


12	Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.


13	Loan impairment charges and other credit risk provisions.


14	Share of profit in associates and joint ventures.


15	Amounts are non-additive across geographical regions and global businesses due to inter-company transactions within the Group.

'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRSs basis, the offset to these tax credits is included within 'Other'.


17	'Client assets' are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet.

Inter-segment elimination comprises the costs of shared services and Group Service Centres included within 'Other' which are recovered from global businesses, and the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's 'Net trading income' on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column.


19	Net insurance claims and benefits paid and movement in liabilities to policyholders.


20	'Employee expenses' comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' category are shown in 'Other operating expenses'.


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


22	Excludes items where there are substantial offsets in the income statement for the same period.


23	'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.

HSBC HOLDINGS PLC

Risk



Risk

Areas of special interest	60
Credit risk	61
Liquidity and funding	75
Market risk	78
Operational risk	83
Reputational risk	84
Risk management of insurance operations	84

There have been no material changes to the policies and practices regarding risk management and governance described in the Annual Report and Accounts 2015.

A summary of our risk management policies and practices is provided in the Appendix to Risk on page 193 of the Annual Report and Accounts 2015.

Areas of special interest

During 1H16, we considered a number of particular areas because of the significant effect they may have on the Group. While some of these areas may have already been identified in our top and emerging risks (see page 16), further details of the actions taken in 1H16 are provided below.

The Monitor

Under the agreements entered into with the Department of Justice and the Financial Conduct Authority in 2012, including the five-year US deferred prosecution agreement, the Monitor was appointed to produce annual assessments of the effectiveness of the Group's anti-money laundering and sanctions compliance programme. The work of the Monitor is described on page 116 of the Annual Report and Accounts 2015.

We are working to implement the agreed recommendations flowing from the Monitor's reviews. The Monitor's third annual follow-up review is under way.

The 'US deferred prosecution agreement and related agreements and consent orders' is classified as a top and emerging risk, and is discussed on page 17.

Regulatory stress tests

The Group is participating in the Bank of England's 2016 concurrent stress test programme, which involves all major UK banks. The Bank of England will publish the results alongside the Financial Stability Report in the fourth quarter of 2016.

We also participated on a Group-wide basis in the European Banking Authority ('EBA') stress testing exercise. The results were published on 29 July 2016. Under the adverse scenario and methodology prescribed for this exercise, the Group maintained a ratio well above minimum regulatory requirements.

HSBC North America Holdings Inc. ('HNAH') participated in the 2016 Comprehensive Capital Analysis and Review ('CCAR') and Dodd-Frank Act Stress Testing ('DFAST') programmes of the Federal Reserve Board ('FRB'); HSBC Bank USA, N.A. participated in the 2016 DFAST programme of the

Office of the Comptroller of the Currency. Submissions were made on 5 April 2016 and the results of the FRB's DFAST process was disclosed on 23 June 2016. The results showed that HNAH had post-stress capital ratios which exceeded the regulatory minimums under both a supervisory adverse and severely adverse scenario. On 29 June 2016, the results of the CCAR process were announced and HNAH received a non-objection from the FRB to its 2016 capital plan.

Other entities in the Group, including The Hongkong and Shanghai Banking Corporation Limited, continue to participate in regional regulatory stress test activities.

A summary of our approach to stress testing and scenario analysis is provided on page 103 of the Annual Report and Accounts 2015.

The UK's referendum on EU membership

Following the UK electorate's vote to leave the European Union ('EU') in a national referendum, there has been a period of volatility against a backdrop of uncertainty, which is likely to continue for some time. We were aware of the potential for market disruption in the aftermath of a vote to leave the EU and took steps to plan for this outcome.

During 2015 and the first half of 2016, we undertook a number of different analyses including stress tests to consider the potential impact of a vote to leave the EU on capital positions, key portfolios, liquidity and our customers.

As the referendum approached, our priority was to ensure that we had adequate liquidity in each operating currency across all businesses. We also focused on operational and IT infrastructure resilience in anticipation of higher volumes and potential collateral calls immediately following the referendum. In addition, our global functions were engaged throughout and provided guidance on several issues including the standards of conduct to be maintained during a period of heightened volatility.

We are actively monitoring our portfolio to identify areas of stress, supported by stress testing analyses. Over the coming weeks and months, we intend to continue to work with regulators, governments and our customers in an effort to manage risks as they arise, particularly across those sectors most affected by the outcome. We will also continue to focus on serving and supporting our customers, and delivering on our strategy.

Negotiation of the UK's exit agreement, its future relationship with the EU and its trading relationship with the rest of the world will likely take a number of years to resolve. During this time, uncertainty as to the precise terms of these arrangements and the future legal and regulatory landscape may lead to uncertain economic conditions and market volatility. This may lead to reduced economic growth which could affect both HSBC and our clients.

Among other issues, changes to the UK's future relationship are likely to influence the business model for our London-based European cross-border banking operations, which currently rely on unrestricted access to the European financial services market.

Until the terms and timing of the UK's exit from the EU are confirmed, including the terms on which UK financial institutions will conduct cross-border business post-exit, it is not possible to fully determine the impact on HSBC.

HSBC HOLDINGS PLC

Risk (continued)

Oil and gas prices

Oil and commodity prices have remained low since the middle of 2014 as a result of existing global supply and demand imbalances, with significant price declines in late 2015 and early 2016. Prices rose during 1H16 reducing the level of stress in the portfolio. However the sector remains challenged with low levels of capital expenditure impacting the oil and gas services sector in particular.

The overall portfolio directly exposed to oil and gas had drawn risk exposures amounting to $31bn at 30 June 2016 (31 December 2015: $29bn) with sub-sectoral distributions as follows: integrated producers 48%, service companies 29%, pure producers 16% and infrastructure companies 7%.

The credit quality distribution of the oil and gas portfolio was as follows: 'strong' and 'good' categories made up 50% of the portfolio, 'satisfactory' 32%, 'sub-standard' 14% and 'impaired' 4%. The majority of the exposures were located in North America, Asia and Europe.

Individually assessed loan impairment charges in 1H16 remained contained at approximately $0.4bn.

The sector remains under enhanced monitoring with risk appetite and new lending significantly curtailed.

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, and also from certain other products such as guarantees and credit derivatives, and also from holding assets in the form of debt securities.

There have been no material changes to the policies and practices for the management of credit risk summarised in the Annual Report and Accounts 2015 in its 'Credit risk' section on page 118 and its Appendix to Risk on page 195.

Credit risk in the first half of 2016

An update on our oil and gas portfolio is provided in 'Areas of special interest' on page 61 of this Interim Report 2016.

Reported loans and advances declined by $36bn mainly due to foreign exchange effects reducing balances by $25bn.

Loan impairment charges for the period were $2.3bn. In wholesale lending, loan impairment charges were mainly in North America, Latin America and Europe. In retail lending, they consisted of impairments mainly in Brazil. More details of loan impairment charges are on page 27.

The commentary that follows is on a constant currency basis, while tables are presented on a reported basis. Information on currency movements is provided on page 72.

In wholesale lending, balances declined by $6.9bn. Significant net decreases included $3.5bn in North America, $2.2bn in Asia and $1.7bn in Europe.

In personal lending, balances decreased by $4.0bn, consisting of $5.9bn in North America partly offset by a $1.0bn increase in Europe.

Summary of credit risk



		30 Jun		31 Dec
		2016		2015
	Footnotes	$bn		$bn
At end of period
Maximum exposure to credit risk
- total assets subject to credit risk		2,444		2,234
- off-balance sheet commitments subject to credit risk	1	713		713

		3,157		2,947

Gross loans and advances
- personal lending		360		374
- wholesale lending		629		650

		989		1,024

Impaired loans
- personal lending		9		12
- wholesale lending		13		12

		22		24

Impaired loans as a % of gross loans and advances
- personal lending		2.5	%	3.1	%
- wholesale lending		2.0	%	1.9	%
- total		2.2	%	2.3	%

Impairment allowances		$bn		$bn
- personal lending		2.4		2.9
- wholesale lending		6.6		6.7

		9.0		9.6

Loans and advances net of impairment allowances		980		1,015



	30 Jun	30 Jun		31 Dec
	2016	2015		2015
	$bn	$bn		$bn
For the period ended
Loan impairment charges	2.3	1.5		2.1
- personal lending	1.1	0.9		0.9
- wholesale lending	1.2	0.6		1.2

Other credit risk provisions	0.1	(0.1	)	0.2

	2.4	1.4		2.3

For footnote, see page 87.

Loans and advances

The following table analyses loans and advances by industry sector, and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.

HSBC HOLDINGS PLC

Gross loans and advances by industry sector and by geographical region



		Europe		Asia		MENA		North America		Latin America		Total		As a % of total gross loans
	Footnotes	$m		$m		$m		$m		$m		$m		As a % of total gross loans
Personal		159,288		134,416		6,596		53,433		5,981		359,714		36.4
- first lien residential mortgages		115,637		96,304		2,372		45,687		1,976		261,976		26.5
- other personal		43,651		38,112		4,224		7,746		4,005		97,738		9.9

Wholesale
Corporate and commercial		179,089		203,162		21,988		63,347		11,373		478,959		48.4
- manufacturing		35,834		32,902		2,356		16,919		2,659		90,670		9.2
- international trade and services		59,069		68,347		9,616		11,549		2,637		151,218		15.3
- commercial real estate		23,268		31,505		606		8,077		1,266		64,722		6.5
- other property-related		7,637		34,987		1,654		9,448		441		54,167		5.5
- government		2,953		2,105		1,730		350		623		7,761		0.8
- other commercial	2	50,328		33,316		6,026		17,004		3,747		110,421		11.1

Financial		47,018		75,969		9,641		13,658		3,749		150,035		15.2
- non-bank financial institutions		30,522		16,466		2,472		7,615		761		57,836		5.9
- banks		16,496		59,503		7,169		6,043		2,988		92,199		9.3

Total wholesale		226,107		279,131		31,629		77,005		15,122		628,994		63.6

Total gross loans and advances at 30 Jun 2016		385,395		413,547		38,225		130,438		21,103		988,708		100.0

Percentage of total gross loans and advances		39.0	%	41.8	%	3.9	%	13.2	%	2.1	%	100.0	%

Personal		170,526		132,707		6,705		58,186		5,958		374,082		36.5
- first lien residential mortgages		125,544		94,606		2,258		50,117		1,986		274,511		26.8
- other personal		44,982		38,101		4,447		8,069		3,972		99,571		9.7

Wholesale
Corporate and commercial		191,765		211,224		22,268		62,882		11,374		499,513		48.8
- manufacturing		39,003		34,272		2,504		17,507		2,572		95,858		9.4
- international trade and services		62,667		72,199		9,552		11,505		3,096		159,019		15.5
- commercial real estate		26,256		32,371		690		7,032		1,577		67,926		6.7
- other property-related		7,323		35,206		1,908		8,982		45		53,464		5.2
- government		3,653		1,132		1,695		203		772		7,455		0.7
- other commercial	2	52,863		36,044		5,919		17,653		3,312		115,791		11.3

Financial		51,969		68,321		10,239		16,308		3,996		150,833		14.7
- non-bank financial institutions		33,621		13,969		2,321		9,822		681		60,414		5.9
- banks		18,348		54,352		7,918		6,486		3,315		90,419		8.8

Total wholesale		243,734		279,545		32,507		79,190		15,370		650,346		63.5

Total gross loans and advances at 31 Dec 2015		414,260		412,252		39,212		137,376		21,328		1,024,428		100.0

Percentage of total gross loans and advances		40.4	%	40.3	%	3.8	%	13.4	%	2.1	%	100.0	%

For footnote, see page 87.

HSBC HOLDINGS PLC

Risk (continued)

Assets held for sale

During 1H15, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' on the balance sheet. Although there was a reclassification on the balance sheet, there was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.

Loans and advances to banks and customers measured at amortised cost



	Total gross loans and advances	Impairment allowances on loans and advances
	$m	$m

As reported	988,708	(8,953	)
Reported in 'Assets held for sale'	28,265	(2,220	)

At 30 Jun 2016	1,016,973	(11,173	)

At 31 December 2015, the gross loans and advances and related impairment allowances of our Brazilian operations were $23bn and $1.4bn, respectively. Gross loans and advances increased by $4.1 bn, mainly as a result of foreign exchange movements.

Credit quality of financial instruments

We assess credit quality on all financial instruments which bear credit risk. The distribution of financial instruments by credit quality is tabulated below.

Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'



	Brazil		Other		Total
	$m		$m		$m
Gross loans
Loans and advances to customers	20,528		1,644		22,172
- personal	6,954		1,529		8,483
- corporate and commercial	13,574		115		13,689

Financial	6,093		-		6,093
- non-bank financial institutions	761		-		761
- banks	5,332		-		5,332


At 30 Jun 2016	26,621		1,644		28,265

Impairment allowances
Loans and advances to customers	(2,085	)	(135	)	(2,220	)
- personal	(977	)	(88	)	(1,065	)
- corporate and commercial	(1,108	)	(47	)	(1,155	)

Financial	-		-		-
- non-bank financial institutions	-		-		-
- banks	-		-		-


At 30 Jun 2016	(2,085	)	(135	)	(2,220	)

The table below analyses the amount of LICs arising from assets held for sale. They primarily relate to our Brazilian operations, which we sold on 1 July 2016.

Loan impairment charges and other credit risk provisions



		Total
		$m
LICs arising from:
- assets held for sale		748
- assets not held for sale		1,618

Half-year to 30 Jun 2016		2,366

Distribution of total financial instruments exposed to credit risk by credit quality



	Neither past due nor impaired
	Strong	Good	Satis-factory	Sub-standard	Past due but not impaired	Impaired	Total gross amount	Impairment allowances		Total
	$m	$m	$m	$m	$m	$m	$m	$m		$m

At 30 Jun 2016	1,729,146	342,205	312,992	31,302	12,575	27,001	2,455,221	(11,173	)	2,444,048
At 31 Dec 2015	1,553,830	331,141	293,178	26,199	13,030	28,058	2,245,436	(11,027	)	2,234,409

	%	%	%	%	%	%	%

At 30 Jun 2016	70.4	13.9	12.7	1.3	0.6	1.1	100.0
At 31 Dec 2015	69.2	14.7	13.1	1.2	0.6	1.2	100.0

The table above shows the credit quality distribution for all assets exposed to credit risk, including the balances relating to our Brazilian operations. The increase in 'strong' assets is mainly related to increases in cash and balances at central banks, trading assets and derivative assets as a result of the market volatility at the period-end.

Within the 'Past due but not impaired' amount at 30 June 2016, 99% was less than 90 days past due. This percentage was broadly unchanged compared with 31 December 2015.

HSBC HOLDINGS PLC

Distribution of loans and advances held at amortised cost by credit quality



		Neither past due nor impaired
		Strong	Good	Satis-factory	Sub-standard	Past due but not impaired	Impaired	Total gross amount	Impairment allowances		Total
	Footnotes	$m	$m	$m	$m	$m	$m	$m	$m		$m
At 30 Jun 2016
Loans and advances to customers	3	445,645	204,657	192,404	20,375	11,509	21,919	896,509	(8,953	)	887,556
- personal		301,138	26,959	15,338	839	6,274	9,166	359,714	(2,443	)	357,271
- corporate and commercial		112,296	162,277	168,020	19,140	4,757	12,469	478,959	(6,262	)	472,697
- non-bank financial institutions		32,211	15,421	9,046	396	478	284	57,836	(248	)	57,588

Loans and advances to banks		77,229	8,336	6,239	390	5	-	92,199	-		92,199

At 31 Dec 2015
Loans and advances to customers	3	472,691	214,152	194,393	16,836	12,179	23,758	934,009	(9,555	)	924,454
- personal		309,720	29,322	15,021	944	7,568	11,507	374,082	(2,879	)	371,203
- corporate and commercial		127,673	168,772	171,466	15,379	4,274	11,949	499,513	(6,435	)	493,078
- non-bank financial institutions		35,298	16,058	7,906	513	337	302	60,414	(241	)	60,173

Loans and advances to banks		73,226	11,929	4,836	407	1	20	90,419	(18	)	90,401

For footnote, see page 87.

This table shows loans and advances held at amortised cost by credit quality distribution.

Impaired loans

Impaired gross loans and advances to customers and banks by industry sector



	Impaired loans and advances at 30 Jun 2016			Impaired loans and advances at 31 Dec 2015
	Individually assessed	Collectively assessed	Total	Individually assessed	Collectively assessed	Total
	$m	$m	$m	$m	$m	$m

Customers	15,017	6,618	21,635	14,482	8,974	23,456
- personal	2,687	6,479	9,166	2,670	8,837	11,507
- corporate and commercial	12,330	139	12,469	11,812	137	11,949

Financial	284	-	284	321	1	322
- non-bank financial institutions	284	-	284	301	1	302
- banks	-	-	-	20	-	20


	15,301	6,618	21,919	14,803	8,975	23,778

On a reported basis, during 1H16 impaired gross loans and advances declined by $1.8bn. This was mainly due to a continued run-off of the US CML portfolio of $2.2bn.

Renegotiated loans and forbearance

The most significant portfolio of renegotiated loans remained in personal loans held by HSBC Finance Corporation ('HSBC Finance') in North America. On a reported basis, during 1H16, total renegotiated loans decreased by $5.9bn. The ongoing run-off and sales of the US CML portfolio reduced

renegotiated loans by $5.4bn. In Europe renegotiated loans reduced mainly as a result of foreign exchange effects.

The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.

HSBC HOLDINGS PLC

Risk (continued)

Renegotiated loans and advances to customers by geographical region



		Europe		Asia		MENA		North America		Latin America		Total
	Footnotes	$m		$m		$m		$m		$m		$m

First lien residential mortgages		1,333		62		34		5,498		31		6,958
- neither past due nor impaired		467		44		9		1,036		21		1,577
- past due but not impaired		160		5		-		627		3		795
- impaired		706		13		25		3,835		7		4,586

Other personal lending		300		288		19		912		34		1,553
- neither past due nor impaired		110		151		11		342		9		623
- past due but not impaired		49		14		1		152		1		217
- impaired		141		123		7		418		24		713

Corporate and commercial	4	4,528		739		1,369		980		390		8,006
- neither past due nor impaired		1,466		117		321		87		59		2,050
- past due but not impaired		93		1		60		-		2		156
- impaired		2,969		621		988		893		329		5,800

Non-bank financial institutions		276		1		271		-		-		548
- neither past due nor impaired		88		-		251		-		-		339
- past due but not impaired		-		-		17		-		-		17
- impaired		188		1		3		-		-		192


Renegotiated loans at 30 Jun 2016		6,437		1,090		1,693		7,390		455		17,065
- neither past due nor impaired		2,131		312		592		1,465		89		4,589
- past due but not impaired		302		20		78		779		6		1,185
- impaired		4,004		758		1,023		5,146		360		11,291


Renegotiated loans as % of total gross loans to customers		1.7	%	0.3	%	5.5	%	5.9	%	2.5	%	1.9	%
Impairment allowances on renegotiated loans		1,090		233		527		729		144		2,723



First lien residential mortgages		1,461	68	36	10,680	37	12,282
- neither past due nor impaired		512	47	11	3,376	27	3,973
- past due but not impaired		174	5	4	1,567	3	1,753
- impaired		775	16	21	5,737	7	6,556

Other personal lending		298	272	33	1,054	35	1,692
- neither past due nor impaired		131	141	24	410	10	716
- past due but not impaired		51	16	2	173	1	243
- impaired		116	115	7	471	24	733

Corporate and commercial	4	5,215	599	1,411	638	506	8,369
- neither past due nor impaired		1,467	119	343	93	130	2,152
- past due but not impaired		109	-	14	-	-	123
- impaired		3,639	480	1,054	545	376	6,094

Non-bank financial institutions		340	4	272	-	-	616
- neither past due nor impaired		143	-	248	-	-	391
- past due but not impaired		-	-	24	-	-	24
- impaired		197	4	-	-	-	201


Renegotiated loans at 31 Dec 2015		7,314	943	1,752	12,372	578	22,959
- neither past due nor impaired		2,253	307	626	3,879	167	7,232
- past due but not impaired		334	21	44	1,740	4	2,143
- impaired		4,727	615	1,082	6,753	407	13,584


Renegotiated loans as % of total gross loans to customers		1.8%	0.3%	5.6%	9.5%	3.2%	2.5%
Impairment allowances on renegotiated loans		1,402	193	575	1,014	155	3,339

For footnotes, see page 87.

HSBC HOLDINGS PLC

Loan impairment in the first half of 2016

Information in respect of loan impairment charges and other credit provisions is provided on page 27.

Loan impairment charge to the income statement by industry sector



		Europe		Asia		MENA		North America		Latin America		Total
	Footnotes	$m		$m		$m		$m		$m		$m

Personal		103		152		59		135		611		1,060
- first lien residential mortgages		(3	)	5		9		94		3		108
- other personal		106		147		50		41		608		952

Corporate and commercial		284		185		(24	)	472		290		1,207
- manufacturing and international trade and services		15		134		11		41		172		373
- commercial real estate and other property-related		17		(33	)	(8	)	2		22		-
- other commercial	2	252		84		(27	)	429		96		834

Financial		28		(2	)	(1	)	(9	)	-		16

Total loan impairment charge for the half-year to 30 Jun 2016		415		335		34		598		901		2,283

Personal		113		145		24		101		488		871
- first lien residential mortgages		(32	)	2		(7	)	68		33		64
- other personal		145		143		31		33		455		807

Corporate and commercial		214		97		21		50		216		598
- manufacturing and international trade and services		103		109		(11	)	9		175		385
- commercial real estate and other property-related		(10	)	13		25		1		17		46
- other commercial	2	121		(25	)	7		40		24		167

Financial		(6	)	-		(12	)	(3	)	(1	)	(22	)

Total loan impairment charge for the half-year to 30 Jun 2015		321		242		33		148		703		1,447

Personal		150		164		98		56		495		963
- first lien residential mortgages		25		(3	)	56		2		8		88
- other personal		125		167		42		54		487		875

Corporate and commercial		218		275		174		269		235		1,171
- manufacturing and international trade and services		55		141		118		17		130		461
- commercial real estate and other property-related		43		5		24		23		30		125
- other commercial	2	120		129		32		229		75		585

Financial		20		-		(6	)	(4	)	1		11

Total loan impairment charge for the half-year to 31 Dec 2015		388		439		266		321		731		2,145

For footnote, see page 87.

HSBC HOLDINGS PLC

Risk (continued)

Movement in impairment allowances on loans and advances to customers and banks



		Banks		Customers
	Footnotes	individually assessed		Individually assessed		Collectively assessed		Total
		$m		$m		$m		$m

At 1 Jan 2016		18		5,402		4,153		9,573
Amounts written off		(16	)	(992	)	(840	)	(1,848	)
Recoveries of loans and advances previously written off		-		44		296		340
Charge to income statement		(2	)	1,265		1,020		2,283
Exchange and other movements	5	-		(319	)	(1,076	)	(1,395	)

At 30 Jun 2016		-		5,400		3,553		8,953

Impairment allowances:
on loans and advances to customers				5,400		3,553		8,953
- personal				479		1,964		2,443
- corporate and commercial				4,727		1,535		6,262
- non-bank financial institutions				194		54		248

as a percentage of gross loans and advances		-	%	0.6	%	0.4	%	0.9	%
as a percentage of impaired gross loans and advances		-	%	35.3	%	53.7	%	40.8	%



At 1 Jan 2015		49		6,195		6,142		12,386
Amounts written off		-		(727	)	(1,463	)	(2,190	)
Recoveries of loans and advances previously written off		-		23		327		350
Charge to income statement		(8	)	488		967		1,447
Exchange and other movements	5	(3	)	(780	)	(1,432	)	(2,215	)

At 30 Jun 2015		38		5,199		4,541		9,778

Impairment allowances:
on loans and advances to customers				5,199		4,541		9,740
- personal				425		2,914		3,339
- corporate and commercial				4,587		1,540		6,127
- non-bank financial institutions				187		87		274

as a percentage of gross loans and advances		-	%	0.5	%	0.5	%	0.9	%
as a percentage of impaired gross loans and advances		86.4	%	36.8	%	41.3	%	38.8	%

At 1 Jul 2015		38		5,199		4,541		9,778
Amounts written off		-		(641	)	(1,363	)	(2,004	)
Recoveries of loans and advances previously written off		-		63		395		458
Charge to income statement		(3	)	1,028		1,120		2,145
Exchange and other movements	5	(17	)	(247	)	(540	)	(804	)

At 31 Dec 2015		18		5,402		4,153		9,573

Impairment allowances:
on loans and advances to customers				5,402		4,153		9,555
- personal				426		2,453		2,879
- corporate and commercial				4,800		1,635		6,435
- non-bank financial institutions				176		65		241

as a percentage of gross loans and advances		-	%	0.6	%	0.5	%	0.9	%
as a percentage of impaired gross loans and advances		90.0	%	36.5	%	46.3	%	40.2	%

For footnotes, see page 87.

HSBC HOLDINGS PLC

Risk (continued)

Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region



	Europe		Asia		MENA		North America		Latin America₆		Total₆
	%		%		%		%		%		%
Half-year to 30 Jun 2016
New allowances net of allowance releases	0.32		0.23		0.34		0.99		5.40		0.59
Recoveries	(0.08	)	(0.04	)	(0.09	)	(0.05	)	(0.42	)	(0.08	)

Total charge for impairment losses	0.24		0.19		0.25		0.94		4.98		0.51

Amount written off net of recoveries	0.32		0.12		0.99		0.48		1.40		0.33

Half-year to 30 Jun 2015
New allowances net of allowance releases	0.27		0.18		0.32		0.29		3.65		0.39
Recoveries	(0.09	)	(0.04	)	(0.11	)	(0.06	)	(0.30	)	(0.08	)

Total charge for impairment losses	0.18		0.14		0.21		0.23		3.35		0.31

Amount written off net of recoveries	0.22		0.09		1.67		0.57		3.19		0.40

Half-year to 31 Dec 2015
New allowances net of allowance releases	0.35		0.29		1.81		0.53		5.49		0.57
Recoveries	(0.13	)	(0.05	)	(0.10	)	(0.05	)	(0.57	)	(0.10	)

Total charge for impairment losses	0.22		0.24		1.71		0.48		4.92		0.47

Amount written off net of recoveries	0.29		0.15		0.31		0.32		3.31		0.34

HSBC HOLDINGS PLC

Risk (continued)

Wholesale lending

Wholesale lending covers the range of credit facilities

granted to sovereign borrowers, banks, non-bank financial institutions, corporate entities and commercial borrowers.

Total wholesale lending



		Europe	Asia	MENA	North America	Latin America	Total
	Footnotes	$m	$m	$m	$m	$m	$m

Corporate and commercial		179,089	203,162	21,988	63,347	11,373	478,959
- manufacturing		35,834	32,902	2,356	16,919	2,659	90,670
- international trade and services		59,069	68,347	9,616	11,549	2,637	151,218
- commercial real estate		23,268	31,505	606	8,077	1,266	64,722
- other property-related		7,637	34,987	1,654	9,448	441	54,167
- government		2,953	2,105	1,730	350	623	7,761
- other commercial	2	50,328	33,316	6,026	17,004	3,747	110,421

Financial		47,018	75,969	9,641	13,658	3,749	150,035
- non-bank financial institutions		30,522	16,466	2,472	7,615	761	57,836
- banks		16,496	59,503	7,169	6,043	2,988	92,199


Gross loans at 30 Jun 2016		226,107	279,131	31,629	77,005	15,122	628,994

Impairment allowances on wholesale lending
Corporate and commercial		2,494	1,345	1,034	1,059	330	6,262
- manufacturing		502	292	97	139	34	1,064
- international trade and services		578	638	434	101	36	1,787
- commercial real estate		538	12	145	76	110	881
- other property-related		184	32	214	47	70	547
- government		2	-	1	1	2	6
- other commercial		690	371	143	695	78	1,977

Financial		211	9	6	22	-	248
- non-bank financial institutions		211	9	6	22	-	248
- banks		-	-	-	-	-	-


Impairment allowances at 30 Jun 2016		2,705	1,354	1,040	1,081	330	6,510

Corporate and commercial		191,765	211,224	22,268	62,882	11,374	499,513
- manufacturing		39,003	34,272	2,504	17,507	2,572	95,858
- international trade and services		62,667	72,199	9,552	11,505	3,096	159,019
- commercial real estate		26,256	32,371	690	7,032	1,577	67,926
- other property-related		7,323	35,206	1,908	8,982	45	53,464
- government		3,653	1,132	1,695	203	772	7,455
- other commercial	2	52,863	36,044	5,919	17,653	3,312	115,791

Financial		51,969	68,321	10,239	16,308	3,996	150,833
- non-bank financial institutions		33,621	13,969	2,321	9,822	681	60,414
- banks		18,348	54,352	7,918	6,486	3,315	90,419


Gross loans at 31 Dec 2015		243,734	279,545	32,507	79,190	15,370	650,346

Impairment allowances on wholesale lending
Corporate and commercial		2,735	1,256	1,157	777	510	6,435
- manufacturing		528	254	135	140	49	1,106
- international trade and services		813	599	439	123	48	2,022
- commercial real estate		613	35	145	76	343	1,212
- other property-related		237	72	267	55	1	632
- government		6	-	-	-	2	8
- other commercial		538	296	171	383	67	1,455

Financial		194	13	22	30	-	259
- non-bank financial institutions		194	13	4	30	-	241
- banks		-	-	18	-	-	18


Impairment allowances at 31 Dec 2015		2,929	1,269	1,179	807	510	6,694

For footnote, see page 87.

HSBC HOLDINGS PLC

On a reported basis, gross loans decreased by $21bn, mainly due to foreign exchange movements of $14bn.

The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.

Wholesale lending decreased by $6.9bn in 1H16. In North America, it decreased by $3.5bn, primarily driven by a decline in the US in 'financial'.

In Asia, there was a decline of $2.2bn overall. This consisted of decreases across 'international trade and services', 'other commercial' and 'manufacturing' totalling $9.0bn, driven by the continuation of the slowdown in trade and maturity of term loans, partly offset by a $7.2bn increase in 'financial'.

In Europe, overall balances declined by $1.7bn. In 'corporate and commercial' there was an increase in lending of $8bn which was offset by a reduction of $8bn relating to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements between overdrafts and deposits.

Personal lending

We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes loans secured on assets such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.

Total personal lending



	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

First lien residential mortgages	115,637	96,304	2,372	45,687	1,976	261,976
Of which:
- interest only (including offset)	37,995	922	-	162	-	39,079
- affordability (including ARMs)	325	3,705	-	15,608	-	19,638

Other personal lending	43,651	38,112	4,224	7,746	4,005	97,738
- other	32,788	28,143	2,986	3,375	2,000	69,292
- credit cards	10,754	9,778	894	974	1,642	24,042
- second lien residential mortgages	105	30	2	3,367	-	3,504
- motor vehicle finance	4	161	342	30	363	900


Total gross loans at 30 Jun 2016	159,288	134,416	6,596	53,433	5,981	359,714

Impairment allowances on personal lending
First lien residential mortgages	250	33	70	594	18	965
Other personal lending	619	253	172	211	223	1,478
- other	359	129	141	30	104	763
- credit cards	260	123	25	32	116	556
- second lien residential mortgages	-	-	-	149	-	149
- motor vehicle finance	-	1	6	-	3	10


Total impairment allowances at 30 Jun 2016	869	286	242	805	241	2,443



First lien residential mortgages	125,544	94,606	2,258	50,117	1,986	274,511
Of which:
- interest only (including offset)	40,906	936	-	180	-	42,022
- affordability (including ARMs)	356	3,966	-	17,041	-	21,363

Other personal lending	44,982	38,101	4,447	8,069	3,972	99,571
- other	32,862	27,682	3,147	3,284	1,816	68,791
- credit cards	12,115	10,189	929	996	1,780	26,009
- second lien residential mortgages	-	33	2	3,762	-	3,797
- motor vehicle finance	5	197	369	27	376	974


Total gross loans at 31 Dec 2015	170,526	132,707	6,705	58,186	5,958	374,082

Impairment allowances on personal lending
First lien residential mortgages	278	29	24	991	22	1,344
Other personal lending	667	227	214	241	186	1,535
- other	401	104	180	31	80	796
- credit cards	265	122	29	30	102	548
- second lien residential mortgages	-	-	-	180	-	180
- motor vehicle finance	1	1	5	-	4	11


Total impairment allowances 31 Dec 2015	945	256	238	1,232	208	2,879

HSBC HOLDINGS PLC

Risk (continued)

On a reported basis, total personal lending reduced by $14bn, mainly due to adverse foreign exchange movements of $10bn and the ongoing run-off and sales of our US CML portfolio in North America of $6.7bn.

Loan impairment allowances reduced by $0.4bn, largely due to the reduction in our US CML run-off portfolio.

Loan impairment charges were $1.1bn for 1H16, $0.2bn more than 1H15 due largely to the deterioration of economic conditions in Brazil.

While the tables are presented on a reported basis, the commentary that follows is on a constant currency basis and excludes the effect of the ongoing run-off and sales of our US CML portfolio.

Total personal lending grew by $2.6bn compared with 31 December 2015, with mortgage balances increasing by $3.0bn, mainly in the UK which increased by $1.7bn reflecting the growth of the UK mortgage market in 1H16. There were increases in China of $1.0bn and Canada of $0.7bn, both as a result of business growth initiatives. The increase was partly offset by a $0.9bn reduction in Singapore following our decision to constrain the size of our mortgage portfolio in the country. In France there was a reclassification of $0.8bn from residential mortgages to commercial real estate.

The quality of both our Hong Kong and UK mortgage books remained high, with negligible defaults and impairment allowances. The average loan to value ('LTV') ratio on new mortgage lending in Hong Kong was 42% compared with an estimated 32% for the overall mortgage portfolio. The LTV ratio on new lending in the UK was 59% compared with the average of 41% for the total mortgage portfolio.

Other personal lending decreased by $0.4bn mainly due to a decrease in Switzerland of $1.3bn because of the continued repositioning of Global Private Banking. This was largely offset by a $1.9bn increase in France due to the

reclassification of certain portfolios, moving them from commercial real estate to other personal lending.

HSBC Finance

Residential mortgages, including second lien mortgages, decreased by $6.7bn to $12bn at 30 June 2016. In addition to the continued loan sales in the US CML run-off portfolio, we transferred a further $5.9bn to 'Assets held for sale' during 1H16, and these loans were mainly sold in April, May and July 2016. The average gain on sale of foreclosed properties that arose after we took title to the property was 1%.

The decrease in impairment allowances from $1.0bn at 31 December 2015 to $0.6bn at 30 June 2016 reflected reduced levels of delinquency and lower newly impaired loans and loan balances outstanding as a result of continued sale and liquidation of the portfolio.

Across the first and second lien residential mortgages in our US CML run-off portfolio, two-months-and-over delinquent balances reduced by $0.1bn to $1.0bn during 1H16, reflecting the continued portfolio run-off and loan sales.

Renegotiated real estate secured accounts in HSBC Finance reduced by $5.4bn or 50% and represented 82% at 30 June 2016 (31 December 2015: 91%) of our total renegotiated loans in North America, of which $3.2bn were classified as impaired (31 December 2015: $5.1bn). During 1H16, the aggregate number of renegotiated loans in HSBC Finance reduced due to portfolio run-off and further loan sales in the US CML portfolio.

HSBC Bank USA

In HSBC Bank USA, mortgage balances of $18bn at 30 June 2016 were broadly unchanged compared with 31 December 2015 with normal run-off being replaced with new originations. We continued to sell all new originations classed as agency-eligible in the secondary market.

Supplementary information

Gross loans and advances by industry sector



		31 Dec 2015	Currency effect		Movement		30 Jun 2016
	Footnotes	$m	$m		$m		$m

Personal		374,082	(10,339	)	(4,029	)	359,714
- first lien residential mortgages		274,511	(9,206	)	(3,329	)	261,976
- other personal		99,571	(1,133	)	(700	)	97,738

Corporate and commercial		499,513	(11,023	)	(9,531	)	478,959
- manufacturing		95,858	(2,400	)	(2,788	)	90,670
- international trade and services		159,019	(3,466	)	(4,335	)	151,218
- commercial real estate		67,926	(1,344	)	(1,860	)	64,722
- other property-related		53,464	(391	)	1,094		54,167
- government		7,455	(151	)	457		7,761
- other commercial	2	115,791	(3,271	)	(2,099	)	110,421

Financial		150,833	(3,392	)	2,594		150,035
- non-bank financial institutions		60,414	(2,685	)	107		57,836
- banks		90,419	(707	)	2,487		92,199


Total gross loans and advances		1,024,428	(24,754	)	(10,966	)	988,708

Impaired loans and advances to customers		23,758	(560	)	(1,279	)	21,919
Impairment allowances on loans and advances to customers		9,555	(193	)	(409	)	8,953

For footnote, see page 87.

HSBC HOLDINGS PLC

The currency effect on personal lending gross loans and advances of $10bn was made up as follows: Europe $12bn, Asia $(1.2)bn and North America $(1.2)bn. The currency effect on wholesale lending gross loans and advances of

$(14)bn was made up as follows: Europe $(16)bn, Asia $1.8bn, North America $1.3bn, Latin America $(1.0)bn and Middle East and North Africa $(0.5)bn.

Impaired loans and allowances by geographical region - reconciliation of reported and constant currency changes



	31 Dec 2015 as reported	Currency translation adjustment₇		31 Dec 2015 at 30 Jun 2016 exchange rates	Movement on a constant currency basis		30 Jun 2016 as reported	Reported change₇		Constant currency change₇
	$m	$m		$m	$m		$m	%		%
Impaired loans
Europe	9,677	(542	)	9,135	(61	)	9,074	(6.2	)	(0.7	)
Asia	2,375	45		2,420	344		2,764	16.4		14.2
Middle East and North Africa	1,766	(25	)	1,741	(55	)	1,686	(4.5	)	(3.2	)
North America	8,930	27		8,957	(1,341	)	7,616	(14.7	)	(15.0	)
Latin America	1,030	(65	)	965	(186	)	779	(24.4	)	(19.3	)

	23,778	(560	)	23,218	(1,299	)	21,919	(7.8	)	(5.6	)

Impairment allowances
Europe	3,869	(176	)	3,693	(119	)	3,574	(7.6	)	(3.2	)
Asia	1,525	19		1,544	96		1,640	7.5		6.2
Middle East and North Africa	1,418	(15	)	1,403	(121	)	1,282	(9.6	)	(8.6	)
North America	2,041	26		2,067	(181	)	1,886	(7.6	)	(8.8	)
Latin America	720	(47	)	673	(102	)	571	(20.7	)	(15.2	)

	9,573	(193	)	9,380	(427	)	8,953	(6.5	)	(4.6	)

For footnote, see page 87.

HSBC HOLDINGS PLC

Risk (continued)

Gross loans and advances to customers by country



	First lien residential mortgages $m	Other personal $m	Property- related $m	Commercial, international trade and other $m		Total $m
Europe	115,637	43,651	30,905		178,706	368,899
- UK	108,049	18,903	23,649		134,074	284,675
- France	2,871	14,267	5,417		21,631	44,186
- Germany	2	197	446		9,468	10,113
- Switzerland	614	6,903	127		826	8,470
- other	4,101	3,381	1,266		12,707	21,455

Asia	96,304	38,112	66,492		153,136	354,044
- Hong Kong	61,221	24,103	49,082		79,831	214,237
- Australia	9,905	753	1,869		6,519	19,046
- India	1,284	390	689		6,579	8,942
- Indonesia	60	342	71		4,816	5,289
- Mainland China	6,591	1,358	5,795		21,451	35,195
- Malaysia	3,039	3,372	1,973		4,251	12,635
- Singapore	7,252	5,715	3,466		9,939	26,372
- Taiwan	3,972	678	81		4,267	8,998
- other	2,980	1,401	3,466		15,483	23,330

Middle East and North Africa (excluding Saudi Arabia)	2,372	4,224	2,260		22,200	31,056
- Egypt	1	514	83		2,091	2,689
- UAE	1,955	2,074	1,736		13,872	19,637
- other	416	1,636	441		6,237	8,730

North America	45,687	7,746	17,525		53,437	124,395
- US	28,277	4,418	12,492		39,324	84,511
- Canada	16,121	3,116	4,760		13,408	37,405
- other	1,289	212	273		705	2,479

Latin America	1,976	4,005	1,707		10,427	18,115
- Mexico	1,864	2,930	1,595		7,936	14,325
- other	112	1,075	112		2,491	3,790


At 30 Jun 2016	261,976	97,738	118,889		417,906	896,509

Europe	125,544	44,982	33,579		191,807	395,912
- UK	117,346	20,797	25,700		149,327	313,170
- France	3,606	12,130	6,070		20,380	42,186
- Germany	4	203	347		7,941	8,495
- Switzerland	511	8,045	224		834	9,614
- other	4,077	3,807	1,238		13,325	22,447

Asia	94,606	38,101	67,577		157,616	357,900
- Hong Kong	60,943	24,389	50,825		80,609	216,766
- Australia	9,297	726	1,592		6,448	18,063
- India	1,248	431	637		5,728	8,044
- Indonesia	56	346	71		4,965	5,438
- Mainland China	5,716	1,645	6,185		23,703	37,249
- Malaysia	2,792	3,113	1,993		4,947	12,845
- Singapore	7,743	5,392	3,334		11,021	27,490
- Taiwan	3,866	629	126		5,291	9,912
- other	2,945	1,430	2,814		14,904	22,093

Middle East and North Africa (excluding Saudi Arabia)	2,258	4,447	2,598		21,991	31,294
- Egypt	1	549	104		2,097	2,751
- UAE	1,854	2,286	1,833		14,199	20,172
- other	403	1,612	661		5,695	8,371

North America	50,117	8,069	16,014		56,690	130,890
- US	34,382	4,813	11,435		42,439	93,069
- Canada	14,418	3,029	4,315		13,490	35,252
- other	1,317	227	264		761	2,569

Latin America	1,986	3,972	1,622		10,433	18,013
- Mexico	1,881	2,828	1,498		7,844	14,051
- other	105	1,144	124		2,589	3,962


At 31 Dec 2015	274,511	99,571	121,390		438,537	934,009

HSBC HOLDINGS PLC

Securitisation exposures and other structured products

The following table summarises the carrying amount of our asset-backed securities ('ABSs') exposure by categories of collateral. It includes assets held in the GB&M legacy credit portfolio with a carrying value of $13bn (31 December 2015: $15bn).

At 30 June 2016, the available-for-sale reserve in respect of ABSs was a deficit of $713m (31 December 2015: $1,021m). For 2016, the impairment write-back in respect of ABSs was $17m (31 December 2015: $85m).

Carrying amount of HSBC's consolidated holdings of ABSs



	Trading	Available for sale	Held to maturity	Designated at fair value through profit or loss	Loans and receivables	Total	Of which held through consolidated structured entities
	$m	$m	$m	$m	$m	$m	$m

Mortgage-related assets	1,414	20,594	13,198	-	424	35,630	3,566
- sub-prime residential	67	1,828	-	-	115	2,010	727
- US Alt-A residential	-	1,688	6	-	47	1,741	1,576
- US Government agency and sponsored enterprises: MBSs	163	14,831	13,192	-	-	28,186	-
- other residential	708	578	-	-	92	1,378	187
- commercial property	476	1,669	-	-	170	2,315	1,076

Leveraged finance-related assets	204	1,814	-	-	134	2,152	932
Student loan-related assets	146	2,853	-	-	18	3,017	2,576
Other assets	1,173	787	-	36	65	2,061	458

At 30 Jun 2016	2,937	26,048	13,198	36	641	42,860	7,532

Mortgage-related assets	1,641	22,406	14,004	1	496	38,548	4,780
- sub-prime residential	73	2,247	-	1	132	2,453	1,075
- US Alt-A residential	-	1,989	7	-	55	2,051	1,796
- US Government agency and sponsored enterprises: MBSs	166	15,082	13,997	-	-	29,245	-
- other residential	812	780	-	-	108	1,700	253
- commercial property	590	2,308	-	-	201	3,099	1,656

Leveraged finance-related assets	240	2,294	-	-	149	2,683	1,310
Student loan-related assets	236	2,991	-	-	25	3,252	2,679
Other assets	1,184	880	-	23	128	2,215	565

At 31 Dec 2015	3,301	28,571	14,004	24	798	46,698	9,334

HSBC HOLDINGS PLC

Risk (continued)

Liquidity and funding

Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. The risk arises from mismatches in the timing of cash flows.

Funding risk is the risk that funding considered to be sustainable, and therefore used to fund assets, is not sustainable over time. The risk arises when the funding needed for illiquid asset positions cannot be obtained at the expected terms and when required.

This section supersedes the information included in the Annual Report and Accounts 2015 from pages 154 to 165.

Our liquidity and funding risk management framework

The objective of the Group's internal liquidity and funding risk framework ('LFRF') is to allow it to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.

The Group does not manage liquidity risk and funding risk centrally on a Group consolidated basis. They are managed by operating entity on a standalone basis with no implicit reliance assumed on any other Group entity unless pre-committed.

All operating entities are required to manage liquidity and funding risks in accordance with the LFRF.

On 1 January 2016, the Group introduced a new LFRF. It uses the liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR') regulatory framework as a foundation, but adds extra metrics, limits and overlays to address the risks that we consider are not adequately reflected by the regulatory framework.

The LFRF is delivered using the following key aspects:


•	stand-alone management of liquidity and funding by operating entity;


•	operating entity classification by inherent liquidity risk ('ILR') categorisation;


•	minimum LCR requirement depending on ILR categorisation;


•	minimum NSFR requirement depending on ILR categorisation;


•	legal entity depositor concentration limit;


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


•	annual individual liquidity adequacy assessment ('ILAA') by principal operating entity;


•	minimum LCR requirement by currency;


•	intra-day liquidity; and


•	forward-looking funding assessments.

The new internal LFRF and the risk tolerance limits have been approved by the Board on the basis of recommendations made by the Group Risk Committee, and the metrics below are being disclosed for the first time following the implementation of the new LFRF. There are therefore no comparatives.

Our ILAA process aims to:


•	identify risks that are not reflected in the LFRF and, where required, to assess additional limits to be required locally; and


•	validate the risk tolerance at the operating entity level by demonstrating that reverse stress testing scenarios are acceptably remote and that vulnerabilities have been assessed through the use of severe stress scenarios.

Liquidity and funding in the first half of 2016

The liquidity position of the Group remained strong in 1H16. Our liquidity coverage ratio was 137% with unencumbered liquid assets of $474bn.

Management of liquidity and funding risk

Liquidity coverage ratio

The LCR metric is designed to promote the short-term resilience of a bank's liquidity profile, and became a minimum regulatory standard from 1 October 2015, under EC Delegated Regulation 2015/61.

It aims to ensure that a bank has sufficient unencumbered high-quality liquid assets ('HQLA') to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLAs consist of cash or assets that can be converted into cash at little or no loss of value in markets.

The calculation of the LCR metric involves two key assumptions about the definition of operational deposits and the ability to transfer liquidity from non-EU legal entities.


•	We define operational deposits as transactional (current) accounts arising from the provision of custody services by HSBC Security Services and Global Liquidity and Cash Management, where the operational component is assessed to be the lower of the current balance and the separate notional values of debits and credits across the account in the previous calculation period.


•	We assume no transferability of liquidity from non-EU entities other than to the extent currently permitted. This results in $108bn of HQLA being excluded from the Group's LCR.

On the basis of these assumptions, we reported to the UK's Prudential Regulation Authority ('PRA') a Group EC LCR at 30 June 2016 of 137%.

The ratio of total consolidated HQLAs to the EC LCR denominator at 30 June 2016 was 169%, reflecting the additional $108bn of HQLAs excluded from the Group LCR.

The liquidity position of the Group can also be represented by the stand-alone ratios of each of our principal operating entities. The Board and the Risk Management Meeting of the Group Management Board declare the initial criterion for categorising an operating entity as a principal entity is based on its material balance sheet size.

The table below displays the individual LCR levels for our principal operating entities on an EC LCR Delegated Regulation basis. The ratios shown for operating entities in non-EU jurisdictions can vary from their local LCR measures due to differences in the way non-EU regulators have implemented the Basel III recommendations.

HSBC HOLDINGS PLC

Operating entities' LCRs



	Footnotes	At 30 Jun 2016
		%
HSBC UK liquidity group	8	126
The Hongkong and Shanghai Banking Corporation - Hong Kong Branch	9	198
The Hongkong and Shanghai Banking Corporation - Singapore Branch	9	206
HSBC Bank USA		113
HSBC France		134
Hang Seng Bank		246
HSBC Bank Canada		143
HSBC Bank China		180
HSBC Middle East - UAE branch		251
HSBC Mexico		166
HSBC Private Bank		188

For footnotes, see page 87.

At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.

Net stable funding ratio

The NSFR requires institutions to maintain sufficient stable funding relative to required stable funding, and reflects a bank's long-term funding profile (funding with a term of more than a year). It is designed to complement the LCR.

The European calibration of NSFR is pending following the Basel Committee's final recommendation in October 2014. We calculate NSFR in line with the relevant text (Basel Committee on Banking Supervision publication 295), pending its implementation in Europe. This calculation requires various interpretations of the text as it stands, and therefore HSBC's NSFR may not be directly comparable with the ratios of other institutions.

The table below displays the individual NSFR levels for the principal HSBC operating entities on a BCBS295 basis.

Operating entities' NSFRs



	Footnotes	At 30 Jun 2016
		%
HSBC UK liquidity group	8	118
The Hongkong and Shanghai Banking Corporation - Hong Kong Branch	9	164
The Hongkong and Shanghai Banking Corporation - Singapore Branch	9	120
HSBC Bank USA		115
HSBC France		117
Hang Seng Bank		161
HSBC Bank Canada		137
HSBC Bank China		146
HSBC Middle East - UAE Branch		141
HSBC Mexico		127
HSBC Private Bank		149

For footnotes, see page 87.

At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.

Depositor Concentration and Term Funding Maturity Concentration

The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within each deposit segment. The validity of these assumptions is challenged if the underlying depositors do not represent a large enough portfolio so that a depositor concentration exists.

Operating entities are exposed to term re-financing concentration risk if the current maturity profile results in future maturities being overly concentrated in any defined period.

At 30 June 2016, all principal operating entities were within the risk tolerance levels set for depositor concentration and term funding maturity concentration. These risk tolerances were established by the Board and are applicable under the LFRF.

Liquid assets of HSBC's principal operating entities

The table below shows the unweighted liquidity value of assets categorised as liquid and used for the purposes of calculating the LCR metric.

The level of liquid assets reported reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets.

Liquid assets are held and managed on a stand-alone operating entity basis. Most of the liquid assets shown are held directly by each operating entity's Balance Sheet Management ('BSM') department, primarily for the purpose of managing liquidity risk, in line with the LFRF.

The liquid asset buffer may also include securities held in held-to-maturity portfolios. In order to qualify as part of the liquid asset buffer, all held-to-maturity portfolios must have a deep and liquid repo market in the underlying security.

Liquid assets also include any unencumbered liquid asset held outside BSM for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.

HSBC HOLDINGS PLC

Risk (continued)

Liquid assets of HSBC's principal entities



		Recognised at 30 Jun 2016 at:
	Footnotes	Group and entity level	entity level only
		$m	$m
HSBC UK liquidity group	8
Level 1		164,116	164,116
Level 2a		4,145	4,145
Level 2b		932	932

		169,193	169,193

The Hongkong and Shanghai Banking Corporation - Hong Kong Branch	9
Level 1		67,885	123,349
Level 2a		7,169	7,169
Level 2b		3,283	3,283

		78,337	133,801

Hang Seng Bank
Level 1		18,485	35,702
Level 2a		1,862	1,862
Level 2b		207	207

		20,554	37,771

HSBC Bank USA
Level 1		57,320	66,455
Level 2a		13,100	13,100
Level 2b		4	4

		70,424	79,559

Total of HSBC's other principal entities	10
Level 1		73,363	87,046
Level 2a		6,741	6,741
Level 2b		214	214

		80,318	94,001

For footnotes, see page 87.

Sources of funding

Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.

The level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed into liquid assets, cash and balances with central banks and financial investments, as required by the LFRF.

Loans and other advances to banks continued to exceed deposits by banks.

HSBC HOLDINGS PLC

Consolidated funding sources and uses



	At
	30 Jun	31 Dec
	2016	2015
	$m	$m
Sources
Customer accounts	1,290,958	1,289,586

Deposits by banks	69,900	54,371

Repurchase agreements - non-trading	98,342	80,400

Debt securities in issue	87,673	88,949

Liabilities of disposal groups held for sale	43,705	36,840

Subordinated liabilities	21,669	22,702

Financial liabilities designated at fair value	78,882	66,408

Liabilities under insurance contracts	73,416	69,938

Trading liabilities	188,698	141,614
- repos	957	442
- stock lending	8,487	8,859
- settlement accounts	36,173	10,530
- other trading liabilities	143,081	121,783

Total equity	198,297	197,518

	2,151,540	2,048,326



	At
	30 Jun	31 Dec
	2016	2015
	$m	$m
Uses
Loans and advances to customers	887,556	924,454

Loans and advances to banks	92,199	90,401

Reverse repurchase agreements - non-trading	187,826	146,255
Assets held for sale	50,305	43,900

Trading assets	280,295	224,837
- reverse repos	3,634	438
- stock borrowing	11,278	7,118
- settlement accounts	40,092	12,127
- other trading assets	225,291	205,154

Financial investments	441,399	428,955

Cash and balances with central banks	128,272	98,934

Net deployment in other balance sheet assets and liabilities	83,688	90,590

	2,151,540	2,048,326

Market risk

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.

There were no material changes to the policies and practices for the management of market risk described in the Annual Report and Accounts 2015.

A summary of our market risk management framework including current policies is provided on page 221 of the Annual Report and Accounts 2015.

Market risk in the first half of 2016

Global markets were influenced by the change in outlook for future rate rises in the US. Yields in major economies fell, with the stock of government debt trading at negative yields increasing substantially.

In China, concerns about a slowdown in the economy led to concerns about a further depreciation of the renminbi.

Towards the end of the reporting period, volatility increased substantially due to the referendum decision in the UK to leave the European Union.

Trading value at risk ('VaR'), before the effects of portfolio diversification benefits, increased. Overall, it decreased slightly to 30 June after including the effects of portfolio diversification benefits. Non-trading VaR increased slightly during 1H16.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR predominantly resides within Global Markets. The VaR for trading activity at 30 June 2016 was slightly lower than at 31 December 2015 due primarily to declines in equity and credit spread trading VaR components largely offset by increases in interest rate and foreign exchange trading VaR components, and an increase in portfolio diversification benefits.

The Group trading VaR for the half-year is shown in the table on the next page.

HSBC HOLDINGS PLC

This information is provided by RNS

The company news service from the London Stock Exchange

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